Phillips 66 has reported Q3 earnings of $712 million, compared with $1.4 billion in the second quarter of 2019. Excluding special items of $690 million in the third quarter, primarily impairments related to the company’s investment in DCP Midstream, adjusted earnings were $1.4 billion, compared with second-quarter adjusted earnings of $1.4 billion.
“We continued to successfully execute our strategy and delivered another quarter of solid financial results,” said Greg Garland, chairman and CEO of Phillips 66. “We operated safely and reliably and captured favourable margins in our Refining and Marketing businesses. Midstream’s transportation and NGL businesses reported record pre-tax income, while we continued to progress Midstream’s portfolio of growth projects. The Lake Charles isomerisation unit reached full production, and line fill started on the Gray Oak Pipeline. CPChem operated well and contributed to our strong operating cash flow.”
Midstream had a third-quarter pre-tax loss of $460 million, compared with pre-tax income of $423 million in the second quarter of 2019.
NGL and Other adjusted pre-tax income for the third quarter was $169 million, a $26 million increase from the second quarter. The improvement was mainly due to butane and propane trading activity.
The company’s equity investment in DCP Midstream generated adjusted pre-tax income of $23 million in the third quarter, compared with $35 million in the second quarter. The decrease primarily reflects lower hedging results.
The Chemicals segment reflects Phillips 66’s equity investment in Chevron Phillips Chemical Company LLC (CPChem). Chemicals’ third-quarter pre-tax income was $227 million, compared with $275 million in the second quarter. Chemicals results in the third quarter included a $42 million reduction to equity earnings from a lower-of-cost-or-market inventory adjustment.
Refining third-quarter pre-tax income was $856 million, compared with $983 million in the second quarter of 2019. Refining adjusted pre-tax income was $839 million in the third quarter of 2019, compared with $983 million in the second quarter of 2019. The decrease is mainly due to higher turnaround costs.
Strategic Update
In Midstream, Phillips 66 Partners is constructing the 900,000 bpd Gray Oak Pipeline, which is anticipated to begin initial service in the fourth quarter of 2019. The pipeline will provide crude oil transportation from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, the Sweeny area, including the company’s Sweeny Refinery, as well as access to the Houston market. Phillips 66 Partners has a 42.25 per cent 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 storage capacity of over 7 million barrels and up to 800,000 bpd of throughput capacity. Phillips 66 Partners owns a 25 per cent interest in the terminal, which is expected to start up by mid-2020.
At the Sweeny Hub, Phillips 66 Partners is adding 6 million barrels of storage capacity at Clemens Caverns. Upon completion in the fourth quarter of 2020, Clemens Caverns will have 15 million barrels of storage capacity. Phillips 66 Partners is also constructing the C2G Pipeline, a 16 inch ethane pipeline that will connect Clemens Caverns to petrochemical facilities in Gregory, Texas, near Corpus Christi. The project is backed by long-term commitments and is expected to be completed in mid-2021.
The company continues to expand capacity at its Beaumont Terminal, adding 2.2 million barrels of crude oil storage. Upon completion in the first quarter of 2020, the terminal will have 16.8 million barrels of total crude and product storage capacity.
Phillips 66 is progressing the Liberty Pipeline, which will provide crude oil transportation from the Rockies and Bakken production areas to Cushing, Oklahoma. Liberty is supported by long-term shipper commitments, and initial service is expected in the first half of 2021. Phillips 66 owns a 50 per cent interest in Liberty and will construct and operate the pipeline.
The company is also advancing the Red Oak Pipeline system, which will provide crude oil transportation from Cushing and the Permian Basin to multiple destinations along the Texas Gulf Coast, including Corpus Christi, Ingleside, Houston and Beaumont. Red Oak is supported by long-term shipper commitments, and initial service is expected in the first half of 2021. Its joint venture partner will construct and Phillips 66 will operate the pipeline. Phillips 66 owns a 50 per cent interest in the venture.
In Chemicals, CPChem and Qatar Petroleum are jointly pursuing development of a petrochemical facility on the U.S. Gulf Coast that would add world-scale ethylene and derivative capacity to meet growing global demand. The U.S. Gulf Coast II Petrochemical Project is expected to include a 2 million metric tons per year ethylene cracker and two high-density polyethylene units, each with capacity of 1 million metric tons per year. CPChem would own 51 per cent and have responsibility for the construction, operation and management of the facility. Final investment decision is expected no later than 2021, with targeted startup in 2024.
CPChem and Qatar Petroleum are pursuing the development, construction and operation of a petrochemicals complex in Qatar. The facility is expected to have a 1.9 million metric tons per year ethylene cracker and two high-density polyethylene derivative units with a combined capacity of 1.7 million metric tons per year. Pending final investment decision, the project is expected to start up in late 2025. CPChem will own a 30 per cent share of the joint venture.
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