By ALISON SIDER
Phillips 66 executives said Wednesday that the company's
refineries are inching toward the goal of processing only
discounted crudes extracted in North America, a target they
expect the company to hit within the next few years.
"Certainly its an aspiration, but it is concrete and
achievable," Tim Taylor, executive vice president for
commercial, transportation, business development and marketing,
said in an interview. Phillips 66 said it boosted the share of
discounted crude produced in the US and Canada that its
refineries process to 68% of its feedstock, up from 60% last
That increase helped to
more than double Phillips 66's first-quarter earnings. The
company, one of the largest US independent refiners, beat
analyst expectations with a $1.41 billion profit in the
quarter, or $2.23/share, up from $636 million, or $1/share, a
Excluding items such as write-downs, adjusted earnings rose to
$2.19 a share from $1.20. Revenue decreased 9% to $42.33
Analysts polled by Thomson Reuters most recently projected earnings of $1.89 a share
on revenue of $41.44 billion.
Like other US refiners, Phillips 66 has been striving to
increase its supply of relatively cheap crude by building rail
capacity at its plants and buying rail cars to help bring crude
from shale formations not yet reached by pipelines.
During the quarter, it processed 221,000 bpd of crude from
the Eagle Ford, Bakken and Mississippi Lime formations, up
120,000 bpd over last year's first quarter.
Mr. Taylor said relatively cheap oil from shale and
Canadian sources is central to the company's midcontinent
refineries and has had an impact on coastal facilities as well. Crude from North
Dakota's Bakken shale is a "substantial portion" of the
throughput of Phillips 66's Bayway refinery in New Jersey, and there is
still room for more, he said.
Mr. Taylor said the company is taking advantage of
opportunities to connect new crude sources into its refining network, and as US crude
production ramps up, competition between new and existing
sources will push prices of some crude varieties down.
Chief executive Greg Garland said during a conference
call that the time frame for moving toward 100% discounted
crude use "keeps getting shorter," but he said it will likely
take a few years before the process is complete.
Phillips 66 became an independent downstream company with
refining-and-marketing, midstream and chemical businesses about
a year ago after being spun off by oil giant
In the latest quarter, the refining segment's adjusted
earnings doubled to $909 million, while the chemicals segment's
adjusted earnings increased 30% to $282 million.
Chief financial officer Greg Maxwell said in an interview
after the earnings release that Phillips 66 aims to expand
segments other than refining crude oil into fuel.
"We want to be viewed as less of a refiner and more as an
energy manufacturing and logistics company," Mr. Maxwell said.
The company announced Wednesday that it plans to build a
100,000 bpd natural-gas liquid fractionator in Old Ocean,
ISI Group analyst Doug Terreson said Phillips 66's results
were strong across the board -- the company reported a more
significant earnings beat than its peers, Valero Energy and
"It wasn't just refining," he said in an interview. "The
benefits of having a broad business mix were pretty
That could help Phillips 66, as high margins that have
fueled earnings beats by refining companies may fade away in
the coming quarters when new pipelines eliminate the market
gluts that cause steep discounts for US and Canadian crude.
"Production growth outpaced takeaway capacity for a couple
of years. In 2013, the converse is probably true," Mr. Terreson
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