Phillips 66 Profit Beats Estimates on Cheap U.S. Oil

Phillips 66, the largest U.S. independent refiner by revenue since its spinoff from ConocoPhillips last year, said fourth-quarter profit beat estimates as the company benefited from an abundance of cheap domestic oil.

Per-share profit excluding a refinery writedown was $2.06 a share, 37 cents more than the $1.69 average of 16 analysts’ estimates compiled by Bloomberg. Net income fell to $708 million, or $1.11 a share, from $2 billion, or $3.17, a year earlier, when results were boosted by gains from asset sales, Houston-based Phillips 66 said in a statement today.

Phillips 66 no longer needs to buy imported light, sweet oil at its plants on the U.S. Gulf Coast, Chairman and Chief Executive Officer Greg Garland told investors on a conference call today. The company has rallied along with other U.S. refiners by boosting access to a growing supply of domestic crude that has become cheaper than overseas oil. U.S. refiners in some regions paid an average of $17.48 less for every barrel they processed compared to the global benchmark oil price, according to data compiled by Bloomberg.

“They’re taking advantage of the God-given gift of very wide crude discounts and cheap natural gas,” Fadel Gheit, a New York-based analyst with Oppenheimer & Co., said in a telephone interview today. “They are putting the money to good use and it’s reflected in the stock price.”

Shareholder Returns

Refiners awash in cash are in turn rewarding shareholders. Phillips 66 today announced plans to expand a share buyback program by $1 billion and boost the annual dividend to $1.25 a share in 2013 from a previous rate of $1 a share. Marathon Petroleum Corp., which also beat analysts’ earnings estimates, today announced plans to expand its buyback program by $2 billion.

The difference between the cost of crude and the price at which refiners sell fuel on the U.S. Gulf Coast averaged $5.11 a barrel in the October-to-December period, the most since 2005 and more than double the average during the same time last year, according to data compiled by Bloomberg.

CEO Garland is seeking growth opportunities in the company’s chemical and pipeline segments. The company announced plans in December to raise as much as $400 million in an initial public offering this year for a minority interest in some of its pipeline and logistics assets.

“Our differentiated portfolio has allowed us to capture a number of market opportunities across the value chain, resulting in significant cash generation and shareholder value creation,” Garland said in an investor call today.

Rising Profit

Adjusted profits from refining and marketing, which exclude a writedown of the value of the company’s interest in a plant in Malaysia, rose more than five-fold to $1.1 billion from $169 million a year ago, according to the company. Net income in the October-to-December period in 2011 was boosted by $1.66 billion in asset sales, including the sale of the company’s interest in the Seaway oil pipeline.

Phillips 66 has stakes in 15 operating refineries as well as a chemical joint venture with Chevron Corp. and a pipeline unit with Spectra Energy Corp.

Phillips 66 climbed 1.5 percent to a record $60.76 at the close in New York. The shares, which have 13 buy ratings and 8 holds from analysts, have risen 80 percent since the May 1 spinoff.

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