Phillips 66, a diversified and integrated downstream energy company, announced fourth-quarter earnings of $1.3 billion, compared with earnings of $2.1 billion in the third quarter.
Excluding special items of $102 million, the company had adjusted earnings of $1.4 billion in the fourth quarter, compared with third-quarter adjusted earnings of $2.1 billion. In addition, the company provided an update on progress toward its strategic priorities.
“In the fourth quarter, our team’s operating and commercial excellence allowed us to capture value across our diversified and integrated portfolio and deliver strong earnings,” said Mark Lashier, president and CEO of Phillips 66.
“In Refining, we increased market capture and continued to deliver above industry average crude utilization. In Midstream, our NGL wellhead-to-market business continues to exceed our expectations, achieving strong results and record volumes in the quarter.
“As we look forward, we will continue to execute our strategic priorities to deliver significant shareholder value. During 2023, we distributed well over 50% of our operating cash flow to shareholders through dividends and share repurchases. We have distributed $8.3 billion to shareholders since July 2022, on pace to achieve our $13 billion to $15 billion target by year-end 2024.”
“The Board is pleased with the company’s results, which reflect management’s progress on our strategic priorities and our collective commitment to deliver shareholder value today and in the future,” stated Glenn Tilton, Lead Independent Director.
Midstream
Midstream fourth-quarter 2023 pre-tax income was $756 million, compared with $712 million in the third quarter of 2023. Results in the fourth quarter included a $2 million tax benefit. The third quarter included a gain of $101 million on the sale of an investment and a gain of $46 million from a change in inventory method for an acquired business, partially offset by $4 million of restructuring costs.
Transportation fourth-quarter adjusted pre-tax income was $334 million, compared with adjusted pre-tax income of $285 million in the third quarter. The increase mainly reflects recognition of deferred revenue related to throughput and deficiency agreements.
NGL and Other adjusted pre-tax income was $423 million in the fourth quarter, compared with adjusted pre-tax income of $293 million in the third quarter. The increase was primarily due to higher margins and volumes at the Sweeny Hub, as well as lower operating costs.
In the fourth quarter, the fair value of the company’s investment in NOVONIX, Ltd. decreased by $3 million, compared with a $9 million decrease in the third quarter.
Chemicals
The Chemicals segment reflects Phillips 66’s equity investment in Chevron Phillips Chemical Company LLC (CPChem). Chemicals fourth-quarter 2023 reported and adjusted pre-tax income was $106 million, in line with third quarter 2023 pre-tax income of $104 million.
Global olefins and polyolefins utilization was 94% for the quarter.
Refining
Refining fourth-quarter 2023 reported pre-tax income was $814 million, compared with pre-tax income of $1.7 billion in the third quarter of 2023. Results in the fourth quarter included a $17 million tax benefit. Results in the third quarter included a $30 million legal accrual.
Adjusted pre-tax income for Refining was $797 million in the fourth quarter, compared with adjusted pre-tax income of $1.7 billion in the third quarter. The decrease was primarily due to lower realized margins, which decreased from $18.96 per barrel in the third quarter to $14.41 per barrel in the fourth quarter. Realized margins declined primarily due to lower market crack spreads, partially offset by inventory hedge impacts, higher Gulf Coast clean product realizations and strong commercial results. The composite RIN adjusted market crack spread decreased 53% from $28.64 per barrel in the third quarter to $13.41 per barrel in the fourth quarter.
Refining pre-tax turnaround expense for the fourth quarter was $100 million, including $14 million related to the Rodeo renewables facility. Crude utilization rate was 92% and clean product yield was 87%. Market capture increased from 66% to 107%.
Marketing and Specialties
Marketing and Specialties fourth-quarter 2023 reported and adjusted pre-tax income was $432 million, compared with $633 million in the third quarter of 2023, mainly due to seasonally lower domestic wholesale fuel margins.
Corporate and Other
Corporate and Other fourth-quarter 2023 pre-tax costs were $347 million, compared with pre-tax costs of $346 million in the third quarter of 2023. Results in the fourth and third quarter included restructuring costs of $50 million and $51 million, respectively.
Adjusted pre-tax costs were $297 million in the fourth quarter, in line with adjusted third-quarter pre-tax costs of $295 million.
Financial Position, Liquidity and Return of Capital
Phillips 66 generated $2.2 billion in cash from operations in the fourth quarter of 2023.
During the fourth quarter, Phillips 66 funded $634 million of capital expenditures and investments, $1.2 billion of share repurchases and $457 million in dividends. The company ended the quarter with 430 million shares outstanding.
As of Dec. 31, 2023, the company had $3.3 billion of cash and cash equivalents and $6.4 billion of committed capacity available under credit facilities. The company’s consolidated debt-to-capital ratio was 38% and its net debt-to-capital ratio was 34%.
Strategic Priorities and Business Update
Phillips 66 is executing its strategic priorities to increase mid-cycle adjusted EBITDA by $4 billion to $14 billion by 2025 and grow shareholder distributions.
The company achieved $1.2 billion in run-rate cost and sustaining capital savings as of Dec. 31, 2023, through business transformation. The company is targeting $1.4 billion run-rate savings by the end of 2024.
In Refining, the company continues to improve asset reliability and market capture through high-return, low-capital projects. The company is implementing 10 to 15 projects annually to increase market capture by 5% by 2025. In 2023, completed projects added over 1% to market capture based on mid-cycle pricing.
Phillips 66 is capturing value from its Midstream NGL wellhead-to-market strategy. Through the end of 2023, the company’s increased ownership of DCP Midstream has provided an incremental $1.25 billion toward its 2025 mid-cycle adjusted EBITDA target, including approximately $250 million of synergies. The company remains focused on capturing over $400 million of run-rate commercial and operating synergies by 2025.
In Chemicals, CPChem completed construction and began operations of a 1 billion pounds per year propylene splitter at its Cedar Bayou facility in the fourth quarter. CPChem is building world-scale petrochemical facilities with joint-venture partner QatarEnergy on the U.S. Gulf Coast and in Ras Laffan, Qatar. Both projects are expected to start up in 2026.
Phillips 66 is converting its San Francisco Refinery in Rodeo, California, into one of the world’s largest renewable fuels facilities. Construction continues on the Rodeo Renewed refinery conversion project that is expected to begin operations in the first quarter of 2024. The conversion will reduce emissions from the facility and produce lower carbon intensity transportation fuels. Upon completion, the facility will have over 50,000 BPD (800 million gallons per year) of renewable fuel production capacity.
Since July 2022 the company has distributed $8.3 billion through share repurchases and dividends and is on pace to achieve the $13 billion to $15 billion target by year-end 2024.
Phillips 66 also plans to monetize assets that no longer fit its long-term strategy. These asset dispositions are expected to generate over $3 billion in proceeds that will support the company’s strategic priorities, including returns to shareholders. Timing of these dispositions will be subject to satisfactory market conditions and any necessary regulatory approvals. Total proceeds from asset dispositions in 2023 were $392 million.
