May 03, 2019 [Global Banking & Finance] – Phillips 66 (NYSE: PSX), a diversified energy manufacturing and logistics company, announces first-quarter 2019 earnings of $204 million, compared with $2.2 billion in the fourth quarter of 2018. Excluding special items of $17 million in the first quarter of 2019, adjusted earnings were $187 million, compared with fourth-quarter 2018 adjusted earnings of $2.3 billion.
Our first-quarter results reflect the benefit of our diversified portfolio despite a weak market environment, said Greg Garland, chairman and CEO of Phillips 66. In Chemicals, CPChem operated at 98% O&P utilization, and in Midstream, we had strong operating performance across our NGL value chain. We executed major turnaround activities at several refineries and were impacted by unplanned downtime. We returned $708 million to shareholders through dividends and share repurchases in the quarter. We continued to advance our major growth projects, including the Gray Oak Pipeline and the new Sweeny fractionators.
We are dedicated to operating excellence and maintaining safe and reliable operations. We have a strong portfolio of growth projects and are focused on executing our capital program. Disciplined capital allocation is fundamental to our strategy, and we will invest in opportunities with attractive returns, while returning capital to shareholders through dividends and share buybacks.
Midstream first-quarter 2019 pre-tax income was $316 million, compared with $379 million in the fourth quarter of 2018. Midstream results in the fourth quarter of 2018 included a $28 million impact to equity earnings from asset impairments at DCP Midstream, as well as $2 million of pension settlement expense.
Transportation first-quarter 2019 adjusted pre-tax income of $203 million was $31 million lower than fourth-quarter 2018 adjusted pre-tax income of $234 million, mainly reflecting lower pipeline and terminal throughput volumes, driven by seasonal refinery turnaround activities, as well as lower equity affiliate earnings.
NGL and Other adjusted pre-tax income for the first quarter of 2019 was $90 million, a $32 million decrease from the fourth quarter of 2018, primarily due to fourth-quarter inventory impacts.
The companys equity investment in DCP Midstream generated adjusted pre-tax income of $23 million in the first quarter of 2019, compared with $53 million in the fourth quarter of 2018. The decrease reflects higher fourth-quarter hedging results from falling crude and natural gas liquid (NGL) prices, partially offset by lower operating costs.
Phillips 66 Partners is constructing the 900,000 BPD Gray Oak Pipeline, which is anticipated to be in service by the end of 2019. The pipeline will provide crude oil transportation from the Permian and Eagle Ford to destinations in Corpus Christi, Texas, and the Sweeny, Texas, area, including the company’s Sweeny Refinery. Phillips 66 Partners has a 42.25% ownership in the pipeline.
The Gray Oak Pipeline will connect to multiple terminals in Corpus Christi, including the South Texas Gateway Terminal currently being constructed by Buckeye Partners, L.P. The marine export terminal will have two deepwater docks, with initial storage capacity of 7 million barrels and up to 800,000 BPD of throughput capacity. Phillips 66 Partners owns a 25% interest in the terminal, which is expected to start up by mid-2020.
At the Sweeny Hub, the company is constructing two 150,000 BPD NGL fractionators and associated pipeline infrastructure, and Phillips 66 Partners is adding 6 million barrels of storage capacity at Clemens Caverns. Upon completion of the expansion, expected in the fourth quarter of 2020, the Sweeny Hub will have 400,000 BPD of fractionation capacity and 15 million barrels of storage at Clemens Caverns.
The company is constructing 2.2 million barrels of additional crude oil storage at its Beaumont Terminal. Upon completion in the first quarter of 2020, the terminal will have 16.8 million barrels of total crude and product storage capacity.
During the quarter, the Bayou Bridge Pipeline segment from Lake Charles, Louisiana, to St. James, Louisiana, was completed. The pipeline now transports crude oil from Nederland, Texas, to St. James. Phillips 66 Partners owns a 40% interest in the pipeline joint venture. In addition, Phillips 66 Partners continues to advance the ACE Pipeline System, which would provide crude oil transportation from St. James to destinations in Southeast Louisiana, including the company’s Alliance Refinery.
DCP Midstream has a 25% interest in the Gulf Coast Express Pipeline project to transport approximately 2 billion cubic feet per day of natural gas from the Permian to Gulf Coast markets. The project is anticipated to be completed in the fourth quarter of 2019. DCP Midstream is adding gas processing capacity in the DJ Basin with the construction of the OConnor 2 plant, which is expected to be completed at the end of the second quarter of 2019.
In Chemicals, CPChems new ethane cracker at Cedar Bayou continues to operate above original design capacity. Effective January 1, 2019, the capacity was increased to 1.7 million metric tons per year, 15% above original design. CPChem is developing a second U.S. Gulf Coast project that would add world-scale ethylene and derivative capacity. CPChem also continues to evaluate additional low-cost, high-return debottleneck opportunities.
CPChem has a study underway to add a world-scale 1-Hexene unit, which would expand production of normal alpha olefins (NAO). 1-Hexene is a critical component used to produce high-strength polyethylene products.
In Refining, Phillips 66 is upgrading the fluid catalytic cracking unit (FCC) at the Sweeny Refinery to increase production of higher-value petrochemical products and higher-octane gasoline. The project is anticipated to be completed in the second quarter of 2020. Phillips 66 Partners is constructing a 25,000 BPD isomerization unit at the Lake Charles Refinery to increase production of higher-octane gasoline blend components. The project is expected to be completed in the third quarter of 2019.
The company has a portfolio of renewable fuel projects under development that leverage existing infrastructure. Waste fats, recycled cooking oils and other renewable feedstocks will be used for diesel production. The company has projects at the Humber and Ferndale refineries, as well as supply and offtake agreements with third-party facilities in Nevada. Renewable fuel opportunities are also being evaluated at the companys California refineries.
In Marketing, the company continues its program to roll out updated signature image designs for Phillips 66, 76 and Conoco branded sites. During the first quarter, over 300 domestic sites were re-imaged. Since the programs inception in 2015, approximately 2,900 U.S. sites have been re-imaged.
Six Phillips 66 refineries were recognized by the American Fuel and Petrochemical Manufacturers (AFPM) for exemplary safety performance in 2018. The Ponca City Refinery received the Distinguished Safety Award. This is the highest annual safety award the industry recognizes, and the third year in a row that one of the company’s refineries has received this recognition. The Ferndale and Los Angeles refineries received the second-highest recognition, the Elite Gold Award. The Billings and Borger refineries, as well as the San Francisco Refinerys Santa Maria site, were selected as recipients of the Elite Silver Award, which recognizes the industry’s top 5% for safety performance.
In Chemicals, the AFPM selected five CPChem facilities as recipients of their Elite Silver Award. The facilities recognized were Cedar Bayou, Conroe, Pasadena, Port Arthur and Sweeny. In Midstream, Phillips 66 and DCP Midstream received first place company awards in their respective divisions from the Gas Processors Association for outstanding safety performance in 2018.
The Chemicals segment reflects Phillips 66s equity investment in Chevron Phillips Chemical Company LLC (CPChem). Chemicals first-quarter 2019 pre-tax income was $227 million, compared with $152 million in the fourth quarter of 2018.
CPChems Olefins and Polyolefins (O&P) business contributed $219 million of adjusted pre-tax income in the first quarter of 2019, compared with $158 million in the fourth quarter of 2018. The increase mainly reflects lower turnaround and maintenance costs and higher polyethylene sales volumes, partially offset by lower margins. Global O&P utilization was 98%.
CPChems Specialties, Aromatics and Styrenics (SA&S) business contributed $26 million of adjusted pre-tax income in the first quarter of 2019, an increase of $10 million from the prior quarter. The increase primarily reflects higher earnings from international equity affiliates due to improved volumes and margins.
Refining had a first-quarter 2019 pre-tax loss of $198 million, compared with pre-tax income of $2 billion in the fourth quarter of 2018. Refining results in the first quarter of 2019 included $21 million of claim settlements. Fourth-quarter 2018 results included pension settlement expense of $11 million, as well as $4 million of favorable U.K. R&D expenditure credits.
Refining had an adjusted pre-tax loss of $219 million in the first quarter of 2019, compared with adjusted pre-tax income of $2 billion in the fourth quarter of 2018. The decrease was a result of a decline in realized margins, as well as lower volumes due to maintenance activity and unplanned downtime. Realized margins were down 56% to $7.23 per barrel in the first quarter, driven by narrowing of inland crude differentials, primarily Canadian crude, and lower clean product realizations.
Phillips 66s worldwide crude utilization rate was 84%, down from 99% in the fourth quarter of 2018. Pre-tax turnaround costs for the first quarter of 2019 were $148 million, compared with fourth-quarter 2018 costs of $130 million. Clean product yield was 85% in the first quarter.