Phillips 66, the crude refiner that was spun off from ConocoPhillips in May, plans to raise as much as $400 million in an initial public offering next year for a minority interest in some of its pipeline and logistics assets.
Phillips 66 plans to hold the IPO in the second half of 2013 for units in a master-limited partnership, or MLP, and use the proceeds to pay for expansion of its oil and natural gas transportation operations, the Houston-based company said today in a statement.
“We think it’s going to be good for Phillips 66 shareholders,” Chairman and Chief Executive Officer Greg Garland told reporters today after the company held its first annual investor meeting in New York. “Having that MLP vehicle in our toolbox, we can accelerate investments in infrastructure in the U.S.”
The company fell 2.3 percent to $51.84 at 3:27 p.m. in New York, the most intraday since Nov. 9 and the biggest decline for a U.S. refiner. The size of the MLP may be smaller than some investors expected, and the timing further off, Phil Weiss, an analyst at Argus Research Co., said today in a telephone interview.
Investors may also be cashing out after Phillips 66 has risen 57 percent since its first day of official trading on May 1, Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis, said today in an e-mail.
The MLP is “only the start and I would expect it will be a growth vehicle in coming years for the company,” he said. Weiss and Youngberg rate Phillips 66 a buy and don’t own shares.
Phillips 66 would become the fourth refiner since 2011 to create or announce plans for a pipeline-related MLP. MLPs, which are usually controlled by a general partner, pay no corporate income tax. They pay most of their cash to owners of limited partnership units, which are traded like shares in a public corporation. The partnership owners become responsible for paying taxes individually.
Once formed, the MLP will try to grow in Phillips 66’s existing areas, such as shipping, storing and transporting crude and refined products. Gathering and processing natural gas liquids will continue to be the domain of DCP Midstream LP, the company’s joint venture with Spectra Energy Corp., Garland said. He declined to give further details about which assets the company would use to create the new MLP, citing regulatory rules governing such discussions in advance of an IPO.
Phillips 66’s transportation and logistics assets generate $200 million annually in earnings before income, taxes, depreciation and amortization, and will grow in the “near term” to $500 million, according to a company presentation made today.