Phillips 66 says refineries to run at mid-90% in 2Q 2017
HOUSTON (Reuters) -- Phillips 66 expects its refineries to run in the mid-90% range of their combined capacity in the second quarter, according to a document prepared for a Friday morning conference call with Wall Street analysts to discuss first quarter earnings.
Phillips 66 is the sole owner of nine US refineries with a combined crude oil throughput capacity of 1.6 MMbpd and co-owns two other US refineries with a combined capacity of 336 Mbpd.
Phillips 66's refineries ran at 84% of capacity in the first quarter, primarily due to overhauls at refineries in California, Illinois, Louisiana and New Jersey.
The company expects members of the Organization of the Petroleum Exporting Countries to agree to extend crude oil production cuts at the group's May 25 meeting, Chairman and Chief Executive Greg Garland said in a Friday morning conference call.
"I think our base case assumes that there's extension in May in terms of OPEC," Garland said.
Looking to the long-term, Garland said refiners like Phillips 66 can expect growth in mid-stream operations like pipelines and terminals along with petrochemical production.
"Refining is a good business," he said. "It's just long term, we don't see it growing."
The company thinks demand for motor fuels will decline in the United States over the next few years due to changes in automobile efficiency, Garland said. Refiners will likely focus on expanding exports to balance declines in US demand.
"To invest in refining to add capacity still doesn't make sense to us," he said. "I think to invest to reduce your cost structure, gain access advantage to crudes and some yield, those are all good investments that we should be making."
Complying with federal renewable fuel requirements continues to drag on margins, Chief Financial Officer Kevin Mitchell said during the call, even though the cost for Renewable Identification Numbers (RINs) have fallen this year.
"RINs are still a reduction to the realized margin. It's just less of a reduction with RIN prices coming down over the period," Mitchell said.
The company has been able to find replacement supply for a drop in Canadian crude exports.
"I think from our viewpoint operationally it's been a minimal impact," Garland said.
Reporting by Erwin Seba; Editing by Marguerita Choy
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