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Phillips 66 allots $1.3B for midstream growth; Trump favored oil major stocks


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Phillips 66 allots $1.3B for midstream growth; Trump favored oil major stocks

Phillips 66 to allocate $1.3B for midstream growth projects in 2017

Phillips 66 Co. declared a $2.7 billion capital budget for 2017, $1.3 billion of which is to be allocated for midstream expansion and $900 million for enhancing refining returns and operations support.

Phillips 66 expects to allot $1.5 billion to its NGL and transportation segments, 85% of which would be used for growth projects, including continued expansion of the Beaumont terminal and investment in pipelines and other terminals, Phillips 66 said in Dec. 9 news release.

Trump avoided coal in his energy stock portfolio, favoring oil, gas majors

Donald Trump campaigned heavily in 2016 on bringing back coal companies and coal jobs, but he was not personally invested in a coal comeback: He owned no coal stocks, according to his May financial disclosure form.

The president-elect's transition team said Dec. 6 that Trump sold all his stocks in June, but it provided no details. Trump told NBC's "Today" show Dec. 7 that he did not think it was appropriate to own stocks while president and that, more broadly, he does not favor stocks as investments.

The bulk of his energy-related individual stock investments were in upstream oil and gas, concentrated in three firms: Chevron Corp., Occidental Petroleum Corp. and Australia's BHP Billiton Group.

Barclays downgrades ONEOK after yearlong stock price run-up

Barclays analysts downgraded ONEOK Inc. to "equal weight" from "overweight," sounding a note of caution on the valuation of a company whose stock has more than doubled year-to-date.

Christine Cho and colleagues said the gas and oil midstream company is trading at about 14.2x enterprise value/EBITDA as of Dec. 12, compared to a 12.5x multiple among its peers. The group also increased its target for ONEOK's master limited partnership, ONEOK Partners LP, to $45 from $41, based on a projection that ONEOK and the MLP will both trade at a multiple of 13.5x in 2018.

Management quoted an EBITDA uplift of about $200 million for its potential ethane recovery by 2019. Cho and her team said the Tulsa, Okla.-based company can garner that sum from various sources, including incremental Permian volumes, natural gas liquids volumes in the Bakken and gas pipeline build-out opportunities in the STACK basin. "However, the stock is already pricing it in and without much color about what the opportunity set is beyond this, we think the stock is fairly valued at these levels," the analysts wrote.

Pipeline companies will have to fight 'leverage creep' in 2017, Moody's says

Midstream companies will find it challenging to rein in their escalating leverage as producer customers continue to cut spending, Moody's said in its 2017 industry outlook.

"Addressing 'leverage creep' will become difficult amid lack of EBITDA growth," the agency's oil and gas team said in a Dec. 8 note summarizing outlooks for the oil and gas sector in 2017. They gave the midstream industry a stable overall outlook. The analysts expect EBITDA growth for midstream players to "flatten to less than 5%" amid "scaled-back project initiatives" as debt levels remain significant.

The analysts attributed the expected lack of midstream EBITDA growth in 2017 to lower E&P spending, which they believe will eat into midstream margins and throughput volumes. They expect midstream growth capital spending to subsequently drop by an additional 20% in 2017, "jeopardizing future EBITDA growth." Against that backdrop, creeping debt levels will be difficult to address, they wrote.

The analysts' stable outlook for the midstream sector in 2017 reflects their expectations of elevated leverage, the likelihood of more structural simplifications in the space, and the impact of low commodity prices on gathering and processing enterprises.