Refining, Midstream Strength Boosts P66 Quarterly Profit Estimates (2024)

Refiner Phillips 66 (PSX.N) beat quarterly profit estimates on Wednesday, helped by strong refining margins and gains from its midstream unit, sending its shares up 2.6% to an all-time high of $146.11. The company's market capture - a measure of refining profit compared with industry benchmarks - jumped to 107% in the fourth quarter from 66% in the third quarter. The improvement was a positive development after pressure from activist investor Elliott Investment Management over operating expenses and lagging refining performance.

Rivals Valero Energy (VLO.N) and Marathon Petroleum (MPC.N) have also topped Wall Street's expectations with stronger-than-expected margins. Adjusted earnings from Phillips' midstream unit climbed to $754 million, along with a rise in the volumes of natural gas liquids, and it achieved record liquefied petroleum gas exports. However, some of the gains in the segment also reflect deferred revenue related to throughput and deficiency agreements, the company said.

Earnings from the chemicals segment more than doubled, to $106 million, and Phillips said refineries' crude utilization increased to 92% in the fourth quarter. For the first quarter, the company said its eight wholly-owned and two joint-venture refineries' crude oil utilization would be in the low 90%-range of their combined capacity of 1.9 million barrels per day. The first quarter is forecast to be one of heavy maintenance by U.S. refiners following two years of high levels of operations.

TD Cowen analysts said the earnings beat was expected, while some of it was due to midstream benefits that may not all repeat. The company's working capital inflow was modest, resulting in no reductions in net debt sequentially, they said. Realized margins fell to $14.41 per barrel in the fourth quarter, from $19.73 a year earlier, due to a decline in fuel prices. The drop in prices was offset by inventory hedging, higher Gulf Coast clean product realizations and strong commercial sales.

Houston-based Phillips reported adjusted earnings of $3.09 per share, compared with analysts' average estimate of $2.35 per share, according to LSEG data. The company plans to spend between $110 million and $130 million on refinery unit overhauls in the first quarter.

Phillips 66 expects a renewable diesel plant in Rodeo, California, to reach full production by the end of the second quarter of 2024, said Richard Harbison, executive vice president of refining, on Wednesday. The company is converting its 120,200 bpd Rodeo crude oil refinery into a renewable diesel producer. Phillips 66 plans to stop processing crude oil at the Rodeo site in February.

Chief Executive Mark Lashier may have announcements about asset sales in the second quarter.

"We are in some active discussions as we speak," Lashier said. "There's a number of processes underway that we can't comment on. But all I'd say is leave it there to that we'll have more comments likely at our first-quarter earnings call."

Lashier said in October that Phillips wanted to sell $3 billion in non-core assets.

(Reporting by Sourasis Bose; Additional reporting by Erwin Seba; Editing by Sriraj Kalluvila, Pooja Desai and Leslie Adler)

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