How Midstream Revenue Enhances Oil Refiners' Financial Health

Role of Midstream Operations in Oil Refining

Midstream operations play a crucial role in oil refining by enhancing crude utilization rates, supporting refining systems through transportation and storage, and driving significant operating cash flow, as evidenced by strong performances from companies like Phillips 66, Marathon Petroleum, and Chevron.

"And we've got strong refining availability that contributed to our highest crude utilization rate in over five years and Midstream reported near-record results, benefiting from strong operating performance and continued synergy capture. At Rodeo, we're processing approximately 50,000 barrels per day of renewable feedstocks." --- (PSX, earning call, 2024/Q2)

"Our Midstream segment gathers, transports, stores and distributes crude oil, refined products, including renewable diesel, and other hydrocarbon-based products, principally for our Refining & Marketing segment." --- (MPC, sec filing, 2024/Q1)

"All the spending is really self-funded from the cash from operations. We've been lifting oil and bringing it to the U.S., which has been helpful for the U.S. refining system, not just ours but others as well." --- (CVX, earning call, 2024/Q1)

"We've got midstream, we've got refining, we've got chemicals, we've got marketing and specialties And that portfolio of businesses really position us for value creation across the economic cycles." --- (PSX, conference, 2024/06/18)

"Operating cash flow excluding changes in working capital was over $1.9 billion in the quarter, driven by both our refining and midstream businesses." --- (MPC, earning call, 2024/Q1)

Revenue Diversification through Midstream Activities

Midstream activities have significantly diversified revenue streams for oil refiners. Phillips 66 reported a $238 million gain from selling a midstream asset, while Marathon Petroleum highlighted midstream sales volumes as a key financial metric. Additionally, Phillips 66's integration of DCP Midstream underscores strategic investments in midstream capabilities.

"Net gain on dispositions increased $249 million and $215 million in the second quarter and six-month period of 2024, respectively, primarily due to a before-tax gain of $238 million recognized in the Midstream segment in the second quarter of 2024 associated with the sale of our 25% ownership interest in REX." --- (PSX, sec filing, 2024/Q2)

"These sales volumes are included in the total sales volume amounts. Midstream The following includes key financial and operating data for the first quarter of 2024 compared to the first quarter of 2023." --- (MPC, sec filing, 2024/Q1)

"Restructuring costs, related to the integration of DCP Midstream, primarily reflect severance costs, consulting fees and contract exit costs. A portion of these costs are attributable to noncontrolling interests." --- (PSX, press release, 2024/07/30)

Cost Efficiencies and Operational Synergies

Phillips 66 and Chevron are capturing significant synergies and cost efficiencies, with Phillips 66 targeting $400 million in synergies and Chevron exceeding CapEx savings by $100 million. ExxonMobil balances reliability, safety, and efficiency, while Phillips 66's DCP integration enhances organizational efficiencies and cost savings.

"The company remains focused on capturing over $400 million of run-rate commercial and operating synergies by the end of 2024." --- (PSX, press release, 2024/04/26)

"We're really pleased with the progress that we're seeing on the synergies. On the CapEx side to-date, we've captured $500 million, which is $100 million more than what we had initially guided to." --- (CVX, earning call, 2024/Q1)

"To strike the balance of higher reliability, safer operations, while continuing to find efficiencies, and that's exactly what they've been doing." --- (XOM, earning call, 2024/Q1)

"Second-quarter earnings of $1.0 billion or $2.38 per share; adjusted earnings of $984 million or $2.31 per share $1.3 billion returned to shareholders through dividends and share repurchases Record Midstream NGL pipeline and fractionation volumes; synergy capture driving lower costs Strong Refining operations with 98% crude utilization, 86% clean product yield and lower costs Phillips 66 (NYSE:PSX), a leading diversified and integrated downstream energy provider, announced second-quarter earnings." --- (PSX, press release, 2024/07/30)

"We completed the last major milestone of our DCP integration in Q1. So, that was really around our back office and our IT system. So that's positioned us well for some organizational efficiencies and cost savings that give us a lot of confidence in hitting our synergy capture for the DCP transaction." --- (PSX, earning call, 2024/Q2)

Market Dynamics Affecting Midstream Revenue

Market dynamics affecting midstream revenue are influenced by volatile industry margins driven by global supply-and-demand balances, crude oil prices, and feedstock costs (CVX). Declining refining margins in Asia (VLO) and run cuts in Europe and Asia (PSX) further impact these dynamics, alongside potential market volatility and price changes (VLO).

"Industry margins are sometimes volatile and can be affected by the global and regional supply-and-demand balance for refined products and petrochemicals, and by changes in the price of crude oil, other refinery and petrochemical feedstocks, and natural gas." --- (CVX, sec filing, 2024/Q1)

"Joe Laetsch: Great. Yes, that makes sense. And then, I was hoping to go back and dig into your comments on Asia refining dynamics earlier, just given the decline in margins that we've seen over the past couple of months." --- (VLO, earning call, 2024/Q1)

"But we are constructive. We do think the market will come back. You're seeing, starting to see run cuts in Europe and Asia with hydrocracking and hydro-skimming margins that break even." --- (PSX, earning call, 2024/Q1)

"Are you see ratable exports coming from overseas product-wise into that market or do you expect kind of heightened volatility and elevator prices there?" --- (VLO, earning call, 2024/Q1)

Strategic Partnerships and Joint Ventures

Strategic partnerships and joint ventures significantly enhance oil refiners' financial health by leveraging expertise, reducing costs, and increasing profitability. Companies like Phillips 66, Valero, Marathon Petroleum, and Chevron have successfully utilized joint ventures to achieve operational efficiency, sustainability goals, and robust financial returns.

"And we do it through joint ventures. Typically, we'll have a partner that knows a great deal" --- (PSX, conference, 2024/06/18)

""Darling Ingredients and its joint venture partner have demonstrated for more than 10 years that DGD is the lowest cost, lowest carbon intensity and most profitable renewables producer in the market," said Randall C. Stuewe, Chairman and CEO." --- (VLO, press release, 2024/07/31)

"In 2023, investments primarily included the Martinez Renewables joint venture and the acquisition of a 49.9 percent equity interest in LF Bioenergy for approximately $56 million." --- (MPC, sec filing, 2024/Q1)

"NOJV, right on plan with what we expected and a lot of visibility into the non-operated joint venture portfolio for this year, more even than last year at this time, and confidence that, that will deliver." --- (CVX, earning call, 2024/Q1)

"We based these forward-looking statements on our current expectations, estimates and projections about us, our operations, our joint ventures and entities in which we have equity interests, as well as the industries in which we and they operate, and our sustainability-related plans and goals." --- (PSX, sec filing, 2024/Q1)

Regulatory Impacts on Midstream Operations

Regulatory developments, including political uncertainties, military conflicts, and sanctions, significantly impact midstream operations. Companies like Valero and Marathon Petroleum face challenges in predicting these effects, while Chevron navigates a tough regulatory climate and pending issues, affecting expansion and operational strategies.

"While it is difficult to predict future worldwide economic activity and its impact on product supply and demand, as well as any effect that the uncertainty described in Note 2 of Condensed Notes to Consolidated Financial Statements or other political or regulatory developments may have on us, we have noted several factors below that have impacted or may impact our results of operations during the second quarter of 2024." --- (VLO, sec filing, 2024/Q1)

"We are unable to predict the potential effects that the continuance or escalation of the military conflicts, and related sanctions or market disruptions on shipping and energy costs, may have on our financial position and results." --- (MPC, sec filing, 2024/Q1)

"I've read all the documents, but just to get your sort of view. We've got a shareholder vote in May that we go in limbo pending regulatory issues, but obviously, importantly, the arbitration." --- (CVX, earning call, 2024/Q1)

"But I was just curious if you had any thoughts about -- on the policy front on that, I guess, you call it judicial front, how that might affect any parts as we think about some of the CAFE standard stuff and then has been mentioned the challenges in getting permits to do things on the expansion side? Operator: Our next question is from Ryan Todd with Piper Sandler." --- (VLO, earning call, 2024/Q2)

"But it's a tough regulatory climate. And you're well positioned as one of the players that still has multiple assets in California." --- (CVX, earning call, 2024/Q1)

Technological Advancements in Midstream Operations

Technological advancements in midstream operations are being driven by industry leaders like Marathon Petroleum Corporation and Chevron, who emphasize safety, industry advancement, and progress in technology and renewable fuels.

"Kudos to the entire MPL team for their unwavering commitment to safety and industry advancement!" --- (MPC, Twitter, 2024/05/24)

"We are working to advance a lower carbon future. Our recent achievements across production, technology, and renewable fuels demonstrate our progress." --- (CVX, Twitter, 2024/05/03)

Future Outlook of Midstream Operations

Chevron's strong outlook for Gulf of Mexico projects and ExxonMobil's commitment to meeting ongoing fossil fuel demand indicate a robust future for midstream operations, essential for sustaining oil refiners' financial health.

"And then, of course, we've got other Gulf of Mexico projects as well that are kind of stacked up right behind Anchor over subsequent quarters. So the outlook in the U.S. is especially strong." --- (CVX, earning call, 2024/Q1)

"Jim Chapman: All right, next question. We saw a number of comments on the fact that the U. S. And the world will continue to need fossil fuel based energy for the foreseeable future. Can you share what ExxonMobil is doing to meet demand?" --- (XOM, event transcript, 2024/05/29)