Phillips 66 News and Views - August, 2012

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A photo of part of Marland Refinery in Ponca City, Oklahoma taken in 1919. An article from Petroleum Age in 1922 said that Marland Refinery in Ponca City had a production of 10,000-barrel per day and Marland Refinery included nearly two million barrels of steel storage for crude and finished products. An article from Petroleum Age in 1928 said "Marland refinery at Ponca City is one of the largest complete plants in the Mid-Continent field with a crude capacity of 35,000 barrles per day of which approximately half can be run down to wax. The plant is equipped with four large Dubbs units, two Cross units, and 18 Fleming stills." Derivative Photo: Hugh Pickens
A photo of Marland Refinery in Ponca City in 1921. By 1921 EW Marland had consolidated all of his oil operations under the auspices of the Marland Oil Company. Headquartered in Ponca City the firm continued its phenomenal growth pattern by absorbing numerous small oil companies including the Comar Oil Company, Tom Jones Oil Company, Kenney-Cleary Oil Company, Francoma Oil Company, John S. Alcorn Oil Company, and many others whose highly competent executives Marland's company usually retained. Photo: Oklahoma Historical Society
Willie Cries was the first successful oil well drilled by EW Marland in 1911. Photo: Wikipedia

by Hugh Pickens, Ponca City Oklahoma

On May 1, 2012 ConocoPhillips split into two separate publicly-traded companies: an upstream company that will retain the name ConocoPhillips and concentrate on exploration and production, and a downstream company, to be named Phillips 66, that will include refining and marketing (R&M), chemicals, and midstream business segments. The refinery in Ponca City, with over 700 employees the single largest employer in Ponca City, is part of the R&M segment and will go into Phillips 66. Phillips 66 will be a publicly traded company (PSX) and a number of independent financial analysts will be following the company.

The purpose of this web site is to follow Phillips 66 to document and understand the company's plans and policies particularly with respect to its Refinery and Marketing Business Segment with a special emphasis on evaluating the impact of Phillips 66 business decisions on the refinery in Ponca City, Oklahoma.

Each month we will examine the major news affecting Phillips 66.

This is the report covering August, 2012.

Contents

The Oil Industry and Ponca City

See also:

The Stock Market and Investor Relations

August 1, 2012: Phillips announces Profits up 14% in Second-Quarter Earnings Call

Reuters reported on August 2, 2012 that Phillips 66 posted a 14 percent jump in second-quarter profit with a net income of $1.18 billion, or $1.86 per share, up from $1.04 billion, or $1.64 per share, a year earlier. Chief Financial Officer Greg Maxwell told analysts the company's capital expenditures for 2012 would range between $1 billion and $1.5 billion. Phillips 66 said it would retain its 247,000 barrel-per-day Alliance plant in Belle Chasse, Louisiana, because it expects increased access to cut-price light sweet crude to run there. Garland said Phillips 66 "really likes" its Midwest and Gulf Coast refineries, which have easier access to cheaper Canadian and inland U.S. crudes. "The East and West Coast refineries are challenged refineries, and we think there are opportunities to improve them," Garland told Reuters in a post-call interview. Phillips 66 plans to buy 2,000 railcars to move cheap crude from North Dakota's Bakken shale play to the Bayway plant and its 100,000 bpd plant in Ferndale, Washington. Bayway already runs 10,000 to 20,000 bpd of Bakken crude. Garland said the Bayway Refinery and Ferndale Refinery were "absolutely" more likely to stay in the company's portfolio if Phillips 66 can increase the amount of Bakken crude they run, backing out other more expensive crudes. Bayway can run up to 100,000 bpd of light crude, while Ferndale can run 50,000 and Phillips plans to rail Bakken crude to both plants. Phillips is working to run more shale crude from the Mississippi Lime play in Oklahoma and Kansas at its 198,400 bpd refinery in Ponca City, Oklahoma by trucking crude from the company's existing gathering systems. Garland says that the company is not planning potential acquisitions -- refineries or other assets -- at this time. "There's nothing really interesting to us at this time," says Garland.[1]

Plan to Get Advantaged Crudes to Every Refinery

Garland said that Phillips wants to move the shale crudes from 120,000 to ultimately 450,000 to 460,000 barrels a day. "We are trying to get those crudes to every refinery we can. But clearly to Ferndale on the West Coast to Bayway on the East Coast, we think Ferndale can probably run 50,000 barrels a day of Bakken crude. Wood River, we can run up to 90,000 to 120,000 barrels a day of shale type crudes there. Ponca about 60,000 barrels a day. Bayway, 100,000 barrels a day of shale type crudes that we can advantage, that we can move into Bayway. Smaller Rodeo we can get at 30,000 barrels a day and Sweeny about 40,000 barrels a day. And then Alliance, we are running today Eagle Ford crude and some Bakken crude in Alliance, but ultimately 50,000 to 90,000 barrels a day. So we have a plan to get advantaged crude into most of our refineries."[2]

August 22, 2012: Garland to Speak at Barclays CEO Energy-Power Conference on September 5

Marketwatch reported on August 22, 2012 that Phillips CEO Greg C. Garland will speak to investors and securities analysts at the 2012 Barclays CEO Energy-Power Conference in New York on September 5, 20120 to discuss Phillips 66's business portfolio and provide an update on the company's strategic progress.[3]

Refineries and Marketing Business Segment

August 1, 2012: The Spread between Brent and Bakken Crude is still around $19/barrel

Michael Fitzsimmons wrote on Seeking Alpha on August 1, 2012 that in February2, 102 Fitzsimmons wrote that the price differential between WTI and Brent (then $19/barrel) would tighten up once the Seaway pipeline was reversed. "I was wrong in my prediction. What I missed was the huge increase in oil production coming out of the Bakken (now over 600,000 bpd) and Eagle Ford shales," writes Fitzsimmons. "While I was expecting production to increase, I had no idea it would increase at such a rate as to pretty much fill up Seaway and still be left with the same problem as before it was reversed."[4]

August 1, 2012: Phillips Does Not Have Plans to Acquire Additional Refineries

Reuters reported on Phillips second-quarters earnings report on August 2, 2012 that Phillips 66 is not planning potential acquisitions -- refineries or other assets -- at this time. We have looked at what is out there on the market right now in acquisitions and there is nothing really interesting to us at this time. So we have got our plate full in terms of executing the plan around improving our base R&M business, improving margins, [and] returns" says Garland.[5][6]

August 1, 2012: Phillips Won't Sell Alliance Refinery

Reuters reported on Phillips second-quarters earnings report on August 2, 2012 that Phillips 66 has decided to retain its 247,000 barrel-per-day Alliance plant in Belle Chasse, Louisiana, because it expects increased access to cut-price light sweet crude to run there.[7]

August 1, 2012: Phillips to Buy 2,000 Rail Cars to Move Bakken Crude to Bayway and Ferndale Refineries

Reuters reported on Phillips second-quarters earnings report on August 2, 2012 that Phillips 66 plans to buy 2,000 railcars to move cheap crude from North Dakota's Bakken shale play to the Bayway plant and its 100,000 bpd plant in Ferndale, Washington. Bayway already runs 10,000 to 20,000 bpd of Bakken crude.[8]

News from the Ponca City Refinery

The Ponca City Refinery, located in Ponca City, Oklahoma, has a crude oil processing capacity of 187 MBD making it by far the largest refinery in Oklahoma.[9] The refinery processes a mixture of light, medium and heavy crude oil. Most of the crude oil processed is received by pipeline from the Gulf of Mexico, Oklahoma, Texas and Canada.[10] Photo by Travel Aficionado Flicker Creative Commons Attribution-NonCommercial 2.0 Generic (CC BY-NC 2.0)

August 1, 2012: Phillips to Run 60,000 bpd of Advantaged Crudes to Ponca City Refinery

Phillips reported during their second-quarters earnings report on August 1, 2012 that Phillips wants to move the shale crudes from 120,000 to ultimately 450,000 to 460,000 barrels a day and has a plan to get advantaged crude into most of Phillips' refineries. "We are trying to get those crudes to every refinery we can," said Phillips CEO Greg Garland. "Ponca about 60,000 barrels a day."[11]

August 1, 2012: Phillips to Run More Mississippi Lime Shale Crude through the Ponca City Refinery

Mississippi Lime Oil Producing Formations around Ponca City are shown in brown. Mississippi Lime - porous limestone formations in northern Oklahoma and southern Kansas has been yielding reservoirs to horizontal operators such as SandRidge, Chesapeake, Devon and Tulsa-based Eagle Energy LLC during the past two years. The "new" reserves actually lie slightly below formations that were big producers 100 years ago. One advantage of the Mississippi Lime is that limestone's porosity and natural fractures can mean less expense on the drilling and hydraulic fracturing parts of the project. Expenses can total half and even a fourth of typical unconventional well efforts. Another advantage is that there is already plenty of seismic data available for the area from past exploration and drilling. Map created by Hugh Pickens and is a derivative creation from a similar map in the Tulsa World by David Housh.

Reuters reported on Phillips second-quarters earnings report on August 2, 2012 that Phillips is working to run more shale crude from the Mississippi Lime play in Oklahoma and Kansas at its 198,400 bpd refinery in Ponca City, Oklahoma by trucking crude from the company's existing gathering systems.[12] Rod Walton reported in the Tulsa World on September 24, 2011 that Mississippi Lime - porous limestone formations in northern Oklahoma and southern Kansas has been yielding reservoirs to horizontal operators such as SandRidge, Chesapeake, Devon and Tulsa-based Eagle Energy LLC during the past two years. The "new" reserves actually lie slightly below formations that were big producers 100 years ago. Phillips Petroleum Co., for instance, made its name in the nearby Burbank Field, on the eastern edge of the play that includes Osage, Pawnee, Kay, Garfield, Woods, Alfalfa and other northern Oklahoma counties. "It's sort of amazing that all of this has been sitting there and waiting for horizontal drilling," says Eagle CEO Steve Antry. "The vertical wells hardly drained any of that." The move now is toward the deposits containing mostly oil and natural gas liquids. The Mississippi Lime's ratio is often 52 to 55 percent oil, according to reports. "We're into the second tier of this renaissance," says Chip Minty, a spokesman for Oklahoma City-based Devon Energy Corp. "Now what we're doing is taking the same technology beyond the shales to the carbonates, such as limestone." One advantage of the Mississippi Lime is that limestone's porosity and natural fractures can mean less expense on the drilling and hydraulic fracturing parts of the project. Expenses can total half and even a fourth of typical unconventional well efforts. Another advantage is that there is already plenty of seismic data available for the area from past exploration and drilling. "It's a reasonably low-cost play where hydrocarbons have been found before, with a lot of wells drilled in the past," says RAM spokesman Robert Phaneuf. And that gives you good data points."[13]

August 6, 2012: Red Fork Energy to Pipeline and Truck Mississippi Lime Crude to Ponca City Refinery

The Oil and Gas Journal reported on August 6, 2012 that Red Fork Energy Ltd. has agreed to sell the Mississippi Lime Crude from its 75,000 net acres east of the Nemaha ridge in five Oklahoma counties to a subsidiary of Phillips 66. The oil will be pipelined or trucked to the Ponca City Refinery. Red Fork Energy just completed the McMurtry 1-21H well in Noble County, OK, in which it has 62.2% working interest, at a peak rate of 494 b/d of 38° gravity oil and 1.3 MMcfd of high-BTU gas. The well’s 23-day average was 470 boe/d.[14] Red Fork has drilled nine horizontal Mississippian wells with four completed for production, three awaiting completion and two currently drilling. The company's McMurtry 1-21H well in Development Area 2, Oklahoma, continues to be a winner for the company with production averaging about 470 barrels of oil equivalent per day. The well has been producing uninterrupted since testing commenced and has been transferred to the company's production monitoring team for permanent production. Further production from the Mississippi Lime play is just waiting on completion works to be carried out on the McMurtry 1-22H, Bunch 1-19H and State 1-13H wells.[15]

August 6, 2012: Weinstein Company to Produce Film about EW Marland, the Marland Refinery, and the Birth of the Oil Industry in North Central Oklahoma

The Tulsa World reports that the Weinstein Company, producer of the last two Academy Award winners for best picture: "The King's Speech" and "The Artist," is attached to topline the romantic drama "Ends of the Earth," written by Chris Terrio and based on the lives of EW and Lydie Marland, in a story that follows the controversial love affair between an oil baron and his adopted daughter, which destroys the empire they built together. "Chris (Terrio) has brought to life with his writing one of the most epic love stories that people have yet to really discover," said Dylan Sellers, Weinstein Company president of production. "We knew right away that this script was something special." Jennifer Lawrence, star of "The Hunger Games," is attached to play Lydie, an educated, headstrong woman who was adopted as a girl by her aunt Virginia and uncle Ernest who later becomes their adopted daughter and eventually becomes EW's wife. According to the screenplay, Lydie urges EW to raise workers' wages at the Marland Refinery and give them unpredecented access to medical care, earning her the nickname the "princess of the prairies." Todd Black, Jason Blumenthal and Steve Tisch will produce the movie for Escape Artists, which is aiming to start production in the summer of 2013.[16][17]

August 8, 2012: Pony Express Pipeline to Deliver Crude from Wyoming to Ponca City Refinery

The Oil and Gas Journal reported on August 8, 2012 that the Pony Express Pipeline company has received sufficient binding shipper commitments to move forward with its Pony Express Oil Project that will deliver crude oil from receipt points near Guernsey, Wyo., to the Phillips 66 Ponca City Refinery as well as to Cushing, Okla. The 220,000 b/d pipeline will enter service third-quarter 2014. The project involves converting 430 miles of existing pipeline from natural gas to oil service, and constructing a 260-mile pipeline extension from the existing pipeline to Ponca City and Cushing.[18]

News From Other Refineries

Alliance Refinery

The Alliance Refinery, located on the Mississippi River in Belle Chasse, La., 25 miles south of New Orleans, has a crude oil capacity of 247 MBD and processes mainly light, low-sulfur crude oil. Alliance receives domestic crude oil from the Gulf of Mexico via pipeline and foreign crude oil from West Africa via pipeline connected to the Louisiana Offshore Oil Port. The single-train refinery’s facilities include fluid catalytic cracking, hydrodesulfurization units, a reformer and aromatics units that enable it to produce a high percentage of transportation fuels, such as gasoline, diesel fuel and jet fuel. Other products include petrochemical feedstocks, home heating oil and anode petroleum coke.The majority of the refined products are distributed to customers in the southeastern and eastern United States through major common-carrier pipeline systems and by barge.[19] Photo by eustatic Flicker Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

August 1, 2012: Phillips to Run 50,000 to 90,000 bpd of Advantaged Crudes to Alliance Refinery

Phillips reported during their second-quarters earnings report on August 1, 2012 that Phillips wants to move the shale crudes from 120,000 to ultimately 450,000 to 460,000 barrels a day and has a plan to get advantaged crude into most Phillips refineries. "We are trying to get those crudes to every refinery we can," said Phillips CEO Greg Garland. "And then Alliance, we are running today Eagle Ford crude and some Bakken crude in Alliance, but ultimately [we want to run] 50,000 to 90,000 barrels a day."."[20]

August 9, 2012: Phillips 66 Puts Project On Hold to Boost ultra-low-sulfur diesel fuel output at Alliance Refinery

Bloomberg reported on August 9, 2012 that Phillips is holding off on starting a project that would boost ultra-low-sulfur diesel fuel output at its Alliance refinery in Louisiana. Phillips 66 is “re-evaluating the timing of the project based on market economics,” Rich Johnson, a Houston-based company spokesman, said in an e-mailed statement. “Reviewing economics such as supply and demand forecasts for our product will be taken into consideration as part of the long-range planning cycle we use to determine what capital projects we want to invest in.” The company received a permit on July 25, 2012 to expand a diesel hydrotreater and gulfining unit, according to a filing with the state’s Department of Environmental Quality allowing the units to remove more sulfur to meet emissions regulations. The permit will expire on Jan. 25, 2014.[21]

August 26, 2012: Alliance Refinery Likely to Shut Down for Hurricane Isaac

Reuters reported on August 26, 2012 that Hurricane Isaac looks set to disrupt U.S. offshore oil and gas supplies and analysts say it could wreak havoc on "refinery row" along the Gulf Coast, a low-lying area between Texas and Mississippi that is home to about 44 percent of U.S. refining capacity and could be the biggest test for U.S. energy infrastructure since 2008, when Hurricanes Gustav and Ike disrupted offshore oil output for months and damaged onshore natural gas processing plants, pipelines and some refineries. According to Lousiana Governor Bobby Jindal, Phillips 66 was "likely" to shut its 247,000 bpd Alliance refinery in Belle Chasse, Louisiana.[22]

August 27, 2012: Alliance Refinery Will be Shut Down for Hurricane Isaac

Fox News reported on August 27, 2012 that the Alliance refinery in Belle Chasse was in the process of suspending operations and would be completely shut down by the evening of August 27, 2012 ahead of Tropical Storm Isaac.[23]

Bayway Refinery

The Bayway Refinery, located on New York Harbor in Linden, N.J., has a crude oil processing capacity of 238 MBD and processes mainly light, low-sulfur crude oil. Crude oil is supplied to the refinery by tanker, primarily from the North Sea, Canada and West Africa. Bayway refining units include one of the world’s largest fluid catalytic cracking units, two hydrodesulfurization units, a reformer, alkylation unit and other processing equipment. The refinery produces a high percentage of transportation fuels, such as gasoline, diesel fuel and jet fuel, as well as petrochemical feedstocks, residual fuel oil and home heating oil. The facility distributes refined products to East Coast customers via barges, trucks, pipelines and railcars. Bayway also operates a 775 MMLB/Y polypropylene plant.[24] Photo by William Hartz Flicker Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

August 1, 2012: Phillips to Run 100.000 bpd of Advantaged Crudes to Bayway Refinery

Phillips reported during their second-quarters earnings report on August 1, 2012 that Phillips wants to move the shale crudes from 120,000 to ultimately 450,000 to 460,000 barrels a day and has a plan to get advantaged crude into most of Phillips' refineries. "We are trying to get those crudes to every refinery we can," said Phillips CEO Greg Garland adding that Phillips can probably move 100,000 barrels a day of shale type crudes into Bayway.[25]

August 1, 2012: Bayway Refinery to Remain in Phillips Portfolio if Phillips Can Run More Bakken Crude

Reuters reported on Phillips second-quarters earnings report on August 2, 2012 that the Bayway Refinery is "absolutely" more likely to stay in the company's portfolio if Phillips 66 can increase the amount of Bakken crude the refinery runs, backing out other more expensive crudes. Bayway can run run up to 100,000 bpd of light crude and Phillips plans to rail Bakken crude to Bayway and to its Ferndale Refinery. Phillips 66 plans to buy 2,000 railcars to move cheap crude from North Dakota's Bakken shale play to it Bayway Refinery and to its Ferndale Refinery.[26]

Borger Reinery

The Borger Refinery is located in Borger, Texas, in the Texas Panhandle about 50 miles north of Amarillo and includes an NGL fractionation facility. The refinery’s gross crude oil processing capacity is 146 MBD, and the NGL fractionation capacity is 45 MBD. The refinery facilities include coking, fluid catalytic cracking, hydrodesulfurization and naphtha reforming that enable it to produce a high percentage of transportation fuels. As a result of the business venture with Cenovus Energy, ConocoPhillips has a 50 percent interest in the refinery. The refinery processes primarily medium sour crude oil and natural gas liquids delivered through pipelines from West Texas, the Texas Panhandle, Wyoming and Canada. The Borger Refinery also can receive foreign crude oil via company-owned and common-carrier pipeline systems. It produces a high percentage of transportation fuels, such as gasoline, diesel fuel and jet fuel, as well as coke, NGL and solvents. Pipelines move refined products to West Texas, New Mexico, Colorado and the Mid-Continent Region. The Borger refinery is operated by Phillips in a 50-50 joint venture with Cenovus Energy Inc.[27][28] Photo by Burns and McDonnell

August 8, 2012: Phillips 66 reports process upset at Borger refinery

Fox Business reported on August 8, 2012 that Phillips reported a process upset at its Borger Refinery. The filing didn't specify the unit involved in the upset, but listed Area C and D as sources of the emissions that lasted just over three hours. The status of operations at the plant is unclear. A Phillips 66 representative wasn't immediately available to comment, and typically doesn't speak about day-to-day refining operations or regulatory filings.[29]

Ferndale Refinery

The Ferndale Refinery is located on Puget Sound in Ferndale, Wash., about 20 miles south of the U.S.-Canada border, and has a crude oil capacity of 100 MBD. The refinery processes primarily light, Alaska North Slope crude oil. Ferndale operates a deepwater dock capable of accommodating tankers transporting Alaskan North Slope crude oil from Valdez, Alaska. It also receives Canadian crude oil via pipeline. Ferndale Refinery facilities include a fluid catalytic cracker, an alkylation unit, a diesel hydrotreater and an S-ZorbTM unit. The refinery produces transportation fuels, such as gasoline and diesel fuel. Other products include fuel oil supplying the northwest marine transportation market. Most refined products are distributed by pipeline and barge to major markets in the northwest United States.[30] Photo by The Center for Land Use Interpretation

August 1, 2012: Phillips to Run 50,000 bpd of Advantaged Crudes to Ferndale Refinery

Phillips reported during their second-quarters earnings report on August 1, 2012 that Phillips wants to move the shale crudes from 120,000 to ultimately 450,000 to 460,000 barrels a day and has a plan to get advantaged crude into most of Phillips' refineries. "We are trying to get those crudes to every refinery we can," said Phillips CEO Greg Garland. "We think Ferndale can probably run 50,000 barrels a day of Bakken crude.".[31]

August 1, 2012: Ferndale Refinery to Remain in Phillips Portfolio if Phillips Can Run More Bakken Crude

Reuters reported on Phillips second-quarters earnings report on August 2, 2012 that the Ferndale Refinery is "absolutely" more likely to stay in the company's portfolio if Phillips 66 can increase the amount of Bakken crude the refinery run, backing out other more expensive crudes. Ferndale can run 50,000 bpd and Phillips plans to rail Bakken crude to both plants. Phillips 66 plans to buy 2,000 railcars to move cheap crude from North Dakota's Bakken shale play to it Ferndale Refinery and to its Bayway Refinery in Linden, New Jersey.[32]

San Francisco Refinery

The Rodeo Refinery. Semi-refined products from the Santa Maria facility are sent by pipeline to the Rodeo facility for upgrading into finished petroleum products. A high proportion of the refinery’s production is transportation fuel, such as gasoline, diesel fuel and jet fuel. The refinery produces CARB-grade gasoline using ethanol to meet government-mandated oxygenate requirements. The majority of refined products are distributed by pipeline, railcar and barge to customers in California.[33] Photo by Thomas Hawk Flicker Creative Commons Attribution-NonCommercial 2.0 Generic (CC BY-NC 2.0)

August 1, 2012: Phillips to Run 30,000 bpd of Advantaged Crudes to Rodeo Refinery

Phillips reported during their second-quarters earnings report on August 1, 2012 that Phillips wants to move the shale crudes from 120,000 to ultimately 450,000 to 460,000 barrels a day and has a plan to get advantaged crude into most of Phillips' refineries. "We are trying to get those crudes to every refinery we can," said Phillips CEO Greg Garland. "Smaller Rodeo we can get at 30,000 barrels a day."[34]

August 10, 2012: Phillips Said to Delay Work on a Hydrocracker at Rodeo Refinery

Businessweek reported on August 10, 2012 that Phillips is said to made the decision to delay work on a hydrocracker at the Rodeo refinery in Northern California to take advantage of a fuel-price surge after a fire that cut production at Chevron Corp's Richmond plant. The Rodeo refinery put off maintenance for at least a month at a hydrocracking unit, which makes gasoline and jet fuel, said a person with knowledge of the schedule. The work on the hydrocracker was to have taken six weeks.[35]

Sweeny Refinery

The Sweeny Refinery, located in Old Ocean, Texas, 65 miles southwest of Houston, has a crude oil processing capacity of 247 MBD. It processes mainly heavy, high-sulfur crude oil, but also processes light, low-sulfur crude oil. The refinery facilities include fluid catalytic cracking, delayed coking, alkylation, a continuous regeneration reformer and hydrodesulfurization units. The refinery receives domestic and foreign crude oil, primarily through wholly and jointly owned terminals on the Gulf Coast, including a deepwater terminal at Freeport, Texas. It produces a high percentage of transportation fuels, such as gasoline, diesel fuel and jet fuel. Other products include petrochemical feedstocks, home heating oil and coke. The refinery operates nearby terminals and storage facilities in Freeport, Jones Creek and on the San Bernard River, along with pipelines that connect these facilities to the refinery. Refined products are distributed throughout the Midwest and southeastern United States by pipeline, barge and railcar. Photo by imelda Flicker Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic (CC BY-NC-ND 2.0)

August 1, 2012: Phillips to Run 40,000 bpd of Advantaged Crudes to Sweeney Refinery

Phillips reported during their second-quarters earnings report on August 1, 2012 that Phillips wants to move the shale crudes from 120,000 to ultimately 450,000 to 460,000 barrels a day and has a plan to get advantaged crude into most of Phillips' refineries. "We are trying to get those crudes to every refinery we can," said Phillips CEO Greg Garland. "Sweeny about 40,000 barrels a day."[36]

CNBC reported on August 23, 2012 that Phillips 66's Sweeny, Texas, refinery will take 30,000 bpd of Eagle Ford oil beginning in 2014 when Kinder Morgan Energy Partners completes a $90-million extension of a pipeline to the plant, which is 66 miles south of Houston. Light, sweet Eagle Ford crude is lower-priced than other global crudes, which increases profitability for refiners by cutting their crude costs. Eagle Ford crude was recently priced at $93.75 a barrel, about a $3 discount to U.S. crude benchmark West Texas Intermediate and a $19 discount to Louisiana Light Sweet.[37]

August 2, 2012: FCCU Emissions During Rapper System Repairs at Sweeney Refinery

Phillips 66 reported it would begin repairs on August 2, 2012 to fix a short circuit detected this week at its Sweeney refinery, according to a filing with the Texas Commission on Environmental Quality. The short circuit was causing a portion of the rapper system to operate abnormally and had ultimately led to emissions, the filing said. After locating the problem and making the necessary repairs, operators will return the system to service. The filing lists a fluid catalytic cracking unit (FCCU) as a source of emissions, which were expected to continue until August 9.[38]

August 23, 2012: New Pipeline to Transport up to 30,000 bpd of Advantaged Eagle Ford Shale Crude to Sweeney Refinery

PR Newswire reports that Kinder Morgan plans invest $90 million to build a 27-mile, 12-inch diameter lateral pipeline to extend its Kinder Morgan Crude Condensate (KMCC) pipeline to transport Eagle Ford crude and condensate to Phillips 66’s Sweeny Refinery. The pipeline will have an initial capacity of 30,000 barrels per day (bpd) of capacity, expandable to 100,000 bpd. “This pipeline lateral will provide yet another attractive delivery point for customers of our KMCC pipeline while providing Phillips 66 with enhanced access to price-advantaged Eagle Ford crude and condensate,” said KMP Products Pipelines President Tom Bannigan. Kinder Morgan’s crude/condensate pipeline, which was ready for service in June 2012, already transports crude/condensate from the Eagle Ford shale to the Houston Ship Channel through 65 miles of new-build construction and 113 miles of converted natural gas pipeline. “This agreement aligns with a fundamental part of the Phillips 66 business strategy to get advantaged crude to our refineries,” said Glenn Simpson, general manager, Phillips 66 Crude & International Supply.[39] The Eagle Ford formation is located close to the U.S. Gulf Coast and the largest concentration of U.S. refineries. Eagle Ford crude was priced at $93.75 a barrel on Agust 22, 2012, about a $3 discount to U.S. crude benchmark West Texas Intermediate and a $19 discount to Louisiana Light Sweet.[40]

Wood River Refinery

The Wood River Refinery is located about 15 miles northeast of St. Louis, Mo., at the convergence of the Mississippi and Missouri rivers in Roxana, Ill. Jointly owned by ConocoPhillips and Cenovus Energy, the Wood River Refinery is operated by ConocoPhillips. Gross crude oil processing capacity of the refinery is approximately 306 MBD. The complex includes a docking area on the Mississippi River. The refinery processes a mix of light, low-sulfur and heavy, high-sulfur crude oil. Wood River receives domestic, Canadian and other foreign crude oil by various pipelines and produces a high percentage of transportation fuels, such as gasoline, diesel fuel and jet fuel. Other products include petrochemical feedstocks, asphalt and coke. The Wood River Refinery’s operations include three distilling units, two fluid catalytic cracking units, hydrocracking, coking, reforming, hydrotreating and sulfur recovery. Wood River is a major supplier to Lambert International Airport in St. Louis and is also a supplier to Chicago’s O’Hare Airport. Finished product leaves Wood River through pipeline, rail, barge and by truck. The company continues to progress the CORE Project at the Wood River Refinery. Upon completion, the project is expected to increase crude oil gross capacity from 95 MBD to 225 MBD and increase clean product yield by 5 percent.[41] Photo by Ran Yaniv Hartstein Flicker Creative Commons Attribution 2.0 Generic (CC BY 2.0)

August 1, 2012: Phillips is Getting 15 to 20% Return on Investment on the CORE Project at Wood River Refinery

Phillips reported during their second-quarters earnings report on August 1, 2012 that Phillips is pleased with their investment the Coker and Refinery Expansion (CORE) project where up to 200,000 barrels a day of Canadian or heavy crude are coming intot he Wood Rive Refinery. "We are seeing the clean product yield improvement that we envisioned, we are net 65,000 barrels a day of clean products to us. So 120 across the refinery. So as we step back and look at that project you know $3.8 billion investment, solid returns in our view. This is a 15% to 20% type return project for us."[42]

According to a report by Downstream Today on December 4, 2008 the CORE Project was a $4 billion expansion to increase the facility's heavy oil processing capacity as well as its overall throughput by adding a coker unit and increase Wood River's bitumen handling capacity nearly 700% to 200,000 b/d and increase the facility's clean product yield to 87%. "The refinery's total capacity will increase by 94,000 b/d to 400,000 b/d. The facility's owners began the expansion in September 2008 following an unexpectedly lengthy process of obtaining the necessary air permits."[43]

August 1, 2012: Phillips to Run 90,000 to 120,000 bpd of Advantaged Crudes to Wood River Refinery

Phillips reported during their second-quarters earnings report on August 1, 2012 that Phillips wants to move the shale crudes from 120,000 to ultimately 450,000 to 460,000 barrels a day and has a plan to get advantaged crude into most of Phillips' refineries. "We are trying to get those crudes to every refinery we can," said Phillips CEO Greg Garland. "Wood River, we can run up to 90,000 to 120,000 barrels a day of shale type crudes there."[44]

Chemical Business Segment

August 10, 2012: Chevron Phillips CEO Pete Cella Says Company Gets More Attention from Phillips 66

The Houston Business Journal reported on August 10, 2012 in a profile of Chevron Phillips CEO Pete Cella that with the ConocoPhillips split of its upstream and downstream business in May, Chevron Phillips makes up a more prominent part of the Phillips 66 business, which is good because the company gets more attention, said Cella. Cella also said that Chevron Phillips is more than a chemical company, it is a manufacturing company. “There is a newfound optimism in manufacturing that goes beyond chemicals,” said Cella, adding that with the recent chemical industry resurgence, there are more opportunities for U.S. companies to manufacture plastic products and chemical-related products that can boost the overall economy.[45]

Midstream Business Segment

August 6, 2012: DCP Midstream set to Double Processing Capacity in Colorado

The Denver Post reported on August 6, 2012 that DCP Midstream plans to double its capacity in the Denver-Julesberg Basin increasing processing capacity to 800 million cubic feet per day for natural gas and 70,000 barrels a day for liquids by 2014. "The Denver-Julesberg Basin continues to reinvent itself, and the introduction of horizontal drilling is uncovering associated natural gas discoveries in the Niobrara Shale and Codell formations," says Wouter van Kempen, president of the company's gathering and processing business unit. DCP Midstream recently broke ground on a plant, west of LaSalle in Weld County, with a capacity of 110 million cubic feet per day, due to be completed in the second half of 2013 and is also constructing two compressor stations near the LaSalle Plant, and an associated gathering system due to be in service by the second half of 2013.[46]

August 8, 2012: DCP Midstream Net Income Up in 2nd Quarter

Nasdaq reported on August 8, 2012 that DCP Midstream reported net income attributable to the company of $79.1 million or $1.33 per limited partner unit, up from $41.5 million or $0.80 per limited partner unit in the comparable quarter last year. Excluding items, adjusted net income attributable to the company for the quarter was $13.9 million or $0.08 per limited partner unit, compared to the net income of $20.5 million or 0.33 per limited partner unit a year ago.[47][48]

August 21, 2012: CEO Mark Borer of DCP Midstream General Partner Resigns

FuelFix reported on August 21, 2012 that DCP Midstream Partner’s Chief Executive Officer Mark Borer will resign at the end of the 2012. “I have been with the DCP enterprise since 1999 and am honored to have been a key executive during its growth into the largest NGL producer in the United States,” said Borer in a written statement. “With an effectively planned succession and transition, now is the time for me to retire from the Partnership and experience other avenues of personal and professional growth.”[49]

August 24, 2012: DCP Midstream GP appoints Bill Waldheim as New President

Equities.com reported on August 24, 2012 that Bill Waldheim has been appointed to the position of president of DCP Midstream General Partner effective September 1, 2012. Bill Waldheim is currently the president of the natural gas liquids, gas, and crude oil logistics business unit for DCP Midstream, LLC, a position he has held since 2011. Prior to that time, Waldheim was president of DCP Midstream, LLC's northern business unit since 2009 and was responsible for executive management of commercial and operations of assets in the Midcontinent, Rocky Mountain, Michigan and Gulf Coast regions as well as being responsible for downstream marketing of gas, NGLs and condensate. "The Board believes that Bill Waldheim has the demonstrated leadership skills and capabilities to ensure the long term growth and stability of DCP Midstream Partners, LP, or the 'Partnership' as we continue to execute on our multi-faceted growth strategy with increased emphasis on co-investment with DCP Midstream, LLC," said Tom O'Connor, the chairman of the board of the General Partner. "Through Bill's leadership DCP has been able to advance numerous high value projects including Sand Hills and Southern Hills pipelines."[50]

What Independent Financial Analysts Say About Phillips 66

Wall Street Bull. Phillips 66 will be a publicly traded company (PSX) and a number of independent financial analysts will be following the company. The purpose of this web site is to also follow Phillips 66 and document and discuss the company's plans and policies with an emphasis on understanding the impact of Phillips 66' business decisions on the community of Ponca City, Oklahoma. Photo: Scott Beale / Laughing Squid Flickr Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic (CC BY-NC-ND 2.0)

August 2012

August 1, 2012: Bullish at 37.60: Michael Fitzsimmons at Seeking Alpha Says Phillips Hit a Home Run on its First Quarter

Michael Fitzsimmons wrote on Seeking Alpha on August 1, 2012 that Phillips is currently enjoying a very profitable refining business due to its ability to capitalize on using WTI (currently $87.95/barrel) for its feedstock and selling refined product in a market more tied to Brent (currently $104.92/barrel). "The results were a home run. In fact, the ball was knocked out of the park." In February, 2012 Fitzsimmons wrote that the price differential between WTI and Brent (then $19/barrel) would tighten up once the Seaway pipeline was reversed. "I was wrong in my prediction. What I missed was the huge increase in oil production coming out of the Bakken (now over 600,000 bpd) and Eagle Ford shales," writes Fitzsimmons. "While I was expecting production to increase, I had no idea it would increase at such a rate as to pretty much fill up Seaway and still be left with the same problem as before it was reversed."[51]

August 2, 2012: Neutral at 40.32: Stone Fox Capital Says Phillips is a Compelling Value, but Not the Cheapest in the Sector

Stone Fox Capital wrote on August 2, 2012 that Phillips reported earnings that smashed estimates reporting a fantastic $1.4 billion in adjusted earnings, or $2.23 per share. But the majority of the earnings came from the Refining sector leaving limited earnings provided by the midstream and chemicals businesses, where investors hope for growth. "The stock remains cheap, especially considering the cash flow and the ability to fund a much more aggressive shareholder payout plan," wrote Stone Fox Capital. "The stock is a compelling value, but it is not the cheapest in the sector. Until the pipeline and chemicals businesses show stronger growth potential, it will be difficult to get beyond that investment thesis as refining profits swings will dominate this stock for now."[52]

August 3, 2012: Bullish at 39.67: Rich Duprey at Motley Fool says Phillips Couldn't have Found a Better Time to go Public

Rich Duprey wrote on Motley Fool on August 3, 2012 that a year ago oil companies were looking to divest themselves of their refining businesses but now 12 months later, the refineries are showing profits and doing better than the oil companies in some cases. "A large part of the explanation is that natural gas remains cheap and the fuel source is a key component of the refining process," writes Duprey. "Because there's something of a glut in crude oil but prices for gasoline remain relatively high, refineries are paying less for their input costs but receiving premiums on their output. They're even able to export their gasoline and still make a profit." On the back of the strong showing, Phillips 66 says it will be buying back $1 billion worth of stock and stock buybacks are generally considered a bullish signal on Wall Street. "They return capital to shareholders, while declaring management's belief that its own cheap shares are its best return on investment," adds Duprey. "Not only should Phillips 66 be buying its stock, but perhaps investors ought to as well."[53]

August 6, 2012: Bullish at 40.07: Robert Broens at Seeking Alpha Says Phillips 66 is an excellent addition to any long-term portfolio

Robert Broens at Seeking Alpha wrote on August 6, 2012 that Phillips 66 reported a decent set of second quarter results and as a vote of confidence, the board of Phillips 66 approved the repurchase of $1 billion of the company's outstanding shares. "CEO Garland already indicated that future growth will be geared toward pipeline and chemical investments. He hopes to diversify away from the refining activities, which typically report low and volatile earnings," writes Broens. "Phillips 66 operates in an extremely beneficial environment for refiners, with lower spot prices and price differentials between crude. Short-term profits will enjoy a boost from these market conditions, allowing the company to boost the payout to shareholders and finance its growth plans."[54]

August 8, 2012: Bearish at 39.77: Sean Williams at Motley Fool Not Convinced that Recent Run-up in Phillips' Share Price Can Go Much Higher

Sean Williams wrote at Motley Fool on August 8. 2012 that Phillips 66 reported a 53% jump in refining and marketing earnings in the second quarter but what's really important to understand about refiners is that their businesses are highly cyclical and subject to margin contraction if oil prices rise so keep in mind that these results can turn on a dime. "Now for the $64,000 question: What's next for Phillips 66? That question really depends on what happens with oil prices, the crack spreads that regulate Phillips 66's margins, and if oil demand remains strong," writes Williams. "The recent run-up in its share price, coupled with the cyclicality of its business, doesn't often make refiners a favorable long-term hold. Usually, you can pilfer double the yield from the upstream side of the oil business, so it really requires you to be picky with regard to when to buy into the refiners' story. Don't get me wrong, I really like Phillips 66 and think Conoco's decision to spin off its refining operations is one of the smartest moves it could have made, but I'm not convinced it can head much higher from its current levels."[55]

References

  1. Reuters. "Phillips 66 profit jumps 14 pct, shares up" by Kristin Hays. August 2, 2012
  2. Phillips 66. "Transcript for Phillips 66 second-quarter earnings call" August 1, 2012
  3. Marketwatch. "Phillips 66 to Present at Barclays CEO Energy-Power Conference" August 22, 2012.
  4. Seeking Alpha. "Phillips 66 Hits A Home Run" by Michael Fitzsimmons. August 1. 2012.
  5. Reuters. "Phillips 66 profit jumps 14 pct, shares up" by Kristin Hays. August 2, 2012
  6. Phillips 66. "Transcript for Phillips 66 second-quarter earnings call" August 1, 2012
  7. Reuters. "Phillips 66 profit jumps 14 pct, shares up" by Kristin Hays. August 2, 2012
  8. Reuters. "Phillips 66 profit jumps 14 pct, shares up" by Kristin Hays. August 2, 2012
  9. Bartlesvile Examiner-Enterprise. "ConocoPhillips, Phillips 66 have deep roots in Bartlesville" by Ryan Lance and Greg Garland. May 1,2012.
  10. ConocoPhillips. "Worldwide Refining"
  11. Phillips 66. "Transcript for Phillips 66 second-quarter earnings call" August 1, 2012
  12. Reuters. "Phillips 66 profit jumps 14 pct, shares up" by Kristin Hays. August 2, 2012
  13. Tulsa World. "Horizontal drilling breathes new life into Mississippi Lime oil region" by Rod Walton. September 9, 2011.
  14. Oil and Gas Journal. "Oklahoma: Eastern Mississippi lime play spreads out" August 6, 2012/
  15. Middle East North Africa Financial Network. "Red Fork Energy raising A$50m to accelerate Mississippian drilling" August 11, 2012.
  16. Tulsa World. "Jennifer Lawrence cast as former Oklahoma first lady Lydie Marland in new film" by Michael Smith. August 6, 2012.
  17. Variety. "Jennifer Lawrence travels to 'Ends of the Earth'" by Jeff Sneider and Rachel Adams. August 6, 2012.
  18. Oil and Gas Journal. "Pony Express Wyoming-to-Oklahoma crude line to proceed" by Christopher Smith. August 8, 2012.
  19. ConocoPhillips. "US Refining as of March 31, 2011"
  20. Phillips 66. "Transcript for Phillips 66 second-quarter earnings call" August 1, 2012
  21. Bloomberg. "Phillips 66 Puts Alliance Refinery Diesel Fuel Project On Hold" by Christine Harvey. August 9, 2012.
  22. Reuters. "UPDATE 2-Storm Isaac bearing down on U.S. refining hub" August 26, 2012.
  23. [http://www.foxbusiness.com/news/2012/08/27/phillips-66-belle-chasse-la-refinery-closing-ahead-isaac/ Fox News. "Phillips 66: Belle Chasse, La., Refinery Closing Ahead of Isaac" August 27, 2012.
  24. ConocoPhillips. "US Refining as of March 31, 2011"
  25. Phillips 66. "Transcript for Phillips 66 second-quarter earnings call" August 1, 2012
  26. Reuters. "Phillips 66 profit jumps 14 pct, shares up" by Kristin Hays. August 2, 2012
  27. Reuters. "Phillips JV Borger, Texas, refinery report upset -filing" June 3, 2012.
  28. ConocoPhillips. "US Refining as of March 31, 2011"
  29. Fox Business. "Phillips 66 Reports Process Upset at Refinery in Borger, Texas" August 8, 2012.
  30. ConocoPhillips. "US Refining as of March 31, 2011"
  31. Phillips 66. "Transcript for Phillips 66 second-quarter earnings call" August 1, 2012
  32. Reuters. "Phillips 66 profit jumps 14 pct, shares up" by Kristin Hays. August 2, 2012
  33. ConocoPhillips. "US Refining as of March 31, 2011"
  34. Phillips 66. "Transcript for Phillips 66 second-quarter earnings call" August 1, 2012
  35. Businessweek. "California Gasoline Falls After Phillips 66 Said to Delay Work" by LynnDoan. August 10, 2012.
  36. Phillips 66. "Transcript for Phillips 66 second-quarter earnings call" August 1, 2012
  37. CMBC. "Texas refiners thirsty for Eagle Ford crude" August 23, 2012.
  38. United Steelworkers Weekly List of Refinery Events. July 27,2012 - Agust 2, 2012
  39. PR Newswire. "Kinder Morgan Energy Partners and Phillips 66 Agree to Deliver Eagle Ford Shale Crude to Coastal Refinery" August 23, 2012.
  40. Reuters. "UPDATE 1-Kinder Morgan to carry Eagle Ford crude for Phillips 66" August 23, 2-12.
  41. ConocoPhillips. "US Refining as of March 31, 2011"
  42. Phillips 66. "Transcript for Phillips 66 second-quarter earnings call" August 1, 2012
  43. Downstream Today. "Wood River Refinery - Coker and Refinery Expansion (CORE)" December 4, 2008.
  44. Phillips 66. "Transcript for Phillips 66 second-quarter earnings call" August 1, 2012
  45. Houston Business Journal. "Day in the Life with Pete Cella of Chevron Phillips Chemical Company" August 10, 2012.
  46. Denver Post. "DCP Midstream set to double processing capacity in Colorado" August 8, 2012.
  47. Nasdaq. "DCP Midstream Partners Q2 Profit Rises" August 8, 2012.
  48. Seeking Alpha. "DCP Midstream Partners' CEO Discusses Q2 2012 Results - Earnings Call Transcript" August 10, 2012.
  49. FuelFix. "CEO of DCP Midstream General Partner resigns" August 21, 2012.
  50. Equities.com "DCP Midstream GP appoints new president" August 24, 2012.
  51. Seeking Alpha. "Phillips 66 Hits A Home Run" by Michael Fitzsimmons. August 1. 2012.
  52. Seeking Alpha. "Phillips 66 Reports Solid Earnings, Limited Non-Refining Profits" by Stone Fox Capital. August 2, 2012.
  53. Daily Finance. "Is Phillips 66 Wasting Your Money?" by Rich Duprey. August 3, 2012.
  54. Seeking Alpha. "Phillips 66: Favorable Refining Environment Makes This Stock A Favorite Value Play" by Robert Broens. August 6, 2012.
  55. The Motley Fool. "Is It Time to Dig Into Phillips 66, or Cut and Run?" by Sean Williams. August 8, 2012.

About the Author

Hugh Pickens

Hugh Pickens (Po-Hi '67) is a physicist who has explored for oil in the Amazon jungle, crossed the empty quarter of Saudi Arabia, and built satellite control stations for NASA all over the world. Retired in 1999, Pickens and his wife moved back to his hometown of Ponca City, Oklahoma in 2005 where he cultivates his square foot garden, mows nine acres of lawn, and photographs local events at the Poncan Theatre and Ponca Playhouse.

Since 2001 Pickens has edited and published “Peace Corps Online,” serving over one million pageviews monthly. His other writing includes contributing over 1,200 stories to “Slashdot: News for Nerds,” and articles for Wikipedia, “Ponca City, We Love You”, and Peace Corps Worldwide.

Other Articles by Hugh Pickens about Ponca City

Full Disclosure

I am an independent investor who is a stockholder in Phillips 66 and the purpose of this web site is to follow Phillips 66 to document and understand the company's plans and policies particularly with respect to its Refinery and Marketing Business Segment with a special emphasis on evaluating the impact of Phillips 66 business decisions on the Marland Refinery in Ponca City, Oklahoma. I began building my position in PSX when Phillips 66 went public on May 1, 2012 and am long PSX. I will disclose publicly if I close my position on PSX or go short. Unless stated otherwise, there is a citation for every statement in this article. The only exception is the "Conclusions Section"[1] in this report which includes my own judgments and findings. Nothing in this report is to be taken as a recommendation to buy or to sell stock in Phillips 66 (PSX). I am an advocate that that it would be beneficial for both Phillips 66 and the community of Ponca City for Phillips 66 rename its Ponca City refinery the "Marland Refinery in Ponca City" to honor an oil pioneer who together with Frank Phillips brought prosperity and advancement to Northern Oklahoma.

Updates to the Web Site

This web page is frequently updated so check back periodically to see the latest information on "Phillips 66 and Ponca City." If you have any additional information or insights that you would like to see added to this report on Phillips 66 and Ponca City please contact Hugh Pickens by email at hughpickens AT gmail DOT com.

Copyright

The material in this article is licensed under under the Creative Commons under an Attribution-Noncommercial-Share Alike 2.0 Generic license. Except for short, fair use excerpts, the material on this article cannot be used for commercial purposes without permission of Hugh Pickens. Attribution for use of any material from this article must be provided to Hugh Pickens and if used on the web a link must be provided to http://hughpickens.com.


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