Phillips 66 is a leading diversified energy company with a strong presence across the downstream value chain. The company reported annual net income of $7.02 billion, annual revenue of $147.40 billion, annual operating cash flow of $7.03 billion, and annual free cash flow of $4.61 billion in its most recent fiscal year.
Business Overview
The company operates through four key business segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). This diversified portfolio allows Phillips 66 to capitalize on opportunities across the energy landscape and deliver consistent financial performance.
Financials
In the first quarter of 2024, Phillips 66 reported earnings of $748 million, a decrease from the $1.96 billion reported in the same period of the prior year. This decline was primarily driven by lower realized refining margins, partially offset by lower income tax expense. The company's Midstream segment generated $554 million in pre-tax income, while the Chemicals segment contributed $205 million and the Refining segment reported $131 million. The M&S segment contributed $404 million in pre-tax income.
Segment Performance
The Midstream segment includes the company's Transportation and natural gas liquids (NGL) businesses. During the first quarter, Midstream results decreased $148 million year-over-year, primarily due to a $59 million impairment charge related to certain crude processing and logistics assets in California, as well as a $36 million gain recognized in the prior-year quarter associated with the sale of a terminal in Louisiana. The NGL and Other business also saw a $102 million decline, driven by unfavorable pricing due to falling natural gas prices and winter weather impacts.
The Chemicals segment, which consists of Phillips 66's 50% equity investment in Chevron Phillips Chemical Company (CPChem), saw a $7 million increase in first-quarter results. This improvement was primarily due to higher volumes and lower utility costs, partially offset by lower margins driven by decreased sales prices.
The Refining segment's first-quarter results decreased $1.48 billion year-over-year, mainly due to lower realized margins. The company's worldwide refining crude oil capacity utilization rate was 92% in the first quarter of 2024, compared to 90% in the same period of the prior year.
The M&S segment's before-tax income declined $22 million in the first quarter, primarily driven by lower U.S. marketing margins, partially offset by higher U.S. marketing volumes.
Recent Developments
Phillips 66 continues to make progress on its strategic priorities, including the monetization of non-core assets, shareholder returns, and the transformation of its Refining business. The company recently announced plans to divest its retail marketing business in Germany and Austria, which generated approximately $350 million in EBITDA. The expected proceeds from this and other potential asset sales will support the company's strategic initiatives, including its commitment to return over 50% of operating cash flow to shareholders through dividends and share repurchases.
In the Refining segment, the company remains focused on improving performance, increasing market capture, and reducing costs. Phillips 66 has achieved over $560 million, or more than $0.80 per barrel, in run-rate cost reductions from its business transformation efforts and expects to reach its full $1 per barrel run-rate target by the end of 2024.
The company's Midstream segment is also a key driver of growth, with an estimated 2024 mid-cycle adjusted EBITDA of $3.6 billion. This stable cash generation covers the company's top capital priorities, including funding sustaining capital and the dividend.
A significant milestone for Phillips 66 was the start-up of its Rodeo Renewable Energy Complex, which transformed the former San Francisco refinery into one of the world's largest renewable fuels facilities. The complex is currently producing 30,000 barrels per day of renewable fuels and is on track to increase production to 50,000 barrels per day by the end of the second quarter of 2024. This project positions the company as a leader in the renewable fuels space and is expected to generate strong returns.
Outlook
Phillips 66's diversified business model, focus on operational excellence, and strategic initiatives position the company for continued growth and value creation. With a strong balance sheet, stable cash flows, and a commitment to shareholder returns, Phillips 66 is well-equipped to navigate the evolving energy landscape and capitalize on emerging opportunities.