UPDATE 2-Phillips 66 profit tops street, shale boom helps

Wed Apr 30, 2014 2:07pm EDT

* Profit up as focus increases on midstream and chemicals

* Company ordering more railcars to keep up with crude by rail growth

* Project to process more oil at Illinois refinery announced (Adds financial details, executive comments, updates share price)

By Kristen Hays and Anna Driver

April 30 (Reuters) - Phillips 66, the second-largest independent U.S. oil refiner, reported a higher-than-expected quarterly profit on Wednesday, helped by a big gain from a share exchange and its chemicals and midstream businesses.

Crude oil and natural gas pumped from shale formations in the United States have lowered feedstock costs for companies such as Phillips, which is expanding its network of pipelines and processing facilities for increasing onshore output.

Phillips, based in Houston, had a first-quarter profit of $1.6 billion, or $2.67 per share, compared with $1.41 billion, or $2.23 a share, in the same quarter of 2013.

Excluding a one-time gain of $706 million primarily related to Berkshire Hathaway Inc's deal to swap its Phillips 66 shares for ownership of the company's specialty products unit, Phillips 66 earned $1.47 per share.

Analysts, on average, had expected a profit of $1.34 per share, according to Thomson Reuters I/B/E/S.

The results topped expectations on the performance of the chemicals and midstream businesses, analysts at Credit Suisse said in a note to clients.

Earnings in the company's refining business slumped to $306 million from $904 million in the first quarter of 2013, hurt by plant maintenance and lower margins.

Profit from the company's interest in Chevron Phillips Chemical company was $316 million, up 12 percent from a year earlier.

MORE RAILCARS

Phillips 66 is increasing its capability to receive North Dakota crude via rail at its New Jersey and West Coast refineries, and has ordered 1,200 new tank railcars to move it.

That is in addition to 2,000 railcars the company received last year.

A spate of fiery crude train crashes last year has increased regulatory scrutiny of the safety of the oil-by-rail movement, which has boomed in tandem with growing U.S. inland oil production.

Last week Canadian regulators ordered that all tank railcars that do not meet the industry's latest safety standards adopted in October 2011 be phased out in three years, and U.S. regulators are expected to recommend similar or possibly tougher rules.

Phillips 66's new fleet and the railcars on order meet the latest standard, Tim Taylor, executive vice president of commercial, marketing, transportation and business development for Phillips 66, told analysts on Wednesday. The company also is working with contractors and shippers to ensure their fleets do the same.

"Certainly we will comply, but we want them to meet the newest specification," he said.

Also on Wednesday, Cenovus Energy Inc announced a $100 million project to expand capacity at its joint-venture 333,000 barrels-per-day (bpd) refinery in Wood River, Illinois, which Phillips 66 operates as part of the 50-50 agreement.

The project, which will allow the plant to fully utilize processing capabilities after a $4 billion expansion to run more Canadian heavy crude, will start up in the first quarter of 2016.

Shares of Phillips were up 4 cents at $83.79 on Wednesday afternoon on the New York Stock Exchange. (Reporting by Anna Driver; editing by Bernadette Baum and Matthew Lewis)