Phillips 66 Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Douglas George Blyth Leggate - Wolfe Research, LLC - Analyst : Mark, obviously, there has been a lot of dialogue, a lot of backwards and forwards between yourselves and Elliott regarding the right structure for the business. I guess my question is, I had an opportunity to chat to you about this a month or so ago. And our understanding at least is you guys have looked at a lot of these proposals before and made decisions that are perhaps different. I wonder if you could share the extent of which you did look at some of these ideas that they're putting forward, for example, separate in the Midstream and kind of rationalize why you came to a different outcome. I think everyone would probably like to hear your perspectives on that. I've got a quick follow-up, please.

Question: Douglas George Blyth Leggate - Wolfe Research, LLC - Analyst : Well, I think -- first of all, Mark, thanks for the thorough answer. I think I've taken enough time. I want to be respectful to my sell-side colleagues. So I do have a follow-up, but I'll pass it back.

Question: John Royall - JPMorgan Chase & Co - Analyst : Tough to follow that back and forth, but maybe I'll go with a balance sheet question. So you're remaining well above your target at 38%. You got the big turnaround quarter for the year in the rearview and you also have a potential asset sale coming, which is good but also the macro environment remains uncertain. So my question is, what do you view as your path to getting back to 30%? And does the path include maybe buying back a little less stock than your framework would otherwise imply? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PSX.N - Q1 2025 Phillips 66 Earnings Call

Question: John Royall - JPMorgan Chase & Co - Analyst : Great. And then my next question is on renewables. This was a little bit of a noisy quarter with the PTC coming into effect mid quarter. Can you help us really as detailed as you're willing to be on what the post-PTC world kind of looks like in your renewables business. If you could give us any kind of sense for maybe the proportion of production that's eligible and how much you expect to receive on a per gallon basis based on your current feedstock slate, that would be very helpful.

Question: Roger Read - Wells Fargo Securities - Analyst : Maybe just to kick this off, update on where you are on kind of final asset dispositions. I think there's still some stuff in retail, maybe something in the midstream space.

Question: Roger Read - Wells Fargo Securities - Analyst : And as a follow-up on that, how should we think about the use of cash flows or cash raised, I guess, maybe I should say, from those asset sales at this point. Do you see it, Kevin, as you were talking earlier in terms of return of capital to shareholders? Or is most of this targeted for debt reduction?

Question: Roger Read - Wells Fargo Securities - Analyst : Okay. And then if I could just toss in one more if that didn't count as my follow-up, Jeff, I apologize if I'm violating the rules. But heavy maintenance Q1 in refining very low in Q2. Were you essentially wrapped up as we started Q2? Or is there a little lingering into Q2 that we should think of within that mid-90s guidance.

Question: Manav Gupta - UBS Investment Bank - Analyst : Can you help us better understand how some of these LPG exports will have to reset to accommodate around tariffs because I think you were sending like 48% of our ethane to China and about 22% of propane to China. So how do these NGL exports now reset globally to work around the tariffs?

Question: Manav Gupta - UBS Investment Bank - Analyst : Perfect. My quick follow-up here is on the polyethylene chain margin. It was weaker even before the tariffs were announced. And again, some portion of polyethylene reason definitely moves to China, made into products, and sold back into US. Those flows cannot be sustainable with the tariffs. So you're out medium-term outlook for the polyethylene chain margin here.

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : I appreciate the thorough answer to the question around some of the parts. Kevin, I had a follow-up for you around the midstream side of the equation because that's where I think there's been a lot of focus around you built a good business, does it make sense to try to monetize it. And I think you made a comment that there's significant tax leakage around monetization. Is that in the case of in as well? And then can you provide a little bit more detail or help us quantify a framework for thinking about tax leakage associated with Midstream monetization. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PSX.N - Q1 2025 Phillips 66 Earnings Call

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : Got it. And then there's no clear offsets that you could put against that, it sounds like?

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : Okay. All right. And then the follow-up for the team is really on the refining side. It's obviously challenging conditions in Q1 but are going to be running better here in Q2. Just love your thoughts on the path back to mid-cycle. And one of the factors that suppressing profitability has been the tightness of WCS -- just how do you guys see that moving from here as we work through turnaround? And can that be a tailwind?

Question: Theresa Chen - Barclays Bank - Analyst : I wanted to go back to the NGL conversation. There are some material circulating about a carve-out for NGLs within the Chinese reciprocal the reciprocal tariffs. Do you have an early view on this, especially for ethane and in the event of additional downside volatility for NGL prices in the Gulf Coast? How is your business positioned within the backdrop of potentially lower LPG back spreads and OP margins in processing?

Question: Theresa Chen - Barclays Bank - Analyst : Got it. And related to the FID of Iron Mesa, would you be able to quantify the cost? And is this plant the first or maybe several plants to increase the by grade under your control, especially in light of a competitor building out their own frac and dock infrastructure later this decade that maybe creates a volume shortfall in Sweeny and Freeport?

Question: Jean Ann Salisbury - Bank of America - Analyst : I think many midstream investors don't own PSX stock because of the volatility of the earnings of the other segments. Is that your view as well? And given your answer to Doug's question, which I think suggested you were not that interested in the spin. What other things can PSX do to get fuller credit for the stability of the midstream earnings in your stock?

Question: David Filion - Morgan Stanley & Co LLC. - Analyst : I just wanted to ask on shareholder returns. With the dividend increase a few days ago, the stock is yielding just north of 4.5%, which is above refining peers. Could you just talk through the balance between raising the dividend and leading in the buyback given where shares are trading? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PSX.N - Q1 2025 Phillips 66 Earnings Call

Question: David Filion - Morgan Stanley & Co LLC. - Analyst : Great. That makes sense. And then the other question that I had was around refined utilization in first quarter, which came in a little bit light versus what we, I think, obviously been expecting based on the low 80% guidance was that economic driven? Or was that always part of the plan?

Question: Matthew Blair - TPH & Co - Analyst : I have a two-parter on M&S. First, should we expect a pretty considerable tailwind to your Q2 M&S results from the falling crude price environment. We do track a retail indicators looking quite strong in the second quarter. I know your wholesale business is a little bit different. But -- what are your expectations on M&S for the second quarter? And is there a big pickup in line? And then second, every company reports things a little differently. And I think there's an argument to be made that Philips refining results are a little different than your large-cap peers because your US wholesale activities are in M&S and not in refining. So my question is, could you help us REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PSX.N - Q1 2025 Phillips 66 Earnings Call understand roughly what percent of M&S EBITDA and of costs are related to those wholesale activities so we can look at things on a little bit more

Question: Ryan Todd - Piper Sandler & Co - Analyst : Maybe just one follow-up on some of your earlier comments on renewable diesel. Outside of the macro backdrop, which is obviously very noisy. As we think about the first quarter and into the second quarter, can you talk about maybe some of the challenges that you had, optimizing things from a feedstock point of view in the first quarter because of the timing of some of the announcements and as you look into the second quarter and then maybe -- I don't know if you said this earlier, but do you have a rough estimate of maybe what percent of the products you were able to book credits on during the quarter? And as we think into the second quarter, how will both of those things change and be a potential tailwind for you this quarter?

Question: Paul Cheng - Scotiabank - Analyst : Mark, I think it can -- maybe for the investor years a little bit easier to understand the integration benefit on the midstream to the rest of your business. Maybe it's a little bit more difficult on the chemical Even CPChem they have a joint venture and they run by their own Board and their own management and in theory that all transactions between you and DPM should be in arming. So maybe you can help us understand a little bit better why -- I mean even though it has a great asset, why that is important for them to be part of the portfolio and what to synergy or that the integration benefit you can receive from there.

Question: Paul Cheng - Scotiabank - Analyst : Okay. Great. The second question, I think, is for Kevin. Just curious that, I mean, with order volatility create, given the top administration, economic and talent policy, should Phillips is what is the cash balance that you really want to keep on the book as far as what is the debt to capital ratio and your payout ratio to be quite find that with higher volatility, should you have a high or a payout ratio still going to pay out more than 50%? Or should you prioritize and get the debt to be lower than what you its target at $17 billion, at least that for -- until maybe the volatility becomes perhaps a little bit lower and the risk of recession becomes less. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 25, 2025 / 4:00PM, PSX.N - Q1 2025 Phillips 66 Earnings Call