Q4 2019 Earnings Call
Welcome to the fourth quarter 2019, Phillips 66 earnings Conference call. My name is Rob and it will be your operator for today's call. At this time all participants are in listen only mode.
We will conduct a question and answer session. Please note.
This conference is being recorded I.
Well now turn the call over to Jeff Dietert, Vice President Investor Relations you may begin.
Good morning, and welcome to Phillips 66 fourth quarter earnings Conference call.
Participants on today's call will include Greg Garland, Chairman, and CEO, and Kevin Mitchell Executive Vice President and CFO.
Today's presentation material can be found on the Investor Relations section of the Phillips 66 website, along with supplemental financial and operating information.
Slide two includes our safe Harbor statement, we're gonna be banking forward looking statements today actual results are gonna be different factors that could cause results to differ are included here as well as in our as he see filings.
In order to allow everyone. The opportunity to ask a question. We ask you limit yourself to one question and a follow up.
With that I'll turn the call over to Greg Garland for opening remarks.
Yeah. Good morning, everyone and thank you for joining us today.
Total adjusted earnings for the fourth quarter were $689 million.
$1.54 per share, we generated $1.7 billion of operating cash flow.
The year adjusted earnings were $3.7 billion right dollars and five cents per share.
During the fourth quarter, we continue to progress or major growth projects.
Which had a major milestone with initial startup the Grail pipeline.
Midstream performed well delivering another record quarter in the transportation business.
Refining chemicals ran at 97% utilization.
Our current activity and weak product petrochemical margins impacted our financial results.
During 2019, we made significant progress on executing our growth strategy in midstream and chemicals.
Operating excellence remains a top priority for us and we maintain our industry leading performance.
We can always do better we believe that has zero incident zero accident workplaces achievable and it's a goal we work hard for daily.
Midstream completed a number of growth projects and delivered strong operating performance contributing to another year record adjusted earnings for that segment.
For the year refining ran at 94% utilization.
CP Chem operated at 97% Cowen P. utilization.
In 2019, we delivered a 34% total shareholder return for Phillips 66 shareholders.
Got it 66 partners is integral to our midstream strategy.
Yes X P deliver strong operating performance eliminated incentive distribution rights. They achieved a 56% total unitholder return in 2019.
Oh 66 partners continues to be a leading master limited partnership with the strong financial position attractive growth opportunities and disciplined capital allocation.
We announced our Beanie 66 business transformation program in late 2019.
To be any 66 is leveraging technology to transform the way we run our operations execute projects and make decisions.
Through this program, we expect to deliver $1.2 billion them enhancements by the end of 2021.
We're committed to strong shareholder distributions during the year, we returned $3.2 billion through dividends and share repurchases.
2019, when Crisa quarterly dividend, 12.5% and announced a 3 billion dollar increase towards share repurchase program.
As 2012, we've returned $26 billion to shareholders and reduced our initial shares outstanding by 33%.
We made significant progress on our key projects. These projects will contribute to future cash generation and create shareholder value.
So 66 partners commenced initial operations on the grant pipeline in November and we anticipate full service in the second quarter 2020.
The 900000 barrels per day pipeline will transport crude oil from the Permian Eagle Ford to the Texas Gulf Coast, including our Sweeney refinery.
Who have 66 partners owns a 42.25% interest in the pipeline.
Great. Okay, we'll connect to multiple refineries and export facilities in the Corpus Christi area, including the South, Texas Gateway terminal in which PS XP has 25% ownership.
The terminal will have to deepwater marine docs, eight and half million barrels of storage capacity and up to 800000 barrels per day of throughput capacity.
The terminal is expected startup in the third quarter 2020.
The Liberty pipeline will trend provide transportation with a growing Rockies and Bakken production areas to Cushing, Oklahoma.
We own a 50% interest and will construct and operate liberty.
Red Oak pipeline system will connect Cushing and the Permian basin to multiple locations, along the Gulf coast, including Corpus Christi, Ingleside, Houston and Beaumont.
We own a 50% interest and will operate red oak.
The Liberty in Red Oak pipelines are backed by long term commitments and we're targeting initial service in the first half of 2021.
We're adding three 150000 barrels per day fractionators at the Sweeny hub.
Next two and three on track to startup in the fourth quarter of 2020.
Frank for is expected to be completed in the second quarter of 2021.
Fracs are backed by long term customer commitments.
On which in a frac for Sweeny hub will have 550000 barrels per day fractionation capacity.
We're adding 2.2 million barrels of crude oil storage at our Beaumont terminal to meet increased need for Gulf coast export infrastructure.
Upon completion in the first quarter of 2020, the terminal will have 16.8 million barrels of crude and product storage capacity.
In addition, we're constructing a new 200000 barrel per day dock. This project is expected to be completed and the third quarter of 2020, resulting in a total dock capacity of 800000 barrels per day at our Beaumont terminal.
And chemicals, CP Chem is expanding and strategic partnership with Qatar petroleum to develop petrochemical assets in the U.S. Gulf coast and in Qatar.
Pending final investment decisions. These worldscale projects, what ethylene and how did speak polyethylene capacity and advantaged feedstock locations.
This further enhances cpms, leading polyethylene position to supply the world's growing demand for polymers.
And refining we're upgrading one of the Fccs at this when you refinery to increase production of higher valued petrochemical products and higher octane gasoline.
The project is on track to be completed in the second quarter of 2020.
Ponca City refinery, we are great in FCC to increase yields of higher value products and to process more advantaged feedstocks.
This project expected to be completed in the fourth quarter 2020.
We recently canceled the renewable diesel project at our Ferndale refinery permitting uncertainties relating to project delays and increased costs impacting the viability of this project.
Our renewable diesel strategy has not changed we continue to pursue renewable diesel opportunities that leverage our existing infrastructure supply network and capabilities.
In marketing during the fourth quarter, we entered into a retail marketing joint venture with operations, primarily on the U.S. West Coast. The joint venture currently operates 580 retail sites. In addition, the joint venture is expected to close on an acquisition of approximately 100 additional sites and the first half of this year.
The joint venture enables increase long term placement of our refinery production increases our exposure to retail margins.
Our strategy and commitment to discuss capital discipline remains steadfast we're focused on operating excellence project execution, maintaining financial strength, while providing strong returns to our shareholders. So with that I'll turn the call over to Kevin to review the financials. Thank you, Greg Hello, everyone, starting with an overview on slide four we.
Summarize our financial results for the year.
2019, adjusted earnings were $3.7 billion or $8.05 per share.
We generated $5.6 billion of operating cash flow, excluding working capital.
Distributions from equity affiliates totaled $2.1 billion, including $831 million from CP Chem.
At the end of the fourth quarter net debt to capital ratio was 27%.
Our adjusted after tax return on capital employed for the year was 11%.
Slide five shows the change in cash during the year.
We started the year with $3 billion in cash on our balance sheet.
Cash from operations was $5.6 billion, excluding working capital.
Those are working capital use of $830 million, mainly related to an increase in receivables associated with the timing of crude oil sales at year end.
Consolidated debt increased by $500 million due to issuances of PS XP.
During the year, we fund $3.5 billion of adjusted capital spending and returned $3.2 billion to shareholders, including $1.7 billion of share repurchases.
Our ending cash balance was $1.6 billion.
Slide six summarizes our fourth quarter results.
Adjusted earnings were $689 million or $1.54 cents per share.
Operating cash flow was $1.7 billion, including a working capital benefit of approximately $500 million.
Capital spending for the quarter was $1.3 billion.
We invested $880 million in growth projects, including $260 million of capital associated with the retail marketing joint venture.
We returned $810 million to shareholders through 300 $998 million of dividends and $412 million of share repurchases.
We ended the year with 441 million shares outstanding.
Moving to slide seven.
This slide highlights change in pretax income by segment from the third quarter to the fourth quarter.
During the period adjusted earnings decreased $713 million driven by lower results in all segments.
The fourth quarter adjusted effective tax rate was 24% driven by adjustments to our tax liabilities to reflect a full year adjusted effective tax rate of 21%.
Slide eight shows our midstream results fourth quarter adjusted pretax income was $405 million, a decrease of $35 million from the previous quarter.
Transportation delivered another record quarter with adjusted pretax income of $250 million up $2 million from the previous quarter.
The increase was due to higher pipeline and terminal volumes that were mostly offset by increased planned maintenance costs.
NGL and other adjusted pre tax income decreased $49 million, driven by lower propane and butane trading results following a strong third quarter as well as inventory impacts.
At the Sweeny hub the export facility averaged a record 13 cargos per month and the fractionator ran at 107% utilization.
DCP midstream adjusted pretax income of $35 million was up $12 million from the previous quarter.
The increase reflects the effect of lower depreciation and amortization following the third quarter impairments as well as our increased ownership of LP units following the elimination of I'd ours.
Turning to chemicals on slide nine.
Fourth quarter, adjusted pretax income was $173 million than $96 million from the third quarter.
Olefins and Polyolefins adjusted pretax income was $154 million $97 million decrease from the previous quarter due to lower polyethylene margins and seasonally lower volumes as well as higher turnaround and maintenance costs.
Global own P. utilization was 97%.
Adjusted pretax income for essay Ns decreased $1 million.
During the fourth quarter, we received $143 million and cash distributions from CP Chem.
Next on slide 10, who will cover refining.
The fourth quarter crude utilization rate was 97% clean product yield was 84% both are consistent with the prior quarter.
This was a heavy turnaround quarter with $232 million of costs up from $120 million in the third quarter.
In addition, our share of W., RB turnaround expenses amounted to $41 million this quarter.
Refining fourth quarter adjusted pre tax income was $345 million down $494 million from last quarter.
The chart provides a regional view of the change from the prior period.
The Atlantic Basin, adjusted pre tax income decreased $218 million due to lower gasoline cracks as well as premium coke inventory and margin impacts.
And the Gulf Coast, the $108 million decrease was driven by lower product margins and the Lake Charles refinery turnaround.
This was partially offset by widening Gulf coast crude differentials.
And the Central corridor decrease was due to a decline in the gasoline market crack that was partially offset by widening WCS crude differentials.
In the West Coast. The decrease was driven by turnaround activity at the San Francisco refinery.
Slide 11 covers market capture the three to one market track for the fourth quarter was $12.45 per barrel compared to $14.60 per barrel in the third quarter.
Our realized margin was $9.50 per barrel and resulted in overall market capture 76%.
Mark capture in the previous quarter was 77%.
Market capture is impacted by the configuration of our refineries, we make less gasoline and more distillate and premised in the three to one market prac.
During the quarter, the distillate crack increased approximately $1 per barrel and the gasoline crack declined by almost $4 per barrel.
Losses from secondary products of $2.35 per barrel increased $1.28 cents per barrel from the previous quarter due to premium coke impacts, partially offset by increased butane blending into gasoline.
Our feedstock advantage of one dollar two cents per barrel was improved by 99 cents per about from the prior quarter as we benefited from widening WCS and Gulf coast crude differentials.
The other category, mainly includes costs associated with Rins at going freight product differentials and inventory impacts the other category reduced realized margins by 54 cents per barrel.
Moving to marketing and specialties on slide 12.
Adjusted fourth quarter pretax income was $287 million $211 million lower than the third quarter.
Marketing and other decreased $203 million from lower margins, driven by less favorable market conditions and seasonality as well as high costs associated with a onetime to up to a branded marketing agreement.
Marketing results included a $62 million benefit from 2019 bio diesel blend of tax credits.
Specialties decreased $8 million due to lower finished lubricants margins.
We reimaged 532 domestic branded sites during the fourth quarter, bringing the total to approximately 4200 since the start of the program.
In our international marketing business, we Reimaged 82 European sites since the start of the program in early 2019.
Refined product exports in the fourth quarter were 157000 barrels per day compared to 220000 barrels per day in the third quarter.
On slide 13, the corporate and other segment had adjusted pre tax costs of $211 million, an increase of $33 million from the prior quarter.
The increase is primarily due to higher environmental net interest and employee related expenses.
This concludes my review of the financial and operating results next I'll cover if you look items for the first quarter and the full year.
In chemicals, we expect the first quarter global I wouldn't be utilization rates to be in the mid nineties.
And refining we expect the first quarter worldwide crude utilization rate to be about 90% and pretax sunrise expenses to be between 280 $330 million.
We anticipate first quarter corporate and other costs to come in between 200 and $220 million pretax.
For 2020, we plan full year turnaround expenses to be between 630 $680 million pretax.
We expect corporate and other costs to be in the range of $800 million to $850 million pre tax for the year.
We anticipate full year DNA of about $1.4 billion.
And finally, we expect the effective income tax rate to be in the low 20% range with that we'll now open the line for questions.
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Phil Gresh from JP Morgan.
Yes, good morning.
Hi, Good morning, Good morning can you hear me.
Yes.
Okay.
So first question just looking at the quarter here I mean, I think several of your peers.
Secondly in refining.
Put up stronger results relative to expectations and this is obviously a tougher quarter for you guys. So I was hoping it might be lastly, could disaggregate that for us or help us understand what you think the differences there were obviously the the turnarounds for.
Called out Thats, a factor, but I'm also looking at secondary products here as a pretty big headwind in the Atlantic Basin. So I'm wondering if needle coke was a factor there as well. So just if you could help us. Thanks for your some of the moving pieces. Thanks.
Yes, so I think.
As you look at the quarter. The turnaround activity was heavily focused in October and October was actually one of the better.
Margin environments that we had last year.
So our turnarounds we're focused in the end of period margin soften substantially kind of in the back half in November and in.
In December.
The the.
Turnaround expense 232 million was more than our guidance and up substantially from the 120 in the third quarter I think.
As you look at our premium co products.
There are two primary markets there the steel industry and HIV sales for batteries.
Four week with weaker GDP and manufacturing activity impacting steel as well as.
Lower sales volume are disappointing sales volumes and he these both China and India had declining sales in 2019 relative to 2018 as you know we've extended our co product line to serve the battery market, which is a has a substantially faster growth profile and.
No. The cat car manufacturers are investing significantly increased manufacturing capability. So we expect that growth.
To to return an imbalance that market.
Okay. Thanks.
The second question just be.
On a chemical side of things obviously.
It seems like everybody. Some again a lot of questions here on the first of all timeshare, So Greg would love to get your latest thoughts.
About how you're viewing the cycle and and.
The pace of potential recovery.
And as you look ahead.
The investment opportunities that you outlined.
Prepared remarks does see there's a cycle situation right now concern you at all with respect to those possible investments going forward. Thank you.
So April I think first of all were constructed chemicals and medium long term. There's no question that margins today are cyclical troughs, we say feel like it any way at this point in time, yes. There is couple Tailwinds, we saw some economic slowdown globally as we came in in the back half of.
19, certainly the tariffs have had some depressing effect on global margins, whether its five cents or 10 cents or somewhere in between but but certainly had an impact.
Yes, it's quite a bit of capacity coming on.
In 19, and also in 20 and 21, so I suspect that theres going to be some headwinds on margins as we move into 20 and 21, just from the new capacity coming on.
Globally, I think about how see becomes physician.
I'd like their hand, and how they're going to play their hand first of all assets and the middle East and Us Gulf Coast.
Are going to be an advantage from feedstock location and today and LPG cracker on the Gulf Coast is probably four to $500 a ton advantage over a napa cracker and Asia or in Europe. So I think thats. Good and then as we look and kind of dissect the product portfolio Cpms exposures early on.
The high density polyethylene side, and so that that's not going be quite is impacted as some of the other ethylene derivatives as we look out in 2021 now in terms of the F. ideas for the new projects. So these are five your projects to Bill we can't call the cycle that closely.
We probably don't hit an f. I'd until late 2020 or early 21 on on the first project. So we've got some time certainly to look at it.
But I would say today that we would be on track to to approve those projects and move forward with those projects just given what we see around the supply and demand balances for high density polyethylene were CP chem sets of kind of that that ranking of assets.
Phil I would say when we looked at the Hs full chain margin at averaged 16, and a half sense in the fourth quarter.
Similar was down slightly below 15 cents per pound and we've seen net.
Rally back a year to date, so thats 16, a half back flat with the fourth quarter average.
We've done Harrison from Evercore ISI. Please go ahead your line is open.
Good morning, everybody.
Okay.
So Greg over the past several years fell 66 is consistently posted better results than peers, and especially better than the super majors.
Question, the downstream and it seems like advantage 66 is going to sustain that performance over the medium term.
My question regards this outlook and specifically whether you feel that there are advantages that you have or disadvantages that you don't have that help explain performance and also how did that edge 66 plan is progressing and then second.
What role does stronger corporate governance play into it in your view meeting.
Since you're one of only a few energy companies at benchmarks performance against diversified peers, which is obviously a higher bar for return on capital than other energy companies at reasons that disciplined capital management would be pretty high emphasis so two questions one insight into competitive advantages progress on advantage 66.
And also the role that corporate governance plays into capital management Phillips 66.
Okay, well. Thanks, a question, Doug so working backwards maybe.
Yes, I think strong governance starts with with the strong board of directors, we have a strong board of directors their full engagement strategy discussions we don't have a board of directors meeting at Phillips 66, where we don't talk about the strategy of the company. We don't talk about a capital allocation. So those are two cop topics. We cover every board meeting a deep.
That is we think about our methodology and our criteria and the 60 40, 60% reinvested back in our company, 40% return back to shareholders and some flexibility around that given where we opportunities that are in front of us to invest and where were shares are trading but over a long period of time thats.
Thats, where we want to be I mean that is all contingent upon having opportunities and invest in that exceed our our hurdle rates and if you look at kind of 2017 18 19 to last three year period, our return on capital employed 13%.
Our nearest refining peers are kind of high single digits and by way. It's an after tax return on capital employed. So we're always interested in returns and we can't find good return projects were simply not going to invest.
And then you think about in 2019, returning $3.2 billion back to our shareholders through strong secure growing dividend and buying our shares when they trade below intrinsic value investors fundamental to our capital allocation strategy and so you'll see us continued to do that.
Your first question around the the portfolio, what what differentiates us I think theres a couple of things one we do have a strong diversified portfolio, we've got a good.
Portfolio of refining assets.
We've built a strong midstream business 2.3 $2.4 billion of EBITDA in our midstream business now really if you go back to 2012, excluding DCP, we're kind of about $450 million of EBITDA in our our midstream business, we've built a significantly stronger midstream business at Phillips 66.
Yes, we've got a great marketing specialties business you have been you add on top that the chemicals business. So I like the diversification that we have across the portfolio. It creates investible opportunities for us. It's a portfolio generates strong returns than I would say that Phillips 66 is a great operator, we're consistently one of the.
Safest operators in the industry were generally at or better than industry average on on operating rates and so we operate really well and this organization has demonstrated the ability to execute well on these capital projects. We went back for our board and looked at all of our investments from 2012.
2019, and we're right on the money in terms of what we said we're going to put the assets on the ground for and importantly, we're right on the money in terms of what we promised deliver in terms of the earnings from those assets, which is in my 40 years in the business Thats, probably as good as it gets Doug.
Yes, and then also Greg things like advantage 66 plan will help you got sustain this performance over the medium term is there anything to report there on that project I think I think consistent what we said at our Investor day, we still see that there was $1.2 billion of opportunity for us we hope to do.
Dr., Joe 60, 70% of that to the bottom line in terms of seeing that in EBITDA. So you'll see that in terms of margin capture you'll see that in terms of cost reduction you'll see that in terms of capital and board and but also costs of wouldn't you across the enterprise, but but more importantly from that changing the way of working for our people.
At the end of the day, it's going to be a much better place to work, we're going to have better tools to make better decisions will work smarter will be more agile will be more efficient and I think that will differentiate from among our peers now everyone is going to move this way Doug at some point in time, you either go digital or you die and this business, but I.
I think we were out at least I think in the lead position here.
Neil Mehta from Goldman Sachs. Please go ahead your line is open.
Yes, thanks very much guys. So first question is on the crude side and then once you get your perspective on.
How you think about western Canadian crude discounts, but also some the at the barrel that the that GE import from.
From OPEC or from Alaska that are more medium and heavy in nature.
Western Canadian differentials are wide right now, we're trying to get a sense of the sustainability of that from your perspective and what this medium sour as we're just trying to think about how the upcoming OPEC meeting could influence the outcomes there.
Yes, I think Thats a good question with the some of that production in Canada returning from curtailment.
With the special production allowance rail waivers, we've seen more production coming into the market in Canada.
There is another 150000 barrels a day or sale of new production schedule to Scott startup in 2020.
So there's more supply coming in into the market.
That is supported.
Wider differentials here in the first quarter as you know we have about a 30 day lag on.
On delivery there. So so the wide discounts in December so really show up in one key.
We expect WCS discounts to follow the normal seasonal pattern with wider winner.
Our differentials and then they get tighter in the summer as.
Production companies perform maintenance I think.
As we look with the new IMO environment in the wider high sulfur fuel oil discounts.
We're expecting to see not not only your historical transportation differentials, but probably some increased penalty for sulfur content and so we're expecting that to occur.
On the Gulf Coast, We've we've moved away from a lots of the imports from.
Many of the OPEC countries, we've reduced exposure there as you know we don't fully anything in from Venezuela.
And and so I think there is.
Less exposure there from a direct perspective, but.
Indirectly with more.
More OPEC barrels eventually coming into the market those will be heavy sour barrels, which should widen the heavy sour discount I think also as you look into 2020, there's more Canadian heavy barrels coming in the market.
Saudi Kuwait are bringing up production in the neutral zone, which is heavy sour production, we've got some incremental Gulf of Mexico barrels, which are medium and sour and new production in Norway is 28, Apiay end, 0.8% sulfur so.
Lower quality than a normal north sea barrel.
Thanks, Kevin just sticking with the macro.
At the ball and the bear on IMO on the call him.
Any jaffray versus that Greg, but just wanted to get it but to your perspective on how.
Now that dynamic is changing recognizing there's a lot of.
There are lot of other variables that are affecting particularly the distillate side of the equation, but.
I'd love a refresh on the views there.
Yes.
I'll start and Greg can clarify what I Miss I think.
Yes in isolation IMO is a positive factor for complex refineries like ours, obviously, there are a number of other considerations.
Well for fuel oil has.
Widened to about a 20 dollar discount relative to Brent the 10 year average is $12 a barrel. So IMO has caused some some wider discounts there it was $30 a barrel in December so it's come in a little bit, but if you look at the 2020 forward curve as of last year. It was trading 20.
25 under Brad So we're kind of at the low end to that range.
To the indices cat credit.
The transition to the low sulfur marine fuel market has gone very smoothly.
Thank you compatibility issues or a phone our fuel non available reports.
I think there will be strong enforcement.
Very low sulfur fuel oil has been relatively rapidly adopt adopted.
With its high energy contact.
Discuss city and lubricating qualities.
Hi, very low sulfur fuel is actually trading wider than you LSD in some markets I think the disappointment has been on the diesel side and diesel has been weak.
Following manufacturing activity Thats been disappointing recently mild winter weather.
I think as we look.
Ed demand that first quarters, typically the weakest quarter of the year.
And gasoline diesel demand decline over a million barrels a day from Fourq you to one Q.
Bringing fuel if you look at some of the major port.
Singapore in the U.S. Houston L.A.
Long Beach.
They all have seasonal trends, where the first quarter is the lowest demand quarter for marine transportation, So as that demand picks up we could see some improvement.
And then finally I think with the weakness in gasoline cracks that's pulling.
Low sulfur biggio out of the Fccs and into the marine fuel market as we move into the summer grade gasoline season, that's not likely to be the case, so that probably clean.
The gasoline market faster than otherwise would have been the case in the spring and provide some incremental diesel demand for the marine fuel market in the summer.
Good job Jeff.
Roger read from Wells Fargo. Please go ahead your line is open.
Hi, Thanks, good morning.
Maybe just come back to something that was talked about a little and in the fall and probably becomes a bigger issue. This spring and ties into that whole description of the gasoline market but.
Q3 is there any saying that you've seen where that's affecting the market or do you have any particular thoughts as we switch from winter grade to summer grade butane comes out whether or not we'll see any impacts from tier three.
Yes, I think it's a good point, we're very well positioned for T. a tier three.
Vast majority of our tier spending has already occurred and and so we're in good shape. There we produce much higher premium gasoline as a percent of total than the industry average.
We haven't seen.
Obtain strengthening yet, but I think like you were looking to.
The shift in RVP in summer grade and taking cheap butane.
Is it good blend stock for the for the winter grade.
We are seeing accolades prices strengthen in anticipation of this summer.
As you know, we recently completed our like Lake Charles Isom unit, which will provide.
Hi, octane material, a high octane blend stocks as well.
So I think we're looking to this summer to see evidence of the influence of tier three.
Okay, great, Thanks, and changing gears completely there.
Midstream side of the business Craig I was wondering.
It seems like things have gotten tougher in the outlook for a lot of other companies in the midstream is there anything as you look at it where it might make more sense to be acquisitive, rather than build or do you need to see evaluations and you know it project I should say project, but.
Specific facilities come on the market would have to discount quite a bit from current levels to fit within your return criteria.
Yes, there is nothing today that would.
We'd be interested in just simply from a return criteria Park, Roger I think that the nice thing that we're really well position certainly for 20 and 21, we've got a great portfolio projects that were executing plus 21, we'll we'll see and if we can find investible opportunities one best we don't we want.
So we're not we're not concerned at this point in time in terms of the opportunities that we have before US we'll continue to watch what what goes on.
In that space, but there's really nothing out there today that we would be interested in doing in the midstream space.
Paul Cheng from Scotiabank. Please go ahead your line is open.
Hey, guys good morning.
Huh.
I don't.
We have seen a slowdown in the exposure to Mexico and that AMD.
Great wondering that based on your marketing intentions that yes, that's no dung is.
Chip and by coal demand, Nova data slowing down.
Paul what that does that mean never yet that we have to fall in Houston. So, yes, we have fault, but doesn't seem so year over year that that should be a incremental effect that so trying to understand that one just a dynamic we see.
Yes, I think.
Paul with regard to Mexico, you remember a few quarters back.
There were pipelines that were shut down as says.
People were stealing product off the pipelines and I'm not sure we fully recovered all the demand there I think that may a suppress some demand in Mexico.
We are seeing that as a as it continued good market.
For product exports.
I think if you look at.
Our exports in the fourth quarter, they were down a little bit and that was really driven by.
Some of our export refineries being in maintenance and in some cases, finding higher priced domestic markets than what was available in the export market.
But we expect it to could see continue to see some growth in the Latin American market from an export perspective.
And Jeff I think you guys.
We see thing about 300000 Boe per day of WCS net to you I think not though in the Huntington maybe going to.
JV partner.
With the increase in that WCS.
Action.
It stand the opportunity for you guys do we see funnel.
That is that something that you guys are working on.
Yes, we're constantly assessing and the availability of transportation.
Out of Canada, and our ability to access more barrels there attractively priced both from a a mid continent and a Gulf coast perspective.
And so we're constantly assessing those opportunities in in our commercial people take advantage of.
Of the opposite opportunities when they present themselves.
But as far as long term commitments for rail or or something like that we don't see that at this point.
For Sean.
Ill.
Citigroup.
Please go ahead. Your line is open for taking my question. Thank you. Good morning, Thanks for taking the question.
I officials on renewables and Biofuels.
I was wondering.
Greg if you could talk a bit more about the decision to cancel Ferndale project.
Apart from the the permitting and regulatory hurdles I mean, what you said in his prepared remarks were there any constraints on feedstock sourcing or developing that network and and then maybe taking a bigger bigger picture view on the other projects in the portfolio of San Francisco Humbard and the off take in marketing and Avado could you help us understand how these differ from Ferndale.
Normally in terms of regulatory and permitting but maybe also in terms of the feedstock resourcing.
Sure. So first of all it wasnt a fee Stuart feedstock sourcing concern that we had at for our debt was strictly around the ability to permit the project.
There and so we withdrew.
When you think about what we're doing Humber, we're doing in San Francisco. This these are existing assets that were either re purposely in or are utilizing differently and those are certainly very easy to do the easy to feedstocks or said and will continue for other opportunities within our portfolio.
The the deal with rise is essentially were responsible for securing the feedstock and then we have an off take agreement. There. So think of it like a tolling arrangement and we have no no concerns there. So as we thought about how we're going to approach the renewable strategy for us.
We wanted to use existing assets, where we could do that we wanted to partner with people.
That had existing technology and capabilities and then look at grassroots investments again in partnership which is where the ferndale wouldn't really felt that that would have been.
Circa 802 billion dollar investment in cooperation.
With our E G.
So we'll see I think that we certainly have other places that we could build a grassroots facility and you should expect that.
Our strategy really hasn't changed it may not be at the Ferndale location.
Okay. Thank you that's helpful and then my second question.
On the SG do it's the discussion seems to be progressing pretty quickly overseas and.
Yeah.
Focus on de Carbonization is really strong and that was even a year ago and it seems like discussion here in the states maybe following a similar path, but perhaps a delay to what's going on overseas and up to 66 has been a leader in positive yesterday momentum within the U.S. hydrocarbon space.
So just wanted your thoughts on looking ahead is if there is a greater focus on de carbonization among investors.
What are some of the strategies to balance this with.
And still maintain or maintaining P 66, a strong return on capital and your low cost of capital across the portfolio, particularly talking about growth capex decisions in both what's currently in the portfolio maybe overall the the longer term opportunity set.
Yes, well I think maybe you want to start with I think the US is a world leader and technology and innovation.
Our economies the envy of the rest of the world.
We're a world leader in energy production, who world leader emissions reductions, including greenhouse gas emissions and so I think that there is a path forward that would say weekend develop our energy resources responsibility sustainably.
We can have a strong growing economy.
And we can have a better environment, so they're not mutually exclusive it all in our way of thinking.
As we think about the opportunity set in front of US, we're investing and next generation technologies for lower carbon economy, so things like our own PV invent inorganic photovoltaics, nor solid oxide fuel cells.
You've seen has introduced to loops one for heavy duty trucks, one for light light duty vehicles that increase the mileage by four or 5%. That's a direct reduction of greenhouse gas emissions. So I think that you'll see Phillips 66 in many companies frankly approach this problem from from many different angles.
Specifically around low carbon investments I think it's a good thing I think we should encourage our companies to invest in low carbon technologies, and we should send them to do that.
But as we look out two and three decades, we still see that fossil fuels are going be a majority part of the energy mix, just because you're not going to be able to get there from here with the current technologies that we see.
Hi, guys.
From Bank of America. Please go ahead your line is open.
Hi, Good morning, everybody, Greg I Wonder if I could take you back to midstream again.
He did a pretty thorough job of walking us through the.
Assets.
You have coming online than you'd into working interest and so what I'm just curious about.
What does the thinking in terms of the timing if and when those may be drilled.
To the MLP or do you have different funds for those versus your historical pattern.
Well I may we start from the point that I mean, all those midstream assets are qualifying income and they could certainly they could certainly go through the MLP.
We've resisted and we'll continue to resist specific information about timing of drops when those drops could occur I think.
We've spoken.
Publicly about our interest in.
Growing our midstream business Appias XP, it's an efficient way for us to do that giving more PS XP trades.
The yield suited it generates.
And then you asked about the uplift in some of the parts were still incented to grow PS XP as fast as we can and so our view is that you grow to efficiently.
But it's got to pay it's on way to equity markets are closed we in our view beyond some dribs and drabs.
Around the ATM program, but generally great balance sheet, Npis XP executing a $800 million plus capital program. This year.
Thanks, Steve So you know at some point of future you should expect these assets should logically end up.
PS XP and but the timing, we just don't go through that Doug.
Okay, just to remind of can you tell me what the EBITDA is associated with those assets held your.
Corp level.
We've got $8 million to $900 million of EBITDA at.
Still at BSX and growing is courses were bringing on these new projects to.
That does the qualifying income right.
That's right.
Okay. Thanks, My follow up is just quickly on on turnarounds, obviously youre turnaround expenses alphabet. This year.
Just as for film specifically, but also for the industry I think.
Jeff touched on this a little bit, but do you anticipate that we're going to see contributing to clean up both the.
Overhang, we've seen for gasoline in particular, right now and just specific to Phillips.
Is there anything unusual this year or is this normal course business.
Yes, I think Thats a good question, Doug I think there was a lot of speculation that.
Given the high turnaround activity in 2019 that there was a lot of activity that had been move forward out at 20 into 2019 and a lot of the Turner Act activity is now on a pretty strict schedule.
For replacement to an end so.
We are seeing.
The 2020.
Turnaround activity being relatively high for the industry as well.
You look at.
The Gulf Coast pad three looks to be a very active turnaround season. This spring with a lot of FCC and alkylation units being included in in that planned work.
So I think we're continuing to see turnaround activity into in 2020 as well.
I think thats one of the factors that could help clean up the the gasoline market.
Paul Sankey from Mizuho.
Please go ahead your line is open.
Hi, everyone.
Sorry for the sort of detail question, but as regards the situation in China I was wondering.
In reference to your contract somehow.
Hi takes time for these things to see through when do you think you'll you'll be able to say with some degree of.
And see what's actually happening.
Two markets over there thanks.
Yes, it's it's a good question Paul I think it's still early I mean, we are seeing I think some impact on.
On diesel demand diesel cracks jet jet cracks I think we are starting to see some impact on freight rates.
It's really early it's a little bit speculative to say that but I think we are getting some indication.
Of impact already it's really hard to measure and.
I think it's going to be difficult to.
Determine the depth and the duration.
This event, so I think theres still a huge amount of uncertainty out there.
As you will know.
There was about 300000 barrels a day of impact from Sars and in fact is included in one of your report.
China's economy is much bigger today than it was at that time.
But I think Paul we're still dealing with a lot uncertainty as as to the impact on the Corona virus.
Yes processes.
Oh pauses good say petrochemical same thing right I think we're concerned we will continue to watch petrochemicals right now no pricing kind of moving up a little bit in Asia. We look at petrochemical inventories are there at five year lows, though and so we'll just we'll just have to see and watch this but I agree with Jeff its just.
Almost too early to make a call on this but it's certainly as our attention we're watching it closely.
Yeah understood I mean, obviously the seem really took off and the costs. We could I just wondered how long you thought it would be before you could actually say.
We now know that this has happened given the climate takes who will discuss can move around the world.
Yep.
Yes, certainly impacting commodity mark markets the volumes will have to keep an eye on.
Yes, I was thinking more obviously in terms of real volumes you look at swings.
You have you had a tough.
A couple of October many ways because it was a good environment.
You had downtime to have a sense to what you'll you'll coastal tenancy, we'll say it looks into kausfiles. There could you just go over again the outlook for for this year in terms of your current or as I know, you've addressed and somewhat but it's interesting to see how how.
Skewed this quarter might have been having greenfield could could here. Thanks.
Yes, it's a good point.
We don't typically comment on a on Lpos beta, but I think if you assume most of the.
Downtime occurred in April and adjusting kind of model October versus November versus December I think it would get you close.
We have provided.
Guidance on turnaround activity first quarter, we do have some a turnaround activity planned as well.
And we've got the full year guidance. There also so I might just lean to to that guidance.
Well enough good from credit Suisse. Please go ahead your line is open.
Hi, Jeff.
Can you satisfy via you ought to with the permitting process of bullets to let me talk and Liberty and Liberty specifically, because there was some news items out debt and I was hoping you could have said that got straight all are there.
Yes, we're moving forward.
We're getting some feedback there is that.
Well go ahead here.
We're moving forward, we boarded the pipe for Liberty and taken delivery of pipe. The permitting process is moving forward as expected and so we're very much.
Moving forward as anticipated there. It's a first half 2021 in service date and all systems are go on.
Both liberty as well as Red Oak.
A quick follow up on the marketing and specialty side, we saw a slight jump in the capex between Tiki landfill acute about 264 million I'm, assuming this is associated with the JV payment of disclosed.
And but the press release, a singular going to applaud hundred most stores in one Q.
In 2020, something what I'm, saying would that be a second payment associated with these younger stores on all the payment has already been made here.
Yes, but not as Kevin so yeah, you're right that the the variance in Capex for that segment is all attributable to the.
The formation of that joint venture so $260 million went in which is almost the full.
Variance quarter over quarter. The additional acquisition that was referred to in the press release does have some additional spend in whenever that timing whenever that acquisition closes that will be some additional spend on that it's not of the same magnitude.
As the initial.
Upfront.
JV formation, though so you'll see that coming through whenever that closes.
That you player from Tudor Pickering Holt. Please go ahead your line is open.
Hey, good morning, everyone, given a discounted high sulfur fuel oil prices in the fourth quarter were you able to increase your runs of Hs AFFO as a feedstock refineries and if so can you provide any sort of numbers on the incremental volumes or EBITDA uplift and I guess if not.
Was the constraint economic or more just like equipment related.
Yes, it's a good question Matthew.
Oh I would highlight one other things we talked about at the Investor day, what's some refining projects that allow us to upgrade over 30000 barrels a day a high sulfur fuel oil to very low sulfur sub 0.5% blend stock and we are a couple.
With that late last year and think there's actually some upside to those volumes. So we are moving some some very low sulfur product into the market.
We are finding opportunities to take advantage of dislocations associated with IMO I think not only on the high sulfur fuel side, but.
We've been able to increase the sales of low sulfur production into the market to capture some of the premiums on low sulfur material. We've also.
I've been able to bring high sulfur material in as a Pete stock for our processing units as you know, we have substantial coking and treating capacity to upgrade.
Heavy sour streams.
I think you might look in our supplemental information we provide both our crude.
Throughput as well as our total process volumes.
And the difference there would probably give you a good indication.
On intermediate feedstocks and a lot of those being.
Heavy sour product.
Great. Thanks for the color.
And then on Chem side, Greg I was hoping you could share some insights on just the Asia PE markets. You know, we've seen margins to negative for little bit now haven't really seen shutdowns are those coming in in your opinion or I guess do other regions need to cut back first.
I think our our view is that probably Asia and Europe are probably under the most pressure today you would expect.
There could be some some cuts there also your starts to some price movement in Asia, though so that's I think that that's a sign that.
People need to do something about the margin environment, they find themselves and.
I would just say air tariffs are still kind of an overhang, particularly to to China, and so we'll see where all that plays out.
Yes, I think it's pretty tough margin environment out there right now.
Thank you we have now reached the time limited available for questions I will now turn the call back over to Jeff.
Thank you very much for your interest in Phillips 66.
If you have any follow up questions. Please contact Brent or me. Thank you.
Thanks.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
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