Phillips 66 at BofA Conference Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Clayton Reasor – Senior Vice President Investor Relations, Strategy and Corporate Affairs

Greg Maxwell – Chief Financial Officer

Refining has had a nice run, but not increasing our focus there

“we believe refining, a mature business, has had a good run here for the last few years. We’ll continue to, but we don’t plan on increasing capacity on refining rather the focused area is improving capital efficiency.”

Phillips is a collection of 4 businesses

“when you think about Phillips, it’s really four different businesses that are tied together. We have a leading midstream business, our global chemicals business and then diversified marketing and refining business. We think that this set of assets makes us uniquely position to capture opportunities created by the significant increase in North America oil and gas and NGL production.”

Midstream business

“midstream really consist of three difference elements. One is our transportation business. So when we talk about transportation that’s refining logistics with moving crude oil and refined products around our existing refining business.

There is the Phillips 66 Partners, which is an MLP, which will help fund both our transportation and our NGL operations business. And then we also own 50% in DCP with Spectra, which is the leading NGL and gas processing business.”

Chemicals business

“Our chemicals business is a leading olefins and polyolefins business. We have a large ethylene and polyethylene business that’s primarily in North America, but also in the Middle East.”

Natural gas is reshaping the way the industry thinks

“growing domestic natural gas liquid production is really reshaping the way, not only we, but the industry thinks. We go from an attitude of constraint to an attitude of abundance in the U.S.”

$100B in investment to move natural gas

“this growth in NGL has really created the need for new infrastructure to move this production to market centers, and we expect somewhere between $100 billion to $150 billion of new investment to gather process and transport this new production of NGL.”

Big North American advantage in ethylene production

“North America ethane production or ethylene production is at a clear advantage to naphtha producers in other parts of the world. So fundamentally, we believe that the olefins, ethylene, polyethylene business will be an attractive business for us and we’ve announced a significant project on the Gulf Coast that I’ll touch on a little bit later.”

We think crude differentials positive for five years

“It’s difficult to predict where crude differentials are going to be from day-to-day or even quarterly, but if we look back over a longer period of time and the changing dynamics of crude supply, we expect the next five years of crude differentials to be at a greater discount and margins to be better than they have been over the past five years.”

Process advantaged crudes

“Our goal is to run 100% advantaged crudes, advantage to us it’s trading at a significant discount to Brent. So we believe all these system that we have that provides us with optionality. So as spreads open and close, we’re able to move crude from one region into another. We typically buy substantially more crude than we process, so that we’re always in the market either buying or selling crude and that gives us optionality to take advantage of arbitrage situations.”

Lots of volatility in refining

“So the chart shows the volatility of EBITDA, especially in refining and that’s why it’s important to have a very strong balance sheet that allows the financial flexibility and earnings diversity that’s required in order to invest through the cycle and increase dividends annually.”

Leave a Reply

Your email address will not be published. Required fields are marked *