The operator introduces the Phillips 66 Second Quarter 2024 Earnings Conference Call, with Jeff Dietert as the moderator. Participants include Mark Lashier, Chairman and CEO; Kevin Mitchell, CFO; Don Baldridge, Midstream and Chemicals; Rich Harbison, Refining; and Brian Mandell, Marketing and Commercial. The presentation and supplemental information can be found on the company's website. The Safe-Harbor statement is mentioned. Mark Lashier welcomes everyone and introduces Don Baldridge as the new EVP of Midstream and Chemicals. Tim Roberts is retiring and is thanked for his contributions. The company has returned over $11 billion to shareholders since July 2022. The company is focused on executing their strategic priorities and has seen improvements in their results.

The company plans to reach their target of $13 billion to $15 billion by the end of the year through share repurchases and a commitment to returning over 50% of their operating cash flows to shareholders. They have also improved their performance and reduced costs in their refining and midstream businesses. The company has generated over $1 billion from asset dispositions and reached full rates at their Rodeo Renewable Energy Complex. The company has also made improvements to their cost structure, realizing approximately $400 million in cost reductions.

In the second quarter, the company has been successful in driving efficiencies in logistics and lowering costs, resulting in a lower refining cost per barrel. Adjusted earnings were $984 million, operating cash flow was $2.1 billion, and $1.3 billion was returned to shareholders. Changes were made to the segment reporting, including a new segment for renewable fuels and moving an investment to Corporate and Other. Adjusted earnings increased $162 million from the previous quarter, with higher volumes and lower costs in Midstream and chemicals, while refining was slightly lower due to weaker distillate prices.

The fourth paragraph of the article discusses the higher results in Marketing and Specialties due to seasonally stronger margins and volumes. It also mentions the change in cash flow, aided by working capital and proceeds from asset dispositions. The company expects a mid-90% utilization rate in chemicals and a low-90% utilization rate in refining for the third quarter. They also anticipate reduced Corporate and Other costs and will begin publishing a monthly refining market indicator. The first question in the Q&A portion of the call asks about the cost-savings realizations, to which the company responds that they primarily view them as structural changes, with some influence from utilization rates. They are focused on driving inefficiencies out of their business.

The company is committed to sustainability and continuously improving their processes to drive down costs and increase efficiency. They have already seen success in reducing costs by $0.83 a barrel in the first half of the year through initiatives such as adopting best practices from other departments and making changes to their processes. Examples of these changes include using midstream practices for tank turnarounds and reviewing and adjusting engineering principles for hydrogen plant operations, resulting in significant cost savings.

Mark Lashier is confident in the structural cost savings that have been achieved through employee initiatives, which amount to over $600 million. He believes this mindset of relentless pursuit of value-creation will sustain the company's success. He then shifts the focus to the progress of the Rodeo Renewable diesel business, which has successfully ramped up production ahead of schedule. The team is now working on optimizing the economic performance of the assets by transitioning to lower carbon intensity materials.

The company is well-positioned on the West Coast to deliver renewable fuels and produce renewable jets. They have a commercial team that works globally to secure a variety of feedstocks, and their pre-treatment unit allows them to use different feedstocks and lower their carbon intensity. They caution against solely focusing on carbon intensity as the value is driven by multiple factors. They will start producing sustainable aviation fuel in the third quarter and offer it to the market in the fourth quarter. The facility is open for business and the company is excited about it.

The company has had a successful journey to reach their current position. Brian Mandell adds more information about the marketplace, stating that biofuels margins were positive but on the lower end of the range. He predicts that renewable diesel margins will improve in the future due to various factors such as increased production of renewable jet, shutting down of marginal biodiesel producers, potential increase in RIN prices, and falling veg oil prices. However, there is still regulatory uncertainty for next year. In the Q&A session, the company discusses the strong results in Midstream and attributes it to NGL price realizations and volumes. They are optimistic about the future momentum in this segment.

The Midstream had a successful quarter with strong volumes and cost reductions due to synergy capture and business transformation. The NGL volume performance was particularly strong, thanks to efficient operations and positive momentum in connected basins. Q3 may see some volume impact due to Hurricane Beryl. The company is executing well on their wellhead-to-market strategy. In terms of asset sales, the team is on track to reach their $3 billion target, with the retail and marketing sale in Europe being a key component.

The speaker discusses the company's active discussions around asset sales and the strong interest from potential buyers. They also mention their goal of hitting a return of capital target this year and their confidence in generating cash through EBITDA growth and asset dispositions. They do not provide specific cash return targets for next year.

The company will evaluate its cash returns to shareholders and balance sheet in the second half of the year. They expect to be in a good financial position by the end of next year. The Pinnacle acquisition is seen as a good example of the type of assets the company is looking for, with a focus on enhancing their wellhead-to-market position in the Permian Basin. The TMX pipeline has been in operation for a few months now.

Brian Mandell, a representative from the company, discusses the impact of the Trans Mountain Expansion (TMX) pipeline on Canadian crude availability and pricing. He states that the pipeline is currently running at 650,000 to 675,000 barrels per day and is expected to reach 700,000 barrels by the end of the year. Two-thirds of the additional TMX barrels have been going to Asia, while the remaining third goes to the West Coast. This benefits the company's refineries in Ferndale and Los Angeles. Looking ahead, Mandell predicts that increased Canadian production will put pressure on the pipelines, leading to wider differentials in the future. The company's refining utilization guidance for the third quarter is lower than the second quarter due to softening market conditions and the opportunity to conduct discretionary maintenance.

The speaker explains that the company is preparing for future success by maintaining strong operations during the current market downturn. They also discuss the state of the gasoline, diesel, and jet fuel markets, noting some softening but also positive trends. The speaker also mentions that U.S. refineries have been running well overall.

The speaker discusses the strong economic conditions for the U.S. refining fleet in recent years and their positive outlook for the medium and long term. They also mention limited capacity growth and increasing global demand. On the refining side, capture rates decreased in the second quarter due to challenges with co-products and narrowing crude differentials, but they expect improvement in the third quarter. The hurricane had minimal impact on their refining assets but caused some logistical issues.

The third quarter has started off well for the company, with some carryover from the previous quarter. They do not provide much guidance for the third quarter, but their turnaround guidance and utilization outlook reflect the current market. The company will start publishing a new refining indicator next week, which will provide a closer reflection of their assets and yield structures. They expect their actual realized margin to track closer to this new indicator. On the chemical side, CPChem is seeing strong demand in North America and exports, which supports the view that margins will continue to recover. However, European producers are struggling with costs and Middle East producers face export challenges. Overall, the outlook is favorable for CPChem.

The company remains confident in their previous guidance of $13-14 billion in mid-cycle EBITDA by 2025. However, this is not a guarantee and it is dependent on various factors such as project completion, cost structure, and market conditions. The midstream and marketing segments are currently performing well above mid-cycle, while chemicals and renewable fuels are recovering but not expected to reach mid-cycle levels. The biggest uncertainty lies in the refining segment.

The company is focused on executing projects to increase the value of their streams and improve market capture through commercial operations. They are also working to lower costs and have confidence in their ability to generate $14 billion in mid-cycle EBITDA. The volatility in the midstream segment is due to integration efforts, but they expect to stabilize around $675 million per quarter of IBT. The question of the medium-term refining outlook has been a topic of discussion in the past.

The speaker is discussing the current state of the industry and the high levels of utilization. They believe that this is not sustainable and will eventually lead to a normal turnaround cycle. They also mention the potential for renewable diesel and RINs to impact future earnings, but they are not ready to adjust their mid-cycle estimates yet.

The speaker discusses the impact of TMX on the West Coast market and states that they believe the impact is already fully felt and that there may not be any additional changes. They also mention that the biggest impact has been on their refineries, particularly in LA where they are able to get more barrels at advantaged prices. The speaker also mentions that they had previously expected strong margins in California during the summer due to the shutdown of Rodeo earlier in the year, but this did not happen.

The speaker discusses the balance between organic and inorganic growth in the Permian NGL market, noting that competitors are spending around $200 million to build processing plants organically, while Phillips 66 has the option to purchase at a higher rate or build another plant.

Mark Lashier discusses the benefits of the Pinnacle acquisition, stating that it provides immediate earnings and high-quality, long-term contracts. He also mentions the potential for organic growth, but emphasizes the advantages of acquiring existing assets. Don Baldridge adds that the majority of their pipeline system is contracted for over five years, providing stability in the face of upcoming contract roll-offs.

The speaker discusses the outlook for their company's earnings power in relation to their NGL long-haul pipelines. They also mention some weakness on the coasts, particularly in the Atlantic Basin where margin decreases were seen due to drops in distillate pricing and secondary product prices. However, strong operating performance and efforts to improve the business have helped offset these market swings. On the West Coast, volumes were higher due to the absence of a first-quarter turnaround at a refinery, and the utilization and clean product yields were strong. The change in refining was primarily due to moving a refinery into the renewable fuels segment, which has resulted in some cost savings. However, the West Coast operation remains the highest cost operation in their portfolio.

The speaker discusses the demand and margins on the West Coast, noting a shift from refining to renewable energy. They also mention that the margins in the central corridor were relatively flat, with a benefit from inventory offsetting lower feedstock advantages. The marketing and specialties business had a good quarter and is expected to continue improving in the third quarter due to seasonality. The value of the marketing renewables business has been moved to a new segment.

The speaker thanks the audience for their questions and comments and highlights the company's strong performance and strategic priorities. They mention the successful business transformation, cost reductions, and strong refining availability. The Midstream sector also reported strong results and the company is processing renewable feedstocks at Rodeo. The company is focused on generating shareholder value and returns. The call concludes and the audience is invited to contact specific individuals for further questions.

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