HOUSTON--Phillips 66 Co. will continue to reshape its business portfolio with a growing presence in midstream and chemicals—“high-return businesses”—as it pursues more-profitable business lines, Chairman and CEO Greg Garland told the firm’s annual shareholders' meeting in Houston Wednesday.

Garland called the midstream “a core growth segment” for Phillips and added its chemical interests also offer higher profitability than the firm’s traditional business lines. Phillips 66 may be thought of as a downstream operator but it has a significant midstream presence now, he pointed out. In the midstream, Phillips 66 is the parent of Phillips 66 Partners LP and holds a 50% interest in DCP Midstream. Its chemicals interests include a 50% interest in Chevron Phillips Chemical Co. LLC.

He noted DCP processes 10% of the natural gas produced in the U.S., “and there is a growing gas processing business. We think there’s a lot of value in that continued growth.”

Downstream, Garland added, Phillips 66 will remain a major player in refining and marketing, areas where the firm “is a significant competitor” because it has “a big position that’s unique in our industry.” He noted Phillips’ 14 refineries in the U.S. and Europe achieved a 94% utilization rate in 2014. It sold a refinery in Malaysia and a products terminal in Ireland last year.

Garland said Phillips has been tweaking its refineries to produce more profitable distillates while also making modifications to profitably run the lighter crude oils typical of North America’s unconventional plays.

“We like refining and we think we’re good at it at our scale,” Garland said, adding the refining segment had a 12% return on capital employed (ROCE) last year. Phillips’ overall ROCE for 2014 was 14%, he added. The marketing and specialties segment had the highest ROCE, 32%, thanks to very attractive crack spreads as crude feedstock prices dropped faster than product prices.

At the pump, lower crude prices “are creating a global economic boost that simulates demand” for motor fuels, which benefits refiners and will eventually be a positive for the upstream and midstream industry segments, too.

“I think we’ll see demand catch up with supply,” Garland said, discussing the current oversupply of crude on the world market. “We’ve been a little surprised at what we see on the demand side now,” explaining that demand is modestly ahead of company projections.

Phillips management plans “selective” growth in petroleum product marketing as it enhances some of the most-recognized brand names around—Conoco, 76, and Phillips 66 in the U.S. and JET in Europe. It also holds the Kendall lubricants and motor oils trademark.

“We want our businesses to be aligned and mutually supportive,” Garland said, explaining that its four business segments—midstream, chemicals, refining and marketing and specialties—will continue to be interlinked and work together.

The firm’s 2015 capex has been set at $4.6 billion, including $3.4 billion in growth projects and $1.2 billion for maintenance and sustaining capex. Adding in its share of the capex budgets for DCP and the chemical operation raises the parent firm’s overall capital investment to more than $6 billion this year, he added. Long term, Phillips has some $20 billion of capex projects planned in the next few years.

Phillips will be adding infrastructure to accommodate North America’s high NGL and condensate production and growing product exports. Major projects include new NGL salt cavern storage and 100,000 barrels per day (Mbbl/d) of fractionation capacity at its Sweeny, Texas, refinery, as well as 550,Mbbl of refrigerated propane storage at its Freeport, Texas, terminal.

Greg Garland in 2013 Source: Phillips 66