PSX - Earnings call transcript Q2 2021

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Operator

Welcome to the Second Quarter 2021 Phillips 66 Earnings Conference Call. My name is Hillary, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. the to turn President, Dietert, now Relations. Investor will call Jeff over Vice I begin. may you Jeff,

Jeffrey Dietert

Good XX supplemental Investor to include and Midstream. can COO; EVP, Participants and afternoon, be material Refining; welcome Mark and Kevin on Marketing Conference Quarter CEO; Commercial; Relations CFO; of Slide today’s our Call. Mitchell, Earnings Brian EVP, EVP call Bob section President Mandell, presentation will Lashier, X Greg and and with and Safe Chairman Today’s Tim Phillips Garland, and website, XX Herman, the information. operating Harbor Phillips on financial Roberts, the along EVP contains found statement. Second

during to in our will here Factors today’s will our presentation as comments. and Actual differ as call could well With materially filings. We turn Statements to Q&A actual cause are the from making over that be included results today’s I that, results Forward-Looking SEC session. may differ Greg.

Greg Garland

everyone, for flow of earnings Jeff. We cash of operating and adjusted Thanks, generated thank $XXX had today. afternoon, joining In X.X second we you Good million. quarter, the us billion.

capital, was operating cash million. working XXX Excluding flow

anticipate to quarter. a to capital to quarter. diversified the company, in return returned recovers. of continue priority secure a be With we cash generated and a will during have formed as returned dividend as spending we We top we Since over our $XX A billion shareholders to million dividend the competitive shareholders. flow cash and our we for $XXX growth company through excess dividends dividends the flow benefit portfolio, of in

to a strong the Directors as XX credit independent in and debt our ratings. In the Terreson Cade capital of directors. serve disciplined to conservative allocation, investment-grade are We on focusing Board Denise Doug maintain repayment near-term sheet, support and balance appointed July, Phillips to committed

it our recent to our operating would in report professional XXXX tenure, of highlight continue best perspectives. like commitment on for responsibility and by our add be age, is achieve goals. responsibility, experiences think stewardship, accessed sustainability financial We and one refreshment, to setting diversity is expanded commitment recognizing value, our strong compensation that terms of environmental efficiency can performance on of our add environmental top the governance. race, to work Board our to We to corporate our We refineries environmental We program by goal gender, based on We will ethnicity, energy sustainability all third XXXX. website. [indiscernible] additional to modified social excellence,

and targets meaningful greenhouse later As reduction year. previously establish we gas emission communicated, this achievable will

call that, provide over with I will So turn the to comments. to some Mark additional

Mark Lashier

afternoon, today. Good call to Greg. the us everyone joining Thanks, for on thanks and

and first demand improved quarterly and Continued increased reported as Marketing winter CPChem’s storms demand from our record Specialties recovery Chemicals quarter in segment. lines resilient our results operating strong many in across regions. of product domestic the earnings contributed key

losses. recovered the modestly to market continued crack first from Refining storms solid segment RIN product our segment Midstream and results. Headwinds only Our well contributed capture in report continued refined improved low as historically adjusted quarter to winter

people in globe across further the product and vaccinated, global recovery economic we improvement more As are continued demand. refined expect

facilities construction commitments XX project on In is barrels fourth XXX,XXX develop capacity the total by all operational to Sweeny day. increase million with CPChem commitments. supported petrochemical expected. and Sweeny be will by to in Hub will add per U.S. of [indiscernible] X.X and are day of to globally X, barrels quarter Hub, increased which in resumed completion, Upon of additional which the announcements addition, closure expected of the XXX,XXX Gulf year. day Midstream, the fourth In recently Pipeline. quarter The continues closure to barrels permanent the capacity. is CXG refinery is The we in per long-term this fractionation have per Frac Phillips announcements expected continued of over fracs backed At Partners Coast two long-term world-scale construction Qatar. XXXX,

final next is progressing Petroleum. decision Coast Both year. for the partnership Gulf and petrochemical with are as the project [indiscernible] project We U.S. The engineering design projects in investment with expect planned. Qatar front-end

In for In expected a high-quality to and for addition, The in year raw Industry Plastic produce Old uses common polypropylene, among construction pharmaceuticals. world polyethylene Ocean, technology products variety The everyday waste CPChem’s second X-hexene, sustainability. industry XXXX. high-performance a unit in food, being will CPChem award of of recognizes is materials. a is proprietary X-hexene innovators XXX,XXX metric of scale utilizing and including capacity for in convert was and plastic tons recognized began its of products, unit launch start to in XXXX CPChem technology. crystalline the new manufacturing packaging which into up Texas have is May, Marlex, CPChem’s located per consumer to recycling advanced Association by the top used

to diesel heavy-duty our renewable Switzerland, demand hydrogen and to as In venture, the joint continues Through potential In fuel of renewable advance we to combined vehicles produce sell the retail year. facility a Rodeo conversion Rodeo, supply will Renewed refinery. the renewable transportation to over option our production day hydrogen European from fueling brand Subject we portfolio approvals, conversion lower full to projects gallons permitting barrels of diesel to add fuels full day by we other stations. of our our emissions XXXX. the In are low-carbon in with for joint and renewable facility. X,XXX completion, San in one are hydrotreater produced continue carbon We Rodeo fuel for of Francisco conversion. facility project fuels. of rates have early co-op per production Rodeo is capacity. goals XX,XXX expected barrels renewable reached support XXX converting fuels. venture reduce billion will Upon exploring at sustainable July, Marketing, fuels of retail the per growing has from per The sites the California

forward shareholder We focus are operations the our future, moving while reliable and preparing returns. for safe, maintaining and on attractive

over financial the to to Kevin results. turn call Now I the review will

Kevin Mitchell

an Thank you, of our earnings Starting Hello, second million. we reported overview Mark. quarter on summarize Slide everyone. results. $XXX X, We with

Excluding share. we of cash including million the and million $X.XX distributions for paid equity We generated million adjusted million earnings $XXX $XXX from growth We billion, projects. dividends. for special was of items, $XXX $XXX benefit of of per million, a $XXX operating $XXX capital or Capital $X.X flow million. quarter had spending including working cash affiliates in

of income segments, improved quarter, shows results with largest adjusted the contribution Moving across million. in to from the to an first $XXX the slide Pretax all increase X. from quarter change Slide the This Chemicals. second

effective Slide was tax income adjusted results. XX%. Our Midstream our shows rate X

to increase quarter. due improved storms. and quarter volumes The integrity was higher million, partially day Freeport reflecting higher $XXX cargoes volumes, previous LPG winter was lower to Transportation quarter facility and The $XX mainly from work. the and natural pretax pretax quarter, contributed Second from million, was $XX higher maintenance was NGL was the $XX from and results mark-to-market million pretax of per due from offset million costs a Midstream from quarter. million. barrels refinery the DCP operating other of second averaged quarter. the the and $XX NGL from $X the previous to mainly record export Sweeny loaded income costs adjusted XXX,XXX down pretax The income asset by due increase due income adjusted the adjusted million $XX the prices. utilization, hedging gas prior lower from fractionation timing complex of up income adjusted million in to million, previous of XX higher an recovery $XXX increase

Turning on Chemicals Slide to X.

lower Global the Second income costs. was the reflects for following quarter to the $XXX lower venture This Chemicals first as was million. was high since winter the quarter the was O&P Olefins to supplies in income over Polyolefins million, $X.XX due from million. by pretax $XXX chain The winter Adjusted quarterly The to supplies $XX is for as contributed adjusted increased the earnings utilization pound adjusted record highest recovery million increase tight from improved strong increase and from storms margins was $XXX storms $XXX margin XXX% The formed turnaround utility driven pretax previous XXXX. demand, quarter. the pretax for and million up and per higher that well SA&S a pound. costs. $X.XX income industry increased per margins quarter. industry primarily joint

we $XXX the million second received in During CPChem. quarter, distributions from cash

secondary an Slide realized second prior utility crack decreased to Crude were adjusted improvement the of X. was Turning higher Refining was margins. costs $XXX The from first lower from This turnaround by by spreads clean million, lower was market impacts. inventory than million, product differentials lower improvement partially XX% $XXX were in quarter. was million market, by quarter. and product volumes. with electricity $XXX higher offset Pretax and and million $XXX the Texas on pretax turnaround margins, sales compared driven last in loss lower quarter. Improved the quarter XX% Refining costs down offset utilization more

first covers clean our Realized Market configuration in per quarter in $XX.XX by was capture margin XX%. market was capture previous the XX%. of to capture. crack impacted overall per second an is XX%. per The quarter The $XX.XX of product compared capture the yield in barrel was $X.XX resulted Market the and the market refineries. quarter. market for X second barrel barrel Slide was X:X quarter

Our heavily toward market weighted more indicator. are refineries the than production distillate

the quarter crack the barrel stock to per $X.XX quarter. the increased per crude $X.XX previous compared prior During barrel. $X.XX barrel of as barrel $X.XX the per secondary prices distillate per $X.XX Losses or improved than barrel, strengthened. improved the per These quarter, gasoline while costs higher products crack from

The new includes margins freight per reduced $X.XX RINs, costs, barrel. and other realizations This realized category by product inventory impacts. category

exports million, income domestic billion received Slide Marketing change shows to cash pretax a we million prior for operations excluding quarter. million million than $XXX demand in tax was prior up reflected a $XXX in the Slide from $XXX Adjusted to per $X.X from refund, In U.S. strong We million billion XX. product balance. a day. Refined XXX,XXX reflecting volumes, income June, adjusted the and cash operations, of $XXX $XX quarter the is $XX $X.X of which the million, quarter. This which pretax working in started capital. and Cash Cash and quarter of the quarter capital million. increased second and $XXX working benefit $X.X million due compared key barrels Marketing with generated million dividend. capital, margins spend second in federal was in the income the second working capital $XXX $XXX quarter Specialties covered markets. billion. was were for quarter. on higher more from Specialties with XX Moving other in included

our to joint venture. loan The other WRP million category includes a $XX

$X.X and ending was the operating Our review results. financial of concludes cash balance my billion. This

outlook the cover to I XX%. Next, will utilization expect will a July, be global Refining, crude be In averaged utilization the few mid-XXs. according In Chemicals, market we in to adjusted utilization rate third conditions. items. O&P around quarter In

pretax expect $XXX and pretax. expenses million million between $XXX come quarter turnaround costs and anticipate We million We and to third be to $XXX Other between quarter in third Corporate $XXX million.

will we line the Now open for questions.

Operator

question Your from Thank Sachs. Neil Mehta first line comes you of Goldman with [Operator the Instructions]

Neil Mehta

Good the Thanks for team. morning question. taking

has on thoughts the been? light so view been and indicator out August The it any if and in this very Has do strength? might just that see How playing just QX. you. margin what I the I that number remember. robust think camp, is have the mid-cycle on Mark, in of in you $X.XX, Chemicals. is which in was July Kevin changed be And first And one recent $X.XX mid-cycle you indicated for guys far? above

Mark Lashier

Neil. It a Yes. question. is Thanks, great

And strength above the We are we quarter. mid-cycle look margin we continue the are well that third still today. on consistent our into are third as in And out projection. the we of quarter, course, seeing

There margins. particularly if We we the North and table cost at marketplace, that on we as think of they a have today, went is as are Europe. speak. record we in can And carry in the got quarter. are increases negotiated third strength lot still are being that, in into things that Even forward just America

Asia but lagging, is starting a little still kind perk to up bit. of

the some will upside in as the out we So the America global the and Europe. resurgence offset future rest in. is that there And in real economic some North economy story is the in headwinds kicks that fundamental the of believe U.S.,

are those term. sustainable at We are believes record Nobody long margins. the for

can have kind at However, also strong And we I now. robust. conditions we still be seen something think from there there marketing we kind We conditions seasonal is the those the in fourth of where may to level downturn of record can that pretty but see when something typically go carry quarter, is through momentum. enough

And to particularly would typically unusual the pretty still of on high-density the be a focused operating. season. polyethylene. time The going are in tight We season. little marketplace. where We it recovered have is is CPChem there comfortable want this that hurricane And not hurricane be year inventories to to higher inventories into in with be

number factors year. is sustain quarter in. into of coming first additional economy this a say, is momentum time, see next the then we on, there beyond into of could world to quarter. So lead and capacity the same kicking that fourth And the About the third half

COVID. as bear got from world fundamentals legs And is based there some demand on fully out some good economy So will is it recovers think to still the that there. the come I

Greg Garland

to kind pound. the full look averaged about average. polyethylene chain has Neil, we mid-cycle margin about the be if And per $X.XX in IHS you talk XXXX XXXX of at

Neil Mehta

Okay. $X.XX per ton.

all And of the refining running refining you in system just and Okay. type would this thoughts system, thought that then I system. Phillips was me if equation, levels, been have is told have refining follow-up, the pretax XX the the That you these side making Jeff, is Greg profits if of the great. the would refining for at on

refining too get how hard, so is U.S. running the about guys utilization the your as are system fall? own you And thinking into you and

Robert Herman

that is take Bob, will This Yes. I question.

in us market at think parts, moving take you utilization to the there lot of last at. full There in think I we to for we continue of particular, rates back plenty of Refining I that are cost run the were the just for when is a of cost hit signals look the over quarter, quarter. prints. those the there pretty throughout RINs And increase good a

maybe a and I would on ticked demand have than expected all Asia Europe a think better basis, we global little back did. it

margins second across of RIN representative adjusted I we are that our the saw in think market. very global the system quarter really a

we like products really seeing So into get where to. seem because to back flowing start we and until recovery, we America, we America South Europe North won’t Europe see would to in particularly out RINs of see

particular heavy I without second in for towards is think the piece certainly it crudes gasoline-driven market second much geared more the differential a for And diesel. us, quarter, on crude. making heavy was

July level. those here have seen a out to respectable We widen in now much more

So we think in a is into in all number right headed XX% I the of a type think direction. turn to added But up profit. the that it challenged being second quarter utilization to

Greg Garland

comment Brian, do you we what in want are seeing today to market? on the

Brian Mandell

of I to holes LLS think have we beginning Mars. dips and WTI There two the the year, of them is of the the seen dips, expand terms since in year. to start beginning the heavy at

the we think going are have help second us tailwinds I So some that in to quarter.

toward distillate wintertime. we expect get as perform to We cracks

come So all, all actually in also we think overseas markets seen I have back.

XX% demand. seen Europe, we Europe. in Austria, And demand. of Germany, to have market, where where of we have XXX% marketing XX% We we market

as have back markets we those seen well. So come

So Bob in some markets U.S. to overseas start that the QX. will should cracks, the as and help back, said, see we profitability come

Greg Garland

the One if year. end get million we thing barrels of XQ, day might the day OPEC at barrels the I projected look kind in of of you XX.X to by XX were add projections, a million is to a shy

year. So the our improve expectations of in for demand back to continue half to the

Neil Mehta

you. Thank Great.

Operator

comes Fargo. Your from Read next with question Roger Wells of the line

Roger Read

anything plan anything Jumping it of Phillips help has improve. is was to margin within Refining your of done obvious of questions things ago internally the else changes or just is might part system that out that here. But do I months to own back program or there out any additional advantage to one full the the laid would be to that that guess thinking on should front, there is, now. years

Mark Lashier

Roger. Yes,

of has I and adjusting expected, turnarounds think and maintenance good a year, our to of Recovery into conditions this question. answers expenses couple is we tough been year. slower we we for a but right, of heavy operating expected all reduce to part there some went than internally, trying that that. One, this

And so for fairly for just Kevin the quarter the third guidance us. light gave is

that So quarter I the third think helps profitability.

we You available run. are can translate that to as

cracks the are hard run in money. program the pretty the that we there, third make to if are So to a is XX quarter and able margin margin going be so out, that we Around of laid built around lot improvement. enhancement,

before are a those quarter, quarter were all in we that toolkit. in done some ran So or wasn’t of and of well The we pretty lot such second haven’t the in value down into where typically, before, refinery, heavy do did there. our tools The went we ran the running needed really we be lot activities using chain that robust. our pretty profitability Canadians. or second a We would the that optimization on Sweeny things to are as of we

into around circuits. of system. one And our about kind running are example just so we optimizing where It high the is sulfur

directly results A We being happy lot on safer operate are Refining seeing of They value of environmental operate are all out paying to we but operate see the seeing we are them, footprint, come with able dividends. necessarily those in line well, you operating better, around with are smaller the overtime, are the where they initiatives and initiatives. can to don’t pretty translate bottom our of the front.

Greg Garland

and think this when FCC Roger, kind had maybe of we I year. QX, planned a of quite I downtime QX have about think bit

yields to are our look years, historical we So if X%. relative you at probably down

third to simply we in better quarter run are and quarter. fourth going the And so just

Bob, that. I that ready we up that things are tuned think, do to

also. that things we are the that So is right of focusing now I think one on

Roger Read

enough this I know, all question Okay. you budgeting look of thing But the you. this for flow cash today. as nice half are the they was is Great. don’t to then definitely of back Kevin, as year, that for cover generating things one the quarter And are kind outflows.

much the the as to quarters? we Phillips corner will be we sheet, some think the the a position debt in say, of pretty taking start I turned four go have down on balance improve that to next, two world and COVID the through

Kevin Mitchell

we if inroads have we is some be that to we be have sort and Yes, at mean, to to I been. to to back over with do build expect continue the our should know, into be year. have we yet, about course And are it that. able being balance the year, that have I next of of talked cash to in we to generation back before, to you would making need debt which marker as obviously, the not maturities mid-cycle a certainly really start But debt that of that we around as of in balance have we going we reduction the cash and able from Roger, And truly nice certainly it terms improvement the a year given some place. profile where sheet of flexibility the starting get of we lot where the is next callable be. able

of flexibility that on lot front. a So

Roger Read

Great. Thank you.

Operator

Your America. next question comes Doug from of the line Bank with Leggate of

Douglas Leggate

Thank stressed you I margins all of a you you obviously the this, like assets testing ask downturn, you go could a I if good wonder afternoon portfolio. that - through when the the everybody. in cycle how one

in specifically structure portfolio the you you a think see the -. today any specifically question. might in I links to into by portfolio kind side. Roger’s weak that I’m Chinese obviously So change be the Do guess follow-up revisited as thinking of

Greg Garland

the testing and Refining Yes, it, looking year spend and do for our we picture rest context of that of in of the would one assets that not value Doug. too, think around amount time area. every of in I are we every at future stress where And guess we say marketing asset just the but the how supplying lies. chain much bigger asset, our a I

on assets. Commercial many coast. of around our We assets, got Midstream have is trading the particularly

we long-term context. a holistic frankly, at we assets picture. more liquid think we have a and much our what for debt. quite the So future And fuels at a we think look is we debt look that holds in Considering that

are they assets day. of end the at So the

looking make ways are or given any we so on And always more find from to upgrade to money asset year-to-year.

Douglas Leggate

And watch follow-up walk a evolves. Kevin. much up of X, has us into how margin I you XXX that can - will you bit how for quarter. Slide it that transitory clear realize leave to Thanks. detail guess my we much evolved that for fairly more you maybe how of of I is how that expect we this delta. should description through dig as maybe maybe We address? truly there. will give little to Can

Kevin Mitchell

Doug. Yes.

the is that single is other element that by largest expense earlier, So borne RIN Bob the that refining. XXX as within cost is referenced

the than RIN And items other. are is Most costs both differentials, in slightly or RIN Obviously, half within and there were the in can the so move the more high it is half market actual product indicator other during total Product - always which directions of of and the on is that there. particularly around us. but quarter. between one that difference go realizations,

During value the the some those we - be to often the that quarter, getting were quarter. can premium differentials of in benefit a seeing not us products for those

that is go component both inventory in impacts. So and that there can also it come directions, then And to the the other back it that other one around is move can direction. is

can in but And both directions. to so in this Refining inventory was particular in that a earnings hurt quarter, move

Douglas Leggate

should just be is think how is the different slate your other that about product and that configuration, we So in to that or configuration mix, -. clear, in not

Kevin Mitchell

The the XXX. reflects No. configuration

premium have So indicator what two-thirds indicator. gasoline you that versus gasoline the distillate. in by often products, the not. they other, pricing were products of it those for way actual be period, relative to the an uplift market including and and standard the in produce got whether is other can gasoline, one-third distillate actually market premium But In we

Douglas Leggate

you. I Thank appreciate the stuff. information. Great

Operator

Grech next of the Phil with from Your question line JPMorgan. comes

Philip Gresh

Is there your that curious have that kind cycle. in across you normalized areas potential about $X having Greg, COVID And normalized now anything EBITDA think have in the past. this how I’m potential I we changed various EBITDA Refining that referenced that the gone of this past, you the portfolio. think the through earnings billion have view? has you there of is through a number gone about thought always

Greg Garland

EBITDA of XX we a to kind our a to $X Yes. EBITDA I No, ready yet XXXX, out time number. we laid Refining. at I to average XX And of in on the on Refining retreat for kind think don’t was think are sound billion mid-cycle business.

if go money is the way to of first a that last the as quarter the you back XXXX, So back company. all time made we actually

So the for is efficiency, have has of been our to it constructive, of And of we lockdowns of all lot a into half demand products. I probably the is we year see of been around put recovery a get translates There a we cycle. in demand this. is lead But long come the back people that question. the and are there has haul no This industry. of in demand. a a I normal, strictly terms our trying this through vaccinations, and kind story think as still particularly think come as back through to U.S. some we to in that is question, been lot companies There stress on

so the U.S. impacts we the of coming seen And have to Europe

like export in as We to, not have being seen the we much impacts places. to as America would to South able of

back getting as more returns mid-cycle. to And so the like I at to have that normal, looks shot something world good got a think we a

I around back XXX to generate on said that be the want call, Jeff, a something you I frac on to adjusted really of if anything will that need I able billion. market kind basis on about know the $XX. we to around to last see appropriate captures think that? $X see to RIN And then we get add think don’t we

Jeffrey Dietert

Yes.

you on the think demand I equation. guys the have hit of side

considering closures, announced Refining seeing been about of service day terminals we has are that capacity And million million temporary X.X that could shutdown. up types of to become of day are either announced barrels of X.X other a outages a permanent. or more day as barrels XXX,XXX potential a or rationalization, We

it I So think are to that And big as of rationalization a closures is more piece expecting we be announced. well.

Philip Gresh

it. Got

growth cash a the there dividend press flow returning release, recovers. is In as to Okay. mention of

So you dividend sheet lay to I where terms $X.X I was hoping Kevin, the billion the for balance tax leverage Is you quarter. that it to year? in still priorities $X.X growth? second for out billion just get want And think refund maybe in of before would the you you the said can quickly reconsider

Kevin Mitchell

in terms are that be refund, million about year. is expect the thereabouts, you total. So into is There or of billion but the $XXX tax $X.X that another roll cash remainder received a next billion. don’t we it to $X.X We right XXXX item will

to dividend a the will to position as about something reasons, think around comments we generation of go growth, that still for cash we So to cash terms overtime variety year, in it and recovers down this not going back realize a for although earlier of mid-cycle, that. itself is pay debt. be us on I around are to And then in

paying progress down making on are We debt.

back should other the of the comfortable to to capital line We of and where be, want continue sheet to sight and priorities one have increasing got sort it the we feel some then of our clear balance do get those. that we dividend to to allocation on of is ability

get very the So long-winded structure way a need is We is there. be I that on comfortable need just to through all saying to to the there, of balance want we to bit cash we the is decision sheet on little we of don’t generation a make the think dividend. get it before a

that We of our dividend. are making shareholders the in to progress confidence to we need to able make, will and terms therefore be with the signal we

Greg Garland

Yes.

is it think important. I

AX do we want overriding, rating. the think I to protect BBB+

cash think of mid-cycle I know is post do us think earnings to at cover do. we And billion plenty $X to company that gives a things billion that. $X for So to our flow lot And as you to of mid-cycle. starting about approach need the we

of billion I be think we of next the kind calls, couple in we for to expect or $X years said CapEx previous have less.

have balance about of billion return do sheet Then context things will to the of total think plenty repurchases. cash and $X.X of we $X order, billion I capital of room we to to do thinking think billion to so into around at capital $X flow the and share bringing shareholders, I program in want dividend. the a $X billion the dividend increases our And

Philip Gresh

Thanks a lot.

Operator

Your question Cheng from with the of line Scotiabank. next Paul comes

Paul Cheng

I XXX. actually the probably stream about in questions. a quarterly XXXX, more. your the is million your quarter, contribute Two if the EBITDA, the should look which million, But business, and this full have around operation, at $XX NGL $XXX EBITDA think on we if quarter average million. come and Greg, least not I at In $XX three EBITDA two

So market that really because the much change if NGL price the that get or worse very actually to second good will quarter. conditions much trying that in reconcile is that

So help that. maybe someone that us can on

a be would question second The just quick real one.

On conversion. the plant renewable, the full

is if digitization. last process guys see status to go want put of that and years, also work Just couple permit the for a to you that the there And can been you trying have

couple you you update just that? see to wanted with if can on of much on fun where give pretty aim from that Is guys an ago. a so are years what And we a

up. savings target the time messed the at that pandemic, gets can all think but with high, cost get mean was I I the everything pretty

So it is very difficult reconcile. to

maybe can some you update. So give us

Robert Herman

is your what. Paul, will I tell Yes, you this NGL question.

of time we was fundamentals. with you that where macro. XXXX, The was NGLs. regard to I to I in good whether Midstream products, all really and wish back Global the a were say it supply/demand crude on would is it be wanted demand our products overall first is thing That in

a market. that there is the things storm highlight was with are or one in costs you The winter fundamentally, at me - the impacted couple standpoint that their look some So Uri. the When is frac the Even it did at of XXXX, we down And reared there. utilities. specifically you let head. the from when there biggest damaging mainly of impact for have that big significantly just are any look not But biggest you had on our have though issues there. Uri, units units, changes

significant. was bill utility Our

back call to is year. for of the and rest going standpoint, that to from So hard that this be

been But the positive we in Production on tell So about demand globally. is you, this rejection would We locally that in space. a to good time. one overall, growth, million chemicals still structurally, is support and business. ramping barrels both in NGL has at up. robust like NGL really note, just very see point Demand I

LPG a record Our exports clip. have been in

QX, So basis well The the as overall, thing as lost just in us. you the has fundamentals a up probably really are overall big on XQ, a hit as feel structure that it cover production had ethane. in good significantly, last and initially that we stays aware, year-to-date hit cost jumped propane, NGLs in I would which with was butane well

for XXXX, $X.XX a NGL a We are at on gallon about was In basis composite. $X.XX, on it $X.XX.

mark-to-market with an have some it up. And we our seen of impact that, inventory. gone we So on is on some have

But So nonetheless, up that is shows there. issue. That a usually timing the in into XQ. turns that just in results

Paul Cheng

the mark-to-market was in that How quarter? on the second the impact big

Robert Herman

front in million. number the have $XX don’t I $XX now. right million, guesstimate of me to going I’m

Robert Herman

is it Bob. Paul,

in I the Rodeo think status and was of run out fuel. Renewed your around the conversion renewable question the Refinery to there permitting second that

better develop continue we it characterize the that to about I environmental as could, impact County. statement we expected. as than with So Costa Contra well has gone would

We right are public It permit we this county, to internally sometime permit. the expect release the month done now writing to is probably in would period. essentially review and with begin the comment the them

right that bit a much be our So maybe would time pretty on line, ahead. little

permit regulators with far, been so we good pretty process their we and the it are happy a and So where is are. And cooperative encouraged

the and make Northern Bay to do going Area for sure for and other to everybody is California, that County all in We that understands general. California outreach in Costa Contra the what stakeholders continue project with

so far, And digitization. good. piece. Yes, third So

a was of it is of cost around been I the think would say sides are I reductions. hard right, within environment question say. to XX and able the to in we bounds But deliver have both XXXX, equation. the on like a year you And

make the opportunities utilization optimization in get we refineries think because those and away some of good So much as low easier around we our and I all efforts we did had had. of down jet we to ability and reduced have to are go our as

distance we at when would had piece the use say to social second had is and the approaches we everything. The alternative and work I

our our allowed that contact units, well really upfront we quite budget. reductions saw were sorts to year. digitalization human the our a and of this learnings some into kind throughout items, cost who line cost contact we sustainable was I is those through in a year. And longer-term to to more will dividend we there we to were continue our jump the operators early last And things of of while us caps minimizing think the applied big that a hold costs many people world. on in And in of lot to Our and pay get to throughout done on keep reductions those. ability piece operating able without got XX bigger price out We supporting outside the are the with third the that of got piece fact,

of in our there, kind So all full steam particularly initiatives ahead on Refining.

Greg Garland

I just come QX. cost That controllable of costs last do continuing in six you year, months look up business. this six work through have the are $XXX of months just business. say, more first of in all the cost terms controllable and that When side are at might almost done I got of we I about cost. our is relative commodity in a million the to in year mean, Paul, first we the what to is do on There we never

of is year. side for we on And not more are work cost so of holding kind is savings it. were component, you able But the achieve that adjust us to energy good enough. There if for controllable we to last do cost the the

got questions So all hopefully, you have answered. those

Operator

line comes Barclays. question Theresa Chen from next Your with the of

Theresa Chen

for Hi general, good curious I’m on weak macro hear During quarter, for just closures for your question. looked data outlook to your guess, taking given global first, a European the forward, there, my capacity market about the there? and I refining the in thanks exposure the of going topic portion.

Now news of we starting back are seeing operators some strengthening there and calling with units workers. hearing same and -

that you the curious to evolving landscape. in Just about closures hear how see

Greg Garland

Yes.

half of margins first of Lower So has lower the Europe challenged been and the most year. I think in one market complexity. the

demand there. been recover slow I to the has think

some regions. challenging the seeing but looks it more are like improvement, of We one

Latin I be in had. come American more typically think a And summer actually we announcement than there fall, also. as a utilization where what we into that we see I closure have have seen Refining challenged weakness think was could well, area that And the activity. stronger we as in is continued an for expectation

Robert Herman

weakness imports pointed U.S. and in weakness seen on U.S. Europe weakness diesel margins. out, to we this the say would we barrels Refinery I the into have year. - the of in the translated has our XXX,XXX this typically

U.S. We XXX,XXX imports barrels diesel Europe. have seen or the into of

from well. We increased Europe that, that lockdown, high of stop. We lockdowns. We expect, as those as back from that imports will saw back gasoline Europe comes start Europe COVID to believe comes will barrels from as

seen have it We taper already off.

lockdowns things those Europe we back when strengthen. see all complex come in So decrease, U.S. also Refinery will and COVID the we

Theresa Chen

your reversal to that do subsequently, that market to Mid-Con replacement there in Should narrow facilities, to about playing coming a medium- in think Coast spread? long-term line cap incremental can you light Got WCS - little on situation be Mid-Con? see quarter. dramatic about when while just the barrels we on, projects outlook the your development then narrow it. happening online the Line could would with later see chains talk us we flooded structurally X could side, be how the And where same -- what equal And for out? weaker with being differentials which narrower the differentials heavy And you Gulf of a fourth actually help crude

Greg Garland

have about to It a couple currently, Gulf is We So rail. in because barrels Gulf of couple Coast. bit. the you reasons so get the in got is out And differential, past which have differentials quarters. over low seen egress WCS, barrels exported But obviously means differential to seen, as of we have differential Gulf a have what seen something of the X.X barrels when you pipeline that have weakens, is And weakening, hardest XXX,XXX seen off on WCS weaker to past of we about from on a is the get the weaken. to on of the years the the U.S. we the does have little different quite have we another an the million barrels WCS come that X.X we the one exports have to Coast WCS of have Coast weaken that million $X.X

But that the diluent have crude crude, increases differentials said, in of to Enbridge we don’t think bit. firm you add volume up move. and has we as online Theresa, to the wintertime, in next quarter that So four, quarter, would also that coming a forget would we

see our between differentials forward. $XX.X XX.X% that So of is going view, our forecast you’ll and somewhere WTI off

Theresa Chen

Thank you.

Operator

of Your Credit with question Manav from next the comes Gupta line Suisse.

Manav Gupta

Hey the guys. on Rodeo I wanted focus conversion. to

guys are from to are gallon. varying is there between standard and between cost about Unit to $X a are We gallon. is five And their not One, a it. and X $X.XX a are building pretreat trends who their XX out cost are then $X.XX there. varying building guys seeing - deviations the

a a only $X the and are one You gallon. your building who’s cost is

get to you’ll I’m can understand trying sure us this is there. help about off you unique this is so can So plan? it else question. why not that pull I’m what and special But nobody

Robert Herman

I is it Bob. agree you. with So

there. get will We

So we they of able to renewable very low part plant Rodeo being service. those have where the a two so today what cost project. differently, have we kit And is are put actually to from run convert the very And really sets to high-pressure is hydrocrackers completely diesel full the we available. up can all one that conversion, into units

the piece in the then the either of freight most cost of that big logistics is project So chunk is and themselves. the

is the on capacity that hydrogen a hydrogen be be is $X is refinery gallon, of that an So have between if is to about to allows are - two have but you a which it custom built what be site that site. right, building project our unique else, I to to lower a able to to plant than since us going feedstocks and excess hydrocrackers. And is there was a converted it be of of think third-party anybody because able to cost that very, at that position installed Rodeo is unusual very built was our own supplier at renewable

So got a perfect we have of there. kind storm

up of So little a pretreatment and and we bit all unit, logistics spending go. the money we are metaling the the ready to in right, hydrocrackers in be to get will

Manav Gupta

Perfect, follow-up. have just X sir. quick I

when permanent. people burner. as I and crackers you you the the on think somewhere plastics, just were these that a nature I’m be two of it kind which the somewhere back trying use comes pandemic could put of changed understand, of to to have

decide FID, one. forward, FID let’s You take to to how do the you of them trying them. I’m understand, just long point the the and second that one can from say, it bring will get first

is So up you change plastics and a demand an cycle, in this the part of is it. can if permanent for capture

Robert Herman

at looking to the and And agree these we Gulf we market is obviously, we projects. Well, improved is since year we the window to earlier, year a the initiated behind U.S. investments can from FID as that a next Coast fundamentals have Qatar I we noted we these that And project about that believe dramatically to window four start-up. time pursue do good something. And believe can about are that. don’t particularly you target years try you FID

So got we foot on forward these. have our

we and contractors a are in FID leaning in improving, project on are us, get to like the the we variance year. to capital are cost path still would we right. variant global move with economic that other resolved delta make see next a to little recovery sure some but Clearly, to clearer are but fully working from the are is and economy. and with ready behind to the COVID, any move, disruption We markets ready world getting We that there

Manav Gupta

much you so for Thank questions. taking my

Operator

Holt. Our of Blair comes from next line question Tudor the Pickering with Matthew

Matthew Blair

here. Thanks morning. questions for taking good my Hey

PE you that on your shows Could but talked is also about new inventory data inventories in tight. some the up First share supplies, and industry color pretty on chems. say The release picture? ballooned is to highs, PE the tight inventory really

was I the disconnect hoping So there. just explain you could

Greg Garland

looking in Matthew America. disconnects the just increased at of of one the of almost X% days North is sales versus inventories demand So inventories because has the gross

also inventory are parse different polyethylene is density, And low by and we linear And low you levels of density, high And density, kind out have different heavily and applications. that density high important. because went have so to all exposed supply then their it high perspective. density XXX% the excellence that much tight into operational But It second quarter, uncomfortably now rebuilding capacity of is delivered so ran tight. particularly CPChem is and of at been an those in really building. from to inventories. they

of if would though strong into be hurricanes even that still be had to they but are where a lot into that. prepared comfortably a there hurricane, such have quarter, don’t a are impact seasoned. production they that. they to are inventory, They to like So went a heading not hurricane and they prepared plan for They

It is that tightness. as the you in in think weather North well the cycles we America the growth where seeing sales in I with high demand from are North a is perspective day really So are as in where of America.

Matthew Blair

options of that combined are like showed then what number good. feeling wondering, status on RD your I It forward. were in higher about biodiesel in Los QX. Angeles here? placing long-term only seems out been But and that California XX% diesel Sounds the is pinch blend and the And LCFS you a state going your rates was refinery are

Greg Garland

California. on diesel ends No. refinery Most of of the out goes out of low state our

for So there, that non-issue Matthew. is a us

Matthew Blair

it. Thank you. Got

Operator

line from Jason comes with question next Gabelman of Cowen. Your the

Jason Gabelman

the quarter decent I earnings Yes. marketing refining to It like on seems in quarter Hey still to versus of a refining increased to between there taking this specific And doldrums ask and RIN thanks RINs. understand amount related wanted for to is part earnings value and is split marketing kind RINs. benefit my two, in I in refining. cost accounting the two in some the the questions.

than pass the XQ far? co-product being on are normal just RIN much that we so So minimized consumers? know is the how a talk about How blending just question, second RINs how is quarter-to-date your And of I marketing larger you and relatively realizations, by also this through looking and to quarter then exposure can benefited maybe quarter quickly, headwind.

Brian Mandell

So the RINs start will question. on Jason, I this is off Brian.

Marketing of crack. to that se. the Our and from we quarter in view Marketing a in is large crack demand the that of on of has are doesn’t passed refining places. chain, We but the in per for the again pays And consumer did June. Marketing doesn’t There crack saw see had value the strong who the any really the the may the It a the that on is RINs see and be in portfolio RINs QX. very right right pays really was the is benefit part any have the some kind leakage at a then March that in passed So jump cost -- that in benefit. RIN up

bed also than and We have lockdowns in and this in also retails I Rockies the Mid-Con, the stores West the better in And for done would years. were XXXX have Mid-Con the on finally, three COVID added we - reimaging know, a retail year and We in in the in add We and and the that past strong where premise. in and added, more been presence there XXXX retail movement. less Coast, has as And you Rockies retail that late

in stores X% and XX% have up margins we those well. reimaged volumes seen are and stores We to the to X% in of jump the as

right done things portfolios to of help in a have we spots. So lot our the

saw think I QX. the is so value marketing we that in And in where

Jeffrey Dietert

environment, I within four rising here. are environment typically we rising declining improve in squeezed in Refining, a oil think kind price a of in the of oil prices on and a products and row oil they get secondary price quarters

the variable think driving biggest that that I product is margin. So secondary

Greg Garland

the back fixing September. second again people the roads merges half I of back comes little here, up the the ends of we quite little little we in then a this is and would are help that Yes, the offset with but bit usually, in products because this all asphalt blending quarter too, seeing start and bit, out the agree, year, make as a time of things, the a secondary market we and And in U.K. Jeff. in of some time those

So there is a This moving lot would is parts are price. there. we of maximum would the type kind see of for in But we of this I think probably. oil

Operator

Sandler. Todd of from line comes next your question with And the Ryan Piper

Ryan Todd

RD profitability a conversion Can point associated few capital talk fully out locations envision ramps diesel? of you marketing What view? kind of is the the market then over the play effort the cost your what to you marketing Maybe on years? or have of the milestone ramped that Can a speak X,XXX a any having near-term just a the thanks. or the to kind I questions getting you Hey capacity diesel mean you to you from a to target seeing of of day. are of and margin this? it convert couple Rodeo to And to barrels follow-up. business. entails about of with And renewable up Rodeo takeaways how kind from next quick what learnings maybe that critical as

Robert Herman

take will Bob, is I question first there. This the

to we to of actually can full day finished, We X,XXX Rodeo still as day a started have So barrels a so low came the running rail to barrels a came to out ran infrastructure the renewable that turnaround up service, We renewable hydrotreater almost up get supply and a rates. that we well. at of X,XXX really diesel. make project and had quarter

XX things to and to the project that actual able do was of the being projects it these ultimate convert the no two changing is turnaround a And how for there are around running that catalyst a scheduled and are the learning kinetics regular very was of are matter oil, what converting then separate little in reacts real the of run oil. we It a learning catalyst work refinery. So it. to really bit to a

helpful. is it So

I organization to feedstocks. think the picture renewable there to how bigger is our commercial to helpful is very learn it source

getting barrels XX,XXX a of around peculiar all there, to Those of nimble set day conversion. more areas renewable sorts it. and day transporting be with X,XXX for a us from barrels a we are ready lot go logistics the up when them the things So to some

probably and refinery about think is anything the needed see go the to much back the best think did design our to that to out think it us thing as operating the we made not and convert rest of that of I stop about project pretty come we expected.

Robert Herman

oils plant got conversion far. that into earlier X.X so for of to soybean, up months we add over X,XXX going would but rate also plant, XX% I other forward. we than of we high asset Bob, there. the plant feedstock just great run barrels We We vegetable And the have kind the firmed thought, run up a that

got we of So oils. out some experience have going

looking stores, are feed at We bring is you international as converted stores. to capital We It low well. started mentioned. as

will producing We allow year, that to stores end all have R&D XXX by the three converted are will run currently. more the us and quarters we of the of volumes equal to that of

Ryan Todd

you. thank Great.

Operator

And this does conclude today’s conference call.

disconnect. now may You

Jeffrey Dietert	Vice President of Investor Relations
Greg Garland	Chairman and Chief Executive Officer
Mark Lashier	President and Chief Operating Officer
Kevin Mitchell	Executive Vice President and Chief Financial Officer
Robert Herman	Executive Vice President of Refining
Brian Mandell	Executive Vice President of Marketing and Commercial
Timothy Roberts	Executive Vice President of Midstream
Neil Mehta	Goldman Sachs Group, Inc
Roger Read	Wells Fargo Securities
Douglas Leggate	BofA Securities
Philip Gresh	JPMorgan Chase & Co
Paul Cheng	Scotiabank Global Banking and Markets
Theresa Chen	Barclays Bank PLC
Manav Gupta	Crédit Suisse AG
Matthew Blair	Tudor, Pickering, Holt & Co. Securities
Jason Gabelman	Cowen and Company
Ryan Todd	Piper Sandler & Co

Phillips 66 (PSX) 3 Aug 212021 Q2 Earnings call transcript