Q2 2020 Phillips 66 Earnings Call
Thanks, Jeff. Good morning everyone and thanks for joining us today. The second quarter, we experienced unprecedented disruption to our business from covid-19 results in a challenging operating environment went into the second quarter. We anticipated demand for our products would be weak as states were under lockdown and people were working remotely.
Cross our businesses we've seen demand recovery from the trough although in certainly remains for the second half of the year. We continue to focus on the well-being of our employees their families communities maintaining safe and reliable operations and ensuring the financial and operational strength of our company. Our business is an essential business and we're committed to safely package adding critical energy products and services for our customers fill 66 is implemented the appropriate steps to protect our Workforce consistent with CDC national state and local directives. We have safely and successfully operate our facilities and support of our commitment to provide essential Services during the quarter. We should two billion dollars of tenure no increase our terminal capacity by 1 billion dollars.
We expect to exceed five hundred million dollars in cost reductions and reduce Consolidated Capital spending by $700 this year.
These actions protect the security of the dividend and our strong investment-grade credit rating as we navigate this challenging business environment.
We will continue to exercise discipline Capital allocation with a focus on long-term value-creation for our shareholders. The second quarter. We had an adjusted loss of three hundred thousand or a million dollars or seventy-four cents per share.
We generated $764 of operating cash flow and returned $390 to our shareholders who dividends?
During the quarter we achieved strong safety performance. We continue to strive toward a zero incident zero accident workplace. We're executing our strategy and pressing major growth projects.
The gray old pipeline convinced full operations from West Texas in the equal purd to the Texas Gulf Coast marking. The completion of the project goals 66 Partners has a 42-month a quarter percent interest in Pipeline Grill connect to multiple refineries and Export facilities in the Corpus Christi area, including the South Texas Gateway terminal first stock and eight tanks totaling 3.4 million barrels. The storage capacity have been commissioned in July 1st crude oil tanker was loaded for export.
green operations
Including the second dock are expected to ramp up by the end of this year as additional phases of construction or finished.
Expect the project be completed in the first quarter of 2021 with a total storage capacity of eight point six million barrels and up to eight hundred thousand barrels per day of Xbox pacity Phillips 66 Partners owns a 25% interest in the terminal at this we Hub we recently completed the plant I and work to integrate practice two and three off the Freeport LPG export facility. The fracks will begin commissioning in the third quarter and start operations in the fourth quarter of 2020.
Tracks are back by long-term customer commitments upon completion swinging Hub will have 400,000 barrels a day the fractionation capacity.
Also, the Sweeney Hub gold 66 Partners recently completed storage expansion at the Clements Caverns from 9 million barrels to 16 and 1/2 million barrels and support or practice to factory in the CDG pipeline in marketing the West Coast retail joint venture recently closed on the previously announced acquisition of 95 sites bringing the total 2680 sides the joint venture enables increase long-term placement of our Refinery production and increases our exposure to retail margins.
And closing like to think our employees for their focus on safe reliable operations for their demonstrated commitment and capability to be smart and agile finding new ways of working together with a determined purpose for its value creation, and we're living our values of safety honor and commitment and what has been a very disruptive and challenging environment with that. I turn the call over to Kevin go through the financial results. Thank you, Greg. Hello, everyone starting with an overview on slide for we summarize our financial results. We reported a second-quarter loss of life and forty 1 million dollars. We have special items amounting to 183 million dollars after excluding these items. We had an adjusted loss of $324 or $0.64 per share operating cash flow was $764, which included a $94 working capital benefit.
Adjusted Capital spending for the quarter was $901, including six hundred and eighty four million dollars for growth projects. We returned $390 to shareholders dividends and we ended the quarter with $437 million shares outstanding.
Moving to slide five this slide highlights the change in pre-tax income by segment from the first quarter to the second quarter During the period adjusted earnings decreased $774 million dollars driven by lower results across all segments.
It's like six shows are Midstream results. Second quarter adjusted pre-tax income with $245 million dollars a decrease of $215 from the previous quarter of Transportation adjusted pre-tax income was $130 nineteen seventy million dollars from the previous quarter. The decrease was due to lower Pipeline and terminal volumes driven by law or finery utilization in addition Equity affiliate earnings decreased do to lower pipeline throughput volumes consistent with lower us oil production and reduce the product demand.
in jail and other
Delivered adjusted pre-tax income of $83 the $96 decrease from the prior quarter was due to lower margins and volumes at the Sweeney up as well as inventory impacts off the Freeport LPG export facility averaged eleven carbs per month and the fractionator ran at 92% utilization report and Franklin were dying during part of the quarter is off and work was completed to integrate practice two and three DCP Midstream adjusted pre-tax income of $32 was down $49 from the previous quarter wage reflects lower hedging impacts driven by improved commodity prices.
During the chemicals on slide seven second quarter adjusted pre-tax income was $89 down 104 million dollars from the first quarter offensive elephant's adjusted pre-tax income was 106 million dollars the $87 decrease from the previous quarter is due to lower polyethylene and normal Alpha olefins margins off driven by lower sales prices and higher feedstock costs. This was partially offset by record polyethylene sales volumes.
Global ont utilization was 103% adjusted pre-tax income for s a n s decreased 1 million dollars during the second quarter. We received two hundred and seventy million dollars in cash distributions from CPK am trying to refining on slide eight refining second quarter adjusted pre-tax loss was $867 down from an adjusted pre-tax loss of 400 1 million dollars last quarter. The decrease was due to lower realized margins and volumes partially offset by lower turnaround costs realize marja, the quarter decreased by 63% to $2.60 per barrel lower Gulf Coast realized margins would you to clean product realizations in the rising price environment during the second call and the inventory impacts?
In the in the central Corridor lower realized margins reflect narrowing Canadian crude differentials.
Good utilization was 75% compared with 83% Last quarter refining runs were reduced due to lower clean product demand.
Pre-tax turnaround cost for 38 million dollars it decrease of $291 from the previous quarter. The second quarter clean product deal was 83%
flight nine covers Market capture the 321 Market crack for the second quarter was $7.47 per barrel compared to $9.82 per barrel in the first quarter realize mom was $2.60 per barrel and resulted in an overall Market capture. 35% market caps are in the previous quarter was 72% Market capture is impacted by Refinery configuration. We make less gasoline and more discipline than promised in the 321 Market crack during the quarter of the distillate crack decreased $5.56 per barrel and the gasoline crack decline off my 73 cents per barrel losses from secondary products of $0.95 per barrel improved $0.37 per barrel from the previous quarter you to lower crude prices.
watches from feedstock or 60
$0.07 per barrel and decline of $0.46 per barrel from the prior quarter you too narrow in Canadian crude differentials. The other category reduced realized margins by $2.22 per barrel. This was $2.05 per barrel lower than the prior quarter driven by lower clean product realizations.
Moving to marketing and Specialties on flight 10 adjusted second-quarter pre-tax income was $293 million dollars $195 million dollars lower than the first quarter Mark and other increased one hundred and seventy-five million dollars the decrease primarily reflects lower volumes driven by covid-19 related demand impacts as well as lower realized margins Dead Rising product prices in the quarter compared with falling first quarter prices Specialties decreased twenty million dollars due to lower finished lubricants volumes.
We re image 284 domestic branded sites during the second quarter bringing the total to approximately 4720 since the start of the program in our International marketing business. We reimage 29 European sites, bring the total to approximately 120 since the program's Inception refined product exports in the second quarter or $165 per day in line with the prior quarter.
It's light 11:00 the corporate another segment had adjusted pre-tax costs of 224 million dollars an increase of $27 from the prior quarter. The increase is primarily due to higher net interest expense and employee-related expenses partially offset by lower environmental expense.
It's like twelve shows the change in cash for the year. We started the year with 1.6 billion dollars in cash on our balance sheet cash from operations was one point four billion dollars excluding working capital. It was a working capital use of 425 million dollars.
Consolidated debt increased by two point seven billion dollars a year to date we issued three point two billion dollars of debt, including 1 million dollars drawn on a term living facility and two billion dollars in your notes. We paid off approximately $500 of maturing debt.
You today just the capital spending is one point eight billion dollars Capital spending will be significantly Less in the second half of the year. We expect 2020 adjusted capital gains. Approximately two point nine billion dollars as we continue to optimize our Capital program.
We returned 1.2 billion dollars to shareholders through $789 million dollars of dividends and 443 million dollars of share repurchases completed in the first quarter our ending cash balance was one point nine billion dollars. We are focused on conserving cash and maintaining strong liquidity in the current environment at June 30th. We had eight point four billion dollars of liquidity reflective one point nine billion dollars of Consolidated Cash 1 billion dollars of undrawn Term Loan capacity and available credit facility capacity of five billion dollars at Phillips 66 and a half billion dollars Phillips 66 partners.
this concludes
My review of IT financial and operating results next. Cover. If you look items in chemicals, we expect the third quarter Global ont utilization rates to be in the mid-90s in refining through Thursday will be adjusted according to market conditions in July utilization has been in the low 80% range. We expect third-quarter pre-tax turnaround expenses to be between 50 and 7 million dollars. We anticipate third-quarter corporate and other costs come in between 220 and 230 million dollars pre-tax. Finally. We are not providing effective tax rate guidance for 2020 due to the range of potential impacts the covid-19 pandemic may have on our business with that will now open the line for questions.
Thank you. We will now begin the question-and-answer session as we open the call for questions as a courtesy to all participants. Please limit yourself to one question and a follow-up. If you have a question, please press * then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound key. If you are using a speakerphone, you may need to pick up the handset first before purchasing the numbers. Once again, if you have a question, please press * then 1 on your touchtone phone.
Bill Gray's from JP Morgan, please. Go ahead. Your line is open. Yes. Hello. Good morning. First question. I had was digging into the refining margin performance a little bit deeper, um in particular locate your slides there were two areas that seem like the biggest headwinds in the course of one was feedstock in the Atlantic Basin and the other was this other category on the Gulf Coast and Kevin. I know you gave a little bit of color. They're already dead anything additional you could share about that result. And whether some of that was perhaps temporary in nature you talked about inventory impacts. So yes any additional color
Yeah failed the morning. This is Bob. The the other in the Gulf Coast really came down to two items in in both really timing. So about half of it was due to a product of realizations is we put product into the colonial Pipeline and other pipelines in a rising price environment. We tend not to capture all the crack and that you know that took place environment where it's going the other way we get we get a Tailwind out of that in this particular quarter. He had rapidly Rising prices during the quarter and and that should get us there and then the second was a pretty sizable inventory impact.
In the Gulf Coast, we had two big turnarounds in the first quarter Sweeney an alliance where we built a lot of inventory and then we pulled that inventory down coming into the second quarter off. If you add up those two items alone in the Gulf Coast it amounts to about $3 on the on the market capture. So both of those really come back to a dead issue for us on feedstock cost on the East Coast again, it was a little bit of a timing issue with winded waterborne barrels land particularly, if a wage in relationship to a very volatile screwed market, so we saw effective feedstock cost in the second quarter to be pretty high coming in to Bayway just really from a timing between one q and even month-to-month in the quarter as as crude really moved around but fell in aggregate that feedstock impact on Atlantic Basin wage.
not that different to the
What impact there's typically a negative you see a negative on capture on feedstock in the Atlantic basin?
So would you say that we're past that at this point as we look forward or is it something that you still need to be thinking about? I think on inventory moves moves around on us all the time and it's hard to predict what what's going to happen typically in when prices are more stable. Like we've been seeing the last couple of weeks we tend to to mute those kind of effects.
Okay, and my follow-up question, would you see a bigger picture question on refining fundamentals? How are you guys envisioning the way the second half of the Year. May I play out? Obviously, we do have soft crack spreads now here in July, um, utilization guidance from most companies is still reasonably low in a story still need to be worked down and and we're going to be flipping into the winter gasoline mode as well. So a lot of moving pieces, but I'm curious of your perspective how you see this playing out.
Hey Google, I think it would be a question of demand going forward. We see Demand on gasoline right now. What about 15% off much better than a fifty percent. We were seeing in April heating oil. We've talked to our big truck. Stop customer. They're seeing about 8% demand destruction. And then finally they they product that's been hardest hit jet we're seeing about 50% number of us here in town has been flying on commercial flights recently and you can see the pickup on both on the planes and in the airport's who we were optimistic that that will get better as the year progresses. It's interesting. If you look at our thousand stores in Germany and Austria where Germany Austria didn't have a hard second wave of covid-19.
Going forward I think I might add that we're coming up on the fall season and there's some seasonal impacts of uh driving to and from public schools is in rough numbers about 5% of demand and there's probably a carry-over impact on commuting as well. So I think that will have an influence life, you know, and we're expecting a strong planting season or or excuse me harvest season this fall as well to support distillate demand.
Neil Mehta from Goldman Sachs, please. Go ahead. Your line is open.
Hi team. Thanks. Thanks for taking the question. I guess the first first question is about the integrated business model and the value of Life of operating in multiple different businesses. And I think over the course of the cycle. We've definitely seen that uh, it's been a benefit for Phillip 66 but Greg curious on your perspective, especially in light of the fact you have one of your large competitors monetizing some parts of their business.
Well, you know you you think about the the integrated model that that we have we still think that it's a value-added model and you'll I try not to let single points in times or single point pen damaging influence our long-term thinking around this, you know, when we think about the ability to capture that value starting with you know, DCP gas Gathering Gas Liquids ingredients, you are cracks and LPG export and being able to take you know product in into our chemicals business and then through the refining chain. We we like that song optionality that gives us in terms of investible opportunities, but certainly, you know, the the earnings streams that come out of those businesses are strong for us. So we'll continue to think about this integrated business has a value-add business for us. There's no question that the pandemics probably impacted all segments of of this business. Um, but it's not unique to us, I would say
Yeah, very clear. And then the follow-up is just your thoughts on Dakota access and how it's likely to play out from here the firm position on on any on the ruling and then the bigger picture question around Midstream is relative to what was laid out at the November and Thursday what's changed in any quantification of what's changed be helpful to this is Tim Roberts on that day. But let me off that. First of all, look we've obviously we're disappointed with the ruling and initially came out with regard to mandating an environmental impact study and then subsequently the the further ruling on Thursday, which they gave the permit which then led to a potential shutdown August 5th on the pipe fortunately. It's it's been appealed to the DC Circuit Court of Appeals. I think you guys off
For that so we're waiting for that outcome currently and there's been a stay put in place while they're evaluating the case. So it'll look we think at this point, you know, the position that we had sounded and and certainly clearly disappointed by position that's taken on a pipeline that has run for three years and it's run safely and it's truly the most economic and safe way to get off hydrocarbons to the marketplace. So it is a little bit frustrating on that point, but we'll let the cord play out at this point from there. One of the things that is also a little bit we took our challenge with a little bit is just just the fact of the impact. It's got on the region when you look at it both on the producers from the state wage local governments communities people that work in the energy value chain, and those that don't who support businesses in the energy space. They're really getting impacted dead.
And so to us with covid-19 going on.
And demek it'd be bad without a pandemic. But with the pandemic we just feel this is it just this is going to be tough on economically on some very specific regions of the country.
This regard to the Midstream strategy. I think I just characterized this look, you know, we certainly the Long Haul transmission business feels like it's been challenged a little bit special covid-19 the pandemic oil shock all those things have caused us to pause and you've seen that through our actions by deferring a couple of our projects. We need more clarity. I think our producers needs shippers need more clarity. So we need to get a view on that from a Midstream standpoint. If it's a good project we're going to do it and when you look at the diversity of our business in our Midstream space, yep, we've got crew Transportation. Yes, we're in Queens products as far as uh, Terminals and moving products out of refineries, and then subsequently we're also deep in the NGO value chain. So we looked at all those were, you know, a one-trick pony at this point. We do look at it. We have ways to shift our investment through those three different very specific dead.
Businesses in orbits during business. So yes, you may see those come off or it's certainly going to be a little more cautious as we look at transmission lines, but that I mean, we're not going to do those we're going to make sure it makes sense. We've got people who are willing to make long-term commitments. They're good solid counterparties and and hits the returns. We're actually we need. So those happen, of course, we're going to be interested in that but if not, we will find other ways to Pivot and build out our integration within our company. They'll just to quantify off the Midstream, you know, we reported 2.26 billion of Eva DEA in 2019 at the investor day. We highlighted projects that could take them to three billion dollars by 2022 the projects that we have deferred represent about three to four hundred million of Eva DEA that that would scale that back.
And so I think that's one way of thinking about it from a dapple perspective. You can see from our historical disclosure it contributes or has contributed about $250 million a year to psxp We own roughly 75% of psxp at PSX. So the PSX impact is is in the ballpark of about two hundred million a year.
Comparison from evercore is I please go ahead your line is open. Good morning, everybody. Good morning. Financially the bulb the pandemic is obviously reduced Financial flexibility and led to higher debt levels. A lot of companies sales tax included simultaneously economic growth is expected to recover and as it does suck. My questions are what are the likely implications for Capital Management, which has been a positive homework for you guys over the years and specifically, how are you thinking about the balanced wage endings you older distributions et cetera given the changes in debt. So the question is really about how you're thinking about financial priorities over the medium-term.
Yep. Well so, you know our views, you know.
Madeira next year we probably get back to something approaching its cycle for our company as we do that then we can kind of get back to a normalized framework as we think about the 60-40 allocation. I think the other thing I would say is is clearly, you know taking on three billion dollars of debt. There's going to be some priority to debt repayment of the next two to three years. We've got a 364-day facility comes it's a billion dollars comes due in the first quarter of next year and then in 20 22, we've got another two billion dollars kind of normal course debt coming due so you should think about trying to pay between 1 to 3 billion dollars of debt off in the next two three years as we start approaching mid-cycle conditions and certainly pick back up with share repurchases wage thing. I would say is you know, our view is that investment opportunities in Midstream and 21 and 22 are probably going to be less than what we would have anticipated that's going to free up more Capital to put wage.
Forced entry payment and uh shareholder distributions. So anyway, that's how I'm thinking about it at this moment of time. Okay, that sounds good. And then my second question is about refining and specifically home how you guys are thinking about closures of refining capacity over the next few years. And the reason that I ask is because I think during the last cycle I was final tally of closures was about six or seven million per day over the two to three years following the troughs in the cycle and we have seen recent announcements of closures in Asia. We've got I Mo related factors and refining economics aren't great either. So it's like we could be in the early stages of going back to that closure track as well. So just wanted to see how you're thinking about how the supply-side could be affected by this factor in coming years. If you think it is, if you think it will be meaningful, okay, and I think we would we would agree to you that 2008-9 kind of a good goal by and we would expect wage.
Elevation across the globe since it really is a global business even before the pandemic we expected to see significant rationalization in Europe and and some quite frankly am a us and and so we've seen that right? We've got PS that's down and think everybody could agree that's not coming back. We've got other temporary closures right now whether they came back probably depends a lot on how long the the covid-19 hangs in there. I guess our our bigger view would be we expected several million barrels to rationalize across the country or before this depend demek only pushes it forward and we probably get it sooner than later. So I think you'll see a lot of people make their moves early and you know, they'll may not happen right away here because I think people will run maybe there's a long as they can with these assets but they're going to run up against either really expensive turn around or some kind of regulatory impact.
in some parts of the world
And that's going to make a decision for them. I think.
Doug I think the other thing I would add is is not only rationalization of existing facilities, but delays in new capacity additions with a significant Capital spending reductions that have been put in place with the covet in packed on challenges getting labor as you well know even in a good environment these projects tend to get too long. But the in the environment we're in today, they're they're likely to get delayed even more significantly.
Rodger Reed from Wells Fargo, please. Go ahead your line is open.
Yeah, thank you. Good morning morning. I can get two questions kind of small questions on refining and then you want on chemicals on refining wage. What do you think is happening or what do you think needs to happen in exports to kind of bring the market back pretty specifically the the Gulf Coast here and then on the cruise supply-side with w c s specifically how you see that coming in? Cuz that was obviously a big headwind in Q2. Just curious how you think of that for the second half of the year.
Hey Doug, this is Brian on exports. If you looked at q1q one export for gasoline and distillate little over two point two million barrels a day, which we would say is typical incubation to post to 1.6 which is about 30% off and in July. We're about 20% off. So we're trying to come back and we can see that in the marketplace. We can see Mexico's having a lot of Refinery problems back in June. They would down about 35% utilization. We think July that probably in the high twenties with more problems. We can see them in the marketplace that coming in and out for spot barrels. They were just thousand barrels before you've even talked to some folks in in the retail business who have said that. Some of their volumes have come back to pre October eleventh. So we're seeing better demand in Phillip 66 we exported in queue 260,000 barrels. That was the same amount. We exported in q1 typically for us at Phillips 66. It's for opportunistic and we've dead.
Better opportunities domestically over the last couple of quarters.
I think I might add on that too. I I think if you look at the the distillate inventory overhang, it's mostly in the Gulf Coast at this point, right? That's where the girls are sitting in that we need to get those back into the office. Don't work it to help clean up inventory levels in in the business, right? That's the missing piece for pad three. I think I think the the statistics the money coming out weekly that's that's kind of the most evident. But if you look at Asian and European distillate inventories, they've come off their highs in in our improve at a faster Pace than what we're seeing in the US brand new and take WCS part of the question.
I'm WCS we've seen
Differentials in q12 Q2 differentials came off about nine dollars and from 2 to 3 to 3 is is kind of baked-in for about two-thirds of it will see another $2 off for what we're seeing in in Canada in four in August. We're seeing about 200,000 barrels off line for production maintenance and about another two hundred thousand barrels shut in that means that off Dakshin pipeline take away is greater than production. So that's what's kept the differential rather type. We think that will change going on going next few months in September and October. We think that production will be greater than the pipeline capacity take away and we'll see the differential start to widen closer to Ray Lords.
Okay, great. Thanks. And then on the Kim side, I just wanted to understand margins were obviously week in the quarter be granted 103% sounds like margins are probably better Q3, but guidance is only in the mid-90s. So I guess the the way I'm thinking about it, why runs so hard when things were weak but running was less. So when things look a little bit better what what kind of under wrote the the decisions in Q2 or the market conditions in Q2 that pulls such a high utilization and should we think about you may be built in a stories that we can see sold later at better pricing.
Yeah, not really building inventory in in the chemical stain. So if you go back to 2019 that I didn't see full train margin was 22% is $0.18 from the first quarter of got to ten cents on the second quarter, but actually dropped about $0.07 in May and today we're pushing kind of $0.16. And as you look across the US Europe and Asia Thursday, we seen Rising prices. So spot prices in the US or of eight cents contracts at 5 cents Europe contracts of eight cents and Asia spots 5 and 1/2 cents. And so there's been really good price movement part of that reflects a writing group price environment part of that reflects just really strong demand for Consumer products. And so I would say wage If You by Kirk eight kind of the petrochemicals business into consumer and durables, the consumer part is doing really well. The durables is still challenging but improving so Thursday.
Automotive and others and on the consumer side, which is mostly we're CP cam is you know Market facing there's kind of two two trends that are going on one is dead. And so, you know think about the whites and the the bleach and the detergent and the hand sanitizer and all that and those products across the world continue to sell strongly and the other is is a fact that the chemicals guys are calling nesting that people aren't moving very far from The Nest or staying home. They're cooking more. They're using more disposable. They're using more trash bags or buying more bottles of water that's wrapped with plastic. They're buying doing home improvement projects polyethylene paint cans and garden sheds. They're trying to find things to do outside the house. So they're spending more money on a kayak sand and coolers and camping materials and things like that which all really positive for high-density demand. So I think we're constructive on the demand side and yep.
It's a strong demand week to improving margins and that's what we're running into.
Please go ahead your line is open.
Thanks. Good afternoon, everyone. So Kevin, I wonder if you could talk about your tolerance for that on the balance sheet. Obviously, you're navigating the life cycle. But where does the balance in stock up in terms of relative priorities for use of cash. And what do you what do you see as a necessary Headroom with the visibility of what month through this morning so far? Yeah. So as I walked through the the components of liquidity that we have available to us. We're still in a good shape and good shape in terms of if we if we need additional cash we have availability through the different different sources that I like commented on earlier, but as you so I look beyond that and we start to come out the other side of this from a prioritization standpoint, which you're going to see is that paid out of debt will be in the near-term a priority wage.
Capital allocation standpoint, and typically, we don't talk about having to pay down debt as part of allocation construct and it sort of works out okay for us because we've got the term loan billion dollars on the long-term loan that matures in the first quarter of next year. We also have a half billion dollar floating rate note maturity. Also in the first quarter of next year. And then as you go into 20 20, mm, there's a two billion of notes coming you and there's another half-billion coming due in 2023. So we have plenty of opportunity to deal with this over the coming sort of next a couple of years or so. I think if we're able to take care of the 2021 maturities like one and a half billion, I think we'll feel pretty comfortable with where the balance sheet is at that point that will still have us at slight loss of that. Then we had when we went into this, um, but in the overall scheme of things I think will feel pretty comfortable with where that puts us.
I appreciate the answer. Thanks, Kevin then dragged. I'm I'm afraid I'm going to take a bit of a different type given were three months ahead of the election. I guess four months after the election off the topic of carbon tax. We we've heard the majors, you know articulate some support for the bigger Shields plan amongst others, but it's appeared on our Democratic platform is a possibility that something that they might want to push in a new legislative, you know setting so I'm just wondering what PSX official position is on a carbon tax and all the other days.
luggage from Bank of America
Yeah, we haven't had an official position on a carbon tax Doug partly cuz we need to see what the policy really is. And was it look like I would say that argues that it really it needs to be done in Congress. They need to legislate, you know climate program. We prefer that to obviously to having a patchwork of state and and and local regulations which is a lot less efficient for us know there's a few key things that we would be looking for in any program. First of all transparency. It's really important for people and I'm talking about consumers to be able to understand the impact and the costs associated with any program needs to be company-wide. I mean economy-wide and it's got the applicable to all sources of emissions and also it's got to recognize that oil and gas is going to have a big role play for many years to come. It really needs to be market-based. It's predictable and and and an internationally competitive and so, you know giving all those those boundary conditions. Certainly we could we we would support something else.
Around a carbon tax if that's the preferred method that that comes out of the out of the Congress.
Okay from Scotiabank, please go ahead your line is open. Thank you. Good morning. A couple questions grew up in the past. You have talked about renewable this or business and have some reservation because of the government and all that just kill is that with the pandemic and everything going on and they perhaps also have a democratic Administration. It's your view on that. This has changed and yet yes, how big is dead. It's at that you may be willing to or what that you will be talking or that you may like in the Long Haul.
So I'm going to let Bob kind of talk about what we're doing in Renewables and then I'll come back and address that question specifically. Okay, so, you know currently we are in the Renewables business over at our home Refinery the last year or so. We've been processing used cooking oil capacity in our our cat cracker. They're making about a thousand barrels a day of renewable diesel. We've actually got a project. In fact right now to raise that to about 4,000 barrels a day, right? It's around the logistics to get it in to the plant. We don't have any problem running it and on the commercial front, right we've committed to backing off to renewable plants that are being built by a third party in Nevada. So we'll Supply them feedstock and take 100% of the product off of those two off lamp. So between those two that's about 15,000 barrels a day of renewable diesel, but we'll have that are disposable to meet the needs our own needs in California. In addition. We've got a job.
In progress at our San Francisco Refinery that will convert a hydrotreater to run renewable feedstocks make about another 9,000 barrels a day or so of renewable diesel beyond that we continue to do the engineering to understand where does it make sense to to build more renewable capacity across their system as you know, we had a a big project are Ferndale Refinery up in Washington state to make 18,000 barrels a day of renewable diesel. We could not get permit certainty in that environment up there. So we cancelled that project but that hasn't stopped us from continuing to evaluate options on the west coast the Gulf Coast and at our other plants as the words that make sense to to do more Renewables our phone number because the renewable need is there and it's going to be there long-term. So will we need to find a way to to help meet the the demand of the market for renewable diesel in particular?
So, you know, I think our Approach at this point in time has been to to partner certainly in to use existing assets or we can and in a capital light mode Paul. So I'm still worried about the the credit and and how that credit price gets set. But as you watch what's happening particularly on the west coast low-carbon fuel standard, you know moving up the entire West Palm is maybe to the east coast of the US and I think there's going to be a place in the portfolio of for Renewables.
Quick do you have?
And ID say somehow ceiling, how big is that business that you you will be willing to accept in the long run as a percentage. Let's say for your overall Cashflow order. You think that this place is I mean, this is just a glitch and you don't want to be too big.
Well, you know our our current view was we would probably either build or or partner to cover about what we do is 80% of our requirements and we probably remain exposed credits for the for about 20% and and we haven't changed that strategy yet Paul, but that's current our current views in this market.
Justin Jenkins from Raymond James, please. Go ahead. Your line is open. Thanks. Good morning. Everyone. I want to follow up on Neil question about to go to access earlier. I'm I'm curious. How long does t s x t have to stay on the tone financially in the unlikely event that dapple is shut down or or would PSX be willing to entertain maybe some the more supportive options than might otherwise be the case fit and healthy amount be adjusted is Kevin. Yeah, so it's it's hard to speculate around activities that may or decisions that may or may not happen and how that will play out but fundamentally when you look at the MLP, it's got two levers at its disposal right in terms of helping it. It's financial position. Then when is the distribution into is the level of capital spending and as you as you know, the the capital spending has been is pretty high this year but a lot of
There's projects are coming to an end over the course of this year. And so they'll be more flexibility as you're looking to Future years in terms of where capex needs to say that the MLP but what I'd also says you step back to look at p s x p is in a it goes into this in a very strong position. So the MLP last year generated is almost a billion three of em, but it's got a it's got a strong balance sheet too strong credit rating and that's a function of you. Look at all the transactions that have taken place between PSX and PSX over the last several years. They've all been done on a very fair basis that the both works for the for the MLP and for the sponsor and at the same time you saw lay on Thursday a conservative Financial strategy and policy around how we manage the balance sheet at psxp and it's actually in a really good really good position. It's dead.
It's it's really hard to speculate around what other what sort of sponsor support might be provided on on event that we should know may happen around all of that. So I think I'll probably just just leave it there one other comment though is also bear in mind that apple is one asset. So psxp is a great portfolio. It's predominantly fee-based driven assets and wild apple is a very it's a significant asset. It's a good asset. It is just one aspect within the broader portfolio. And so, we're pretty confident that psxp will be able to work its way through this whole situation. I understood I appreciate the answer Kevin. I think second question is just a quick for you as well on on the cash flow statement JV distribution Court. We're pretty high you mentioned. The CPM distribution is a good chunk of that one-time in nature.
yeah, I think it's fair to look at you really want to look at CPK on a year-to-date basis the distributions Below in q1 and
They were high and Q2. And so it's probably more appropriate to think of it like that because it was an under in q1, they under distributed from a learning standpoint. And that's the big drive failure of that that undistributed the earnings benefit that shows up on the cash flow statement.
Manos pizza from Credit Suisse, please. Go ahead. Your line is open. He goes a quick question. You have a very light footprint and retail and wholesale operations. I'm trying to understand a little bit of followup to walk, you know Rogers question domestically, which are the regions where you are screwing the strongest demand recovery and domestically which are the regions where either gasoline is lagging versus the average and are the Regency actually think where the demand may never recover led to the free pandemic levels.
But we took a look at that earlier this morning. In fact, and we're seeing that 15% demand destruction of gasoline. Actually, that's the same in each of our pads that were on Thursday and we didn't see any any difference in in the past operating and I would say that it's hard to say if this ten seconds whether we'll see continued demand destruction. I know when the West Coast have been companies that announced took it back to work for a while schools. We don't know when they're going to get back to work. My guess would be that in the future people will get back to work with something about being at the office and exchange of ideas at the office that makes that more positive way to work. So I think this is a somewhat short term by the middle of next year. I think people will be back to work and will be uh normal just like it has been
And a quick follow-up question again on the Canadian side you have extensive when you are one of the biggest buyers of Canadian crude in terms of volumes versus, you know, may or April or May what kind of an increase in volume from Canada. Are you saying at this point of Time Versus two or three months ago? So we've been improved importing from Canada's roughly the same amount a little 500,000 barrels a day with limited on Pipeline Logistics and that's kind of a limits for Canada crude exported out of the West Coast.
Thank you.
Teresa Chen from Barclays, please. Go ahead. Your line is open.
Hi, thank you for taking my question. So first on the front understand that to PSX the in the event of a shutdown will be roughly 255 million per year of can you talk about potential offsets in your system is differentials do blowout you can import, you know, crude-by-rail at Bailey and Ferndale off. Yes. So currently we we moved by rail to Bailey in Ferndale about 70,000 barrels today. We think we can get another 75% maybe up to 120,000 barrels a day off Channel crude to both refineries from the back and we're taking a look at differentials and as they get as they get wider will be in a position to move those extra barrels.
got it, and
Brian a follow-up to Manos question on structural demand. So when you talk about the markets where things have progressed more steadily and recovering to you know, close to normal 95% of demand in Germany and Austria, for example, so are you seeing like plateauing at 95% is a continuing to recover. Can you check that 5% up to structural loss? How should we think about that? I think that's that's still effective covid-19.
Prashant real from City please. Go ahead. Your line is open. Hi. Thanks for taking the question was a sort of a two-parter. So I'll just leave it that the one with the the parts to it and they're both on Midstream. Um, I kind of wanted to get a sense of you know, feels like there's a lot of moving Parts here, but you've got Gray Oak full operation tie-in work is done on Sweeney throughput volumes look like there should at least paste product demand and crude demands of coming back up. So it feels wrong to should be sort of a bottom for the year from where we stand right now. I wanted to get your sense on if that's sort of a fair assumption and then from there the second part them I think about sort of the trajectory of the snap back towards getting back to earnings levels where we were, you know back half of last year at least or one key of this year.
How much of that is volume driven and what's the how much of that is more margin driven? I know the two are interrelated, but if you could help us to sort of think about, you know per Boe margin as the volt come back how that should Trend and ultimately get you north of four hundred million on on earnings per quarter, you know, does that is that something that seems in scope for the back half of this year? So those two agents would be helpful to get some color on both. Thank you very much. We look at all the fact that we've gone got going on. I can't say that. You're right. Second quarter really does feel like it was the bottom of the trough obviously. It's it's it's, you know a little tough to to to kind of go out with this second wave of of a pandemic that certainly we're going to work our way through that but we've seen things progressively move up through the quarter so that I would say is dead.
Feel that way currently got a lot of activity going on we have seen for example on Gray. Okay. I'm pleased to tell you that, you know, we're up and running we have.
In volumes have picked up and we're near NBC levels currently which is good, which is not where we were in the middle of the quarter of the second quarter. So that's Direction going in the right direction and we see overall volumes to our NGL system. All of them are month-to-month are improving so directionally, we feel pretty good that it's it's moving in the right direction. It's the length of time it takes to recover. We still think that's the middle of next year is when you said you see things start normalized to a point where we're back in mid cycle, but it may be the only thing I would add to that is as you think about kind of Grey Oak cracks to 3 a.m.
Those are pretty much fixed fee. So there's not a lot of commodity exposure there where we still have commodity exposures really around the LPG export and of course in the second quarter, we had some downtime for the the tie end so we ran the bracket little lighter and didn't get as me export barrels out. And also the the fees went down across the dock in the second quarter. So we do think that we'll see some improvement in terms of you know, the getting more volume across the dock and also some opportunity to increase ugh dock fees. So that's where the big exposure is and that's one to two hundred million dollars. Probably if you think about it in the total scope of the the opportunity set for us. Yeah and I think Persona as you know, these projects are under written by by long-term ship or commitments that support the investment in the return on these projects.
Brian Todd from Simmons energy, please. Go ahead your line is open.
Create the morning, maybe a couple of quick follow-ups on refining despite the island of these Martinez Refinery West Coast Bank rates are still kind of struggling from the trough of the downturn relative to other regions. Can you talk about maybe how Regional demand fundamentals are driving a different recovery path that you see if you location off the Gulf Coast versus the West Coast or east coast.
Yeah, I think actually if you look at our system across the are different pads, we don't see that much difference in utilization. I think pad to pad to pad right now in California in particular, right? If if the conventional wisdom before the pandemic was we were a Refinery long in California sometimes for for Market balance off today. We're we're something above that. So even with martinez down the demands of the market, you know don't require the refining system out there really to to be running off then we currently are we said, you know, we're in the low-80s across our system and and that's pretty instructive for California also.
Okay, thanks. And then maybe on the marketing side the retail results of that a relative right spot and they were both this quarter. I mean wanted to ask how the Outlook is looking in. The third quarter is as commodity prices of it started in normalized and maybe you can speak to further opportunities to inorganically build on your West Coast Rico from here, but we completed most of the West Coast retail joint venture late last year, which is was a fortunate time for us. We finished the rest off earlier this month. So we've taken back cast on the on the margins and the value driven by the by the West Coast joint venture and it's been about what we said. It would be in about the fifty to sixty million barrels. I'm fifty-six million dollars a year in terms of evidence for that joint venture. So we're kind of happy about where it is. Of course, it's hard to tell going to Cove it. But we we thank God.
and will continue to take a look at opportunities to grow that joint venture and
Opportunities to integrate into our business we think integration is very important as Greg mentioned earlier and we're looking for opportunities to integrate particularly and on the west coast and even more particularly in the Middle America where we have a large refining business.
We have now reached the end of today's call. I will now turn the call back over to Jim.
Thank you, David. Thank all of you for your interest in Phillips 66. If you have additional questions after today's call, please contact Brent or myself. Thank you. Thank you, ma'am, and gentlemen, this concludes today's conference. You may now disconnect.
Dead dead dead.