Independent refiner, Phillips 66’s (PSX) senior unsecured ratings was upgraded by Moody's Investors Service – the rating unit of Moody's Corporation (MCO). The senior unsecured ratings of Phillips 66 and Phillips 66 Company's guaranteed subsidiaries was upgraded to A3 from Baa1 along with a stable outlook. The rating would affect approximately $6 billion of long-term debt in the books of the company.
Phillips 66 as of Jun 30, 2014 had $5 billion of cash and $5.4 billion of unused available committed credit facilities ($4.7 billion of which expires in Jun 2018). The upgrade mainly reflects Phillips 66's clearly delineated strategic focus and capital structure since its spinoff from ConocoPhillips (COP) in May 2012. The rating agency was also bullish on the company’s significant equity investments to diversify its refining assets. Philips 66 with its ConocoPhillips JV holds a 50% stake in Chevron Phillips Chemical Company LLC. It also has another equally owned JV with Spectra Energy Corp. (SE) christened DCP Midstream LLC.
Houston, TX based Phillips 66 is an independent publicly traded company. In addition to the refining, marketing and transportation businesses, it has emerged as an integrated downstream company with most of the Midstream and Chemicals segments, as well as power generation and certain technology operations included in the Emerging Businesses segment.
Being a buyer of crude, the company may gain from the decline in oil prices. In recent times, oil prices slumped below $95 a barrel to their lowest level since mid January on easing geopolitical tensions, a strong dollar, soft manufacturing numbers from China and reopening of Libyan export facilities. The negative sentiment was partially offset by a spate of positive economic reports on the domestic front and bullish inventory data.
Phillips 66, one the largest independent oil refiners in the U.S., has easy access to West Texas Intermediate (WTI) crude. Notably, WTI is light and of very high quality. As the major portion of the company’s refining capacity uses light/sweet crude oil as feedstock, the company is unable to take advantage of the attractive crude quality spreads, which is the price differential between the low-cost heavy/sour and the higher-priced light/sweet grades of crude oil. Currently, Phillips 66 carries a Zacks Rank #5 (Strong Sell).
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