Phillips 66 to form master limited partnership from transportation assets


Phillips 66 announced plans to allocate some of its transportation assets to form a master limited partnership and also unveiled a $3.7 billion capital program for next year, up 6% from 2012's estimate.

The Houston-based downstream-energy company plans to sell a minority stake in the master limited partnership and expects to raise $300 million to $400 million in gross proceeds from an initial public offering slated for the second quarter of 2013.

"We expect to use the master limited partnership as an efficient vehicle to fund growth investments in the transportation and midstream sectors," CEO Greg Garland said.

Master limited partnerships, or MLPs, are similar to real estate investment trusts. They are designed to reduce corporate tax liabilities and provide shareholders with a steady income stream.

Several oil and gas companies have used MLPs to remove assets, and their debt, from company balance sheets while keeping some control over them and the income they provide.

Phillips 66 hasn't yet decided which of its pipelines, terminals, rail cars and other rail infrastructure, or natural-gas liquids assets will be dropped into the partnership.

Raymond James analysts wrote in a note Thursday morning that the MLP announcement confirmed their expectations, but they were awaiting additional details from the company's analyst day Thursday.

"The company will sell a minority interest in the MLP, providing room to drop down additional interest as well as assets," the analysts wrote.

Though MLPs traditionally own energy infrastructure assets such as pipelines, which have low risk profiles and provide a steady income stream, new partnerships have been formed in recent years that own upstream or refining assets.

Simmons analysts wrote that it isn't clear yet what parts of Phillips 66's refining and marketing segment could potentially be contributed to the MLP.

Phillips 66 became an independent downstream company with refining and marketing, midstream and chemical businesses in May after separating from ConocoPhillips.

In its first full year as a standalone company, Phillips 66 said it plans to improve capital efficiency and strengthen its margins by bringing less expensive crude oil from the Eagle Ford shale formation in south Texas to its Gulf Coast refiners.

The company said it has signed agreements for marine vessels to bring Eagle Ford crude to the Alliance and Bayway refineries. In total, the company plans to replace 500,000 bpd of higher-cost crude with new sources of price-advantaged crude over the next several years.

The company has projects in the works to increase export capacity at its Gulf Coast and West Coast refineries by 100,000 bpd by 2014.

"We will continue to primarily serve domestic markets and will explore opportunities to meet growing demand overseas," Mr. Garland said.

In October, Phillips reported that its efforts to use less expensive sources of crude oil paid off in the third quarter, offsetting losses in its midstream segment and pushing the company's profits up 52% from the past year.

The company's $3.7 billion capital program for 2013 includes $1.8 billion in spending by partially owned subsidiaries, which won't require cash outlays by Phillips 66.

Dow Jones Newswires

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