Phillips 66 — Q1 2024 Form 10-Q
Business context and reporting period
Phillips 66 is a diversified downstream energy company with Midstream, Chemicals, Refining, and Marketing and Specialties (M&S) segments. This unaudited filing covers the three months ended March 31, 2024; results are not necessarily indicative of full-year performance.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Sales and operating revenues | $35.811 billion | $34.396 billion; up 4% |
| Net income attributable to Phillips 66 | $748 million | $1.961 billion |
| Diluted EPS | $1.73 | $4.20 |
| Cash from operating activities | $(236) million | $1.199 billion provided |
| Capital expenditures and investments | $628 million | $378 million |
| Cash and cash equivalents | $1.570 billion | $3.323 billion at December 31, 2023 |
| Total debt | $20.154 billion | $19.359 billion at December 31, 2023 |
| Total debt to capital | 40% | 38% at December 31, 2023 |
Lower realized refining margins drove the earnings decline; reduced income tax expense partly offset it. The company attributed negative operating cash flow principally to lower refining margins and unfavorable working capital, including discretionary inventory builds. Inventories rose to $6.286 billion from $3.750 billion at year-end.
Segment income before tax was Midstream $554 million (down from $702 million), Chemicals $205 million (up from $198 million), Refining $131 million (down from $1.608 billion), and M&S $404 million (down from $426 million). Corporate and Other recorded a $330 million loss.
The composite 3:2:1 market crack spread averaged $19.45 per barrel, versus $30.59 a year earlier. Worldwide realized refining margin was $10.91 per barrel versus $20.72; worldwide refining income before tax was $0.91 per barrel versus $11.07. Worldwide refinery utilization was 92%, compared with 90%.
Phillips 66 repurchased about 8.0 million shares for approximately $1.2 billion and paid $448 million in common dividends ($1.05 per share). The weighted-average diluted share count fell to 431.9 million from 467.0 million. Interest and debt expense increased 18% to $227 million. The effective income tax rate was 21%, versus 22%.
Material changes and notable items
- Q1 2024 included $165 million of impairment expense; $163 million related to California crude-processing and logistics assets, including $104 million in Refining and $59 million in Midstream.
- Commodity derivative activity resulted in a net loss of $420 million, compared with a $173 million gain in Q1 2023.
- In February, the company issued $1.5 billion of senior notes with maturities in 2031, 2033, and 2054. It also repaid $800 million of notes at maturity, repaid $700 million of its delayed-draw term loan, and DCP Midstream early redeemed $300 million of notes. Net debt issuance proceeds for the quarter were $802 million.
- A new $5 billion revolving credit facility, maturing in 2029, replaced the prior facility. No revolving-facility borrowings were outstanding at quarter-end; $1.5 billion of commercial paper was outstanding. Reported available committed capacity was approximately $3.5 billion, down from $6.4 billion at year-end.
- On April 3, 2024, the board declared a $1.15 quarterly dividend, payable June 3, 2024.
Outlook, management commentary, and risks
- The Rodeo Renewable Energy Complex was processing only renewable feedstocks and had 30,000 barrels per day of renewable-fuels capacity. Management said it was on track to reach 50,000 barrels per day (800 million gallons annually) by the end of Q2 2024. The project is designed to support renewable jet fuel production.
- Management emphasized that cash flows depend on volatile refining and marketing margins, NGL prices, and chemicals margins. The filing does not provide numerical earnings or cash-flow guidance.
- The U.S. Army Corps of Engineers planned to issue a final environmental impact statement on the Dakota Access pipeline in fall 2024, followed by a Record of Decision. An adverse outcome could require pipeline shutdown and adversely affect results and cash flows. Phillips 66’s maximum potential contribution under the related undertaking was approximately $467 million at March 31; after a $1 billion subsidiary debt maturity was repaid on April 1, its share fell to approximately $215 million. Potential annual interest support also fell from about $20 million to $10 million.
- Environmental accruals were $442 million at quarter-end. The company said it considers it remote that costs on known contingencies would exceed existing accruals by an amount that would materially harm consolidated financial statements, while noting estimates can change. Climate regulation, environmental compliance, litigation, commodity-price volatility, operational disruptions, and counterparty creditworthiness remain risks.
- Management reported disclosure controls and procedures were effective as of March 31, 2024, and no material change in internal control over financial reporting during the quarter. The filing reported no material changes to the risk factors in the 2023 Form 10-K.
Important facts for investors to verify
- Whether refining margins and segment earnings recover, and whether the California impairments signal further asset or operating challenges.
- How inventory levels and working capital affect operating cash flow in subsequent quarters.
- Progress and actual output at Rodeo relative to the stated 50,000-barrel-per-day target and timing.
- The final Dakota Access EIS and Record of Decision, and resulting financial or operating obligations.
- Debt, commercial paper, liquidity capacity, and capital returns relative to cash generation and planned investment.
- How reported earnings and cash flows are affected by volatile commodity prices, derivatives, and environmental or regulatory costs.