UPDATE 2-Phillips 66 to form MLP, sets 2013 budget at $3.7 bln

Thu Dec 13, 2012 12:14pm EST

* Shares down 2.5 percent

* Partnership IPO seen in second half of 2013

* 2013 spending seen up 6 percent

By Anna Driver

Dec 13 (Reuters) - U.S. refining company Phillips 66 expects 2013 capital spending to rise 6 percent to $3.7 billion and said it intends to contribute some of its oil and gas transportation assets to form a master limited partnership.

Shares of Phillips fell 2.5 percent, following a big run-up in the stock. Since being spun off from ConocoPhillips in May, shares of the refining company have climbed 57 percent.

Many energy companies have created tax-efficient MLPs, which rely on easy access to capital markets to fund growth. Such partnerships are typically made up of assets including pipelines, gas processing plants or long-lived oil and gas fields that generate steady cash flows.

Greg Garland, Phillips 66's chief executive officer, told an investor meeting in New York that the MLP would be "a very efficient vehicle" to accelerate the company's infrastructure growth.

The company said it expects to raise about $300 million to $400 million in cash by selling a minority interest in the master limited partnership in an initial public offering planned for the second half of 2013.

The size of the MLP may have fallen short of some expectations, Phil Weiss, oil analyst for Argus Research, said.

"People were probably looking for (the MLP) to be bigger," the analyst said. "Everybody expected this and it's a littler bit smaller in size so some may see this as a good reason to sell."

Assets held in Phillips 66's planned MLP may include certain product and crude pipelines and terminals, rail cars and other rail infrastructure, as well as natural gas liquids assets, the company said.

A registration statement for the offering is expected to be filed with regulators in the second quarter of 2013, Phillips 66 said in a statement.

The company's 2013 capital program is a 6 percent increase over the $3.5 billion earmarked for capital spending in 2012. The bulk of those funds will be spent on the company's high-growth midstream and chemicals businesses, it said.

Phillips 66's refining business is benefiting from access to cheaper crude oil pumped from shale fields in North Dakota, Texas and Kansas as well as lower-cost Canadian crude oil.

For example, Phillips 66 is running about 20,000 barrels per day of cut-price crude from North Dakota's Bakken shale, and aims to double that when a new offloading facility is built, Larry Ziemba, executive vice president of refining, project development and procurement, told investors.

The company expects to improve margins by controlling costs and boosting exports of its refined products. Phillips 66 is targeting cost reductions and value capture in excess of $200 million before tax by the end of 2013, it said.

Phillips 66 also aims to lower its debt to $6 billion from $8 billion next year.

Shares of Phillips 66 were off $1.33 at $51.72 in midday New York Stock Exchange trading.

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