October 31, 2012 11:04 pm

N American crude drives Phillips 66

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Phillips 66, the refining, pipelines and chemicals company split off from ConocoPhillips in May, has raised its profits by increasing the proportion of lower-priced North American crude oil that it runs in its refineries, and plans further increases in future years.

Its 24 per cent rise in underlying net earnings to $1.89bn for the third quarter of 2012 was helped by a $250m benefit from using cheaper oil, in another sign of the boost to the US energy industry created by the boom in production of shale oil from states such as North Dakota and Texas and rising output from the oil sands of western Canada.

Phillips has raised the proportion of what it calls “advantaged” crude, including heavy oil, bitumen from the Canadian tar sands, and US shale oil, from an average of 52 per cent of the oil processed at its refineries last year to 63 per cent in the third quarter of 2012.

Greg Maxwell, chief financial officer, said he thought the company could raise that to 80 per cent of its North American refining capacity of 1.8m barrels per day over the next few years.

Phillips been making efforts to secure more lower-cost crude, for example placing an order for 2,000 rail cars to carry oil from North Dakota to refineries on the east and west coasts of the US, on routes that have no pipeline connections.

The boom in US shale oil production, and expected continued growth from Canadian oil sands, means that Phillips believes that in a few years 80 per cent of the crude run through its North American refineries could have some cost advantage.

Strong North American oil production and bottlenecks in transport routes have created a wide price difference between internationally traded Brent crude oil and domestic US West Texas Intermediate.

However, Phillips believes that gap is likely to shrink as more pipeline connections are built, closing from about $22 per barrel today to just $5-$7 per barrel.

The boost from using cheaper crude helped Phillips beat analysts’ expectations with earnings of $2.97 per share, excluding one-off costs.

The dividend was raised 25 per cent to 25 cents per share.

Phillips also said it had no reports of any injuries at Bayway, its New Jersey refinery, from the storm Sandy.

The 238,000 b/d refinery, which was shut down before the storm, suffered “some flooding in low-lying areas”, Mr Maxwell said, and the company could give no indication as to when it would restart.

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