Q4 2013 Earnings Call Transcript

Transcript Call Date 01/29/2014

Western Pacific's improvement is mainly due to improved clean product yields, product differentials and also secondary product values. For the Atlantic Basin, this region was down due to the impact of lower market cracks, as well as Bayway having a major scheduled turnaround during the fourth quarter. Other Refining was down this quarter due to scheduled maintenance on the Keystone Pipeline. All available pipeline capacity was used to deliver crude to our refineries. However, a lack of surplus capacity prevented us from capturing additional gains.

Next, just look at our market capture on Slide 12, compared to the market, our realized margin improved mainly from feedstock opportunities, most notably in the Central Corridor. In addition, secondary products were less of a negative impact this quarter reducing the margin by $5.54 a barrel, compared with $6.35 last quarter. As captured in the other bare, we also benefited from clean product differentials. During the quarter, we realize better prices on average for clean products, compared with the benchmark prices. In addition, as RIN prices moderated the benefit of resulting lower expenses is reflected in this bar.

Slide 13 shows the comparison of advantaged crude runs at our U.S. refineries by quarter for 2013 on the left and for the past three years as shown on the graph on the right. During the quarter, 94% of the company's U.S. crude slate was considered advantaged and this compared with 66% last quarter. The 28 percentage point increase reflects the inclusion of other light and medium crudes, which have been trading consistently at a discount to Brent. Some examples include HLS, LLS and ANS.

On an annual basis, our advantaged crude slate has increased from 62% in 2012 to 74% in 2013 and this is due to processing an additional 118,000 barrels per day at tight oil, additional domestic crudes that consistently trade at a discount to Brent as well as higher volumes of heavy Canadian crudes. The decrease in other heavy crude category from 27% in 2012 to 24% in 2013 is attributable mainly through downtime at our Lake Charles and Sweeny refineries this year.

This next slide covers our Marketing and Specialties segment or M&S. Worldwide Marketing margins were $0.028 per gallon in the fourth quarter and while our Refining segment benefited from reduced RINs cost during the quarter, earnings and M&S decreased due to lower RINs values created by its renewable fuel blending activities.

As previously announced, we planned to exchange PSPI shares for PSX shares that are currently being held by Berkshire Hathaway. At closing, the PSPI balance sheet will include approximately $450 million in cash, resulting in a total PSPI value of $1.4 billion.

With the announcement of this transaction, Specialties now primarily includes our lubricants business. Part of moving PSPI's results to discontinued operations, their earnings accounted for approximately 30% of our Specialties results. The 2013 adjusted return on capital employed from M&S was 27%, on average capital employed of $2.9 billion.

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