Compared with the second quarter of 2012, Refining earnings benefitted approximately $250 million from feedstock advantages as the company realized reduced crude costs versus Light Louisiana Sweet (LLS) in the Gulf Coast region and Brent in the Atlantic Basin/Europe region. Crude advantages in the Central Corridor region remained particularly strong, in line with the second quarter. In addition, Refining earnings improved by approximately $100 million in the third quarter due to inventory impacts. Refining pre-tax turnaround expenses were $34 million, $80 million less than the second quarter of 2012.
Marketing, Specialties and Other contributed adjusted earnings of $95 million during the third quarter, a decrease of $154 million from the prior year. Overall margins declined primarily due to inventory management, as well as lower marketing margins, attributable to increasing product costs. In addition, supply disruptions, such as those caused by Hurricane Isaac, adversely impacted results.
The Midstream segment recorded a loss of $77 million for the third quarter, including a $133 million noncash impairment of Phillips 66’s investment in the Rockies Express Pipeline (REX). Midstream adjusted earnings were $56 million, compared with $118 million the prior year. This decrease was primarily related to the company’s equity investment in DCP Midstream (DCP) which experienced declining natural gas liquids (NGL) prices and higher operating costs, partially offset by lower depreciation expense. Phillips 66’s share of DCP’s third-quarter earnings were $39 million, compared with $87 million a year ago.In the third quarter, NGL prices declined more than 40 percent from the same period in 2011. This significant decrease was caused by growing NGL production from liquids-rich shale plays with limited corresponding demand increase. DCP’s gross NGL production was 398,000 barrels per day, a slight increase from the third quarter of last year. This production increase was limited by pipeline capacity constraints, primarily in the South and Permian regions, and lower ethane prices in the Conway market.
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