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Phillips 66 Reports Fourth-Quarter 2020 Financial Results

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Phillips 66 (NYSE: PSX) reported a Q4 2020 loss of $539 million, a significant improvement from a $799 million loss in Q3 2020. Adjusted for special items, the loss was $507 million versus a $1 million loss in Q3. Notable highlights included a recovery in Midstream segment income to $223 million and record polyethylene sales through CPChem. However, Refining continued to perform poorly with a $1.1 billion pre-tax loss. The company maintains strong liquidity of $7.8 billion and emphasizes discipline in capital allocation while pursuing growth in renewable energy.

Positive
  • Midstream pre-tax income improved to $223 million in Q4 2020 from $146 million in Q3 2020.
  • CPChem set a record for polyethylene sales volumes in 2020, fulfilling global demand.
  • Total liquidity stood at $7.8 billion, ensuring financial flexibility.
Negative
  • Refining segment recorded a pre-tax loss of $1.1 billion in Q4, an increase from a loss of $970 million in Q3.
  • Overall adjusted pre-tax loss in refining worsened due to higher turnaround and maintenance costs.

Phillips 66 (NYSE: 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

 

Millions of Dollars

 

Pre-Tax Income

 

Adjusted Pre-Tax Income

 

Q4 2020

Q3 2020

 

Q4 2020

Q3 2020

Transportation

$

97

(3)

 

196

202

NGL and Other

85

99

 

86

102

DCP Midstream

41

50

 

41

50

Midstream

$

223

146

 

323

354

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

 

Millions of Dollars

 

Pre-Tax Income

 

Adjusted Pre-Tax Income

 

Q4 2020

Q3 2020

 

Q4 2020

Q3 2020

Olefins and Polyolefins

$

204

241

 

216

148

Specialties, Aromatics and Styrenics

15

11

 

13

5

Other

(26)

(21)

 

(26)

(21)

Chemicals

$

193

231

 

203

132

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

 

Millions of Dollars

 

Pre-Tax Loss

 

Adjusted Pre-Tax Loss

 

Q4 2020

Q3 2020

 

Q4 2020

Q3 2020

Refining

$

(1,113)

(1,903)

 

(1,094)

(970)

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

 

Millions of Dollars

 

Pre-Tax Income

 

Adjusted Pre-Tax Income

 

Q4 2020

Q3 2020

 

Q4 2020

Q3 2020

Marketing and Other

$

180

365

 

181

366

Specialties

52

50

 

40

51

Marketing and Specialties

$

232

415

 

221

417

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

 

Millions of Dollars

 

Pre-Tax Loss

 

Adjusted Pre-Tax Loss

 

Q4 2020

Q3 2020

 

Q4 2020

Q3 2020

Corporate and Other

$

(226)

(239)

 

(235)

(213)

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%.

Strategic Update

Phillips 66 completed two new 150,000 BPD fractionators at its Sweeny Hub, bringing the site’s total fractionation capacity to 400,000 BPD. Frac 2 commenced commercial operations in September, and Frac 3 started operations in October. Phillips 66 plans to resume construction of the fourth fractionator in the second half of 2021. Upon completion of Frac 4, the Sweeny Hub will have 550,000 BPD of fractionation capacity. The fractionators are supported by long-term customer commitments.

At the South Texas Gateway Terminal, which is being constructed by Buckeye Partners, L.P., the second dock commenced crude oil export operations in the fourth quarter. Upon completion in the first quarter of 2021, the marine export terminal will have storage capacity of 8.6 million barrels and up to 800,000 BPD of dock throughput capacity. Phillips 66 Partners owns a 25% interest in the terminal.

Phillips 66 Partners continued construction of the C2G Pipeline, a 16 inch ethane pipeline that will connect its Clemens Caverns storage facility to petrochemical facilities in Gregory, Texas, near Corpus Christi, Texas. The project is backed by long-term commitments and is expected to be completed in mid-2021.

At Beaumont Terminal, the company completed the addition of a new 200,000 BPD dock in the fourth quarter, bringing the terminal’s total dock capacity to 800,000 BPD. The terminal has total crude and product storage capacity of 16.8 million barrels.

In Chemicals, CPChem and Qatar Petroleum are jointly pursuing development of petrochemical facilities on the U.S. Gulf Coast and in Ras Laffan, Qatar. CPChem is closely monitoring economic developments and has deferred final investment decision for its U.S. Gulf Coast project until 2022.

CPChem is advancing optimization and debottleneck opportunities. This includes recently approved projects at its Cedar Bayou facility in Baytown, Texas, that will increase capacity of ethylene and polyethylene. In addition, CPChem is pursuing expansion of its normal alpha olefins production.

In October, CPChem announced its first U.S. commercial-scale production of circular polyethylene from recycled mixed-waste plastics at its Cedar Bayou facility and received International Sustainability and Carbon Certification PLUS (ISCC PLUS) certification for this location in November. CPChem is using advanced recycling technology to convert plastic waste to valuable liquids that can become new petrochemicals. CPChem’s circular polyethylene matches the performance and safety specifications of traditional polymers.

In Refining, Phillips 66 is advancing its plans at the San Francisco Refinery in Rodeo, California, to meet the growing demand for renewable fuels. The company will complete its diesel hydrotreater conversion in mid-2021, which will produce 8,000 BPD (120 million gallons per year) of renewable diesel. Upon expected completion of the full conversion in early 2024, the facility will have over 50,000 BPD (800 million gallons per year) of renewable fuel production capacity. The conversion is expected to reduce the plant’s greenhouse gas emissions by 50% and help California meet its low-carbon objectives.

In Marketing, 106 retail sites in the Central region were acquired in January through a joint venture. This will enable long-term placement of Phillips 66 refinery production and extend participation in the retail value chain.

Recently, Phillips 66 announced the formation of an Emerging Energy organization. This group is charged with establishing a lower-carbon business platform that delivers attractive returns. It will focus on opportunities within our portfolio, such as Rodeo Renewed, as well as commercializing emerging energy technologies for a sustainable future. Combined with the company’s research and innovation efforts, the Emerging Energy organization uniquely positions Phillips 66 to develop and deploy technologies and products to support a lower-carbon future.

In collaboration with Georgia Institute of Technology, Phillips 66 received a U.S. Department of Energy grant for improving the costs, performance and reliability of an electrolysis technology that has the potential to convert carbon dioxide to clean fuels.

A field demonstration of a proprietary Phillips 66 solid oxide fuel technology was installed at a Phillips 66 facility to provide power generation for pipeline integrity.

Investor Webcast

Later today, members of Phillips 66 executive management will host a webcast at noon EST to discuss the company’s fourth-quarter performance and provide an update on strategic initiatives. To access the webcast and view related presentation materials, go to www.phillips66.com/investors and click on “Events & Presentations.” For detailed supplemental information, go to www.phillips66.com/supplemental.

Earnings (Loss)

 

 

 

 

 

 

 

Millions of Dollars

 

2020

 

2019

 

Q4

Q3

Year

 

Q4

Year

Midstream

$

223

 

146

 

(9

)

 

405

 

684

 

Chemicals

193

 

231

 

635

 

 

150

 

879

 

Refining

(1,113

)

(1,903

)

(6,155

)

 

345

 

1,986

 

Marketing and Specialties

232

 

415

 

1,446

 

 

377

 

1,433

 

Corporate and Other

(226

)

(239

)

(881

)

 

(211

)

(804

)

Pre-Tax Income (Loss)

(691

)

(1,350

)

(4,964

)

 

1,066

 

4,178

 

Less: Income tax expense (benefit)

(197

)

(624

)

(1,250

)

 

256

 

801

 

Less: Noncontrolling interests

45

 

73

 

261

 

 

74

 

301

 

Phillips 66

$

(539

)

(799

)

(3,975

)

 

736

 

3,076

 

 

 

 

 

 

 

 

Adjusted Earnings (Loss)

 

 

 

 

FAQ

What was Phillips 66's adjusted loss for Q4 2020?

Phillips 66 reported an adjusted loss of $507 million in Q4 2020.

How did Phillips 66's Midstream segment perform in Q4 2020?

The Midstream segment achieved a pre-tax income of $223 million in Q4 2020.

What are the future plans for Phillips 66's refining operations?

Phillips 66 is advancing its plans for renewable fuel production at the San Francisco Refinery, expected to achieve significant outputs by early 2024.

What is Phillips 66's liquidity position as of Q4 2020?

As of Q4 2020, Phillips 66 reported total liquidity of $7.8 billion.

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