Executive Vice President, Chief Financial Officer at Phillips 66
Thank you, Mark, and hello, everyone. Before I talk about the financials, let me begin by summarizing the accounting impacts of DCP Midstream. On August 17, we completed the merger of DCP Midstream, LLC and Gray Oak Pipeline, LLC. In connection with the transaction, we were delegated governance rights over DCP Midstream, LP and its general partner entities as well as DCP Sand Hills Pipeline, LLC and DCP Southern Hills Pipeline, LLC. Effective August 18, our financial results reflect the consolidation of these entities.
So starting with an overview on Slide 4, we summarize these financial results. We reported third quarter earnings of $5.4 billion. We had special items amounting to an after-tax gain of $2.3 billion, including the net gain related to the consolidation of DCP Midstream, Sand Hills Pipeline and Southern Hills Pipeline and the transfer of interest in Gray Oak Pipeline. Excluding special items, adjusted earnings were $3.1 billion or $6.46 per share. The $33 million decrease in the fair value of our investment in NOVONIX reduced earnings per share by $0.05. We generated $3.1 billion of operating cash flow.
Capital spending for the quarter was $735 million, including the company's $306 million investment in DCP Midstream, LLC associated with the merger, net of cash acquired. We returned $1.2 billion to shareholders through $466 million of dividends and $694 million of share repurchases. We ended the quarter with 473 million shares outstanding.
Moving to Slide 5. This slide highlights the change in adjusted results by segment from the second quarter to the third quarter, including the impacts of consolidating DCP Midstream, Sand Hills Pipeline and Southern Hills Pipeline effective August 18. The Midstream segment, corporate and other, income taxes and noncontrolling interests are impacted by the consolidations. The higher noncontrolling interest reflects the portion of these entities not owned by Phillips 66. During the period, adjusted earnings decreased $163 million, mostly due to lower results in Refining and Chemicals, partially offset by higher Midstream and Marketing and Specialties results.
Slide 6 shows our Midstream results. Third quarter adjusted pretax income was $645 million compared with $292 million in the previous quarter. The consolidation of DCP Midstream results are now reported within NGL and Other. Transportation contributed adjusted pretax income of $229 million, down $21 million from the prior quarter. The decrease was mainly due to lower equity earnings from the Gray Oak Pipeline resulting from the merger.
NGL and Other adjusted pretax income was $449 million compared with $282 million in the second quarter. The increase was primarily due to the consolidation of DCP Midstream, Sand Hills Pipeline and Southern Hills Pipeline effective August 18. The fractionators at the Sweeny Hub averaged 429,000 barrels per day, and the Freeport LPG export facility loaded 249,000 barrels per day in the third quarter.
Our NOVONIX investment is marked-to-market at the end of each reporting period. The fair value of the investment, including foreign exchange impacts, decreased $33 million in the third quarter compared with a decrease of $240 million in the second quarter.
Turning to Chemicals on Slide 7. Chemicals had third quarter adjusted pretax income of $135 million compared with $273 million in the previous quarter. Olefins and Polyolefins adjusted pretax income was $105 million. The $111 million decrease from the previous quarter was primarily due to lower margins resulting from a sharp decline in polyethylene prices. This was partially offset by lower turnaround costs. Global O&P utilization was 90% for the quarter. Adjusted pretax income for SA&S was $60 million, in line with the second quarter. The higher costs in Other mainly reflect legal contingencies. During the third quarter, we received $41 million in cash distributions from CPChem.
Turning to Refining on Slide 8. Refining third quarter adjusted pretax income was $2.8 billion, down from $3.1 billion in the second quarter. The decrease was primarily due to lower realized margins, partially offset by higher volumes. Our realized margins decreased by 6% to $26.58 per barrel, while the composite global 3:2:1 market crack decreased by 22%. Pretax turnaround costs were $225 million, in line with the previous quarter. Crude utilization was 91% in the third quarter and clean product yield was 85%.
Slide 9 covers market capture. Our composite global 3:2:1 market crack for the third quarter was $36.29 per barrel compared to $46.72 per barrel in the second quarter. Realized margin was $26.58 per barrel and resulted in an overall market capture of 73%. Market capture in the previous quarter was 61%. Market capture is impacted by the configuration of our refineries. We have a higher distillate yield and lower gasoline yield than the 3:2:1 market indicator. During the third quarter, the distillate crack decreased $8.14 per barrel, and the gasoline crack decreased $11.84 per barrel.
Losses from secondary products of $3.50 per barrel or $0.47 per barrel higher than the previous quarter. Our feedstock loss of $1.48 per barrel was in line with the previous quarter. Feedstock advantage from widening heavy sour crude differentials was offset by the impact of higher feedstock costs relative to Dated Brent in the Atlantic Basin. The Other category reduced realized margins by $1.29 per barrel. This category includes RINs, freight costs, clean product realizations and inventory impacts.
Moving to Marketing and Specialties on Slide 10. Adjusted third quarter pretax income was $847 million compared with $765 million in the prior quarter. Marketing and Other adjusted pretax income was $717 million, up $61 million from the second quarter. The improvement reflects higher international margins, partially offset by lower domestic results, including inventory impacts. Specialties generated third quarter adjusted pretax income of $130 million. The $21 million increase was largely due to improved base oil margins.
On Slide 12, the Corporate and Other segment had adjusted pretax costs of $246 million, $11 million higher than the prior quarter. The increase was mainly due to consolidating DCP Midstream interest expense of $34 million, partially offset by higher interest income.
Slide 12 shows the change in cash during the third quarter. We started the quarter with a $2.8 billion cash balance. Cash from operations was $3.1 billion. During the quarter, we funded $735 million of capital spending, including the company's $306 million investment in DCP Midstream, LLC associated with the merger, net of cash acquired. We returned $1.2 billion to shareholders through dividends and share repurchases. Our ending cash balance was $3.7 billion. We ended the quarter with a net-debt-to-capital ratio of 29%, including the consolidation of DCP Midstream.
This concludes my review of the financial and operating results.
Next, I'll cover a few outlook items. In Chemicals, we expect the fourth quarter global O&P utilization rate to be in the mid-90s. In Refining, we expect the fourth quarter worldwide crude utilization rate to be in the low-to-mid-90s and pretax turnaround expenses to be between $180 million and $220 million. As a result of strong turnaround execution and timing, we expect full year turnaround expenses to be lower than our original $800 million to $900 million of guidance. We anticipate fourth quarter Corporate and Other costs to come in between $300 million and $325 million pretax, reflecting a full quarter of DCP Midstream interest expense.
Now we will open the line for questions.