Phillips 66 Reports Fourth-Quarter 2020 Financial Results

Source: www.gulfoilandgas.com 1/29/2021, Location: North America

Fourth Quarter
- Reported a fourth-quarter loss of $539 million or $1.23 per share; adjusted loss of $507 million or $1.16 per share

- Generated operating cash flow of $639 million

- Completed Sweeny Hub Phase 2 expansion and the fourth dock at Beaumont Terminal

- Commissioned second dock and additional storage at South Texas Gateway Terminal

- Operated at 101% O&P utilization in Chemicals

- Announced 2021 capital budget of $1.7 billion, including Phillips 66 Partners

Full-Year 2020
- Achieved record safety and environmental performance

- Generated $2.1 billion of operating cash flow

- Responded rapidly to COVID-19 conditions; exceeded $500 million cost and $700 million capital reduction targets

- Completed major growth projects, including Gray Oak Pipeline and Sweeny Hub Phase 2 expansion

- Announced San Francisco Refinery conversion into renewable fuels facility

Phillips 66 (PSX), a diversified energy manufacturing and logistics company, announces a fourth-quarter 2020 loss of $539 million, compared with a loss of $799 million in the third quarter of 2020. Excluding special items of $32 million, the company had an adjusted loss of $507 million in the fourth quarter, compared with a third-quarter adjusted loss of $1 million.

“2020 was a year of unprecedented challenges,” said Greg Garland, chairman and CEO of Phillips 66. “We took early, decisive steps to reduce costs and capital spending, secure additional liquidity and suspend share repurchases. These actions, combined with cash flow generation from our diversified portfolio, provided us with financial flexibility to maintain our strong investment grade credit ratings and sustain the dividend. We are focused on the health and safety of our employees, their families and our communities as we deliver products that are essential to the global economy.

“During the year, we reached major Midstream growth project milestones. We completed the Gray Oak Pipeline, our largest pipeline project to date. Gray Oak connects to the South Texas Gateway Terminal, which began crude oil export operations across two new docks. At the Sweeny Hub, we finished the Phase 2 expansion, adding two fractionators and storage capacity at Clemens Caverns. At Beaumont, the fourth dock began operations, and 2.2 million barrels of crude oil storage were placed into service.

“CPChem polyethylene sales volumes set a new record in 2020, meeting global consumer demand, including for food packaging and medical supplies. In Refining, we announced the Rodeo Renewed project to meet the growing demand for renewable energy. Marketing and Specialties reported one of its strongest financial performances.

“In 2020, our employees delivered exceptional operating performance, achieving record results in personal safety, process safety and environmental performance. We also advanced our digital transformation efforts, fostered innovation across our company and implemented new technologies, including digital systems for work processes and artificial intelligence to predict maintenance requirements and optimize processing unit performance.

“Looking ahead, we are optimistic about the impact of the COVID-19 vaccines on the economic recovery, as well as opportunities for value creation across our portfolio, including investments in a lower-carbon future. We remain committed to disciplined capital allocation and a strong balance sheet.”

Midstream
Midstream fourth-quarter pre-tax income was $223 million, compared with $146 million in the third quarter. Midstream results in the fourth quarter included $96 million of impairments related to Phillips 66 Partners’ investments in two crude oil logistics joint ventures, as well as $3 million of hurricane-related costs and $1 million of pension settlement expense. Third-quarter results included a $120 million impairment of pipeline and terminal assets related to the planned conversion of the San Francisco Refinery to a renewable fuels facility, an $84 million impairment related to the cancellation of the Red Oak Pipeline project, $3 million of pension settlement expense and $1 million of hurricane-related costs.

Transportation fourth-quarter adjusted pre-tax income of $196 million was $6 million lower than the third quarter. The decrease was primarily due to lower pipeline and terminal volumes, driven by decreased refinery utilization, partially offset by higher equity earnings from improved Bakken Pipeline volumes.

NGL and Other adjusted pre-tax income was $86 million in the fourth quarter, compared with $102 million in the third quarter. The decrease was mainly due to lower equity earnings, as well as reduced propane and butane trading results, partially offset by higher fractionation volumes, reflecting the ramp-up of Sweeny Fracs 2 and 3.

The company’s equity investment in DCP Midstream, LLC generated fourth-quarter adjusted pre-tax income of $41 million, a $9 million decrease from the prior quarter, mainly reflecting lower Sand Hills Pipeline equity earnings and timing of maintenance costs.

Chemicals
The Chemicals segment reflects Phillips 66’s equity investment in Chevron Phillips Chemical Company LLC (CPChem). Chemicals’ fourth-quarter 2020 pre-tax income was $193 million, compared with $231 million in the third quarter of 2020. Chemicals results in the fourth quarter included reductions 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. Third-quarter results included a $101 million benefit to equity earnings from lower-of-cost-or-market inventory adjustments, partially offset by $2 million of hurricane-related costs.

CPChem’s Olefins and Polyolefins (O&P) business contributed $216 million of adjusted pre-tax income in the fourth quarter of 2020, compared with $148 million in the third quarter. The $68 million increase was primarily due to higher polyethylene margins, partially offset by higher turnaround and maintenance costs. Global O&P utilization was 101% for the quarter.

CPChem’s Specialties, Aromatics and Styrenics (SA&S) business contributed fourth-quarter adjusted pre-tax income of $13 million, compared with $5 million in the third quarter. The increase primarily reflects higher earnings from international equity affiliates due to improved margins.

Refining
Refining had a fourth-quarter pre-tax loss of $1.1 billion, compared with a pre-tax loss of $1.9 billion in the third quarter. Refining results in the fourth quarter 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. Third-quarter results included a $910 million impairment related to the planned conversion of the San Francisco Refinery to a renewable fuels facility, $12 million of pension settlement expense and $11 million of hurricane-related costs.

Refining had an adjusted pre-tax loss of $1.1 billion in the fourth quarter of 2020, compared with an adjusted pre-tax loss of $970 million in the third quarter of 2020. Both periods reflect the continued impact of challenging market conditions. The decreased results in the fourth quarter were largely driven by higher turnaround and maintenance activity.

Pre-tax turnaround costs for the fourth quarter were $76 million, compared with third-quarter costs of $41 million. Phillips 66’s worldwide crude utilization rate was 69% in the fourth quarter, down from 77% in the third quarter. Clean product yield was 86% in the fourth quarter.

Marketing and Specialties
Marketing and Specialties (M&S) fourth-quarter pre-tax income was $232 million, compared with $415 million in the third quarter of 2020. M&S results in the fourth quarter 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. Third-quarter results included hurricane-related costs of $1 million and pension settlement expense of $1 million.

Adjusted pre-tax income for Marketing and Other was $181 million in the fourth quarter of 2020, a decrease of $185 million from the third quarter of 2020. The decrease was due to lower realized margins, largely reflecting the impact of rising prices during the quarter, as well as reduced volumes, driven by COVID-19-related demand impacts. Refined product exports in the fourth quarter were 103,000 barrels per day (BPD).

Specialties generated fourth-quarter adjusted pre-tax income of $40 million, down from $51 million in the third quarter, largely due to lower finished lubricant margins.

Corporate and Other
Corporate and Other fourth-quarter pre-tax costs were $226 million, compared with pre-tax costs of $239 million in the third quarter. Pre-tax costs in the fourth quarter included a $9 million gain on an asset sale. Third-quarter pre-tax costs included a $25 million asset impairment and $1 million of pension settlement expense.

The $22 million increase in Corporate and Other adjusted pre-tax costs in the fourth quarter was mainly driven by lower capitalized interest and higher employee-related expenses.

Financial Position, Liquidity and Return of Capital

Phillips 66 generated $639 million in cash from operations during the fourth quarter, including $400 million of cash distributions from equity affiliates. Excluding working capital impacts, operating cash flow was $236 million. The company issued $1.75 billion of senior notes and repaid $500 million of its term loan in the quarter.

During the quarter, Phillips 66 funded $506 million of capital expenditures and investments and $393 million in dividends.

As of Dec. 31, 2020, Phillips 66 had $7.8 billion of liquidity, reflecting $2.5 billion of cash and cash equivalents and approximately $5.3 billion of total committed capacity under revolving credit facilities. Consolidated debt was $15.9 billion at Dec. 31, 2020, including $3.9 billion at Phillips 66 Partners (PSXP). The company’s consolidated debt-to-capital ratio was 42% and its net debt-to-capital ratio was 38%. Excluding PSXP, the debt-to-capital ratio was 39% and the net debt-to-capital ratio was 33%.


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