Wednesday, April 3, 2013

Phillips 66 Upcoming MLP: How It Will Affect PSX

Phillips 66 (PSX) has been on a tear since splitting from ConocoPhillips (COP) last year. Aside from its run-up in price, it has also raised its dividend for three straight quarters as well as announced plans to spin-off certain assets into a Master Limited Partnership (MLP).

All of this of course was great news, but I wanted to know about the details of the MLP spin-off. What assets were going to be included in the new company? Will existing shareholders receive shares of this new company, or will it benefit through holding stock in PSX? Well PSX recently shed some light on these questions.

My main concern was whether existing shareholders would receive shares of the MLP spin-off, Phillips 66 Partners LP (PSXP). I hold PSX in my Roth IRA which are not conducive for holding MLPs, so if I would receive shares of the new MLP I would likely have to sell it immediately. Luckily that is not the case.

The parent company will retain the majority of shares in the newly formed PSXP. For us dividend growth investors that is good news and I believe will benefit us in several ways:
  1. PSX will receive PSXP's distributions, which will be tax-advantaged due to its MLP structure, and will be able to pass a large percentage of those distributions on to existing shareholders. This should help PSX continue to increase its dividend.
  2. Although existing PSX shareholders will benefit from these additional distributions, we get to avoid the tax headaches of owning a MLP.
  3. PSX does not have to rely solely on itself to generate growth to fund dividend increases. Any growth achieved by PSXP should increase the distributions of the MLP which will directly affect PSX and its shareholders.
The assets that will fall under the Phillips 66 Partners entity include:
  • Clifton Ridge crude oil pipeline
  • Terminals and storage in Louisiana, Illinois, and Texas
  • Sweeny to Pasadena refined products pipeline
  • Hartford Connector refined products pipeline
  • 3 NGL fractionators: 130,000 bpd capacity 

The initial public offering is expected in the second half of this year and is estimated to raise $300 million. As demonstrated in the COP spin-off and subsequent dividend increases, PSX management has proven its ability to create additional shareholder value. I believe the PSXP spin-off will be another great move.

Disclosure: I am long COP and PSX.



  1. Where did you find the information that PSXP shares will not be distributed to PSX shareholders?

    1. Hi Laurie -

      The information can be found in PSX's S-1 filing here:

      But if you don't want to dig through all of that you can find another write-up that does a good job explaining the MLP spin-off on SeekingAlpha: