10-QPeriod: Q3 FY2017

Phillips 66 Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 27, 2017For Securities:PSX

Summary

Phillips 66 (PSX) reported strong financial performance for the third quarter and the first nine months of 2017, demonstrating significant year-over-year earnings growth. The company's net income attributable to Phillips 66 increased by 61% to $823 million in Q3 2017 and by 37% to $1.908 billion in the first nine months of 2017, driven primarily by higher realized refining margins and improved earnings from equity affiliates. The company maintained a robust balance sheet with $1.5 billion in cash and cash equivalents and substantial liquidity available through its credit facilities. Significant events during the period included the consolidation of Merey Sweeny, L.P. (MSLP) resulting in a substantial gain, and strategic asset contributions to Phillips 66 Partners, strengthening its midstream segment. Shareholder returns were supported by consistent dividend payments and active share repurchases.

Financial Statements
Beta

Key Highlights

  • 1Net income attributable to Phillips 66 significantly increased by 61% to $823 million in Q3 2017 and by 37% to $1.908 billion in the first nine months of 2017 compared to the prior year periods.
  • 2Strong performance in the Refining segment was driven by higher realized refining margins, largely due to improved market crack spreads, and lower turnaround costs.
  • 3The company successfully consolidated Merey Sweeny, L.P. (MSLP) in February 2017, recognizing a pre-tax gain of $423 million.
  • 4Phillips 66 Partners LP received significant asset contributions in October 2017, including interests in DAPL, ETCO, and MSLP, bolstering its midstream operations.
  • 5The company maintained robust liquidity with $1.5 billion in cash and cash equivalents and $5.4 billion in total committed capacity under its credit facilities as of September 30, 2017.
  • 6Shareholder returns were supported by quarterly dividends of $0.70 per share and significant share repurchases, with an additional $3 billion authorized in October 2017.
  • 7Operating expenses increased due to higher environmental, transportation, and hurricane-related costs, as well as increased employee benefit plan contributions, but were partially offset by lower refining turnaround costs in Q3.

Frequently Asked Questions

The primary driver of the significant increase in earnings for Phillips 66 in Q3 2017 was higher realized refining margins, resulting from improved market crack spreads and secondary product margins. This was complemented by lower refining turnaround costs and improved earnings from equity affiliates in the Midstream segment.

The consolidation of MSLP, which was completed in February 2017, resulted in a significant pre-tax gain of $423 million recognized in the first quarter of 2017, contributing positively to the 'Other income' line item and overall net income for the nine-month period.

Phillips 66 maintained a strong liquidity position as of September 30, 2017, with $1.5 billion in cash and cash equivalents and $5.4 billion in total committed capacity available under its credit facilities. The company believes its current cash position, cash generated from operations, and access to external funding sources are sufficient to meet its near and long-term liquidity requirements, including capital expenditures, dividends, and share repurchases.

Shareholders were rewarded through consistent dividend payments, with a quarterly cash dividend of $0.70 per common share declared and paid. Additionally, the company actively repurchased its common stock, spending $1.127 billion in the first nine months of 2017, and received authorization for an additional $3 billion in share repurchases in October 2017.