Phillips 66 Reports Fourth-Quarter Earnings of $2.2 Billion or $4.82 Per Share

Adjusted earnings of $2.3 billion or $4.87 per share

Highlights

Fourth Quarter

  • Delivered strong reported earnings and record adjusted earnings
  • Generated $4.1 billion of operating cash flow, including $840 million
    from equity affiliates
  • Returned $864 million to shareholders through dividends and share
    repurchases
  • Achieved 99 percent Refining utilization and record market capture
  • Generated record Midstream and Marketing results
  • Phillips 66 Partners achieved five-year 30 percent distribution CAGR

Full-Year 2018

  • Sustained record-low recordable injury rate
  • Reported record earnings of $5.6 billion with ROCE of 17 percent
  • Generated $7.6 billion of operating cash flow, including $2.9 billion
    from equity affiliates
  • Returned $6.1 billion to shareholders through dividends and share
    repurchases
  • Increased quarterly dividend 14 percent to $0.80 per common share
  • Achieved 95 percent utilization in Refining
  • CPChem completed the U.S. Gulf Coast petrochemicals project
  • Began Sweeny Hub expansion, including additional 300-MBPD NGL
    fractionation capacity
  • Phillips 66 Partners started construction of the 900-MBPD Gray Oak
    Pipeline

HOUSTON–(BUSINESS WIRE)–Phillips 66 (NYSE: PSX), a diversified energy manufacturing and
logistics company, announces fourth-quarter 2018 earnings of $2.2
billion, compared with $1.5 billion in the third quarter of 2018.
Excluding special items of $20 million in the fourth quarter, adjusted
earnings were $2.3 billion, compared with third-quarter adjusted
earnings of $1.5 billion.

“We delivered another quarter of strong operating and financial
performance, capping a record year for Phillips 66,” said Greg Garland,
chairman and CEO of Phillips 66. “For the year, we sustained our
industry-leading safety performance, achieved our highest ever earnings
and operating cash flow, and rewarded our shareholders with substantial
distributions. Refining operated at 95 percent utilization and captured
strong margins from advantaged feedstocks. In Marketing, we generated
strong earnings while enhancing our fuels brand image. Our Midstream
results reflect growth from value-enhancing capital projects completed
over the past two years. CPChem achieved full operations at its new U.S.
Gulf Coast petrochemical assets, contributing to increased cash
distributions. Phillips 66 Partners generated record earnings and
achieved its five-year distribution growth target.”

“During 2018, we increased our quarterly dividend 14 percent and
repurchased 10 percent of shares outstanding, resulting in $6.1 billion
distributed to shareholders. Since our company’s formation in 2012, we
have returned $22.5 billion to shareholders through dividends and share
repurchases and exchanges. Share repurchases and exchanges have reduced
our initial shares outstanding by 30 percent.”

“Looking to 2019, we remain focused on operating excellence and
executing our strong portfolio of growth projects. Disciplined capital
allocation is fundamental to our strategy and we will continue to invest
in new opportunities with attractive returns, while returning capital to
shareholders through dividends and share buybacks.”

Midstream

    Millions of Dollars
Pre-Tax Income     Adjusted Pre-Tax Income
Q4 2018   Q3 2018 Q4 2018   Q3 2018
Transportation $ 234   209 234   209
NGL and Other 120 46 122 74
DCP Midstream     25   29 53   29
Midstream     $ 379   284 409   312
 

Midstream fourth-quarter pre-tax income was $379 million, compared with
$284 million in the third quarter of 2018. Midstream results in the
fourth quarter included a $28 million impact to equity earnings from an
asset impairment at DCP Midstream, as well as $2 million of pension
settlement expense. Third-quarter results included $28 million in
expenses related to claims and pension settlement.

Transportation fourth-quarter adjusted pre-tax income of $234 million
was $25 million higher than third-quarter adjusted pre-tax income of
$209 million, mainly reflecting higher pipeline and terminal throughput
volumes.

NGL and Other adjusted pre-tax income for the fourth quarter was $122
million, a $48 million increase from the third quarter, primarily due to
inventory impacts.

The company’s equity investment in DCP Midstream generated adjusted
pre-tax income of $53 million in the fourth quarter, compared with $29
million in the third quarter. The increase reflects improved hedging
results, partially offset by higher operating costs.

Chemicals

    Millions of Dollars
Pre-Tax Income     Adjusted Pre-Tax Income
Q4 2018   Q3 2018 Q4 2018   Q3 2018
Olefins and Polyolefins $ 158   225 158   225
Specialties, Aromatics and Styrenics 16 51 16 51
Other     (22)   (13) (22)   (13)
Chemicals     $ 152   263 152   263
 

The Chemicals segment reflects Phillips 66’s equity investment in
Chevron Phillips Chemical Company LLC (CPChem). Chemicals’
fourth-quarter pre-tax income was $152 million, compared with $263
million in the third quarter of 2018.

CPChem’s Olefins and Polyolefins (O&P) business contributed $158 million
of adjusted pre-tax income in the fourth quarter of 2018, compared with
$225 million in the third quarter. The decrease mainly reflects
seasonally lower sales volumes and higher operating costs driven by
turnaround and maintenance activity. These items were partially offset
by higher margins from lower feedstock costs. Global O&P utilization was
95 percent.

CPChem’s Specialties, Aromatics and Styrenics (SA&S) business
contributed $16 million of adjusted pre-tax income in the fourth quarter
of 2018, a decrease of $35 million from the prior quarter. The decrease
primarily reflects lower earnings from CPChem’s equity affiliates and
higher domestic turnaround costs.

The $9 million increase in Other adjusted net costs in the fourth
quarter mainly reflects the impact of a contingent liability.

Refining

    Millions of Dollars
Pre-Tax Income     Adjusted Pre-Tax Income
Q4 2018   Q3 2018 Q4 2018   Q3 2018
Refining     $ 2,001   1,232 2,008   1,263
   

Refining fourth-quarter pre-tax income was $2.0 billion, compared with
$1.2 billion in the third quarter of 2018. Refining results included
pension settlement expense of $11 million and $32 million in the fourth
quarter and third quarter, respectively. Fourth-quarter results also
included $4 million of favorable U.K. R&D expenditure credits.

Refining adjusted pre-tax income was $2.0 billion in the fourth quarter
of 2018, compared with $1.3 billion in the third quarter of 2018. While
3:2:1 market crack spreads were down across all regions, realized
margins increased $3.17 per barrel due to crude feedstock advantage,
strengthening distillate crack spreads and clean product realizations.
Realized margins also benefited from optimization across our integrated
logistics network to capture market opportunities associated with
widening Bakken, Canadian and other inland crude differentials.

The increase in fourth-quarter results was largely driven by the Central
Corridor and Gulf Coast regions. Central Corridor refineries captured
the benefit of expanded discounts on Canadian crudes by running at 106
percent utilization during the quarter. The Gulf Coast region operated
at 100 percent utilization and benefited from improved clean product
realizations and wider crude differentials.

Phillips 66’s worldwide crude utilization rate was 99 percent. Pre-tax
turnaround costs for the fourth quarter were $130 million, compared with
third-quarter costs of $55 million. Clean product yield was 86 percent
in the fourth quarter.

Marketing and Specialties

    Millions of Dollars
Pre-Tax Income     Adjusted Pre-Tax Income
Q4 2018   Q3 2018 Q4 2018   Q3 2018
Marketing and Other $ 525   361 528   323
Specialties     64   62 64   62
Marketing and Specialties     $ 589   423 592   385
 

Marketing and Specialties (M&S) fourth-quarter pre-tax income was $589
million, compared with $423 million in the third quarter of 2018. M&S
results included pension settlement expense of $3 million and $6 million
in the fourth quarter and third quarter, respectively. Third-quarter
results also included benefits from biodiesel blender tax credits.

Adjusted pre-tax income for Marketing and Other was $528 million in the
fourth quarter of 2018, an increase of $205 million from the third
quarter. Marketing benefited from market conditions during the quarter
that contributed to a 32 percent increase in realized margins. Refined
product exports in the fourth quarter were 249,000 barrels per day (BPD).

Specialties generated adjusted pre-tax income of $64 million during the
fourth quarter, up from $62 million in the prior quarter due to higher
margins.

Corporate and Other

    Millions of Dollars
Pre-Tax Income     Adjusted Pre-Tax Income
Q4 2018   Q3 2018 Q4 2018   Q3 2018
Corporate and Other     $ (203)   (227) (201)   (223)
   

Corporate and Other fourth-quarter pre-tax costs were $203 million,
compared with pre-tax costs of $227 million in the third quarter of
2018. Pre-tax costs included pension settlement expense of $2 million
and $4 million in the fourth quarter and third quarter, respectively.

The $22 million decrease in Corporate and Other adjusted pre-tax costs
in the fourth quarter was mainly due to third-quarter severance costs,
as well as lower net interest expense.

Financial Position, Liquidity and Return of Capital

Phillips 66 generated $4.1 billion in cash from operations during the
fourth quarter, including $840 million of cash distributions from equity
affiliates. WRB Refining and CPChem distributed $348 million and $300
million, respectively, to Phillips 66 in the fourth quarter. Excluding
working capital impacts, operating cash flow was $2.8 billion.

During the quarter, Phillips 66 funded $497 million of share
repurchases, $367 million of dividends, $994 million of capital
expenditures and investments, and prepaid $300 million of floating rate
notes due 2019. The company ended the quarter with 456 million shares
outstanding.

As of Dec. 31, 2018, cash and cash equivalents were $3.0 billion, and
consolidated debt was $11.2 billion, including $3.0 billion at Phillips
66 Partners (PSXP). The company’s consolidated debt-to-capital ratio was
29 percent and its net-debt-to-capital ratio was 23 percent. Excluding
PSXP, the debt-to-capital ratio was 25 percent and the
net-debt-to-capital ratio was 17 percent.

Strategic Update

Phillips 66 Partners is constructing the 900,000-BPD Gray Oak Pipeline,
which will provide crude oil transportation from the Permian and Eagle
Ford to destinations in Corpus Christi and Freeport, including the
Sweeny Refinery. Phillips 66 Partners will have a 42.25 percent
ownership in the pipeline, which is anticipated to be in service by the
end of 2019.

The Gray Oak Pipeline will connect to multiple terminals in Corpus
Christi, including the new South Texas Gateway Terminal under
development by Buckeye Partners, L.P. The marine terminal will have two
deepwater docks and planned storage capacity of 6.5 million to 7 million
barrels. Phillips 66 Partners owns a 25 percent interest in the
terminal, which is expected to start up by mid-2020.

At the Sweeny Hub, the company is constructing two 150,000-BPD natural
gas liquids (NGL) fractionators and associated pipeline infrastructure,
and Phillips 66 Partners is adding 6 million barrels of storage capacity
at Clemens Caverns. Upon completion of the expansion, expected in late
2020, the Sweeny Hub will have 400,000 BPD of fractionation capacity and
15 million barrels of storage at Clemens Caverns.

During the fourth quarter of 2018, the company added 1.3 million barrels
of crude oil storage at the Beaumont Terminal, bringing total crude and
products storage capacity to 14.6 million barrels. A further expansion
of 2.2 million barrels of crude oil storage is planned for completion in
the first quarter of 2020.

The company and Phillips 66 Partners commenced a project to expand the
products system from the Sweeny Hub to Phillips 66 Partners’ Pasadena
Terminal. Phillips 66 Partners’ Sweeny to Pasadena Pipeline will be
expanded by 80,000 BPD, and 300,000 barrels of products storage will be
added at the Pasadena Terminal. The project is expected to be completed
in the second quarter of 2020.

DCP Midstream completed the Sand Hills Pipeline expansion project in the
fourth quarter of 2018, increasing the capacity to 485,000 BPD. The
pipeline transports NGL from the Permian and Eagle Ford to the Texas
Gulf Coast and is owned two-thirds by DCP Midstream and one-third by
Phillips 66 Partners. Also in the Permian, DCP Midstream has a 25
percent interest in the Gulf Coast Express Pipeline project to transport
approximately 2 billion cubic feet per day (BCFD) of natural gas to Gulf
Coast markets. The project is anticipated to be completed in the fourth
quarter of 2019. DCP Midstream is adding gas processing capacity in the
DJ Basin with the construction of the O’Connor 2 plant, which is
expected to be completed in the second quarter of 2019.

In Chemicals, CPChem’s new U.S. Gulf Coast (USGC) petrochemical assets
are operating well, and the ethane cracker continues to demonstrate
utilization above original design capacity. CPChem has a leading
position in olefins and polyolefins to supply the world’s growing demand
for high-quality polymers. CPChem’s portfolio of cost advantaged assets
is strategically located in the U.S. and Middle East. CPChem is
developing a second USGC project that would include ethylene and
derivative capacity. CPChem is also evaluating additional capacity
across multiple product lines through debottleneck opportunities on
existing units.

In Refining, the company completed crude unit modifications during the
fourth quarter at the Lake Charles Refinery to run additional advantaged
domestic crudes. Also at the Lake Charles Refinery, Phillips 66 Partners
is constructing a 25,000-BPD isomerization unit to increase production
of higher-octane gasoline blend components. The project is expected to
complete in the third quarter of 2019.

A fluid catalytic cracking (FCC) unit upgrade project is underway at the
Sweeny Refinery to increase production of higher-value petrochemical
products and higher-octane gasoline. The project is anticipated to be
completed in the second quarter of 2020.

In Marketing, the company continues its program to roll out updated
signature image designs for Phillips 66, 76 and Conoco branded sites. A
total of 466 domestic sites were re-imaged during the fourth quarter. In
2018, re-imaged sites had increased same-site sales by 2 percent on
average. Since the program’s inception in 2015, approximately 2,600 U.S.
sites have been re-imaged. In 2019, an additional 1,800 sites are
scheduled for re-imaging and the remainder of the U.S. branded network
will be re-imaged by the end of 2020. International marketing will
continue to grow under the JET brand and will add 25 to 30 new sites in
2019.

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

Millions of Dollars
2018 2017
Q4   Q3   Year Q4   Year
Midstream $ 379 284 1,181 189 638
Chemicals 152 263 1,025 8 716
Refining 2,001 1,232 4,535 516 2,076
Marketing and Specialties 589 423 1,557 167 1,020
Corporate and Other     (203 )   (227 )   (853 ) (226 )   (895 )
Pre-Tax Income 2,918 1,975 7,445 654 3,555
Less: Income Tax Expense (Benefit) 602 407 1,572 (2,601 ) (1,693 )
Less: Noncontrolling Interests     76     76     278   57     142  
Phillips 66     $ 2,240     1,492     5,595   3,198     5,106  
 

Adjusted Earnings

Millions of Dollars
2018 2017
Q4   Q3   Year Q4   Year
Midstream $ 409 312 1,239 196 623
Chemicals 152 263 1,025 161 955
Refining 2,008 1,263 4,572 510 1,656
Marketing and Specialties 592 385 1,453 168 1,032
Corporate and Other     (201 )   (223 )   (863 ) (226 )   (860 )
Pre-Tax Income 2,960 2,000 7,426 809 3,406
Less: Income Tax Expense 624 467 1,604 204 995
Less: Noncontrolling Interests     76     77     272   57     142  
Phillips 66     $ 2,260     1,456     5,550   548     2,269  
 

About Phillips 66

Phillips 66 is a diversified energy manufacturing and logistics company.
With a portfolio of Midstream, Chemicals, Refining, and Marketing and
Specialties businesses, the company processes, transports, stores and
markets fuels and products globally. Phillips 66 Partners, the company’s
master limited partnership, is integral to the portfolio. Headquartered
in Houston, the company has 14,200 employees committed to safety and
operating excellence. Phillips 66 had $54 billion of assets as of Dec.
31, 2018. For more information, visit www.phillips66.com
or follow us on Twitter @Phillips66Co.

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR”
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This news release contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which are intended to be covered by the safe harbors created
thereby. Words and phrases such as “is anticipated,” “is estimated,” “is
expected,” “is planned,” “is scheduled,” “is targeted,” “believes,”
“continues,” “intends,” “will,” “would,” “objectives,” “goals,”
“projects,” “efforts,” “strategies” and similar expressions are used to
identify such forward-looking statements. However, the absence of these
words does not mean that a statement is not forward-looking.
Forward-looking statements relating to Phillips 66’s operations
(including joint venture operations) are based on management’s
expectations, estimates and projections about the company, its interests
and the energy industry in general on the date this news release was
prepared. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult
to predict. Therefore, actual outcomes and results may differ materially
from what is expressed or forecast in such forward-looking statements.
Factors that could cause actual results or events to differ materially
from those described in the forward-looking statements include
fluctuations in NGL, crude oil, and natural gas prices, and
petrochemical and refining margins; unexpected changes in costs for
constructing, modifying or operating our facilities; unexpected
difficulties in manufacturing, refining or transporting our products;
lack of, or disruptions in, adequate and reliable transportation for our
NGL, crude oil, natural gas, and refined products; potential liability
from litigation or for remedial actions, including removal and
reclamation obligations under environmental regulations; limited access
to capital or significantly higher cost of capital related to
illiquidity or uncertainty in the domestic or international financial
markets; the impact of adverse market conditions or other similar risks
to those identified herein affecting PSXP, as well as the ability of
PSXP to successfully execute its growth plans; and other economic,
business, competitive and/or regulatory factors affecting Phillips 66’s
businesses generally as set forth in our filings with the Securities and
Exchange Commission. Phillips 66 is under no obligation (and expressly
disclaims any such obligation) to update or alter its forward-looking
statements, whether as a result of new information, future events or
otherwise.

Use of Non-GAAP Financial InformationThis news
release includes the terms adjusted earnings, adjusted earnings per
share, and adjusted pre-tax income. These are non-GAAP financial
measures that are included to help facilitate comparisons of company
operating performance across periods and with peer companies, by
excluding items that do not reflect the core operating results of our
businesses in the current period. This release includes realized
refining margin, a non-GAAP financial measure that demonstrates how well
we performed relative to benchmark industry margins. This release also
includes a debt-to-capital ratio excluding PSXP. This non-GAAP measure
is provided to differentiate the capital structure of Phillips 66
compared with that of Phillips 66 Partners.

References in the release to earnings refer to net income
attributable to Phillips 66. References to adjusted earnings refer to
earnings excluding special items, as detailed in the tables to this
release. References to net income are inclusive of noncontrolling
interests.

   
Millions of Dollars
Except as Indicated
2018     2017
Q4   Q3   Year Q4   Year
Reconciliation of Consolidated Earnings to Adjusted Earnings      
Consolidated Earnings $ 2,240 1,492 5,595 3,198 5,106
Pre-tax adjustments:
Pending claims and settlements 21 21 (60 )
Pension settlement expense 18 49 67 7 83
Impairments by equity affiliates 28 28 31 64
Certain tax impacts (4 ) (45 ) (119 ) (23 ) (23 )
Gain on consolidation of business (423 )
Hurricane-related costs 140 210
Tax impact of adjustments* (12 ) (6 ) (1 ) (70 ) 47
U.S. tax reform 55 (49 ) 23 (2,735 ) (2,735 )
Other tax impacts (65 ) (5 ) (70 )
Noncontrolling interests         (1 )   6        
Adjusted earnings     $ 2,260     1,456     5,550   548     2,269  
Earnings per share of common stock (dollars) $ 4.82 3.18 11.80 6.25 9.85
Adjusted earnings per share of common stock (dollars)     $ 4.87     3.10     11.71   1.07     4.38  
 
Reconciliation of Segment Pre-Tax Income to Adjusted Pre-Tax
Income
Midstream Pre-Tax Income $ 379 284 1,181 189 638
Pre-tax adjustments:
Pending claims and settlements 21 21 (37 )
Pension settlement expense 2 7 9 1 12
Impairments by equity affiliates 28 28
Hurricane-related costs               6     10  
Adjusted pre-tax income     $ 409     312     1,239   196     623  
Chemicals Pre-Tax Income $ 152 263 1,025 8 716
Pre-tax adjustments:
Impairments by equity affiliates 31 64
Hurricane-related costs               122     175  
Adjusted pre-tax income     $ 152     263     1,025   161     955  
Refining Pre-Tax Income $ 2,001 1,232 4,535 516 2,076
Pre-tax adjustments:
Pending claims and settlements (51 )
Gain on consolidation of business (423 )
Certain tax impacts (4 ) (1 ) (6 ) (23 ) (23 )
Pension settlement expense 11 32 43 5 53
Hurricane-related costs               12     24  
Adjusted pre-tax income     $ 2,008     1,263     4,572   510     1,656  
Marketing and Specialties Pre-Tax Income $ 589 423 1,557 167 1,020
Pre-tax adjustments:
Pension settlement expense 3 6 9 1 11
Hurricane-related costs 1
Certain tax impacts         (44 )   (113 )      
Adjusted pre-tax income     $ 592     385     1,453   168     1,032  
Corporate and Other Pre-Tax Loss $ (203 ) (227 ) (853 ) (226 ) (895 )
Pre-tax adjustments:
Pending claims and settlements 28
Pension settlement expense 2 4 6 7
U.S. tax reform             (16 )      
Adjusted pre-tax loss     $ (201 )   (223 )   (863 ) (226 )   (860 )

*We generally tax effect taxable U.S.-based special items
using a combined federal and state statutory income tax rate of
approximately 25 percent beginning in 2018, and approximately 38
percent for periods prior to 2018. Taxable special items
attributable to foreign locations likewise use a local statutory
income tax rate. Nontaxable events reflect zero income tax. These
events include, but are not limited to, most goodwill impairments,
transactions legislatively exempt from income tax, transactions
related to entities for which we have made an assertion that the
undistributed earnings are permanently reinvested, or transactions
occurring in jurisdictions with a valuation allowance.

†Weighted-average diluted shares outstanding and income
allocated to participating securities, if applicable, in the
adjusted earnings per share calculation are the same as those used
in the GAAP diluted earnings per share calculation.

 

Contacts

Jeff Dietert (investors)
832-765-2297
[email protected]

Brent Shaw (investors)
832-765-2297
[email protected]

Dennis Nuss (media)
832-765-1850
[email protected]

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