The paragraph is a transcription from a Phillips 66 earnings conference call for the fourth quarter of 2024. The call was introduced by operator Emily and hosted by Jeff Dietert, Vice President of Investor Relations. Key participants included executives Mark Lashier, Kevin Mitchell, Don Baldridge, Rich Harbison, and Brian Mandell. The presentation, available on the company's website, featured forward-looking statements with a caution about potential differences in actual results. Mark Lashier discussed the company's strong operating performance despite challenging margins, highlighting the resilience of their midstream business and successful shareholder distributions totaling $13.6 billion since mid-2022. He noted the company's achievements in refining, including record clean product yields and cost reductions.

The paragraph details the achievements and strategic progress of Rich’s organization, highlighting their surpassing of financial targets and cost savings goals, including $500 million in synergies from the DCP midstream acquisition and $1.5 billion in business transformation savings. The organization has successfully announced $3.5 billion in non-core asset divestitures, exceeding their $3 billion commitment for 2023. While their net debt to capital ratio remains higher than desired, debt reduction is prioritized. In January 2025, they received $2.1 billion in cash proceeds from asset dispositions to further strategic objectives. The ongoing optimization of their asset portfolio and the growth of their midstream business, evidenced by strategic transactions such as the EPIC NGL deal, continues to advance their strategic goals.

The company plans to nearly double its EBITDA by the anticipated transaction close later this year, similar to its Pinnacle acquisition. This transaction aims to enhance its position as a leading integrated downstream energy provider. By 2025 and beyond, the company expects to generate strong returns and significant free cash flow, with an emphasis on returning over 50% of operating cash flow to shareholders. The company's strategic priorities from 2025 through 2027 include operational targets for refining and midstream businesses, growing mid-cycle adjusted EBITDA by $1 billion, and starting megaprojects in the U.S. Gulf Coast and Qatar by 2026. They anticipate a non-refining mid-cycle EBITDA of $10 billion by 2027, representing two-thirds of their total EBITDA. Additionally, the company plans to reduce total debt to $17 billion by the end of the year, depending on market conditions, while continuing to increase shareholder value through strong operations and capital allocation. Kevin will now discuss the quarterly results.

In the report, Kevin Mitchell discusses the company's financial performance, highlighting $8 million in reported earnings and a $61 million adjusted loss, both influenced by a $230 million pretax impact due to plans to cease operations at the Los Angeles refinery by 2025. This impacted earnings per share by $0.43. The company generated $1.2 billion in operating cash flow and returned $1.1 billion to shareholders through share repurchases and dividends. Segment results showed a $920 million decrease in adjusted earnings from the previous quarter. Midstream results increased due to record fractionation and LPG export volumes. However, chemical results decreased because of lower margins and higher costs, and refining results reflected weaker crack spreads and depreciation costs. Marketing and specialties experienced lower margins seasonally, but renewable fuels saw increased margins. The company had a working capital benefit of $297 million and ended with a cash balance of $1.7 billion. Looking forward, it expects global O&P utilization rates in chemicals to be in the mid-90s for the first quarter of 2025.

The paragraph discusses the company's expectations and financial details regarding its refining operations and Midstream transformation. The refining segment anticipates a high turnaround quarter with a global crude utilization rate in the low 80s, turnaround costs between $290 million and $310 million, corporate expenses ranging from $310 million to $330 million, and full-year turnaround costs between $500 million and $550 million. Depreciation and amortization are expected to be approximately $3.3 billion, including $230 million quarterly for accelerated depreciation at the Los Angeles refinery. Following this financial overview, Neil Mehta from Goldman Sachs asks about the strategic transformation focusing on the Midstream business. Mark Lashier responds, highlighting the strategic alignment from acquiring DCP assets and the integration of fractionation capacity, allowing for both organic and inorganic growth opportunities in the Midstream segment.

The paragraph discusses the company's strategy for growth through both inorganic and organic means, particularly in the Midstream segment. They have made strategic acquisitions, such as Pinnacle and EPIC, to gain valuable assets and enhance their footprint in the Permian region. The company aims for organic growth at a mid-single-digit annual rate, expecting to reach 500 million in EBITDA by capitalizing on organic opportunities using their $2 billion annual capital program. The focus is on return-enhancing opportunities without relying heavily on future mergers and acquisitions. The overall strategy is centered on optimizing returns and capital efficiency across all business areas, including refining and Midstream.

In the paragraph, Kevin Mitchell addresses a question from Neil Mehta about the company's current financial strategy regarding its debt levels. Mitchell explains that although they had goals to reduce leverage the previous year, they were unable to meet those objectives because they prioritized returning cash to shareholders. The company now aims for a debt balance of $17 billion and a debt-to-capital ratio below 30%. Mitchell emphasizes viewing the balance sheet by considering the stability and cash generation of the Midstream and Marketing & Services (M&S) segments, which generate approximately $6 billion at mid-cycle. With a debt level of less than three times earnings in these segments, the company maintains a strong balance sheet, treating refining cash flows as additional upside. Doug Leggate from Wolfe Research then questions a possible new disposal target and the status of the retail system in Europe, referencing a comment from Mark about disposal targets and debt reduction.

The paragraph discusses Philip's strategic approach to managing its portfolio, particularly in the Midstream sector. Mark Lashier, addressing a question about possibly separating the Midstream business, emphasizes that while no new disposition targets are set, the company continues to evaluate its assets for potential higher value opportunities. They are actively negotiating retail opportunities in Europe and are open to discussions that could unlock trapped capital in their assets. The focus remains on value creation, with the aim of continuously improving both their portfolio and operations. Despite recognizing that the market may not fully appreciate the value in Midstream, the company believes they are still in the early stages of tapping into its potential.

The paragraph discusses the company's strategy following its acquisition of EPIC, highlighting positive market reception and interest. It addresses questions about whether the company's integrated Midstream business should be separated to increase shareholder value but asserts that keeping it integrated with refining and petrochemical operations is more beneficial. Kevin Mitchell adds that although creating a separate public vehicle is an option, it's not part of the immediate strategy. The company is focusing on messaging and investor disclosures regarding the integrated Midstream business's value, drawing a comparison to MPLX as an example of a public marker. The possibility of separation remains open for the future but is not a near-term plan.

In the paragraph, Doug Leggate inquires about the EBITDA of the German Austria business, to which Mark Lashier responds that it's about $300 million. Following this, Theresa Chen from Barclays raises a question about the company's strategy for reducing net debt to capital below 30%. Mark Lashier explains that the company intends to achieve this through a combination of capital allocation strategies, including distributing more than 50% of cash to shareholders, maintaining a sustaining capital of $1 billion, and an organic capital program of $1 billion. He mentions that, assuming mid-cycle conditions, the company expects around $10 billion in cash generation, which allows for $5 billion to be distributed to shareholders and leaves $3 billion for debt reduction, additional buybacks, or strategic acquisitions.

The paragraph discusses the company's efforts in the Germany-Austria retail business and its commitment to shareholder returns. Theresa Chen inquires about Midstream growth and M&A opportunities, considering potential synergies in areas like Permian and DJ. She asks if FTC concerns might affect these opportunities. Mark Lashier responds that while FTC considerations are important, they do not deter looking at assets. The focus is on assets that offer the greatest value creation, connectivity to the system, and opportunities for organic growth. Kevin Mitchell adds to this discussion, emphasizing strategic and economic perspectives.

The paragraph features a discussion on the strategic focus of value creation through mergers and acquisitions (M&A) and organic growth. Mark Lashier emphasizes that the company's growth in the Midstream sector is intended to create value for shareholders, rather than merely expanding size, and they are disciplined and selective due to capital constraints. Following Theresa Chen's dialogue, Manav Gupta from UBS inquires about the outlook for ethylene chain margins in the chemicals sector amid currently weak performance. Lashier responds that CPChem's ethylene chain margins in the fourth quarter were influenced by rising ethane prices and falling crude prices, but he remains optimistic as demand grows and rationalizations and temporary shutdowns in Europe present opportunities for North American producers, who experienced record exports this year.

The paragraph discusses the strength of North America's economy, highlighting that for the first time, over half of its polyethylene production was exported globally. This plays into CPChem's strengths and is reflected in their operating rates and margin improvements, which are expected to continue through 2026. In renewable fuels, there was a significant improvement, with earnings increasing by $150 million. Brian Mandell explains that the company achieved a $28 million gain in the quarter by running efficiently, lowering costs, and utilizing higher CI feed. They did not produce renewable jet fuel during the quarter but secured contracts to supply SAF to airlines. However, he notes ongoing weakness in renewable diesel margins due to regulatory uncertainties, requiring clarity on several regulatory aspects.

The paragraph discusses the strategic benefits of the EPIC acquisition for the company, particularly in terms of increasing NGL pipeline capacity. Don Baldridge explains that the acquisition is compelling due to its provision of needed Permian pipeline capacity, which is already undergoing a capital-efficient expansion. This is significant because the company's current supply portfolio exceeds its Sand Hills capacity by 25%, necessitating the use of third-party pipelines. The acquisition is intended to accommodate anticipated growth in supply through 2025 and beyond.

The paragraph discusses the company's expansion plans, mentioning the upcoming launch of an expansion plant at Pinnacle in July 2025 and a potential new plant in the Permian later that year. It highlights how these expansions will integrate well with EPIC's capacity and the company's existing assets, facilitating growth in their gathering and processing (G&P) footprint. The plan involves moving product from third-party pipelines and enhancing service to the Gulf Coast for shippers and producers. The conversation then shifts to a new topic, as Roger Read from Wells Fargo asks about the refining market and crude supply challenges, including tariffs and sanctions, indicating a transition away from the prior discussion about expansion and integration.

In the paragraph, Brian Mandell discusses the demand and supply outlook for gasoline and distillates, focusing on trends for 2024 and forecasts for 2025. Gasoline demand in 2024 is slightly up due to lower Asian demand growth and vehicle switching in Europe, with a stronger demand outlook for 2025 linked to stable GDP and a slowdown in Chinese EV sales. Distillate demand in 2024 is down globally but up slightly in the U.S., with inventories below average, and is expected to grow in 2025, particularly in India, Malaysia, and Indonesia, and by 2% in the U.S. Regarding tariffs, Mandell notes the uncertainty of their implementation but outlines the potential impacts if applied to Canadian and Mexican crude. In Canada, the Trans Mountain Expansion (TMX) would be filled, inventories would increase, and crude differentials would widen to incentivize U.S. imports. In Mexico, a potential tariff could displace 450,000 barrels per day of Mexican crude currently imported into the U.S.

The paragraph discusses the outlook for a company's Refining business, noting that they've achieved a $5 billion EBITDA, but there might be potential for further growth due to various initiatives. Rich Harbison highlights the organization's strong performance, emphasizing their success in reliability and operational efficiency. Over the past eight quarters, their performance has surpassed the industry average, reaching a 94% reliability rate in the fourth quarter and achieving 98% mechanical availability for crude units, leading to a 95% utilization rate for the year. The emphasis is on the importance of reliability in capitalizing on market opportunities.

The paragraph discusses a program focused on increasing market capture through high-return, low-capital projects and improving clean product yield, achieving a record 88% in the fourth quarter of 2024. Despite low margins, the company has made strides in clean product yield, especially in distillates, while maintaining gasoline yield. They've reduced operating expenses by $650 million and aim for a $5 billion market capture, indicating ongoing efficiency efforts in the business.

The paragraph outlines ongoing efforts to enhance production reliability and efficiency in refineries, focusing on small projects with high returns and maintaining industry-leading health, safety, and environmental standards. Mark Lashier discusses the importance of improving crude units to benefit downstream processes and increase throughput. John Royall inquires about RD margins and potential impacts of changes in the 45Z, BTC, or PTC on the industry. Brian Mandell explains that RD margins depend on credits, feedstock costs, and product value, suggesting that if these do not align, production cuts may occur.

The paragraph discusses Phillips' strategy regarding its refining assets. It mentions that Phillips has shut down more refining assets since COVID compared to its peers, with the recent closure of the L.A. refinery impacting the company's cost structure positively. Mark Lashier explains that the company regularly evaluates its assets and will make decisions based on changing conditions. While they don't currently foresee the need to shut down additional assets, they are open to selling some if there's interest. The focus is on improving the efficiency of their refining operations rather than expanding them, and Midstream growth will not occur just for the sake of growth.

The paragraph discusses growth opportunities in the Midstream business due to increasing volumes and strategic positioning, enhancing returns and providing upstream customers with broader market access. Jason Gabelman inquires about a significant quarterly decline in the marketing business, which does not align with typical seasonal patterns or crude price changes. Brian Mandell explains that the decline was due to the reversal of a $50 million inventory hedging benefit from falling prices in Q3, resulting in a $100 million negative impact in Q4. Additional factors include a plant turnaround and lower oil spreads, though marketing volumes remained robust. For Q1, Mandell anticipates recovery despite a temporary impact from winter storms and California fires, with new business compensating for the shortfall.

The paragraph discusses the company's goal to reduce controllable refinery costs to $5.50 per barrel. They have made progress, bringing costs down to $5.90 per barrel in 2024, excluding turnaround costs. A significant factor in achieving the new target is the planned cessation of operations at the high-cost Los Angeles Refinery in the fourth quarter, which will account for roughly half of the cost reduction. The remaining savings will come from continued efforts to eliminate inefficiencies, enhance reliability, and increase clean product yields. Despite being a challenging target, the company believes it is achievable.

The paragraph involves a discussion between several individuals about financial and production strategies. Jeffrey Dietert refers to a specific financial metric, refining adjusted controllable cost, and acknowledges a figure of $5.50. Matthew Blair asks about SAF (Sustainable Aviation Fuel) production in light of the EU's 2025 blending mandate, to which Brian Mandell responds by emphasizing the importance of renewable jet fuel and SAF in the market, stating they will continue using their refinery linear programs to optimally decide production. Paul Cheng from Scotiabank then asks Kevin and Mark about their $17 billion debt reduction target, noting it's $5 billion lower than the current level. He questions how they prioritize between reducing debt and pursuing growth through acquisitions, like the EPIC acquisition, which could increase leverage.

In the paragraph, Kevin Mitchell and Paul Cheng discuss the company's debt reduction strategy and acquisition opportunities. Kevin clarifies that the company aims to reduce its debt to $17 billion, a $3 billion reduction, not $5 billion as Paul assumed. The company has been selling assets, generating over $2 billion from these sales, including negotiations for jet retail assets in Germany and Austria. Kevin emphasizes the company's flexibility in capital allocation, suggesting smaller acquisitions like Pinnacle are manageable, while larger ones like EPIC would require different considerations. He expresses optimism about future refining margins and cash flow, stating that while reaching $17 billion in debt by year-end is desirable, it is not crucial.

The paragraph involves a discussion between Mark Lashier, Paul Cheng, and Kevin Mitchell about business growth and potential acquisitions. Mark clarifies that their $1 billion EBITDA growth in Midstream and Chemicals is organic, involving CPChem projects and midstream business growth within a $2 billion capital budget. Paul questions how they would prioritize potential acquisitions against debt reduction. Kevin responds, stating that if such an opportunity arises, they would reassess priorities to execute it. Additionally, Paul asks about uncertainty regarding PTC credits for the RD business in the first quarter. Kevin acknowledges the uncertainty due to lack of firm rules and executive orders impacting rulemaking.

The paragraph discusses the company's approach to first-quarter reporting, considering two options: either not recording anything until there's more clarity or proceeding with available information. During a Q&A, Ryan Todd from Piper Sandler inquires about the company's outlook on Refining capture rates and commercial progress. Rich Harbison mentions turnarounds that could impact capture rates and notes benefits from seasonal butane blending. Kevin Mitchell adds that utilization rates will also be affected. Brian Mandell mentions plans to grow the organization by hiring externally and building expertise.

In the paragraph, Mark Lashier discusses Phillips 66's strategic priorities and financial goals for 2025 to 2027. The company is focused on operational excellence, cost efficiency, and enhancing shareholder value. They plan to grow their Midstream business to achieve $4 billion in stable mid-cycle EBITDA with the expected acquisition of EPIC and aim to add $1 billion in total mid-cycle EBITDA in Midstream and Chemicals by 2027. Investments are being made to improve clean product yield and reliability in Refining. Midstream's stable cash flow supports sustaining capital and dividends, with anticipated earnings from their Marketing and Specialties business providing a strong financial foundation. Phillips 66 is committed to being a leading integrated downstream energy provider and rewarding shareholders.

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