OREANDA-NEWS. Phillips 66 (NYSE: PSX), an energy manufacturing and logistics company, announces fourth-quarter earnings of USD 826 million, compared with earnings of USD 708 million in the fourth quarter of 2012. Adjusted earnings were USD 808 million, compared with USD 1.3 billion in the same period last year.

"Throughout 2013, we maintained our focus on operating excellence, safety and environmental stewardship. We ran well during the fourth quarter, allowing us to capitalize on favorable crude differentials while exporting a record volume of refined products. Also during the quarter, our board of directors approved an additional USD 2.0 billion of share repurchases and increased the dividend by 25 percent," said Greg Garland, chairman and CEO of Phillips 66.

"In addition, we strengthened our balance sheet by repaying debt and announced our 2014 capital program, with approximately 70 percent directed to midstream and chemicals opportunities. As we look ahead, our integrated asset portfolio combined with the capabilities of our people uniquely position Phillips 66 for growth in the changing energy landscape," said Garland.

Midstream

Midstream earnings were USD 121 million in the fourth quarter of 2013, compared with earnings of USD 92 million and adjusted earnings of USD 71 million in the same period last year.

Phillips 66’s Transportation business generated earnings of USD 50 million during the fourth quarter of 2013. In the same period of 2012, Transportation recorded earnings of USD 35 million and adjusted earnings of USD 14 million. The USD 36 million increase from the prior year's adjusted earnings was primarily attributable to higher throughput fees and volumes.

Fourth-quarter earnings related to the company’s equity investment in DCP Midstream were USD 37 million, compared with USD 38 million in the same period last year. This slight decrease was due to weather-related impacts and increased costs, which were mostly offset by higher prices.

Earnings from NGL Operations and Other were USD 34 million during the quarter, USD 15 million higher than in the fourth quarter of 2012. The increase was primarily related to improved margins and inventory impacts.

Chemicals

The Chemicals segment reflects Phillips 66's investment in Chevron Phillips Chemical Company (CPChem). Fourth-quarter Chemicals earnings were USD 261 million, an increase of USD 15 million from the same period last year.

Improved earnings from CPChem's Olefins and Polyolefins (O&P) were primarily due to increased polyethylene margins, equity earnings and ethylene volumes, partially offset by higher costs. Global utilization for O&P was 95 percent during the quarter.

CPChem's Specialties, Aromatics and Styrenics were adversely impacted by benzene margins and costs related to a planned turnaround in the fourth quarter of 2013.

Equity earnings from joint ventures within CPChem contributed USD 90 million to Phillips 66’s pre-tax Chemicals earnings during the fourth quarter, USD 30 million more than in the same period last year. The increase was largely a result of improved operations at Saudi Polymers Company.

Refining

Refining recorded fourth-quarter earnings of USD 450 million, compared with earnings of USD 363 million and adjusted earnings of USD 960 million in the same period last year. The decrease from the prior year's adjusted earnings was primarily due to lower margins in all regions except the Gulf Coast. Margins were negatively impacted by weaker worldwide market crack spreads; however, this was partially offset by improved market capture compared with the same period last year.

During the quarter, 94 percent of the company’s U.S. crude slate was advantaged, compared with 67 percent in the same period last year. The increase was largely due to additional domestic crudes consistently trading at a discount to Brent. Refining also processed 257,000 barrels per day of tight oil, an increase of 111,000 barrels per day compared with the fourth quarter of 2012, as well as higher volumes of heavy Canadian crudes.

Compared with the third quarter of 2013, Refining's market capture increased to 112 percent from 46 percent. The company benefited from improved clean product differentials, primarily due to exports from the Gulf Coast region and seasonal gasoline blending. In addition, widening crude spreads increased earnings, particularly in the Central Corridor region.

Worldwide, Phillips 66’s refining utilization was 92 percent and clean product yield was 84 percent in the fourth quarter.

Marketing and Specialties (M&S)

Fourth-quarter earnings for M&S were USD 73 million, compared with earnings of USD 113 million in the same period last year. This decrease was primarily due to the sale of the U.K. power generation business completed in July of 2013 and lower marketing margins, partially offset by reduced costs and higher volumes. Weaker marketing margins were mostly attributable to rising product prices in the United States.

M&S sales volumes improved in the fourth quarter of 2013 compared with the same period last year. Worldwide marketing volumes increased by 19,000 barrels per day. Refined product exports totaled 197,000 barrels per day in the fourth quarter, up from 149,000 barrels per day in the same period last year.

Reported earnings for Phillips 66’s Specialties businesses were USD 23 million, excluding discontinued operations. Compared with the same period last year, this was a decrease of USD 7 million primarily reflecting lower margins.

As previously announced, the company plans to exchange PSPI for shares of Phillips 66 common stock. Following regulatory review, the transaction is expected to close in the first half of 2014. Certain prior period amounts have been recast to reflect PSPI as Discontinued Operations.

Corporate and Other

Corporate and Other costs were USD 97 million after-tax for the quarter, compared with USD 120 million of costs and USD 92 million of adjusted costs in the fourth quarter of 2012.

Discontinued Operations

Discontinued Operations represents PSPI. Earnings in the fourth quarter of 2013 were USD 18 million, compared with USD 14 million in the same period last year.

Financial Position, Liquidity and Return of Capital

During the quarter, Phillips 66 generated USD 865 million of cash from continuing operations. Excluding changes in working capital, operating cash flow from continuing operations was USD 1.3 billion. The company also funded USD 623 million in capital expenditures and investments.

In the fourth quarter, Phillips 66 returned USD 876 million of capital to shareholders. The company paid USD 232 million in dividends and repurchased 9.9 million shares of common stock totaling USD 644 million.

Full-Year Financial Results

Phillips 66's full-year 2013 earnings were USD 3.7 billion or USD 6.02 per share. This compares with USD 4.1 billion or USD 6.48 per share in 2012. Full-year adjusted earnings were USD 3.6 billion or USD 5.89 per share in 2013, compared with USD 5.3 billion or USD 8.38 per share in 2012.

The company generated USD 5.9 billion in cash from continuing operations during 2013. Excluding changes in working capital, operating cash flow from continuing operations was USD 5.1 billion. Phillips 66 funded USD 1.8 billion in capital expenditures and investments and repaid the outstanding USD 1.0 billion of its amortizing three-year term loan.

During 2013, the company paid USD 807 million in dividends, and repurchased 36.5 million shares of common stock totaling USD 2.2 billion.

Phillips 66 ended the year with USD 6.2 billion of debt and USD 5.4 billion of cash and cash equivalents, including USD 425 million held by Phillips 66 Partners. The company’s debt-to-capital ratio was 22 percent and return on capital employed was 14 percent.

Strategic Initiatives

Phillips 66 is growing its Midstream and Chemicals segments, while enhancing returns in Refining. As previously announced, the company is implementing this strategy through its planned USD 4.6 billion 2014 capital program, including its share of joint venture capital spending of USD 1.9 billion.

In Midstream, as previously announced, the company is advancing development of a 100,000 barrel-per-day natural gas liquids (NGL) fractionator to be located in Old Ocean, Texas. Phillips 66 also expects to build a liquefied petroleum gas (LPG) terminal in Freeport, Texas, to help meet growing global demand. Final investment decisions for these projects will be submitted for board approval during the first quarter of 2014. The company will also seek growth opportunities through Phillips 66 Partners (NYSE: PSXP).

By the end of the fourth quarter, the company’s Transportation business had taken delivery of all 2,000 railcars it ordered in 2012. The new railcars are being used to transport advantaged crude to Phillips 66 refineries. The company successfully completed an open-season for the Cross-Channel Connector project, which will include reactivating an idled pipeline to connect refineries and storage terminals on the south side of the Houston Ship Channel with pipeline systems on the north side.

During the fourth quarter of 2013, DCP Midstream Partners' joint venture, Texas Express Pipeline, began operations. The approximately 580-mile pipeline will transport NGL from Skellytown, Texas, to Mont Belvieu, Texas. The 435-mile Front Range Pipeline joint venture is expected to start up in the first quarter of 2014 and will extend from the Denver-Julesburg Basin to transport NGL to Skellytown. Additionally, the 200 million-cubic-feet-per-day Goliad Plant in the Eagle Ford and the expansion of the O'Connor Plant to 160 million cubic feet per day in the Denver-Julesburg Basin are anticipated to start up in 2014.

CPChem is investing in domestic growth projects to realize the benefits of low-cost petrochemical feedstocks on the U.S. Gulf Coast (USGC). During the quarter, CPChem received board approval for the USGC Petrochemicals Project consisting of a 3.3 billion-pound-per-year ethane cracker and related polyethylene facilities. CPChem also completed a study to expand normal alpha olefins capacity at its Cedar Bayou plant in Baytown, Texas, and will proceed with engineering plans. Also in 2013, CPChem's Sweeny Facility expanded its fractionator capacity by 22,000 barrels per day, or 19 percent. Additionally, the 1-hexene facility at Cedar Bayou is anticipated to start up during the first half of 2014.

Phillips 66 continues to enhance returns in Refining by both expanding access to advantaged feedstocks and optimizing the mix within its advantaged crude slate. Recently, the company began shipping Eagle Ford crude to the Sweeny Refinery on a third-party pipeline. Construction continued on crude-by-rail offloading facilities at the Bayway and Ferndale refineries, both of which are expected to be operational in the second half of 2014. The company also reached agreements with several third-party logistics companies to deliver additional advantaged crude to its refineries.

In order to maintain strong refinery utilization rates, the company is expanding its refined product export capability. By the end of the fourth quarter, the company had completed projects at several U.S. coastal refineries to increase total export capacity in excess of 400,000 barrels per day from 285,000 barrels per day in 2012. Over the next several years, Phillips 66 expects to increase its export capability to more than 500,000 barrels per day.

As previously announced, Phillips 66 formed a strategic joint development agreement with Sapphire Energy, Inc. to advance commercialization of algae crude oil. The companies will work together to collect and analyze data from co-processing of algae and conventional crude oil into fuels.

In the fourth quarter, Phillips 66’s board of directors approved USD 2.0 billion of additional share repurchases for total authorizations of USD 5.0 billion. Since the share repurchase program was initiated in the third quarter of 2012 through the end of December 2013, the company has repurchased 44.1 million shares of common stock for USD 2.6 billion, representing 7 percent of shares outstanding at the time Phillips 66 became a stand-alone company. This resulted in 590 million shares outstanding at the end of 2013. In addition to the ongoing share repurchase program, a further reduction of outstanding shares will result from the planned PSPI exchange.