Phillips 66 earnings decline 37%

Phillips 66 reported first-quarter earnings of $987 million, down from $1.6 billion during first-quarter 2014. Adjusted earnings were $834 million, a decline from $866 million during first-quarter 2014.

“Refining market conditions helped us realize the best margins we’ve had over the last 2 years,” said Greg Garland, Phillips 66 chairman and chief executive officer. “Refining utilization rates were impacted by a heavy turnaround schedule, and were further reduced by the extended turnaround at the Alliance refinery.

“Our chemicals business increased capacity utilization and had a solid quarter,” he said. “The NGL market environment negatively impacted results from our DCP Midstream investment as well as our own NGL midstream business. We continued to aggressively grow Phillips 66 Partners through the drop of our interests in three pipeline systems, and partners also made good progress on its organic growth and joint-venture projects.”

Refining earnings up vs. 4Q

Refining adjusted earnings were $495 million in the first quarter, up from $306 million in fourth-quarter 2014. The improvement was primarily due to higher realized refining margins, partially offset by lower volumes.

The increase in margins was largely driven by improved secondary product margins as well as higher gasoline market crack spreads. Secondary product margins improved mainly due to lower crude costs. Crack spreads improved mainly as a result of significantly higher gasoline market cracks in the Western-Pacific.

Lower volumes were primarily driven by turnaround activity and unplanned downtime in the Gulf Coast at the Alliance refinery. Phillips 66’s worldwide refining crude utilization and clean product yield were both 84% in the first quarter.

The chemicals segment reflects Phillips 66’s equity investment in Chevron Phillips Chemical Co. LLC (CPChem). First-quarter chemicals adjusted earnings were $203 million, compared with adjusted earnings of $270 million in fourth-quarter 2014.

CPChem’s olefins and polyolefins (O&P) business contributed $183 million to Phillips 66’s Chemicals adjusted earnings. The $65 million decrease was mainly due to lower O&P cash chain margins, driven by lower polyethylene sales prices, as well as planned turnarounds in the first quarter. Global utilization for O&P was 87% during the quarter, up from 83% in the fourth quarter, primarily reflecting a full quarter of Port Arthur operations.

CPChem’s specialties, aromatics, and styrenics business contributed $26 million of adjusted earnings in the first quarter, in line with the prior quarter.

Midstream adjusted earnings were $67 million in the first quarter, down from adjusted earnings of $97 million in fourth-quarter 2014. Phillips 66’s transportation business generated earnings of $65 million during the first quarter. The $12 million increase was primarily due to the fourth quarter write-off of a deferred tax asset.

The company’s equity investment in DCP Midstream LLC had an adjusted loss of $12 million, comparable to the prior quarter. The loss was due to lower NGL, crude, and natural gas prices, partially offset by the absence of hedge losses associated with the steep price declines during the fourth quarter.

Earnings from the NGL business were $14 million in the first quarter. The $41 million decrease was largely related to lower trading margins on seasonal propane and butane storage activities, as well as inventory impacts.

Phillips 66 Partners contributed $19 million to the midstream segment’s first-quarter earnings.

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