Phillips 66 (PSX) has signed three agreements to receive an additional 100,000 barrels a day of domestically produced oil by rail and pipeline in its refineries via rail car and pipeline, the company said Wednesday.
Phillips 66's major boost in domestic crude-oil usage is another sign that refiners aren't waiting for major pipelines to start delivering the growing supplies of U.S. crude oil that drilling innovations have unlocked from shale formations. Valero Energy Corp. (VLO), Tesoro Corp. (TSO) and other refiners are increasing the use of domestically produced crude to cut imports and drive down operating costs.
Phillips 66, one of the largest refiners in the U.S., will develop two rail projects with partners Enbridge Energy Partners L.P. (EEP) and Targa Resources Partners LP (NGLS) to cut the intake of more expensive foreign crude into its refineries, and start taking crude oil from a relatively new oil field from a Magellan Midstream Partners L.P. (MMP) pipeline, the company said.
Pipeline and railway operators in past months have worked to expand the amount of crude oil that could be shipped from states like North Dakota and Texas to refineries on the Gulf Coast. That has spurred a slight increase in average U.S. oil prices during the past year, but domestically produced crude oil is still less at least $15 cheaper than the main foreign-crude price benchmark.
"Increasing our utilization of those advantaged crudes should allow us to capture significant value in our refining and marketing businesses," Phillips 66 Chief Executive Greg Garland said in a statement.
Under the agreements, Phillips 66 will take up to 40,000 barrels a day of oil from Enbridge's rail terminal in Berthold, N.D., with initial deliveries beginning in May. The crude oil will be delivered to Phillips 66 refineries on the West and East coasts, and the company may also pursue opportunities to send it to its Gulf Coast refineries.
Separately, Phillips agreed to take up to 30,000 barrels a day of U.S. or Canadian crude for five years from Targa's rail unloading and barge-loading services in Tacoma, Wash. The oil will be delivered to the Phillips 66 refinery in Ferndale, Wash., and possibly its San Francisco refinery.
Phillips 66 also detailed its agreement with Magellan to transport crude oil from the Mississippian Lime formation in Kansas and Oklahoma to Phillips 66's refinery in Ponca City, Okla. Phillips 66 said it is also investing in its own transportation assets in Oklahoma to transport an additional 40,000 barrels a day of Mississippian Lime crude to the Ponca City Refinery.
Terms of the three deals weren't disclosed.
In December, Phillips 66 unveiled plans to allocate some of its transportation assets to form a master limited partnership in an initial public offering set for the second quarter of this year.
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