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Phillips 66 foresees oil, gas sector struggles bleeding into 2021 from SNL Energy Finance Daily Phillips 66 foresees oil, gas sector struggles bleeding into 2021Byline: Everett Wheeler Refining giant Phillips 66 expects the impacts of the coronavirus pandemic to disrupt its oil and gas businesses well into 2021, but it may also open up some M&A opportunities. Phillips 66 executives said May 1 that they expect 2021 capital spending could be around $2 billion, down 35% year over year, as COVID-19's impact on the upstream and midstream sectors lingers. "As I look at all the capex cuts that I'm seeing in the upstream business, 30% or higher for some, I think that the midstream investable opportunities are going to be challenged in 2021," company Chairman and CEO Greg Garland said during the refining and chemical company's first-quarter earnings call. Garland acknowledged the low oil price environment is placing upstream and midstream companies under greater financial stress, which he said could lead to consolidation within the sectors. He stopped short of ruling out M&A entirely. "The first point is, never try to catch a falling knife," Garland said. "The best thing is we don't have to do anything on the M&A front. There could be opportunity to pick up assets, if not even whole companies. You'll see us look at everything, but we'll be careful and selective about what we might do." Toward the end of March, Phillips 66 said total capital spending for 2021 could fall below $2 billion if economic turmoil persists. During the company's May 1 call, Garland said he expects sustaining capital expenditures of around $1 billion and growth capital expenditures of between $1 billion and $2.5 billion. "While we're a long way to December when we would normally set our capital budget, today, I would tell you, we would probably guide to the low end of that," Garland said. Executives said consolidated debt increased by $1.2 billion in the first quarter as the company's refining segment posted a loss of $401 million, compared to a loss of $219 million a year ago. Garland said he expects refining and chemical margins would reflect "mid-cycle conditions" as 2021 approaches and people start driving. "I think being in quarantine, being cooped up and just going crazy in the house, people are going to want to get out. ... Cash generation will improve, so we'll probably pay down some debt, and have the opportunity to restart the share repurchase program." "In our normal cycle, we would look at probably increasing the dividend midyear," Garland said. "This is certainly the prerogative of the board. But as you think about how we're three times the average 10-year dividend yield of the S&P 100, I don't think there's a necessity for us to do something immediately." |
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