Phillips 66 Plans to Raise $400 Million in 2013 Pipeline IPO

Phillips 66 (PSX), the crude refiner that was spun off from ConocoPhillips in May, plans to raise as much as $400 million in an initial public offering next year for a minority interest in some of its pipeline and logistics assets.

Phillips 66 plans to hold the IPO in the second half of 2013 for units in a master-limited partnership, or MLP, and use the proceeds to pay for expansion of its oil and natural gas transportation operations, the Houston-based company said today in a statement.

“We believe the proposed MLP will enable us to enhance our value for our shareholders and increase the transparency of our business,” Chairman and Chief Executive Officer Greg Garland said in the statement, which comes as Phillips 66 today holds its first meeting for analysts and investors in New York.

Phillips 66 would become the fourth refiner since 2011 to create or announce plans for a pipeline-related MLP. MLPs, which are usually controlled by a general partner, pay no corporate income tax. They pay most of their cash to owners of limited partnership units, which are traded like shares in a public corporation. The partnership owners become responsible for paying taxes individually. The company did not disclose which assets it plans to use to create the MLP.

“Refiners are subject at the end of the day to commodity risk,” Gianna Bern, president of risk-management consultant Brookshire Advisory & Research, Inc. in Chicago, said in a telephone interview today. “Putting in place a structure that provides a stable investment return would be viewed positively amongst investors.”

Creating MLPs

Refiners have embraced the model as a way to reap more value from pipeline assets for which investors will pay a premium. Marathon Petroleum Corp. (MPC), which was spun off from Marathon Oil Corp. last year, sold 17.3 million units in MPLX LP on Oct. 25, creating an MLP valued at $2.3 billion, according to data compiled by Bloomberg.

The companies have used the creation of MLPs, share buybacks and dividend increases to lessen earnings volatility inherent in refining and draw investors including Warren Buffett’s Berkshire Hathaway Inc. and BlackRock Inc. As of Sept. 30, Berkshire was one of the largest shareholders of Phillips 66, with 27.2 million shares, or 4.3 percent of the company. BlackRock disclosed Dec. 6 that it holds a 10 percent stake in Marathon Petroleum.

Other Sectors

Phillips 66 and Marathon Petroleum have sought a niche as refiners with growing operations in other energy sectors. Marathon Petroleum plans to grow its pipeline business through new projects tied to its refining operations and acquisitions, Garry Peiffer, president of MPLX LP, said Dec. 11 in a telephone interview.

Phillips 66, which has stakes in 15 operating refineries, a chemical joint venture with Chevron Corp. and a pipeline and natural gas liquids unit with Spectra Energy Corp., plans $3.7 billion in 2013 capital spending, a 6 percent increase over this year’s estimated total, according to the statement.

About $1.8 billion of that represents Phillips 66’s contribution toward spending by its chemical and pipeline joint ventures for new infrastructure projects, natural gas liquids production and a petrochemical plant.

Phillips 66, which has 14 buy and seven hold ratings from analysts, has risen 62 percent since its first day of official trading May 1. The shares rose less than 1 percent to $53.05 at the close yesterday in New York.

Tesoro Corp., Marathon Petroleum and Delek U.S. Holdings have already formed pipeline MLPs.

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