Phillips 66 Earnings: All Big Oil Isn't the Same

The marketing business maintained strong margins, even as prices began to decline toward the end of the quarter.

The chemical business's earnings also grew, though only moderately as the company invests in modernization and expansion in North America. CPChem, which is the entire chemicals segment and a 50/50 joint venture withChevron, is well positioned to benefit from access to low-cost oil and natural gas on the U.S. Gulf Coast.

In its partnership with Chevron, Phillips 66's mix of petrochemical and plastics products are positioned to grow as a result of cheap oil. Source: Phillips 66.

The downtime at the Port Arthur, Texas,ethylene plant -- the result of a fire last summer -- negatively impacted adjusted earnings. The plant resumed operations in November, however, and business interruptioninsurance has covered much of those income losses.

Looking ahead, the company's investments in increasing capacity in petrochemical production -- again, a product of cheap U.S. oil and gas -- will lead to even more growth for this business. A growing global middle class will help drive demand for the hundreds of goods that are then made from those petrochemical feedstocks.

Capital position, debt, and returning cash to shareholdersThe company added a notable amount of debt over the quarter, issuing $2.5 billion in long-term notes. Roughly $800 million of this will repay debt that matures in 2015, with the rest used to fund growth, largely in the chemicals and midstream businesses.

The result? Debt, which had decreased to $6.2 billion through the third quarter, is now back up over $8.7 billion. However, cash and equivalents also rose to $5.2 billion from $3.1 billion in the previous quarter. Once the debt that expires in 2015 is repaid, debt levels will decrease accordingly. While adding debt can be risky, it appears management is putting it to work in the right places, growing midstream and chemicals businesses that could be key sources of income in coming years.

Even while adding debt to expand the core business, management still returned over $800 million to shareholders, via $275 million in dividends and $532 million in share repurchases. Since being spun out ofConocoPhillipsin 2012, Phillips 66 has increased its dividend by 60% and bought back 10.6% of its shares:

PSX Dividend data by YCharts.

In 2014 alone, the company paid $1.1 billion in dividends and repurchased $1.2 billion in stock, and still has board approval to purchase up to $2.1 billion worth of shares.

Looking long termPhillips 66's position as a major midstream and downstream energy company -- and not a producer -- largely shields the company from the wild swings in oil prices. While it's not completely protected, since the refining and chemicals businesses purchase crude and then sell the refined or manufactured results, the impacts are much less than those experienced by the producers.

The key for Phillips 66 is demand. It requires consistent and heavy volumes to be profitable, due to the high fixed costs of its business. While demand isn't growing quickly, itisgrowing. Looking ahead, falling oil prices could be a catalyst for accelerated economic growth all over the world. That's great news for Phillips 66 shareholders.

The article Phillips 66 Earnings: All Big Oil Isn't the Same originally appeared on Fool.com.

Jason Hall owns shares of Phillips 66. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.