Phillips 66 Focuses on Midstream Expansion and Refining Upgrades

Phillips 66’s capex

Phillips 66 (PSX) aims at strengthening its diversified earnings model by expanding its Midstream segment and modernizing its Refining segment. The company’s adjusted capex stood at $675 million in the first quarter of 2019, 62% of which was in the Midstream segment. Phillips 66 has many ongoing projects in the Midstream segment that are expected to enhance its earnings.

Comparatively, Valero Energy’s (VLO) capex for the first quarter stood at $726 million. VLO aims to invest $2.5 billion per year in capex in the next two years, of which ~$1 billion will be earmarked for growth projects. Peer HollyFrontier (HFC) incurred capex of $64 million in the first quarter of 2019, continuing its growth drive.

Phillips 66 Focuses on Midstream Expansion and Refining Upgrades

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Refining segment upgrades

In the first quarter of 2019, in the Refining segment, Phillips 66 incurred capex on modernization and sustenance spending. Phillips 66 is setting up a 25,000-barrel-per-day isomerization unit at its Lake Charles Refinery, which is expected to be completed by the third quarter of 2019. The company’s project of modernizing fluid catalytic cracking at the Sweeny Refinery is also underway. This endeavor is expected to increase the production of higher-value gasoline and petrochemicals.

Projects in the Midstream segment

Phillips 66 plans to raise its stable Midstream earnings to build a diversified earnings model. This strategy is expected to shield the company from refining environment volatility. Let’s look at a few of Phillips 66’s most important Midstream projects.

One of Phillips 66’s vital Midstream projects is the Gray Oak Pipeline, which has a capacity of 900,000 barrels per day. The pipeline connects sources such as the Permian and Eagle Ford to destinations such as Corpus Christi and Sweeny.

Further, DCP Midstream has a 25% stake in the Gulf Coast Express Pipeline, which is expected to begin operation in the fourth quarter of 2019. The pipeline transports natural gas from the Permian Basin to the US Gulf Coast.

Also, Phillips 66 is expanding its strategically located integrated natural gas liquids facility, Sweeny Hub, on the US Gulf Coast. The Hub provides vital access to export markets for fuels, petrochemicals, and liquefied petroleum gas. The expansion should be completed by the fourth quarter of 2020.

The company’s Beaumont Terminal has now expanded to 14.6 million barrels of storage capacity. This capacity is expected to be augmented by another 2.2 million barrels in the first quarter of 2020.