EUR 850.00 For Business Accounts Only

Morningstar | PSX Updated Forecasts and Estimates from 16 Apr 2019

While primarily an independent refiner, Phillips 66 also holds interests in marketing, chemical, and midstream assets that boast higher historical returns, add earnings stability, and differentiate the company from its peers. The performance of its refining segment will largely determine Phillips 66's near-term fate. In the longer term, however, heavy investment in the midstream and chemical segments will increase those segments' importance while reducing that of refining.As it stands, we view the company's refining assets as a mixed bag, although initiatives (increasing cost-advantaged feedstock processing and increasing exports) should improve profitability.Its midcontinent refineries are some of the company's best positioned, given their access to discount domestic and Canadian crudes. The competitive position and profitability of the three Gulf Coast refineries should improve with the addition of pipeline capacity to the Gulf Coast and the increase in the availability of discount light crude. Its two California refineries and one East Coast refinery remain challenged compared with the rest of its portfolio.The size of Phillips 66's midstream segment differentiates it from independent refining peers. Phillips 66 has primarily conducted its midstream activities through its 50% ownership in DCP Midstream, which focuses on natural gas infrastructure and NGL fractionation. However, the majority of new midstream capital investment will go toward Phillips 66's midstream assets outside of DCP. Those assets will probably be transferred to master limited partnership Phillips 66 Partners eventually.Phillips 66 holds its chemical assets in CPChem as a 50/50 joint venture with Chevron. Production capacity is primarily concentrated in the United States (80%) and the Middle East, where CPChem can take advantage of low-cost feedstock like ethane. Recent growth has come from the Gulf Coast petrochemical project, which started operations in late 2017 and was designed to capitalize on growing domestic NGL production and increase CPChem's global ethylene and polyethylene capacity by 30%. Future growth could come from additional capacity in the U.S. or internationally.