Democratic admin tougher on new projects: Phillips 66

A Democratic-party controlled US government could lift the value of existing petroleum infrastructure and rekindle interest in a waning midstream corporate structure, Phillips 66 chief executive Greg Garland said today.

A tougher regulatory environment would slow permitting for new petroleum pipeline projects but potentially increase the value of existing ones, Garland said on a quarterly earnings call. Higher corporate taxes favored by Democrats could increase the value of master limited partnerships (MLPs) that proliferated under President Barack Obama's administration but have consolidated under President Donald Trump. And a Democratic administration would support the spread of interest in climate programs and accounting for the cost of carbon, he said.

"There is no question that, from a regulatory standpoint, it is going to be a tougher environment for all kinds of infrastructure, but energy in particular," Garland said.

Former vice president and Democratic presidential candidate Joe Biden has set a goal of net-zero carbon emissions by 2050 starting with a ban on new drilling permits in federal territory, reinstating climate regulations and spending $2 trillion to shift to energy sources cleaner than fossil fuels.

President Donald Trump opened up federal lands and waters to drilling and sought to ease permitting for energy infrastructure projects. But the strategy has an uneven record in US courts, including for the 530,000 b/d Dakota Access pipeline (DAPL) partly owned by Phillips 66's logistics MLP, Phillips 66 Partners.

Making it harder to build pipelines will also make existing infrastructure more valuable, Garland said.

"You can make the case that the existing pipes are probably worth more in the ground, under that kind of a scenario," Garland said.

Higher corporate taxes could make that subsidiary more valuable, too. MLPs thrived in the early stages of the hydraulic fracturing boom. An MLP is publicly traded but pays dividends and the lower taxes of a limited partnership.

Slashed tax rates dulled the edge of those structures, and US independent refiners urged to form them over the past decade have slowly bought them back.

A Democratic administration would likely support efforts to reduce the carbon intensity of fuels, too, Garland said. Such regulation presents a risk to Phillips 66's petroleum refineries, which are one of the largest US refining consumers of Canadian heavy, sour crude. But it supports the company's plans to add renewable diesel production, especially in western markets, without immediately eliminating the market for its liquid fuels.

By Elliott Blackburn