Refining Business Segment at Phillips 66

From Researchandideas
(Difference between revisions)
Jump to: navigation, search
(April 23, 2012: ConocoPhillips Reports 2012 Q1 Earnings)
Line 38: Line 38:
 
====April 23, 2012: ConocoPhillips Reports 2012 Q1 Earnings====
 
====April 23, 2012: ConocoPhillips Reports 2012 Q1 Earnings====
 
ConocoPhillips announced on April 23, 2012 that for Q1 2012, R&M’s worldwide crude oil capacity utilization rate was 91 percent, reflecting minimal unplanned downtime. The U.S. refining capacity utilization rate was 89 percent and the international rate was 97 percent. In addition, the worldwide clean product yield remained at 84 percent. R&M earnings were $452 million, compared with $482 million a year ago. The slight decrease was primarily due to lower refining margins, partially offset by higher marketing margins. Refining margins decreased as the impact of less favorable crude differentials more than offset improved market crack spreads. Pre-tax turnaround expenses for the quarter were $176 million, in line with expectations.<ref>[http://eon.businesswire.com/news/eon/20120423005517/en/Earnings/repositioning Businesswire. "ConocoPhillips Reports First-Quarter Earnings of $2.9 Billion or $2.27 Per Share" April 23, 2012]</ref>
 
ConocoPhillips announced on April 23, 2012 that for Q1 2012, R&M’s worldwide crude oil capacity utilization rate was 91 percent, reflecting minimal unplanned downtime. The U.S. refining capacity utilization rate was 89 percent and the international rate was 97 percent. In addition, the worldwide clean product yield remained at 84 percent. R&M earnings were $452 million, compared with $482 million a year ago. The slight decrease was primarily due to lower refining margins, partially offset by higher marketing margins. Refining margins decreased as the impact of less favorable crude differentials more than offset improved market crack spreads. Pre-tax turnaround expenses for the quarter were $176 million, in line with expectations.<ref>[http://eon.businesswire.com/news/eon/20120423005517/en/Earnings/repositioning Businesswire. "ConocoPhillips Reports First-Quarter Earnings of $2.9 Billion or $2.27 Per Share" April 23, 2012]</ref>
 +
 +
==Phillips 66 Worldwide Refineries==
 +
[[Image:usrefineries.jpg|thumb|500px|Phillips 66 has 15 refineries globally and 2.2 million barrels a day of capacity. "When we think about our refining business we like to think about it in four segments. One is the Mid-Continent, about 21% of our capacity is there. Margins have been very strong in this area, as you know. Our largest region is the Gulf Coast, about 33% of our capacity is there.We have large economy of scale here. We have very complex refineries on the Gulf Coast. The Western US and Pacific region is about 20%, includes our interests in the Melaka refinery.The West Coast has typically had high margins historically, but the last couple years has been challenged in part due to the economic slowdown in California." Derivative Photo: [http://hughpickens.com Hugh Pickens]]]
 +
Phillips 66 has 15 refineries globally and 2.2 million barrels a day of capacity. "When we think about our refining business we like to think about it in four segments. One is the Mid-Continent, about 21% of our capacity is there. Margins have been very strong in this area, as you know. Our largest region is the Gulf Coast, about 33% of our capacity is there.We have large economy of scale here. We have very complex refineries on the Gulf Coast. The Western US and Pacific region is about 20%, includes our interests in the Melaka refinery.The West Coast has typically had high margins historically, but the last couple years has been challenged in part due to the economic slowdown in California."<ref>[http://seekingalpha.com/article/486131-conocophillips-ceo-hosts-phillips-66-analyst-update-conference-call-transcript ConocoPhillips. "Slide Presentation for Phillips 66 Investor Update" April 9, 2012]</ref><ref>[http://www.conocophillips.com/EN/investor/presentations_ccalls/Documents/COP-Transcript-2012-04-09T15_00.pdf ConocoPhillips. "Phillips 66 Analyst Update Transcript of Phillips 66 Analyst Update" April 9, 2012]</ref><ref>[http://seekingalpha.com/article/486131-conocophillips-ceo-hosts-phillips-66-analyst-update-conference-call-transcript Seeking Alpha. "ConocoPhillips' CEO Hosts Phillips 66 Analyst Update Conference Call" April 9, 2012]</ref>
 +
 +
===Characteristics of Phillips 66 Worldwide Refineries===
 +
 +
Phillips has the following worldwide refineries:<ref>[http://www.newworldencyclopedia.org/entry/ConocoPhillips New World Encyclopedia. "ConocoPhillips" retrieved May 6, 2012.]</ref>
 +
 +
{| border=1 cellspacing=0
 +
!scope="col" width="150" | Country
 +
!scope="col" width="200" | Name
 +
!scope="col" width="150" | Location
 +
!scope="col" width="100" | Capacity (KBD)
 +
!scope="col" width="100" | Nelson Complexity Factor
 +
!scope="col" width="100" | Clean Product Yield
 +
|-
 +
|Gulf Coast US||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Alliance_Refinery Alliance Refinery (AL)]||Belle Chasse, LA||align="center"|247||align="center"|12.5||align="center"|86%
 +
|-
 +
|Eastern US and Europe||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Bayway_Refinery Bayway Refinery (BW)]||Linden, NJ||align="center"|238||align="center"|8.4||align="center"|90%
 +
|-
 +
|Central US||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Billings_Refinery Billings Refinery (BI)]||Billings, MT||align="center"|118||align="center"|14.4||align="center"|89%
 +
|-
 +
|Central US||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Borger_Refinery Borger Refinery (BG)]|| Borger, TX||align="center"|146||align="center"|12.3||align="center"|89%
 +
|-
 +
|Western US and Asia||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Ferndale_Refinery Ferndale Refinery (FN)]||Ferndale, WA||align="center"|105||align="center"|7.0||align="center"|75%
 +
|-
 +
|Eastern US and Europe||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Humber_Refinery Humber Refinery (HU)]||North Linconshire||align="center"|265||align="center"|11.6||align="center"|81%
 +
|-
 +
|Gulf Coast US||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Lake_Charles_Refinery Lake Charles Refinery (LC)]||Westlake, LA||align="center"|239||align="center"|11.2||align="center"|69%
 +
|-
 +
|Western US and Asia||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Los_Angeles_Refinery Los Angeles Refinery (LA)]||Carson, CA/Wilmington, CA||align="center"|139||align="center"|14.1||align="center"|87%
 +
|-
 +
|Western US and Asia||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Melaka_Refinery Melaka Refinery in Malaysia (ME)]||Melaka||align="center"|58||align="center"|9.3||align="center"|83%
 +
|-
 +
|Eastern US and Europe||MIRO Refinery in Germany* (MI)||Karlsruhe||align="center"|56||align="center"|7.9||align="center"|85%
 +
|-
 +
|Central US||[http://researchandideas.com/index.php?title=Phillips_66:_Ponca_City_Refinery#News_from_the_Ponca_City_Refinery Ponca City Refinery (PC)]||Ponca City, OK||align="center"|187||align="center"|9.8||align="center"|91%
 +
|-
 +
|Western US and Asia||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#San_Francisco_Refinery San Francisco Refinery (SF)]||Rodeo, CA and Santa Maria, CA||align="center"|120||align="center"|13.5||align="center"|83%
 +
|-
 +
|Gulf Coast US||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Sweeny_Refinery Sweeny Refinery (SW)]||Old Ocean, TX||align="center"|247||align="center"|13.2||align="center"|87%
 +
|-
 +
|Eastern US and Europe||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Whitegate_Refinery Whitegate Refinery in Ireland (WG)]||Cork (city)|Cork||align="center"|71||align="center"|3.8||align="center"|65%
 +
|-
 +
|Central US||[http://researchandideas.com/index.php?title=Phillips_66_Refinery_Status#Wood_River_Refinery Wood River Refinery (WR)]||Roxana, IL||align="center"|306||align="center"|12.5||align="center"|85%
 +
|}
 +
 +
* Denotes joint ventures. Crude capacity reflects that proportion.
 +
 +
====Nelson Complexity Number====
 +
What differentiates one refinery from another are their capacities and the types of processing units used to produce these petroleum products. Refineries have a distillation column and then can have any combination of secondary processing units depending on the type of crude oil they process and the products they want to produce. A distillation column separates crude oil into different petroleum products based on differences in boiling points. Each secondary processing unit after the distillation column has a specific purpose, whether it is increasing separation; upgrading low-value products, like residual fuel oil, to high value products, like distillate; increasing octane; or enhancing environmental compliance by removing sulfur and other pollutants. A refinery's level of complexity is often based on how much secondary conversion capacity it has.<ref>[http://finchannel.com/news_flash/Oil_%26_Auto/117560_Petroleum_refineries_vary_by_level_of_complexity/ Finance. "Petroleum refineries vary by level of complexity" October 12, 2012.]</ref>
 +
 +
The Nelson Complexity Index is one measure of refinery complexity. Developed in the 1960s by W.L. Nelson, the index measures the complexity and cost of each major type of refinery equipment.<ref>[http://finchannel.com/news_flash/Oil_%26_Auto/117560_Petroleum_refineries_vary_by_level_of_complexity/ Finance. "Petroleum refineries vary by level of complexity" October 12, 2012.]</ref> The Nelson complexity index assigns a complexity factor to each major piece of refinery equipment based on its complexity and cost in comparison to crude distillation, which is assigned a complexity factor of 1.0. The complexity of each piece of refinery equipment is then calculated by multiplying its complexity factor by its throughput ratio as a percentage of crude distillation capacity. Adding up the complexity values assigned to each piece of equipment, including crude distillation, determines a refinery’s complexity on the Nelson Complexity Index. The Nelson complexity index indicates not only the investment intensity or cost index of the refinery but also its potential value addition. Thus, the higher the index number, the greater the cost of the refinery and the higher the value of its products.<ref>[https://en.wikipedia.org/wiki/Nelson_complexity_index Wikipedia. "Nelson Complexity Number" Retrieved October 16, 2012.]</ref>
 +
 +
For example, the Phillips 66 refinery at Ferndale refinery in Washington has a Nelson Complexity Number of 7.0 and includes a fluid catalytic cracker, alkylation, and hydrotreating units. The Wilmington Refinery has a Nelson Complexity Number of 14.1 and includes a fluid catalytic cracker, alkylation, hydrocracking, reforming, and coking units.<ref>[http://finchannel.com/news_flash/Oil_%26_Auto/117560_Petroleum_refineries_vary_by_level_of_complexity/ Finance. "Petroleum refineries vary by level of complexity" October 12, 2012.]</ref>

Revision as of 18:55, 2 April 2015

Contents

Refining Business Segment

The return on capital for the Refinery and Marketing Business Segment at Phillips 66 has increased dramatically in recent years. However Christopher Helman writes in Forbes magazine that Phillips 66′s most profitable refineries of the past couple years are in Mid-Continent because of the the glut of crude oil pouring into the region from newly tapped shale oil plays like North Dakota’s Bakken. "Because there was a lot of new oil and not enough pipeline capacity to get it down to the Gulf Coast mega-refineries, the crude got bottled up in the storage tanks at Cushing, Oklahoma", writes Helman adding that over the next three to five years those wide differentials will collapse to the transportation differential. “So more like $3 to $5 a barrel. It’s not going to be $20 forever.”[1]Derivative Photo: Hugh Pickens
Phillips 66′s most profitable refineries of the past couple years are in what’s called the Mid-Continent — from Texas north to Montana including the Borger refinery, Ponca City, Wood River and Billings. The reason for their high profitability has been the glut of crude oil pouring into the region from newly tapped shale oil plays like North Dakota’s Bakken. "Because there was a lot of new oil and not enough pipeline capacity to get it down to the Gulf Coast mega-refineries, the crude got bottled up in the storage tanks at Cushing," writes Helman. "The bottleneck that kept oil from getting out of Cushing also kept its price at a record-wide discount relative to its rival European benchmark Brent crude. At one point last year you could buy a barrel of WTI for $27 less than a barrel of Brent. Historically WTI has been slightly more expensive." Photo: National Energy Board of Canada Click graphic to enlarge.
James Hamilton reports on Econobrowwer that on July 19, 2013 West Texas Intermediate sold for the same price as Brent for the first time in almost three years.[2] Graph: James Hamilton

Garland said during his analyst call on April 9, 2012 that the refining and marketing segment has one of the broadest geographic bases of our peers. Phillips 66 has 15 refineries and 2.2 million barrels a day of capacity and is the sixth largest non-governmental controlled refiner in the world, the second largest US refiner. Phillips 66 is the only independent downstream to have significant ownership and interest in gas gathering and processing in the global petrochemicals business.[3][4][5]

Annual Capital Plan for Refining Business Segment

December 5, 2014: Phillips to Invest $1.1 Billion in 2015 in Refining and Marketing Business Segment

Phillips 66 announced on December 5, 2014 that Phillips 66 plans $1.1 billion of capital expenditures in Refining, approximately 75 percent of which will be sustaining capital. These investments are related to reliability and maintenance, safety and environmental projects, including compliance with the new EPA Tier 3 gasoline specifications. Discretionary Refining capital investments will be directed toward small, high-return, quick pay-out projects, primarily to enhance use of advantaged crudes and improve product yields.[6]

Geographic Diversity of Refineries

September 5, 2012: Philips Geographic Footprint is a Very Competitive Advantage

Greg Garland told investors and securities analysts at the 2012 Barclays CEO Energy-Power Conference in New York on September 5, 2012 that Phillips has the broadest geographic segment within our peer group. "We think this geographic footprint gives us a very competitive advantage. It's a great platform for capturing advantaged feedstock and optimizing the product placement that comes out of the refineries. You can see 15 refineries, 11 in the US. We have substantial infrastructure that supports the refineries in terms of 15,000 miles of pipe, 50 some odd terminals, barges, railcars, etc."[7]

Cyclical Nature of Refining

February 14, 2014: Garland Says Refining is Always Going to be a Volatile Business for Phillips

Greg Garland told security analysts at the Credit Suisse Global Energy Summit on February 12, 2014 that the Refining Business Segment is always is going to be a very volatile business for Phillips. "We don't see that changing in the future. I think small changes in operating rates in infrastructure are going to create dislocations. I think having a large system like we have, having a very sophisticated and large commercial organization like we have, we're going to be able to take advantage of those opportunities that come our way."[8]

Refining and Marketing Earnings

Greg Garland told analysts at the 4th quarter earnings conference on January 30, 2013 that he expects a 15% ROCE in the R&M Business Segment going forward. "My view is that, refining historically has been kind of a 10% to 12% business," said Garland. "We think we have plans in place to advantage crude capture, yields, cost reduction, that we can move it 400 basis points. So it’s a 15% business going forward for us versus a 30% return business in Chemicals. And probably Midstream business 15% to 17% returns is kind of what we’re looking in fact."[9]Derivative Photo: Hugh Pickens

January 30, 2013: Garland Says Phillips Expects 15% ROCE in R&M Business Segment Going Forward

In answer to a question from Blake Fernandez of Howard Weil Incorporated, Greg Garland told analysts at the 4th quarter earnings conference on January 30, 2013 that he expects a 15% ROCE in the R&M Business Segment going forward. "My view is that, refining historically has been kind of a 10% to 12% business," said Garland. "We think we have plans in place to advantage crude capture, yields, cost reduction, that we can move it 400 basis points. So it’s a 15% business going forward for us versus a 30% return business in Chemicals. And probably Midstream business 15% to 17% returns is kind of what we’re looking in fact. So, to the extent that we have 30% and 40% return projects in refining, we’re going to do those. I think, I mean we do get challenged by people all the time or we under investing in refining. At this point, we don’t think so. I don’t think there’s any opportunities out there, we feel that we’ve missed in terms of an investment opportunity in the refining space. Our focus is going to be very disciplined. We’re going to restrict capital in this space. We’re going to improve returns in this space. And so we don’t see a change required in our strategy at this point in time."[10]

January 30, 2013: Garland Announces 22% ROCE in R&M Business Segment for 2012

Greg Garland told analysts at the 4th quarter earnings conference on January 30, 2013 that Phillips return on capital employed for the R&M segment, which includes over $3 billion in goodwill improved to 22% for 2012, up from a 12% return for 2011. "The earnings of all four of our refining regions increased primarily due to improved refining margins," said Garland. "The improvements in refining margins, reflects not only higher market crack spreads, but also an improved feedstock advantage especially in the Gulf Coast, in the Central Corridor regions. The improvements in feedstock advantage increased earnings in the Gulf Coast by over $200 million and by over $100 million in the Central Corridor. Finally, other refining was up this quarter compared to last year, primarily due to movements of Canadian crude supply to several of our refineries."[11]

August 1, 2012: Phillips announces Annualized R&M Adjusted Net Profit of 17% for Second-Quarter, 2012

Reuters reported on August 2, 2012 that Phillips 66 posted an annualized 17 percent adjusted profit for the R&M Business Segment for the 2nd quarter of 2012. "The adjusted net profit for 2011 was 12%. Refining and Marketing generated $1.2 billion in adjusted earnings," said Phillips Chief Financial Officer Greg Maxwell. "The $437 million improvement was primarily driven by much stronger refining margins particularly in the US Midcontinent and Europe."[12][13]

May 24, 2012: Phillips 66 Expects Global Refining Margins to Drop in 2012 and 2013

NASDAQ reported on May 24, 2012 that Clayton Reasor, Phillips 66's senior vice president of strategy and corporate affairs, said that Phillips 66 expects global refining margins to drop in 2012 and 2013 and that US gasoline demand growth in the U.S. and Europe is expected to continue to fall, while demand for distillate fuels, such as heating oil and diesel, is expected to jump, driven by growth in developing countries. "What we need to do as a refining company is ship out our yield away from gasoline to distillate to the extent we can," said Reasor. "As gasoline demand continues to fall in the U.S. we need to find markets for our products." Part of Phillips 66's strategy to become more profitable is boosting its fuels exports to more than 200,000 barrels per day by the middle of the decade, up from 100,000 barrels a day last year.[14]

April 23, 2012: ConocoPhillips Reports 2012 Q1 Earnings

ConocoPhillips announced on April 23, 2012 that for Q1 2012, R&M’s worldwide crude oil capacity utilization rate was 91 percent, reflecting minimal unplanned downtime. The U.S. refining capacity utilization rate was 89 percent and the international rate was 97 percent. In addition, the worldwide clean product yield remained at 84 percent. R&M earnings were $452 million, compared with $482 million a year ago. The slight decrease was primarily due to lower refining margins, partially offset by higher marketing margins. Refining margins decreased as the impact of less favorable crude differentials more than offset improved market crack spreads. Pre-tax turnaround expenses for the quarter were $176 million, in line with expectations.[15]

Phillips 66 Worldwide Refineries

Phillips 66 has 15 refineries globally and 2.2 million barrels a day of capacity. "When we think about our refining business we like to think about it in four segments. One is the Mid-Continent, about 21% of our capacity is there. Margins have been very strong in this area, as you know. Our largest region is the Gulf Coast, about 33% of our capacity is there.We have large economy of scale here. We have very complex refineries on the Gulf Coast. The Western US and Pacific region is about 20%, includes our interests in the Melaka refinery.The West Coast has typically had high margins historically, but the last couple years has been challenged in part due to the economic slowdown in California." Derivative Photo: Hugh Pickens

Phillips 66 has 15 refineries globally and 2.2 million barrels a day of capacity. "When we think about our refining business we like to think about it in four segments. One is the Mid-Continent, about 21% of our capacity is there. Margins have been very strong in this area, as you know. Our largest region is the Gulf Coast, about 33% of our capacity is there.We have large economy of scale here. We have very complex refineries on the Gulf Coast. The Western US and Pacific region is about 20%, includes our interests in the Melaka refinery.The West Coast has typically had high margins historically, but the last couple years has been challenged in part due to the economic slowdown in California."[16][17][18]

Characteristics of Phillips 66 Worldwide Refineries

Phillips has the following worldwide refineries:[19]

Country Name Location Capacity (KBD) Nelson Complexity Factor Clean Product Yield
Gulf Coast US Alliance Refinery (AL) Belle Chasse, LA 247 12.5 86%
Eastern US and Europe Bayway Refinery (BW) Linden, NJ 238 8.4 90%
Central US Billings Refinery (BI) Billings, MT 118 14.4 89%
Central US Borger Refinery (BG) Borger, TX 146 12.3 89%
Western US and Asia Ferndale Refinery (FN) Ferndale, WA 105 7.0 75%
Eastern US and Europe Humber Refinery (HU) North Linconshire 265 11.6 81%
Gulf Coast US Lake Charles Refinery (LC) Westlake, LA 239 11.2 69%
Western US and Asia Los Angeles Refinery (LA) Carson, CA/Wilmington, CA 139 14.1 87%
Western US and Asia Melaka Refinery in Malaysia (ME) Melaka 58 9.3 83%
Eastern US and Europe MIRO Refinery in Germany* (MI) Karlsruhe 56 7.9 85%
Central US Ponca City Refinery (PC) Ponca City, OK 187 9.8 91%
Western US and Asia San Francisco Refinery (SF) Rodeo, CA and Santa Maria, CA 120 13.5 83%
Gulf Coast US Sweeny Refinery (SW) Old Ocean, TX 247 13.2 87%
Eastern US and Europe Whitegate Refinery in Ireland (WG) Cork 71 3.8 65%
Central US Wood River Refinery (WR) Roxana, IL 306 12.5 85%
  • Denotes joint ventures. Crude capacity reflects that proportion.

Nelson Complexity Number

What differentiates one refinery from another are their capacities and the types of processing units used to produce these petroleum products. Refineries have a distillation column and then can have any combination of secondary processing units depending on the type of crude oil they process and the products they want to produce. A distillation column separates crude oil into different petroleum products based on differences in boiling points. Each secondary processing unit after the distillation column has a specific purpose, whether it is increasing separation; upgrading low-value products, like residual fuel oil, to high value products, like distillate; increasing octane; or enhancing environmental compliance by removing sulfur and other pollutants. A refinery's level of complexity is often based on how much secondary conversion capacity it has.[20]

The Nelson Complexity Index is one measure of refinery complexity. Developed in the 1960s by W.L. Nelson, the index measures the complexity and cost of each major type of refinery equipment.[21] The Nelson complexity index assigns a complexity factor to each major piece of refinery equipment based on its complexity and cost in comparison to crude distillation, which is assigned a complexity factor of 1.0. The complexity of each piece of refinery equipment is then calculated by multiplying its complexity factor by its throughput ratio as a percentage of crude distillation capacity. Adding up the complexity values assigned to each piece of equipment, including crude distillation, determines a refinery’s complexity on the Nelson Complexity Index. The Nelson complexity index indicates not only the investment intensity or cost index of the refinery but also its potential value addition. Thus, the higher the index number, the greater the cost of the refinery and the higher the value of its products.[22]

For example, the Phillips 66 refinery at Ferndale refinery in Washington has a Nelson Complexity Number of 7.0 and includes a fluid catalytic cracker, alkylation, and hydrotreating units. The Wilmington Refinery has a Nelson Complexity Number of 14.1 and includes a fluid catalytic cracker, alkylation, hydrocracking, reforming, and coking units.[23]


Cite error: <ref> tags exist, but no <references/> tag was found
Personal tools