Phillips 66: Deep Dive: PSX Midstream - Covering Dividend & Sustaining Capital by YE‘27

Research evidence excerpt

Phillips 66: Deep Dive: PSX Midstream - Covering Dividend & Sustaining Capital by YE‘27

Western Gateway: PSX and KMI have proposed creating a unified system

connecting Mid Con refiners to Phoenix, Southern California, and Las Vegas. This

system will draw product using PSX's existing Gold Line pipeline. We believe the

capex on this project could come out to ~$2-2.5B, for the PSX portion (net of

assets contribution) and a competitive multiple of 5-7x (our estimate, not

company). The target ISD is 2029, we expect FID in 3Q26.

Gas Processing Expansion: Management expects to add a new gas processing

plant every 12–18 months to accommodate Permian volume growth. We estimate

each plant will require $200–250M of capital and generate approximately $40M

of incremental EBITDA, based on a 5.0x–6.0x build multiple.

Volume Risk Overstated: Approximately 50% of PSX’s Y-grade long-haul pipeline

volumes are internally sourced (equity barrels), with the remainder coming from third

parties. While the addition of competing pipelines could create some risk to future

throughput, we believe these concerns are overstated given PSX’s long-term producer

acreage dedications, multi-year third-party contracts, and ongoing expansion

opportunities. Each new gas processing plant PSX adds in the Permian is expected to

contribute 40–50 Mb/d of incremental NGL production, providing a natural source of

volume growth to support utilization across PSX’s Y-grade pipeline network.

Our Thoughts

We believe the most underappreciated aspect of PSX’s Midstream business is its future

cash-generating potential. Once Midstream reaches a run-rate EBITDA of approximately

$4.5Bn, we estimate the segment could contribute roughly $3.3Bn of annual cash flow

to PSX (adjusting for interest expenses and cash taxes).