Dj Phillips 66, Inst Holders, 3Q 2024 (Psx)

Phillips 66 (PSX), the Houston-based oil giant, faces legal trouble after a federal grand jury indicted the company for violating the Clean Water Act. The charges stem from the release of nearly 800,000 gallons of contaminated wastewater from its Carson, CA, refinery into the Los Angeles County sewer system. The wastewater, which contained excessive levels of oil and grease, was allegedly discharged between 2020 and 2021 without proper knowledge of the authorities.

The indictment details two incidents in which Phillips 66’s Carson refinery released wastewater with hazardous concentrations of oil and grease. On Nov. 24, 2020, the refinery discharged 310,000 gallons of contaminated water, containing 64,000 pounds of oil and grease — 300 times the permitted limit under its environmental permit. A few months later, on Feb. 8, 2021, there was a second release, involving 480,000 gallons of wastewater with 33,700 pounds of oil and grease.

The U.S. Department of Justice charged Phillips 66 with two counts of negligently violating the Clean Water Act and four counts of knowingly violating the law. The charges carry significant penalties,including up to five years of probation per count and fines totaling up to $2.4 million.

The incident came to light after staff at a nearby wastewater treatment plant noticed the strong smell of oil, prompting an investigation into the source of contamination. While the Justice Department claims that the plant was able to capture the majority of the contaminated water before it was released into the Pacific Ocean, officials stress that such releases are unacceptable under environmental regulations.

In response to the indictment, Phillips 66 stated that it would continue cooperating with the U.S. Attorney’s Office and is prepared to defend itself in court. The company reaffirmed its commitment to operational safety and protecting its employees as well as the surrounding communities.

As the case progresses, Phillips 66’s handling of the charges could set a significant precedent for corporate accountability under the Clean Water Act.

PSX’s Zacks Rank & Key Picks

Currently, Phillips 66 carries a Zack Rank #3 (Hold).

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Zacks Investment Research

Houston, Texas-based Phillips 66 is a diversified energy manufacturing and logistics company. The company operates through Midstream, Chemicals, Refining, and Marketing & Specialties segments. With a market cap of $54.3 billion, its operations span various countries in the Americas, Europe, and internationally.

The energy giant has underperformed the broader market over the past year. Despite rallying 11.9% over the past 52 weeks, PSX stock has lagged behind the S&P 500 Index’s ($SPX) 31.1% returns. PSX saw a 1.3% decline in 2024 compared to SPX’s 24.7% gains on a YTD basis.

Narrowing the focus, PSX has outperformed the Vaneck Oil Refiners ETF’s 9.8% gain over the past 52 weeks and an 8.1% dip on a YTD basis.

A federal grand jury on Wednesday handed down a six-count indictment against Phillips 66 for allegedly discharging "hundreds of thousands of gallons" of industrial wastewater from its Los Angeles refinery into the public sewer system and failing to report the violations, the Justice Department said on Thursday.

Phillips is charged with two counts of negligently violating the Clean Water Act and four counts of knowingly violating the Clean Water Act, U.S. Attorney Martin Estrada said in a news release.

According to the indictment, the Carson unit of the refinery unit on Nov. 24, 2020, discharged "industrial wastewater containing a concentration of oil and grease" that exceeded the permitted concentration by more than 300 times into the Los Angeles County Sanitation Districts' sewer system for about 2.5 hours.

DOJ said the Carson facility also "failed to inform LACSD of its non-compliant industrial wastewater discharge."

"LACSD roughly estimated that the Phillips' Carson facility discharged about 310,000 gal of non-compliant industrial wastewater, which contained approximately 64,000 lb of oil and grease, to LACSD's sewer system," the department said.

Phillips' Los Angeles refinery, which is about 15 miles southeast of Los Angeles, includes the Carson and Wilmington facilities that are linked by pipelines.

According to the government's news release, Phillips' industrial wastewater pretreatment system process controls and practices were "inadequate to prevent or quickly address the non-compliant discharge."

The company in a statement said it "will continue its cooperation with the U.S. Attorney's office and is prepared to present its case in these matters in court. The company remains committed to operating safely and protecting the health and safety of our employees and the communities where we operate, " spokeswoman Slgi Jolissaint said in an email.

DOJ said LACSD in December 2020 issued multiple notices of violation to the company for the discharges and for failing to notify the agency.

A Phillips manager in January 2021 acknowledged the non-compliant discharge and said the company would "retrain operations personnel" on such situations and the procedure for notifying LACSD.

The department added that Phillips in February 2021 discharged about 480,000 gal of non-compliant industrial wastewater containing at least 33,700 lb of oil and grease into the sewer system.

LACSD a month later issued notices of violation to Phillips for "discharging industrial wastewater, which adversely affected an LACSD facility and for its failure to notify the LACSD about said wastewater discharge."

At that time, a Phillips manager at Carson wrote to the LACSD, acknowledging the non-compliant discharge and the company's failure to notify authorities that it had occurred.

DOJ said the company is expected to be arraigned in the coming weeks in a Los Angeles federal court.

If convicted of all charges, Phillips would face a maximum sentence of five years' probation on each count and up to $2.4 million in fines, according to the statement.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

• Reporting by Frank Tang, ftang@opisent.com; Editing by Jeff Barber, jbarber@opisnet.com