Phillips 66 Q3 2024 Earnings Call Transcript

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

Question: John Royall - JPMorgan Securities LLC - Analyst : Hi. Good morning. Thanks for taking my question. So my first question is just on your decision to shutter your remaining conventional capacity in California. Can you just talk about what went into that decision and how much the recent regulatory changes play into that decision? Or was this something that you had planned even [ask] of that?

Question: John Royall - JPMorgan Securities LLC - Analyst : Great. Thank you, Mark. And then my follow up on the balance sheet and maybe you could just talk about your outlook for the balance sheet and perhaps where you think you could finish the year on leverage following the sale of the Swiss business and potentially the Germany and Austria business and recognizing there are a lot of moving pieces around working capital and some other things, but just any guidance on where you could finish the year on the balance sheet.

Question: Roger Read - Wells Fargo Securities LLC - Analyst : Yeah. Thank you. Good morning. Kevin, two questions for you here. I'll just throw them together. One is we think about the stated savings, the $1.4 billion on the synergies -- I'm sorry, on the overall cost reduction plan, the $0.4 billion from the synergies with DCP, offset by the inflation that's in slides 5 and 6, I think, which it sounds like you're using a standard CPI there. I just would like to maybe dig into a little bit of how do we look at those two moving parts, one, you know, pretty substantial savings; two, inflation that's out there. You mentioned it comes out of the operating costs, but those can also be impacted by seasonality, by maintenance, and so forth. But how we should really look at that on a net basis and what's maybe inflationary pressure, going forward?

Question: Roger Read - Wells Fargo Securities LLC - Analyst : And then just as a follow up on that, the $100 million reduction in the turnaround costs, is any of that related to the issue -- the shut down or is that just outperformance during the year?

Question: Neil Mehta - Goldman Sachs & Co. LLC - Analyst : Yeah. Good morning, team. I just want to follow up on the comments around balance sheet and capital allocation. And you guys have made a tremendous amount of progress in returning capital to shareholders via buyback and dividends. But how do you think about the pace of that going forward and what appears to be a softer commodity environment?

Question: Neil Mehta - Goldman Sachs & Co. LLC - Analyst : Okay. That's helpful. And then, we saw a very solid strength in the chemicals business relative to some of your peers this quarter. And then marketing picked up. I would imagine some of that's just because crude softened at the end of the quarter. But can you talk about those two businesses and the outlook as we think about the sequential into fourth quarter and early next year?

Question: Ryan Todd - Piper Sandler & Co. - Analyst : Good. Thanks. Maybe, one for me. I guess, on the refining side, you've made a lot of progress in terms of reducing cost structure, improving reliability and utilization rate, and even improving capture rate of refining business. But refining earnings are still struggling in the current environment. I mean, they're struggling for everybody. But as you -- we're clearly below mid-cycle margins right now, but it still seems like you're a little away from achieving your target for the refining business even in a mid-cycle environment. I guess, any thoughts on where do you think you are in terms of progress there and what's still -- what should we still be looking for over the next 12 months in order to drive that the next leg of improvement and refining profitability?

Question: Ryan Todd - Piper Sandler & Co. - Analyst : Great. Thank you. And then maybe one more. As we look at renewable diesel and we think about your -- the path to improvement there, can you maybe walk through how you think about the path to improvement in 2025 both in terms of the broader market and what are some of the levers or moving pieces you think drive improvement in terms of the macro backdrop? And then maybe Rodeo specifically, what are the things that you're looking to do that will drive improvement in terms of the profitability there?

Question: Manav Gupta - UBS Securities LLC - Analyst : Morning. I wanted to focus a little bit on your central corridor earnings. You were up $65 million quarter over quarter or 26% quarter over quarter. That is something we haven't seen in the MidCon region. It's a very strong result. Help us understand what were the factors helping you out and we understand you have very good assets over there. But generally, talk what really helped you out to deliver such a strong performance in central corridor?

Question: Manav Gupta - UBS Securities LLC - Analyst : Perfect. My quick follow up here is you are at $2.7 billion on asset sale of the $3 billion, but you still have a marketing package out there in Europe. So how should we think about asset sale proceeds for the next 9 or 12 months?

Question: Manav Gupta - UBS Securities LLC - Analyst : Perfect. So $3 billion was the floor, not the target. Sorry. Thank you. Thank you so much.

Question: Matthew Blair - Tudor, Pickering, Holt & Co. Securities LLC - Analyst : Thank you and good morning. Your refining capture [filled] up pretty well in the third quarter at 92% versus 93% in Q2. Typically, in the fourth quarter, refiners see some tailwinds here just from things like lower -- or sorry, higher butane blending volumes. Could you talk about your expectations for capture in the fourth quarter? Do you think it's reasonable to expect a small improvement quarter by quarter or is it too early to say?

Question: Matthew Blair - Tudor, Pickering, Holt & Co. Securities LLC - Analyst : Sounds good. And then the West Coast seemed pretty challenging for Phillips. And some of your peers in the third quarter, I think, the capture fell to 63% versus strong levels in Q2. You obviously made a decision to close the Los Angeles Refinery. Could you talk about the headwinds in the third quarter in the West Coast and whether there's been any improvement so far in the fourth quarter?

Question: Jason Gableman - TD Securities (USA) LLC - Analyst : Hey, thanks for taking my questions. I wanted to ask first on the refining business. And back in the 2022 Analyst Day, there was some guidance for 5% margin capture improvement by 2025. And I think there was some kind of optimization across the portfolio involved in that and some discrete projects involved in that. It sounds like maybe those projects have been a bit delayed. I can't really tell. But how much has capture improved from 2022? Tough to compare, given the change indicator. And would you say you're on track with the projects that underpinned that capture improvement?

Question: Jason Gableman - TD Securities (USA) LLC - Analyst : Okay. Thanks. My follow-up question is going back to some of the commentary on distributions next year and the balance between de-leveraging and buying back shares. There's a few targets out there in terms of that. There's 25% to 30% that as the cap. There's $18 billion of net debt. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 4:00PM, PSX.N - Q3 2024 Phillips 66 Earnings Call What's kind of the preferred metric investors should look at to determine what the buyback capacity is next year? And how do you feel about the balance sheet going into next year, given all the concern around the refining market environment? Thanks.

Question: Doug Leggate - Wolfe Research LLC - Analyst : Thanks. Good morning, everyone. Thanks for taking my questions. Mark, I don't know if you want to take this one. But if you go back and look at the targets you laid out back in 2022, the disposal program, I guess, the acquisition of DCP wasn't in there either, but the disposal program was not explicit in your EBITDA targets. Can you give us some idea? I'm guessing, it's a small number but what the EBITDA losses from the $2.7 billion of disposals so far?

Question: Doug Leggate - Wolfe Research LLC - Analyst : You can't put a number around the $2.7 billion at this point? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 4:00PM, PSX.N - Q3 2024 Phillips 66 Earnings Call

Question: Doug Leggate - Wolfe Research LLC - Analyst : Okay. Thank you. And I guess my follow up is actually related to that $14 billion. I want to make sure that we don't misspeak about that being a target for '25. It's obviously a mid-cycle capacity as you pointed out. But embedded in there is a little over $5 billion of refining at midcycle. And you've obviously -- you've been in the press and quite vocal about your view of what the capacity person takes are globally for the industry. And I'm just curious when you think maybe we need to wait until next year but if you think forward about what you had historically seen as midcycle, what some of us thought might be a better midcycle, that's obviously been kiboshed by last couple of quarters, obviously. But I guess, I'm curious whether you think there it's still a case for a higher mid-cycle or whether you're battling to hold on to what was the last 10 years as mid-cycle average?

Question: Theresa Chen - Barclays Capital, Inc. - Analyst : Hi. Thank you for taking my questions. First, on the cost side for the chem business, with ethane in contango, due to natural gas being into contango, also perhaps because we have incremental residue capacity coming out of the Permian allowing for the option to project into 2025, how do you see that impacting chem margins from a macro perspective through 2025? And related to that, just given your processing footprint and your option to project or extract ethane for at least some of your volumes, could that may be a way to bolster earnings across the integrated value chain, midstream, and chem in a way that competitors cannot?

Question: Theresa Chen - Barclays Capital, Inc. - Analyst : Got it. And turning to the residue side in the Permian, I'd love to get a sense of how you view your exposure there and you've sold -- and a gas transmission asset outside of the Permian. Do you view your interest in GCX as core to your business, keeping in mind that the two other interests in GCX have consistently transacted with a double-digit multiple and the pipe also recently (inaudible) an expansion, that's going to cost nearly $0.5 billion on 100% basis? Is that the best use of your capital? And love to hear your thoughts there.

Question: Paul Cheng - Scotia Capital (USA), Inc. - Analyst : Hey, guys. Good morning. I think the first question is for Kelvin. I think in the past, you have talked about a $4 billion to $5 billion on the cash balance. I don't know whether that is still the longer-term objective. And also, I'm just curious that given the volatility in the market we are seeing, and today, you already saying that the debt level is a bit higher than what you prefer in the longer term. Should we still paying out more than 50% of the cash flow? Or that at least, we should say maybe the payout would be lesser after you finish the $13 billion to $15 billion of the commitment? So that's the first question. The same question is for Rich. You mentioned the central corridor. You benefit from the WTI hedges. I presume you are not referring to the CMI -- the CMA. You are actually physical (inaudible) that you get into. Is that just you need for your central corridor operation or that you're doing other kind of hedges in the rest of your operation? 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. OCTOBER 29, 2024 / 4:00PM, PSX.N - Q3 2024 Phillips 66 Earnings Call

Question: Paul Cheng - Scotia Capital (USA), Inc. - Analyst : Yeah. But Brian, is it only for the central corridor that you have that or that in other business -- in another region, you also have hedges?

Question: Paul Cheng - Scotia Capital (USA), Inc. - Analyst : So you have it in all regions.

Question: Paul Cheng - Scotia Capital (USA), Inc. - Analyst : So yes, only the WTI your hedges? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 4:00PM, PSX.N - Q3 2024 Phillips 66 Earnings Call

Question: Jean Ann Salisbury - BofA Securities, Inc. - Analyst : Hi. I believe that the enterprise TW products pipeline has started up to [pad four]. Are you seeing that impact in pad four margins yet?

Question: Jean Ann Salisbury - BofA Securities, Inc. - Analyst : Okay. And then my follow up is, I think, you kind of referenced this in the comments but LPG export ARBs have gotten extremely wide as I'm sure that you're aware. I think they're expected to stay that way for a few quarters until more export capacity comes online. How much exposure does PSX have to the ARB? I mean, does that increase over the next few quarters?

Question: Joe Laetsch - Morgan Stanley & Co. LLC - Analyst : Hey. Good morning, team, and thanks for taking my questions. So on the macro side -- thanks for your comments earlier on the supply outlook. Could you just talk to what you're seeing on the demand side for gasoline, diesel, and jet within your system as well as your outlook from here?

Question: Joe Laetsch - Morgan Stanley & Co. LLC - Analyst : Great. Thank you. And then just shifting to renewables, some peers have talked about seeing a premium for staff over RD. What are you seeing from a commercial demand standpoint for staff at Rodeo?

Question: Joe Laetsch - Morgan Stanley & Co. LLC - Analyst : Great. Thank you, all.