HOUSTON (Dow Jones)
Phillips 66 will focus on growing its chemical and midstream segments at the expense of its fuel production business because of the weak outlook for fuel demand, the company's incoming chief executive said Monday.
Phillips 66, the refining arm of oil major ConocoPhillips (COP) that will become a stand-alone company after April 30, will shift its long-term capital spending to its ChevronPhillips chemical production and DCP Midstream (DPM) segments. Chevron Phillips is a 50-50 joint venture with Chevron Corp. (CVX). DCP is a partnership with ConocoPhillips and Spectra Energy (SE).
Phillips 66 will roughly double its 2012 capital expenditure budget for its chemical business to $500 million, while its spending on its refining business will grow from just under $1 billion, Greg Garland, a ConocoPhillips executive vice president who will head Phillips 66, said. Capex for its midstream segment will more than double to $1 billion, Garland said during a conference call with investors.
In the long term, Phillips 66 will split 50% of its capital expenditure budget evenly on the chemical and midstream businesses, up from 11% and 5%, respectively in 2011, Garland said. Spending on its traditional fuel segment will shrink from 84% of total capital budget in 2011 to 50%, he said.
The shift comes as the long-term outlook for gasoline sales in the U.S. lags because of increased vehicle fuel efficiency and greater use of alternative fuels. High oil prices are also eroding fuel refiners' profit margins.
The outlook is better for chemical segment, where raw material prices are falling because of increased natural gas liquids production, Garland said. Increased oil and gas production in the U.S. will also boost pipeline business, he said.
Returns on the chemical business "are still significantly better than what we're seeing in the refining and marketing space," Garland said.
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