Phillips 66 (PSX) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Second Quarter Performance: Phillips 66 showcased systematic execution of strategic priorities with visible improvements in results, including over $11 billion returned to shareholders since July 2022 through share repurchases and dividends.
• High Refining Utilization and Cost Reductions: Achieved highest crude utilization in over five years at 98% and reduced costs by nearly $1 per barrel in refining.
• Midstream Growth and Synergy Capture: Closed acquisition of Pinnacle Midstream, enhancing the natural gas-gathering and processing business with 100% fee-based long-term contracts. Midstream reported near-record results due to strong operating performance and continued synergy capture.
• Rodeo Renewable Energy Complex Full Rates: Reached full rates with the startup of the second hydrocracker and both pre-treatment units, processing approximately 50,000 barrels per day of renewable feedstocks.
• Cost Structure Improvements: Approaching $1.4 billion run rate savings target with approximately $400 million in cost reductions realized, contributing to a lower refining cost per barrel.

Pessimistic Highlights

• Market Softening: Acknowledged softening in the market, particularly on the coasts, leading to lower third-quarter refining utilization expectations.
• Volatility in Midstream Segment: Midstream segment experienced volatility due to integration efforts and timing, although stabilization is expected moving forward.

Company Outlook

• Continued Shareholder Returns: Committed to returning over 50% of operating cash flows to shareholders, with a focus on share repurchases.
• Midstream and Chemicals Expectations: Midstream expects some volume impact due to Hurricane Beryl in Q3, but remains on track for $3.6 billion EBITDA guidance. Chemicals segment anticipates Global O&P utilization rate in the mid-90%s in Q3.
• Refining and Marketing Outlook: Refining worldwide crude utilization rate expected in the low-90%s in Q3 with turnaround expense between $140 million and $160 million. Marketing and Specialties results expected to be seasonally stronger in Q3.

Q & A Highlights

• Q: Can you discuss the cost-savings realizations and their sustainability? (Roger Read, Wells Fargo)

  A: The cost savings are primarily structural, with a focus on driving inefficiencies out of the business. Over 1,000 employees engaged in initiatives, resulting in over $600 million of structural costs removed. The focus will continue on value-creation through lower costs and greater efficiencies. (Mark Lashier and Rich Harbison)

• Q: How do you see the Rodeo Renewable diesel progressing? (Roger Read, Wells Fargo)

  A: Transitioning to lower CI materials to optimize economic performance, with a global commercial team securing consistent supplies of a wide range of feedstocks. The facility will also start producing sustainable aviation fuel. (Mark Lashier and Rich Harbison)

• Q: What's the momentum in the Midstream segment, particularly with NGL price realizations and volumes? (Neil Mehta, Goldman Sachs)

  A: Improved costs and strong NGL volume performance, with a focus on DCP integration work and synergy capture. Expect some volume impact from Hurricane Beryl in Q3 but on track for $3.6 billion EBITDA guidance. (Mark Lashier and Don Baldridge)

• Q: Can you provide an update on asset sales, specifically around the retail and marketing sale in Europe? (Neil Mehta, Goldman Sachs)

  A: In active discussions with strong interest in the assets, which would be a significant step in the asset disposition program. (Mark Lashier)

• Q: What's the outlook for getting back to leverage targets and the possibility of adjusting returns of capital? (John Royall, JPMorgan)

  A: Confident in the cash-generating capabilities of the business and expect to manage both cash returns to shareholders and balance sheet effectively. Not giving absolute dollar cash return targets for next year yet. (Kevin Mitchell)

• Q: Are there more opportunities for acquisitions in the Midstream business? (John Royall, JPMorgan)

  A: Looking for opportunities to enhance the wellhead-to-market position, particularly in the Permian Basin, with a focus on assets that can generate more value connected to the system. (Mark Lashier)

• Q: What have you seen in terms of impact from the TMX pipeline on Canadian crude availability and heavy crude differentials? (Ryan Todd, Piper Sandler)

  A: TMX pipeline running close to full capacity, with about two-thirds of incremental barrels going to Asia and a third to the West Coast. Impact on heavy crude differentials expected to widen out as Canadian production increases. (Brian Mandell)

• Q: Can you discuss the trends on refining capture in the third quarter and any impacts from the hurricane on refining assets? (Matthew Blair, Tudor, Pickering, Holt)

  A: No substantial impact from the hurricane on refining assets. Utilization guidance for Q3 reflects some market softening and discretionary maintenance. (Rich Harbison and Kevin Mitchell)

• Q: What are your expectations for polyethylene pricing and demand in the back half of the year? (Matthew Blair, Tudor, Pickering, Holt)

  A: Seeing strengthening demand in North America and exports, supporting margin recovery. European producers facing cost challenges, and Middle East producers have export challenges, favorable to CPChem. (Mark Lashier)