Summary
Investors have become so used to management's focus on growing its chemicals and midstream segments, they may have forgotten the best.
But the underlying fundamentals supporting the refining business are excellent and underpinned by low-cost Canadian crude feedstock.
Refining is likely to become a long-term advantage for PSX - which is the biggest importer of advantaged Canadian crude.
During the past few years, Phillips 66 (PSX) has invested heavily in multiple large-scale chemicals and pipeline projects in order to expand overall margins and reduce the company's reliance on the cyclical refining business. As a result, PSX estimated that it has increased normalized (mid-cycle) EBITDA by $1.5 billion during the past couple of years:
Source: August Investor Update
And, as indicated by the slide above, as the company transitions from a period of heavy investment to one of cash generation, the significant amount of share buybacks (notably the 35 million shares bought back from Berkshire Hathaway for $3.3 billion) means the company's increased cash generation will be spread over fewer (and more valuable) shares.
