Why Phillips 66’s Midstream and Chemicals segments underperformed in 3Q14



What changed in 3Q14 from the year-ago quarter?

In the previous part of the series, we discussed Phillips 66’s (PSX) much-improved bottom-line reflecting better performance in the Refining segment. Did Phillips 66’s other segments better their performances as well during the latest quarter? Read on to know.

Overall, Phillips 66’s (PSX) revenues decreased, but net income more than doubled in 3Q14 over 3Q13, as discussed in the previous parts of this series. Despite the profit increase, the Midstream and Chemicals segments underperformed in 3Q14.

Segmentwise Revenues

Performance of Midstream, Chemicals, and Marketing and Specialties segments

In Phillips 66’s (PSX) Midstream segment, 3Q14 revenues decreased 15%, and net income decreased 22% to $115 million from $147 million in 2Q13. Earnings were negatively affected by lower natural gas liquids (or NGL) prices.

NGL Price

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The price of NGL decreased in DCP Midstream (DPM) primarily due to higher ethane supply and lower demand for propane. DCP Midstream’s NGL prices decreased marginally to ~$37.66 per barrel in 3Q14, from ~$37.84 in 3Q13. The Midstream segment includes Phillips 66’s (PSX) 50% equity investment in DCP Midstream. Phillips 66’s earnings from DCP Midstream decreased $56 million in 3Q14 from 3Q13.

Net income decreased in Chemicals segment

In the company’s Chemicals segment, 3Q14 net income decreased 12% to $230 million from $262 million in 3Q13. Earnings were negatively affected by a total $69 million impairments charge related to two of Chevron Phillips Chemical’s equity affiliate investments and the sale of Engineering Polymers. Note that the Chemicals segment consists of Phillips 66’s 50% interest in Chevron Phillips Chemical, a joint venture with Chevron Corporation (CVX).

However, the positive factors affecting the segment’s results were lower-priced feedstocks and improved ethylene margins.

Revenues fall in Marketing and Specialties segment

In the Marketing and Specialties segment, revenues decreased marginally by 4% to $28.19 billion, but earnings increased 44% to $368 million in 3Q14, from $255 million in 3Q13. The increase was primarily due to gains associated with the Immingham Combined Heat and Power (or ICHP) plant sale. Read more on this in Part 3 of the series.

Other midstream companies include Kinder Morgan Partners (KMP), Williams Partners (WPZ), and Plains All American Partners (PAA). All of these are components of Alerian Master Limited Partnership (or MLP) exchange-traded fund (or ETF) (AMLP).

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