May 2, 2021 [Pulse News] – Phillips 66 (NYSE: PSX), a diversified energy manufacturing and logistics company, announces a first-quarter 2021 loss of $654 million, compared with a loss of $539 million in the fourth quarter of 2020.
Excluding special items of $145 million, the company had an adjusted loss of $509 million in the first quarter, compared with a fourth-quarter adjusted loss of $507 million.
“Our first-quarter results reflect the impact of severe winter storms in the Central and Gulf Coast regions, as well as the ongoing COVID-19 pandemic,” said Greg Garland, Chairman and CEO of Phillips 66. “We realized lower utilization and higher costs across our businesses. We safely resumed operations following storm-related downtime and performed multiple turnarounds in the first quarter. We are proud of our employees and their commitment to operating excellence, particularly during these challenging times.
“We continued to execute our strategy despite these challenges. Earlier this month we commenced renewable diesel production at the San Francisco Refinery with the completion of the diesel hydrotreater conversion. Additionally, the South Texas Gateway Terminal was completed, and we advanced construction of the C2G Pipeline. We also published our inaugural Human Capital Management Report, which provides a comprehensive look at our approach to building a high-performing organization.
“We remain committed to a secure, competitive and growing dividend. In the first quarter, we paid $394 million in dividends to shareholders and repaid $500 million of debt. We will continue to take a disciplined approach to capital allocation, including debt repayment, as cash flow recovers.”
Midstream first-quarter 2021 pre-tax income was $76 million, compared with $223 million in the fourth quarter of 2020. Midstream results in the first quarter included a $198 million impairment resulting from Phillips 66 Partners’ decision to exit the Liberty Pipeline project, as well as $2 million in maintenance and repair costs resulting from the winter storms. Fourth-quarter results included $96 million of impairments related to Phillips 66 Partners’ investments in two crude oil logistics joint ventures, $3 million of hurricane-related costs and $1 million of pension settlement expense.
Transportation first-quarter adjusted pre-tax income of $206 million was $10 million higher than the fourth quarter. The increase was primarily due to lower operating costs and higher equity earnings, partially offset by decreased volumes.
NGL and Other adjusted pre-tax income was $36 million in the first quarter, compared with $86 million in the fourth quarter. The decrease was mainly due to higher operating costs resulting from the winter storms.
The company’s equity investment in DCP Midstream, LLC generated first-quarter adjusted pre-tax income of $34 million, a $7 million decrease from the prior quarter, resulting from the winter storms.
The Chemicals segment reflects Phillips 66’s equity investment in Chevron Phillips Chemical Company LLC (CPChem). Chemicals first-quarter 2021 pre-tax income was $154 million, compared with $193 million in the fourth quarter of 2020. Chemicals results in the first quarter included a reduction to equity earnings of $30 million for maintenance and repair costs resulting from the winter storms. Fourth-quarter results included a reduction to equity earnings of $21 million for pension settlement expense and $1 million of hurricane-related costs, partially offset by a $12 million benefit from lower-of-cost-or-market inventory adjustments.
CPChem’s Olefins and Polyolefins (O&P) business contributed $174 million of adjusted pre-tax income in the first quarter, compared with $216 million in the fourth quarter. The $42 million decrease was primarily due to winter storm impacts, which resulted in decreased production and higher utility costs. These items were partially offset by higher margins primarily due to tight supplies, low inventory levels and continued strong demand. Global O&P utilization was 79% for the quarter.
CPChem’s Specialties, Aromatics and Styrenics (SA&S) business contributed first-quarter adjusted pre-tax income of $27 million, compared with $13 million in the fourth quarter. The increase primarily reflects improved margins.
Refining had a first-quarter 2021 pre-tax loss of $1.0 billion, compared with a pre-tax loss of $1.1 billion in the fourth quarter of 2020. First-quarter results included $14 million of maintenance and repair costs resulting from the winter storms. Fourth-quarter results included $22 million of hurricane-related costs and $3 million of pension settlement expense, partially offset by $6 million of favorable U.K. R&D credits.
Refining had an adjusted pre-tax loss of $1.0 billion in the first quarter, compared with an adjusted pre-tax loss of $1.1 billion in the fourth quarter. Higher realized margins in the first quarter were largely offset by increased turnaround costs, as well as higher utilities resulting from the winter storms. First-quarter realized margins were $4.36 per barrel, up from $2.18 in the prior quarter, due to an increase in market crack spreads and the sale of electricity to help meet demand in the Texas market, partially offset by lower product differentials and higher RIN costs.
Pre-tax turnaround costs for the first quarter were $192 million, compared with fourth-quarter costs of $76 million. Crude utilization rate was 74% in the first quarter, up from 69% in the fourth quarter. Clean product yield was 82% in the first quarter.
Marketing and Specialties
Marketing and Specialties (M&S) first-quarter 2021 pre-tax income was $290 million, compared with $232 million in the fourth quarter of 2020. Fourth-quarter results included a $14 million benefit to equity earnings from a lower-of-cost-or-market inventory adjustment, partially offset by $2 million of hurricane-related costs and $1 million of pension settlement expense.
Adjusted pre-tax income for Marketing and Other was $211 million in the first quarter, an increase of $30 million from the fourth quarter. The increase was due to higher domestic margins, partially offset by lower international margins. Refined product exports in the first quarter were 204,000 barrels per day (BPD).
Specialties generated first-quarter adjusted pre-tax income of $79 million, up from $40 million in the fourth quarter, largely due to improved base oil and finished lubricant margins.
Corporate and Other
Corporate and Other first-quarter 2021 pre-tax costs were $251 million, compared with pre-tax costs of $226 million in the fourth quarter of 2020. Fourth-quarter pre-tax costs included a $9 million gain on an asset sale.
The $16 million increase in Corporate and Other adjusted pre-tax costs in the first quarter was mainly driven by timing of charitable contributions and environmental expenses, as well as lower capitalized interest.
Financial Position, Liquidity and Return of Capital
Phillips 66 generated $271 million in cash from operations in the first quarter of 2021, including $502 million of cash distributions from equity affiliates. Excluding working capital impacts, operating cash flow was $173 million.
During the quarter, Phillips 66 funded $331 million of capital expenditures and investments and paid $394 million in dividends. The company also repaid $500 million of floating rate senior notes upon maturity.
As of March 31, 2021, Phillips 66 had $6.7 billion of liquidity, reflecting $1.4 billion of cash and cash equivalents and approximately $5.3 billion of total committed capacity under revolving credit facilities. Consolidated debt was $15.4 billion at March 31, 2021, including $3.9 billion at Phillips 66 Partners (PSXP). The company’s consolidated debt-to-capital ratio was 43% and its net debt-to-capital ratio was 41%. Excluding PSXP, the debt-to-capital ratio was 39% and the net debt-to-capital ratio was 36%.
The South Texas Gateway Terminal commissioned additional storage capacity, bringing total capacity to 8.6 million barrels and marking completion of the final construction phase. The marine export terminal has two deepwater docks with up to 800,000 BPD of export capacity. Phillips 66 Partners owns a 25% interest in the terminal.
Phillips 66 Partners continued construction of the C2G Pipeline, a 16 inch ethane pipeline that will connect its Clemens Caverns storage facility to petrochemical facilities in Gregory, Texas, near Corpus Christi, Texas. The project is backed by long-term commitments and is expected to be completed in mid-2021.
At the Sweeny Hub, Phillips 66 plans to resume construction of the fourth fractionator in the second half of 2021. Upon completion of the 150,000-BPD Frac 4, the Sweeny Hub will have 550,000 BPD of fractionation capacity. The fractionators are supported by long-term customer commitments.
In Chemicals, CPChem and Qatar Petroleum are jointly pursuing development of petrochemical facilities on the U.S. Gulf Coast and in Ras Laffan, Qatar. CPChem is closely monitoring economic developments and expects a final investment decision for its U.S. Gulf Coast project in 2022.
CPChem is advancing optimization and debottlenecking opportunities. This includes approved projects at its Cedar Bayou facility in Baytown, Texas, that will increase production capacity of ethylene and polyethylene. In addition, CPChem is pursuing expansion of its normal alpha olefins capacity.
Phillips 66 is advancing its plans at the San Francisco Refinery in Rodeo, California, to meet the growing demand for renewable fuels. In April, the company completed its diesel hydrotreater conversion, which will ramp up to 8,000 BPD (120 million gallons per year) of renewable diesel production by the third quarter of 2021. Subject to permitting and approvals, full conversion of the refinery is expected in early 2024. Upon completion, the facility will have over 50,000 BPD (800 million gallons per year) of renewable fuel production capacity. The conversion is expected to reduce the facility’s greenhouse gas emissions by 50% and help California meet its lower-carbon objectives.
Phillips 66 is increasing its focus on lower-carbon initiatives across the company, including the creation of an Emerging Energy group early this year and ongoing research in its Energy Research and Innovation organization. New initiatives this year include:
An investment in Shell Rock Soy Processing, a joint venture that plans to construct a new soybean-processing facility in Iowa. The project is expected to be completed in late 2022. The company will purchase 100% of the soybean oil production.
A memorandum of understanding with Southwest Airlines to commercialize sustainable aviation fuel.
A technical collaboration with Faradion, a leader in sodium-ion battery technology, to develop lower-cost and higher-performing anode materials for sodium-ion batteries.
Six Phillips 66 refineries were recognized by the American Fuel and Petrochemical Manufacturers (AFPM) for exemplary 2020 safety performance, including the Lake Charles, Ponca City and Santa Maria refineries, which received Distinguished Safety Awards. This is the highest annual safety award the industry recognizes and the fifth year in a row that the company’s refineries have received this recognition.
In Midstream, Phillips 66 was awarded the American Petroleum Institute (API) Distinguished Pipeline Safety Award for Large Operators. This is the highest recognition by API for the midstream industry.
In Chemicals, AFPM selected CPChem’s Conroe, Orange and Port Arthur facilities as recipients of the Elite Silver Safety Award for exemplary 2020 safety performance.
Later today, members of Phillips 66 executive management will host a webcast at noon EDT to discuss the company’s first-quarter performance and provide an update on strategic initiatives.
About Phillips 66
Phillips 66 is a diversified energy manufacturing and logistics company. With a portfolio of Midstream, Chemicals, Refining, and Marketing and Specialties businesses, the company processes, transports, stores and markets fuels and products globally. Phillips 66 Partners, the company’s master limited partnership, is integral to the portfolio. Headquartered in Houston, the company has 14,200 employees committed to safety and operating excellence. Phillips 66 had $55 billion of assets as of March 31, 2021.
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