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 year.
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 year earlier.
Excluding items such as write-downs, adjusted earnings rose to $2.19 a share from $1.20. Revenue decreased 9% to $42.33 billion.
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 ConocoPhillips.
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, Texas.
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 Marathon Petroleum.
"It wasn't just refining," he said in an interview. "The benefits of having a broad business mix were pretty apparent.
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 said.
Dow Jones Newswires