The operator welcomes participants to the Fourth Quarter and Full Year 2023 Philips 66 Earnings Conference Call and introduces the speakers. The presentation can be found on the company's website. The Safe Harbor statement is mentioned, and the speakers will make forward-looking statements. The CEO discusses the company's strong performance in 2023 and the reasons why it is an attractive investment opportunity. The strategic priorities and financial results are also mentioned.

The company is on track to increase mid-cycle adjusted EBITDA by 40% by 2030, with 75% of the growth coming from outside of Refining. This growth is expected to support the company's valuation and contribute to attractive total shareholder returns. The company has a disciplined approach to capital allocation and has achieved an average return on capital employed of 13%. They are committed to financial flexibility and returning over 50% of operating cash flow to shareholders. The company has successfully executed their plan to increase mid-cycle adjusted EBITDA and shareholder distributions, distributing $8.3 billion since July 2022. They are also focused on enhancing Refining operating performance and have seen an increase in crude utilization rates. In Midstream, the company has exceeded expectations and captured synergies through integrating DCP Midstream.

The company's increased ownership of DCP has led to a stable cash generation that covers their top capital priorities. They plan to further reduce their cost structure and monetize assets that do not align with their long-term strategy, generating over $3 billion in proceeds. The company's total adjusted EBITDA in 2023 was $12.7 billion, with strong returns from their Refining, Midstream, and Marketing and Specialties businesses. They are focused on disciplined capital allocation and have a project to convert their San Francisco Refinery into a renewable fuels facility. The company is well positioned to achieve their targets and has demonstrated significant shareholder value through their total shareholder return of 33% in 2023. They are committed to a secure, competitive, and growing dividend, with a compound annual growth rate of 16% since 2012.

In this paragraph, the speaker thanks the Phillips 66 team for their dedication and introduces Kevin to discuss the company's financial results. Kevin begins by discussing the progress of the company's business transformation and how they have reduced costs to increase cash generation. He mentions that they have achieved $1.2 billion in run rate savings, with $900 million in cost reductions and $300 million in sustaining capital efficiencies. He also talks about how they have reduced their sustaining capital spend to under $900 million and have realized $630 million in cost reductions. Finally, he provides a breakdown of Refining costs and mentions the impact of the DCP acquisition and integration on cost synergies.

In the fourth quarter of 2023, adjusted controllable costs in the refining segment decreased by over $550 million, mainly due to business transformation savings and lower turnaround expense. This more than offset inflationary impacts and resulted in adjusted costs of $7.56 per barrel. The fourth quarter results also showed adjusted earnings of $1.4 billion, operating cash flow of $2.2 billion, and a net debt to capital ratio of 34%. Additionally, adjusted earnings decreased by $708 million from the previous quarter, primarily due to lower results in Refining and Marketing and Specialties, but were partially offset by improved results in Midstream.

In the fourth quarter, the NGL business saw an increase in profits due to higher margins and record volumes. Chemicals and transportation also saw an increase in profits, while refining and marketing and specialties saw a decrease. The company's adjusted effective tax rate was 23%. The company ended the quarter with a cash balance of $3.3 billion after funding capital spending, repaying debt, and returning money to shareholders through dividends and share repurchases.

In the first quarter, the global O&P utilization rate is expected to be in the mid-90s and the worldwide crude utilization rate is expected to be in the low 90s with a turnaround expense of $110 million to $130 million. The Rodeo Renewable Fuels Facility is being converted and is expected to start up by the end of the quarter with $100 million in decommissioning and start-up costs. Corporate and other costs are expected to be between $290 million and $310 million. The strong margin capture in the quarter is attributed to various factors, some of which may be seasonal or transient, while others may be sustainable.

The strong market capture in the fourth quarter was driven by a few factors, including the reversal of negative inventory hedge impacts, improved feedstock, and strong commercial results. The first quarter results will depend on market prices. The success of the Rodeo renewable diesel plant will also depend on market conditions, but it is expected to ramp up to full operating capacity within the first few months of operation.

In the paragraph, Rich Harbison and Ryan Todd discuss the progress of the Rodeo Renewed Project. Harbison explains that the project is expected to be shut down in February to tie in common utilities for one of the hydrocrackers, which will start up in March at 50% capacity. In April, the PTU will be finished and the second reactor hydrocrackers system will be converted. The commissioning process will begin in May and it is expected to be at full rates by the end of the second quarter. The next question is from Manav Gupta, who congratulates the company on a strong quarter and asks about the NGO part of the Midstream business. Mark Lashier responds that the integration has been a success.

The DCP team at Phillips 66 has successfully integrated and is seeing great synergies across the value chain. They have reached $250 million in synergies and have a goal of reaching $400 million. The team has worked hard to improve volumes, reduce costs, and execute well operationally and commercially. The integration process is almost complete and additional costs are expected to come off. Overall, the team is pleased with the transaction and believes it has positioned them well to compete.

Brian Mandell, speaking on behalf of the company, provided an overview of the global demand for gasoline, diesel, and jet fuel. He stated that gasoline demand is expected to grow by 1% globally and remain flat in the US, while distillate demand is expected to grow by 0.5% globally and 2% in the US. Jet fuel demand is expected to grow by 6% globally. Mandell also mentioned that gasoline and distillate inventories are high but expected to decrease with spring turnarounds, while jet fuel demand has recovered to pre-pandemic levels.

Doug Leggate asks about the progress towards the $14 billion target for mid-cycle cost-cutting. Kevin Mitchell explains that there are a few significant factors contributing to the shift from current to mid-cycle, including the Chemicals business not being at mid-cycle currently, the impact of Rodeo, and additional costs and projects that are expected to materialize in the next two years.

The speaker is asking for information about the financial performance of Rodeo, a renewable fuels facility on the West Coast, without taking into account its relationship with realized margins. They are also asking for clarification on whether Rodeo has been profitable in the past few years. The speaker acknowledges that Rodeo has faced challenges due to market conditions and operating upsets.

During a conference call, John Royall from JPMorgan asked a question about the company's balance sheet. The operator introduced the question and Kevin Mitchell, a representative from the company, responded. Mitchell explained that the company had not met their expected working capital tailwind, which impacted their net debt to capital metric. They expect to make some progress on debt reduction in 2024, but the working capital component is unpredictable. The company still targets a 25% to 30% range for their balance sheet, but they will consider all priorities when making capital allocation decisions. Royall also asked about the company's turnaround guide for the year.

In 2022, the company had a big year, but in 2023, there was a significant decrease. The guidance for 2024 is expected to be similar to 2023. The average turnaround year is around $600 million, but this may vary depending on maintenance activity and the timing of turnarounds. The company is working towards flattening out peak periods and aiming for an average of $500-600 million for turnarounds. The cost for the fourth quarter and the running rate were not mentioned.

In the first quarter, the company incurred $100 million in decommissioning and decommissioning expenses, which will not be treated as a special item. The Rodeo refinery's performance in the fourth quarter was impacted by the shutdown of one of its crude units. The $100 million in startup and decommissioning costs will be included in the company's normal operating results. The company's margin capture was $7.11, with $3.90 coming from the Colonial Pipeline product pricing and the remaining $3 per barrel coming from other factors.

The speaker discusses factors contributing to a $7 gap in the company's performance, including product pricing, commercial performance, and inventory hedging. They also mention strong utilization guidance for the first quarter and stable polyethylene prices, with a $0.05 increase in January. Demand in the US has been good, but steady in Europe and soft in Asia.

The speaker discusses the feedstock advantage in the U.S. Gulf Coast, specifically with CPChem, which has helped to underpin momentum in the market. However, there is still a lot of destocking that needs to happen throughout the rest of the year. The speaker also mentions the resilience of CPChem during the current downturn and their strong position for the long-term. When asked about the outlook for deferred taxes in 2024, the speaker explains that there will be a significant drop in benefits due to lower capital spending and scaling down of bonus depreciation. They anticipate a $200 million benefit for the year.

The company is expecting to start up their Rodeo plant and ramp up to full production rates by midyear. They will initially use easier feedstocks such as vegetable oils and gradually introduce lower carbon intensive feedstocks like fats and greases as they become more comfortable with the operation of the pretreatment unit. This will likely happen in the second or third quarter.

The speaker discusses how their commercial organizations have been actively gathering feedstocks and developing aggregation facilities in preparation for the green light from the Rodeo team. They also mention that there may be some seasonality in the Midstream segment, with stronger results in the fourth and first quarters due to factors like higher propane demand, but overall they expect an average of $675 in earnings per quarter at mid-cycle commodity pricing. However, unexpected events like winter events can also impact earnings.

The speaker discusses the framework for their company's IBT basis and mentions that they are long on NGLs, but plan to bring those volumes in-house in the future. They are currently in active discussions for asset sales and will provide more information at their first quarter earnings call.

The speaker discusses the weak gasoline margins in Chicago due to various factors such as poor demand, strong refinery production, and frozen waterways. They expect the market to improve as winter grade gasoline is replaced by summer grade and refineries go into turnaround. They also mention changes in crude and product flows due to shipping limitations, which have benefited their business. The call then concludes.

Mark Lashier wraps up the presentation by reflecting on the company's goals and achievements since 2022, with a focus on delivering strong returns to shareholders. He also mentions that the company is raising the performance bar in 2024 to continue rewarding shareholders. Jeff Dietert thanks the audience for their interest and invites them to call for further questions. The operator then concludes the call.

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