What a $3.6 Billion 2016 Phillips 66 Capex Budget Tells Investors

Energy

Published: October 12, 2015 9:45 am

Last Updated: April 28, 2020 9:43 am

The largest U.S. oil refiner by market cap is Phillips 66 (NYSE: PSX), and the company announced Monday morning that it has set its capital spending budget for 2016 at $3.6 billion. Phillips 66 will also add $2 billion to its share repurchase plan. It pays to be a refining company these days.

The largest piece of the capex budget is $2 billion earmarked for the company’s joint venture to build two pipeline systems that will move crude oil from North Dakota to Texas by way of Patoka, Ill. Phillips 66 has taken a 25% stake in the Dakota Access Pipeline (DAPL) and the Energy Transfer Crude Oil Pipeline (ETCOP) projects. The majority owners are Energy Transfer Equity L.P. (NYSE: ETE) and Energy Transfer Partners L.P. (NYSE: ETP), which together hold the remaining 75% of the projects.

The DAPL project is expected to cost about $3.7 billion to build a new 1,134-mile 30-inch pipeline from the Bakken play in North Dakota to Patoka. The ETCOP project is expected to cost around $1 billion and involves converting 678 miles of existing natural gas pipeline and adding 66 miles of new 30-inch pipeline to transport the crude from Patoka to Nederland, Texas. Both projects are expected to be completed and in service by the end of 2016.

ALSO READ: 2 High-Yielding MLPs Upgraded Despite Ugly Sector View

Phillips 66 is also planning to invest about $840 million on reliability, safety and environmental projects at its refineries and another $400 million on projects to improve yields and lower feedstock costs.

In the second quarter, Phillips 66 reported operating cash flow of $1.43 billion, and it is on track for annual operating cash flow for the year of more than $5 billion. In the first half of the year, free cash flow totaled about $527 million. There is little reason to conclude that the second half of this year will be much different, and if crude prices rise somewhat next year, Phillips 66 is still in a good position to keep the profits rolling in.

The two pipelines included in the joint venture eventually will move up to 570,000 barrels of crude a day to refineries in Texas. Phillips 66’s Sweeny refinery has a capacity of 300,000 barrels a day, and the company’s 50/50 joint venture with Cenovus in Borger can handle 90,000 barrels a day. Two refineries in Louisiana can process up to 560,000 barrels a day. The availability of less-expensive North Dakota crude only adds to the company’s overall profitability.

Phillips 66 said in its press release that it would release the capex budget for its master limited partnership, Phillips 66 Partners L.P. (NYSE: PSXP), and other self-funded joint ventures, including the Borger refinery, will be announced later this year.

The stock closed down about 1.3% on Friday at $83.52, and was up fractionally just after Monday’s opening bell. The 52-week range is $57.33 to $84.87, and that high was posted last Thursday. The consensus price target on the stock is $93.25, and the high target is $114.00.

ALSO READ: Which Exploration Companies Can Still Win With Low Oil Prices

Credit Card Companies Are Doing Something Nuts

Credit card companies are at war. The biggest issuers are handing out free rewards and benefits to win the best customers.

It’s possible to find cards paying unlimited 1.5%, 2%, and even more today. That’s free money for qualified borrowers, and the type of thing that would be crazy to pass up. Those rewards can add up to thousands of dollars every year in free money, and include other benefits as well.

We’ve assembled some of the best credit cards for users today. Don’t miss these offers because they won’t be this good forever.

Flywheel Publishing has partnered with CardRatings for our coverage of credit card products. Flywheel Publishing and CardRatings may receive a commission from card issuers.