The operator introduces the Phillips 66 third quarter earnings conference call and turns it over to the Vice President of Investor Relations. The President and CEO discusses the company's strong financial and operating results and their progress towards commitments made to shareholders. The company's diversified portfolio, including Midstream, Chemicals, Refining, Marketing, and Specialties, allows for free cash flow generation. The global commercial supply and trading organization also adds value to the company.

The company is executing its strategy to increase stable cash flows in its Midstream segment, taking advantage of growth opportunities in U.S. natural gas and natural gas liquids production. The recent DCP acquisition has strengthened their competitive position and is expected to add over $1 billion to mid-cycle adjusted EBITDA. The company has raised its target for mid-cycle EBITDA growth by $1 billion, driven by progress made in various areas such as business transformation and commercial capabilities. They are also increasing shareholder distributions and plan to monetize assets that no longer align with their long-term objectives.

The company plans to monetize non-core assets for over $3 billion and use the proceeds to accelerate cash return to shareholders. They have already returned $6.7 billion through share repurchases and dividends and plan to increase their target to $13 billion to $15 billion, which is 25% to 30% of their current market cap. The company is also focused on improving their Refining performance through high return, low capital projects and reducing costs. They have a target of achieving a $1 per barrel run-rate by the end of 2024 through their business transformation program.

In the fourth paragraph, the company announces that they are increasing their business transformation target to $1.4 billion, with $1.1 billion in cost reductions and $300 million in sustaining capital efficiencies. They are confident in meeting and exceeding these targets and plan to increase cash returns to shareholders. The third quarter financial results show adjusted earnings of $2.1 billion and operating cash flow of $2.7 billion. The company returned $1.2 billion to shareholders and ended the quarter with a net debt-to-capital ratio of 33%. The segment results are covered on Slide 10 and more details can be found in the presentation's appendix.

During the third quarter, the company's adjusted earnings increased by $304 million, driven by improved results in Refining but offset by lower results in Chemicals and Midstream, as well as higher corporate costs. In Midstream, pre-tax income decreased due to higher costs, while Chemicals also saw a decrease in pre-tax income due to lower margins. Refining, on the other hand, saw an increase in pre-tax income thanks to higher margins and strong utilization. Marketing and Specialties had a slight decrease in pre-tax income, while Corporate and Other saw an increase in costs. The adjusted effective tax rate for the quarter was 24%, and non-controlling interest was lower due to the company's acquisition of DCP Midstream.

Slide 11 shows the change in cash during the third quarter, starting with a $3 billion balance. Cash from operations was $2.4 billion, with a working capital benefit of $285 million. Year-to-date, working capital was a use of $2 billion, but is expected to reverse by year-end. The company received $280 million from asset dispositions, funded $855 million in capital spending, and returned $1.2 billion to shareholders through share repurchases and dividends. The ending cash balance was $3.5 billion. The outlook for Chemicals and Refining was discussed, as well as anticipated Corporate and Other costs. The line was then opened for questions.

Mark Lashier and Kevin Mitchell discuss the company's plans to increase EBITDA growth and non-core asset dispositions. Lashier explains that the additional $1 billion in EBITDA will come from business transformation, synergies from the DCP roll-up, and enhanced commercial capabilities. As for asset dispositions, the company is focused on creating value and redeploying capital, but they cannot comment on specific assets at this time. Mitchell then addresses the lower-than-expected Refining capture rates in the quarter, attributing it to timing effects and other factors.

The speaker discusses regional price differentials and how they affected the company's performance in the third quarter. They mention specific markets and the impact of inventory hedges in a rising price environment. They expect to see a gain in the fourth quarter that will offset the loss in the third quarter. The speaker also mentions the company's target disposition proceeds and their raised EBITDA target, but does not give specific guidance on the impact of dispositions on EBITDA.

The speaker, Rich Harbison, responds to a question about the company's refining margins by stating that their kit has shifted towards distillate production. He also mentions that there is nothing that has changed in this regard, except for some flexibility in switching between gasoline and distillate. The next question is about the possibility of delaying the startup of Rodeo Renewed in order to capture higher margins and wait for LCFS prices to rebound in 2024. Harbison explains that there have been legal issues surrounding the project and hands over the answer to Brian, who may have more information to add.

The company has faced some issues with their project, but construction is still on track to be completed in the first quarter. However, they have the option to continue operating in crude oil if necessary. The company is confident in starting up the project, which will have a positive impact on emissions. The market outlook and the relationship between the project and LCFS will be explained by Brian.

Brian Mandell, speaking with Manav Gupta, explains that the RD margins are affected by various factors, not just the LCFS credit program. The price of feedstock, RD availability, domestic demand, and the potential for RD to be converted into SAF all play a role in determining RD margins. Additionally, Mandell discusses the growth of RD demand in various states, the expected U.S. harvest, and the potential for RD to become renewable jet fuel. Gupta asks about the outlook for the Marketing and Specialties business, to which Mandell responds that it is a strong aspect of the company, but does not provide specific details on the near-term outlook.

Brian Mandell and Mark Lashier from Phillips 66 discuss the company's strong performance in the third quarter, with Q2 and Q3 being traditionally stronger than Q1 and Q4. They attribute this success to their retail joint ventures and their focus on the "last-mile strategy" of getting products directly to the market. They also mention the success of their lubricants base oil business. Looking ahead to Q4, they expect earnings to be in line with their normal expectations. In response to a question about disposals, Mark reiterates the company's commitment to executing their strategy and maximizing value for shareholders.

The company has identified the assets for sale and is not in a rush to sell them. They are looking for buyers who see more value in the assets than they do. The company has not changed their mid-cycle Refining EBITDA assumption of $4 billion, which reflects the historic average market trading.

The company is focused on capturing value across the system through lower costs and increased contribution from the commercial organization, which will primarily benefit the Refining segment. The company believes it is currently operating above mid-cycle conditions but maintains a positive outlook for the near-term. The utilization assumption has not changed, and the company is still aiming to reach pre-pandemic levels. The company's shareholder return target has been updated positively.

Mark Lashier, CEO of a company, is discussing the company's plans for shareholder return targets in the coming years. He mentions that they have a high level of confidence in being able to meet their targets, even factoring in potential market conditions and asset dispositions. He also states that if they continue to outperform, they will aim for the high end of their target. He then briefly touches on their plans for the Midstream aspect of their business.

Tim Roberts discusses the opportunities and potential for growth in the DCP integration, noting that the business transformation process has revealed even more potential for optimization. He gives an example of how the consolidation has already led to increased commercial success and expects further optimization to occur after the IT integration in the first quarter.

The speaker discusses the success of their integration and how it has resulted in an additional $10 million in revenue. They also mention a visit to the Sweeny Complex and how frontline operators are seeing the benefits of integration in real time. The speaker also mentions the success of their marketing business and the potential for structural improvements.

Paul Cheng is asking about the performance of the marketing group and whether there will be a reset in the mid-cycle performance. Brian Mandell responds that they have already raised the mid-cycle and are continuously looking for opportunities to improve. They will raise the mid-cycle again if necessary. Mark Lashier adds that Brian is confident in the business's performance and they will continue to watch the bottom line before making any changes. Paul Cheng then directs a question to Rich.

The speaker is asked about the Phillips 66 turnaround activity for next year and the industry's outlook. They respond by saying that this information will be provided in the fourth quarter. Another question is asked about the company's net debt target and the impact of market conditions on their ability to hit it. The speaker says that they expect to hit the top end of their target range, with most of the working capital benefit coming from inventory impacts. They also mention that they are not too concerned about this. The speaker is then asked for their latest views on WCS differentials and they say that they should receive some tailwinds from the widening seen in the fourth quarter.

The speaker discusses the current state of the differential in the WCS market, which is currently at minus $25. They attribute this to there being more production than pipeline egress, as well as the addition of diluent in the crude. They expect the differential to remain wide and for the pipeline to start up in April, but not run at full capacity. The speaker also mentions the co-product headwinds in refining, specifically petroleum coke, and notes that the oil price increase may impact this.

The company's secondary product margin is largely driven by the product's ties to coal and NGL markets, which have been depressed. The company expects this trend to continue. The company also plans to use proceeds from divestments to prioritize growth opportunities, strengthen the balance sheet, and meet its cash return to shareholders target.

Matthew Blair from Tudor, Pickering, Holt asked about the margin outlook for PE in the U.S. and internationally in Q4. Tim Roberts from CPChem responded that there is still a supply-demand imbalance, particularly in China and Asia, and it may take until 2024 for the situation to improve. However, there have been some price increases and inventories are slowly decreasing. It is important to note that CPChem's assets mostly use advantaged feedstocks.

The chemical industry is facing challenges, but companies using advantaged feedstocks are doing well. CPChem's assets are running well and taking advantage of the low-margin environment. The demand for distillate is higher than last year, while gasoline inventories are close to 5-year averages. European refiners need higher distillate cracks to incentivize production. Overall, global distillate demand is about 2% higher than last year.

The speaker discusses the demand for diesel and gasoline in the U.S. and Europe, noting that the manufacturing sector has likely reached its lowest point and that diesel demand is supported by low inventories and potential shortages in Europe. They also mention the increase in gasoline production due to butane blending and the lack of hurricane issues. Demand for gasoline is expected to remain flat, with strong demand in Asia and Latin America. The speaker also mentions the company's commitment to secure and growing dividends.

Mark Lashier thanks everyone for their questions and highlights the strong performance of the company's integrated and diversified portfolio. The company is increasing its commitments to achieve superior returns for shareholders, including returning $13-15 billion to shareholders, reducing refining operating costs, capturing Midstream synergies, delivering cash savings, monetizing non-core assets, and enhancing commercial capabilities. The company is ambitious and focused on rewarding shareholders now and in the future. Jeff Dietert thanks everyone for participating on the call and invites any additional questions.

This summary was generated with AI and may contain some inaccuracies.