Phillips 66 Q2 2024 Earnings Call Summary

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

Question: Roger Read - Wells Fargo Securities, LLC - Analyst : Yeah. Thank you. Good morning. I guess I'd like to dive in on the cost cutting, the cost savings realizations. You kind of showed $1 barrel in refining. I just wanted to understand, as you look at it, how much of it is you're running better which helps on a per barrel basis? And how much of it is structural and we should think about built in for the long run here.

Question: Roger Read - Wells Fargo Securities, LLC - Analyst : I appreciate that. Maybe shifting gears a little bit since it's now broken out separately, Rodeo Renewable diesel. Give us kind of an idea of how you think that progresses, right? First, you proved you can run it, which clearly you're doing here at 50,000 barrels a day. Now I would presume it's about getting the advantaged feedstock through the system. Maybe just an idea of where you are with that in terms of the PTU and kind of the market dynamics there to get that business maybe to, let's say, breakeven and then profitable?

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : Good morning, Mark and team, a very solid set of results. One of the big deltas versus our model was in Midstream. And so I wanted to give you guys an opportunity to talk about the momentum you're seeing there, particularly with the NGL price realizations in volumes and any color about what we should carry forward here. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 30, 2024 / 4:00PM, PSX.N - Q2 2024 Phillips 66 Earnings Call

Question: Neil Mehta - Goldman Sachs Group, Inc. - Analyst : Thanks, team. And then the follow-up is just on asset sales. Can you remind us where we stand specifically around the retail marketing sale in Europe and how we're tracking towards the $3 billion target probably?

Question: John Royall - JPMorgan Chase & Co - Analyst : Hi. Good morning. Thanks for taking my questions. So my first question is on your path back to your leverage target. I think you're sitting at 36% today. I think you made clear that the priority is return of capital in terms of hitting the return on capital target versus the leverage target of this year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 30, 2024 / 4:00PM, PSX.N - Q2 2024 Phillips 66 Earnings Call But looking into next year, is there a path to get you back to target levels? Are the expected asset sales enough to get you there, or is there a possibility you could see the adjustment down on returns of capital to get yourself back in that range? And I think Mark reiterated the 50% target in his comments on the return of capital, but just any commentary there would be helpful.

Question: John Royall - JPMorgan Chase & Co - Analyst : Great. Thanks, Kevin. And then my follow-up's on the M&A side, the Pinnacle acquisition, I think, demonstrated that you're looking at both the buy side and the sell side in terms of M&A. Can you talk more about the buy side? Is there more to do maybe around the Midstream business? Or what else made you look to

Question: John Royall - JPMorgan Chase & Co - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 30, 2024 / 4:00PM, PSX.N - Q2 2024 Phillips 66 Earnings Call

Question: Ryan Todd - Piper Sandler & Co. - Analyst : Yes. Thanks. Maybe the first one for me, as we think about you're a few months into operations now with the TMX pipeline. Can you maybe talk about what you've seen in terms of impacts on Canadian crude availability, pricing, impacts on the West Coast dynamics at all? And then maybe more broadly, your outlook for heavy crude differentials over the back half of this year?

Question: Ryan Todd - Piper Sandler & Co. - Analyst : Great. And then maybe just a question is, if we frame your refining utilization guidance for the third quarter, it's a bit lower than what you were running during the second quarter. Is this primarily driven by turnaround activity or some commercial pullback in operations, given margin headwinds? And maybe if you put that in the context of more broadly what you're seeing in terms of kind of the refining macro as you look over the next quarter or two.

Question: Ryan Todd - Piper Sandler & Co. - Analyst : Thank you.

Question: Matthew Blair - Tudor, Pickering, Holt & Co. Securities, LLC - Analyst : Hi. Good morning. Thank for taking my question. So on the refining side, your capture did move down in the second quarter, which seemed pretty understandable, just given some of the challenges on co-products as well as narrowing crude diffs. Could you talk about the trends on capture so far in the third quarter? Do you expect things to improve here? And also, you mentioned in the Midstream side a little bit of a headwind from the hurricane. Were any of your refining assets impacted in the third quarter?

Question: Matthew Blair - Tudor, Pickering, Holt & Co. Securities, LLC - Analyst : Looking forward to it. Thanks. And then on the chem side, could you talk about your expectations for polyethylene pricing in the back half of the year? I'm seeing spot prices that are already up almost $0.02 a pound even since the start of Q3. And any sort of insights you have on just overall PE demand and inventory levels would be helpful, too. Thanks.

Question: Matthew Blair - Tudor, Pickering, Holt & Co. Securities, LLC - Analyst : Thank you.

Question: Jason Gabelman - TD Cowen - Analyst : Hey, thanks for taking my questions. The first one I wanted to ask is on the mid-cycle EBITDA guidance that you have previously spoken about at -- I think it's $13 billion to $14 billion, if I'm not mistaken. How is that trending so far? Do you still feel confident in that outlook? And where do you see some divergences between the outlook and the different segments? Thanks.

Question: Jason Gabelman - TD Cowen - Analyst : Great. Thanks. And my follow-up is specifically on midstream. It's been pretty volatile since the close of the DCP deal, $100 million-plus EBITDA swings quarter to quarter in a segment that we typically think of as being more stable quarter to quarter. Can you just give us a sense of why that volatility has been occurring and if you expect the segment to be this volatile moving forward? Thanks.

Question: Jason Gabelman - TD Cowen - Analyst : Great. Thanks a lot.

Question: Doug Leggate - Wolfe Research - Analyst : Thanks, guys. I apologize my line broke earlier, so I think I lost. I appreciate you taking my questions. So guys, I wanted to come back to the question of the medium-term refining outlook. I think you know where we've been historically on this. But our concern right now is that everybody, including yourself, is running really well. Whiting is back, for example. Utilization is on top of new capacity that's been added both here and elsewhere. And I guess my question is, when you talk about medium term, does it require another major turnaround cycle to clean up the capacity congestion we're seeing because it seems that the US can handle 95% utilization at a generic level?

Question: Doug Leggate - Wolfe Research - Analyst : Yeah, it seems that everybody is running well post COVID, it seems. I appreciate that. We'll continue to watch it. I guess I listened to your comments about renewable diesel and the $14 billion. And obviously, mid-cycles is a moving target. But can you help us with what you're seeing since the plant came up versus, let's say, that $700 million benchmark? Do you have any line of sight on RINs sorting themselves out to the point where that becomes a realistic target, or do you feel like you need to reset that lower at some point?

Question: Doug Leggate - Wolfe Research - Analyst : Great. Thanks for your answers, guys.

Question: Paul Cheng - Scotiabank Global Banking and Markets - Analyst : Hey, guys, good afternoon, or good morning, your time. So first, Tim, congratulations on the retirement, and thank you for the help. And also, thanks for the breaking out renewable diesel business and also that some of the new chart in your presentation is helpful. Two questions, first, TMX, do you, gentlemen, believe that the impact in the West Coast market is already fully felt at this point or that you think additional changes may still come? And from that standpoint, how that impact your West Coast refining operation you're running? Have you changed the way how you run it? That's the first question.

Question: Paul Cheng - Scotiabank Global Banking and Markets - Analyst : And I'm just curious. I mean, if we're looking at California, I think three months ago, we had this conversation. We thought in the summer, California will be very strong margin, given you shut down Rodeo early in the year. But that was not the case. And so do you have any sense that, I mean, how the demand seems you have retail operation in California. Can you tell us that how is the California market shaking up in terms of demand?

Question: Paul Cheng - Scotiabank Global Banking and Markets - Analyst : But I mean, how is your retail service station over there? How did they perform? In terms of the same-store sales, is there any information you can share?

Question: Paul Cheng - Scotiabank Global Banking and Markets - Analyst : Okay. Thank you.

Question: Theresa Chen - Barclays Bank PLC - Analyst : Hi. Going back to the early discussion of the Permian NGL build-out, for additional processing capacity growth from here, how do you balance the ability to grow organically versus inorganically, just given your Midstream competitors on the NGL side right in the same area of the Midland spending around $200 million per 200 MMcf per day processing plant built organically versus purchasing at over 2x that rate plus the option to build another plant. Does the Pinnacle acquisition give you more organic opportunities in general or will a lot of this have to come inorganically?

Question: Theresa Chen - Barclays Bank PLC - Analyst : Got it. And as we look from now to the end of the decade and the sheer volume of upcoming Permian to Mont Belvieu NGL contract roll-off or Permian to Gulf Coast in general, how should we think about the weighted average rate on Sand Hills with all the legacy contracts in mind compared with the current going rate of, call it, mid-single digit cents per gallon?

Question: Theresa Chen - Barclays Bank PLC - Analyst : Thank you.

Question: Joe Laetsch - Morgan Stanley - Analyst : Hi, team. Thanks for taking my questions. So I wanted to ask more on the regional dynamics side. I know you mentioned some weakness on the coasts. But what are you seeing in the Central Corridor in terms of balances and margins there?

Question: Joe Laetsch - Morgan Stanley - Analyst : Great. Thanks for the detail there. Shifting gears a little bit, I was hoping you could talk to the outlook for the Marketing and Specialties business here. So 2Q and 3Q typically seasonally stronger periods, but anything you could share on the setup for the rest of the year? And then I also think there were some minor changes with Rodeo getting broken out. So any color there would be great.

Question: Joe Laetsch - Morgan Stanley - Analyst : Great. Thank you.