* Sale of California plants not ruled out
* Company aims to boost profit near-term, access cheaper oil
* No longer taking light, sweet crude imports on Gulf Coast
By Kristen Hays
HOUSTON, Jan 30 Phillips 66 is studying
"any and all options" for its California refineries given
challenges with state regulatory requirements and high costs,
Chief Executive Greg Garland told analysts on Wednesday.
Analysts have repeatedly asked whether the second-largest
independent U.S. refiner would try to sell its two California
refineries and exit the state because of higher operating costs.
Phillips 66 is working to improve profits at the California
plants by tapping into cheaper crudes already run by refineries
elsewhere in the country and reducing costs, Garland said on the
company's fourth-quarter 2012 earnings conference call.
He did not rule out a sale.
"We're studying any and all options for California in terms
of where do we go long-term in the business," he said. "We are
doing everything we can to improve it. I don't feel it's a
distressed asset. We want to take our time and be thoughtful."
Garland said the company had increased its runs of so-called
advantaged crudes - such as cheap inland U.S. crude and Canadian
heavy oil - to 67 percent of the overall U.S. crude slate, up
from 57 percent a year ago.
With that increase, the company had stopped receiving light,
sweet imports into the U.S. Gulf Coast, Garland said. Valero
Energy Corp, the largest independent U.S. refiner, on
Tuesday also said it had replaced light crude imports with
cheaper domestic crude.
Marathon Petroleum Corp on Wednesday said it aims to
replace foreign sweets with U.S. oil at its Gulf Coast
Phillips 66 is the only refiner with plants in all five
U.S.-defined petroleum supply zones. Most of its refineries run
at least some of those crudes that trade at discounts to other
global crudes because U.S. production has far outpaced
infrastructure to move it to markets.
But refiners with plants in California face regulatory
challenges as well as isolation from other markets when it comes
to tapping that supply.
Garland told analysts that Phillips 66 was looking at
getting railcars capable of hauling even cheaper Canadian heavy
crude to the company's refineries in California.
However, he said resistance to such a move was likely. A
2006 California law requiring sharp cuts in emissions has a
component that would require refineries to run crudes produced
in environmentally friendly ways. Canadian crude production
comes with high emissions.
Regulations for that component have yet to be finalized and
are tangled in the courts, leaving refiners unsure of what
limits they may have to certain cheaper crudes.
Plus, California has the huge Monterey shale, estimated by
the U.S. government to have more reserves than the prolific
Eagle Ford in Texas or Bakken in North Dakota. But output has
been spotty with geology that differs from those other plays.
Given those uncertainties, Garland told Reuters in an
interview that for the time being, Phillips 66 will focus on
improving the California refineries' single-digit returns while
studying a possible sale, joint venture or spinoff.
"The option value to hold California is zero. It really
costs us nothing," he said.
MORE ADVANTAGED CRUDE
Phillips 66 said its refineries ran an average of 112,000
barrels per day of shale crude in 2012, and aims to increase
that to 200,000 bpd this year with logistics improvements.
The company will begin receiving 2,000 railcars next month
to move more crude to refineries, and is eyeing investments at
its plants to increase sweet-crude processing capability.
Garland said the company is looking at running all sweet
crude at its 247,000-bpd refinery in Sweeny, Texas, which is
near the endpoint of the newly expanded Seaway pipeline that
moves crude from the U.S. crude futures hub in Cushing,
Oklahoma, to the Texas Gulf Coast.
Garland said Sweeny, primarily a heavy crude refinery, can
run about 60,000 bpd of sweet crude. A $50 million or less
investment could help increase that capability - just one
example of "quick-hit" investments to capture more cheaper
crude, he said.
"We will look at that and watch that," Garland said. "We
think we have quite a bit of room left to run in terms of
accelerating advantaged crude capture around our refineries."