Q3 2022 Phillips 66 Earnings Call
[music].
Welcome to the third quarter 2020 to Phillips 66 earnings Conference call. My name is Sylvia and I will be your operator for today's call. At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
Please note that this conference is being recorded I will now turn the call over to Jeff do you <unk>.
Rice, President Investor Relations, Jeff you may begin.
Good morning, and welcome to Phillips 66 third quarter earnings Conference call participants on today's call include Mark laser President and CEO , Kevin Mitchell, EVP, and CFO , Brian Mandell EVP market marketing in commercial.
Tim Roberts, EVP, midstream and chemicals, and rich harvesting SVP refining.
Today's presentation material can be found on the Investor Relations section of the Phillips 66 website, along with supplemental financial and operating information.
We provided supplemental information this morning for chemicals, refining and marketing and midstream the remaining supplemental information will be available with the 10-Q filing will return to the normal supplemental release next quarter.
Slide two contains our safe Harbor statement, we will be making forward looking statements. During today's call actual results may differ materially from today's comments factors that could cause actual results to differ are included here as well as in our SEC filings.
Before we begin our discussion I would like to highlight that we will be hosting an investor day in New York on November nine.
With that I'll turn the call over to Mark.
Thanks, Jeff our third quarter results reflect a continued favorable market environment and our strong operating performance.
We ran at high rates during the summer driving season to meet peak demand for critical transportation fuel.
Finding business delivered improved market capture this quarter supported by strong distillate crack and wider discounts for heavy sour crudes.
In the third quarter, we had adjusted earnings of $3 1 billion or $6 46.
$6 46 per share.
We generated $3 1 billion in operating cash flow.
We're committed to strong shareholder distributions during the quarter, we ramped up share repurchases in a meaningful way purchasing almost $700 million of common stock.
Dividends, we returned $1 2 billion to shareholders.
During the quarter, we continued to focus on operating excellence and advancing our strategic priorities.
Our enterprise wide business transformation is underway. The team is implementing key initiatives to deliver results. We look forward to providing more details at our Investor Day next week.
In midstream, we realigned our economic and governance as interest in DCP Midstream LP and Gray Oak pipeline LLC, our economic interest in DCP midstream increased to 43% and our economic interest in Gray oak pipeline decreased to six 5%.
At the same time, we made an offer to acquire all publicly held common units of DCP Midstream LP.
Our increased interest in DCP midstream allows for further integration and optimization across our NGL business.
The wellhead to market value chain structure will allow us to capture new commercial opportunities and optimize costs.
Additionally, we started up Frac four the sweeny hub on time and under budget.
Kober Frac four achieved full run rates, bringing our total sweeny hub fractionation capacity to 550000 barrels per day.
CP Chem is pursuing a portfolio of high return projects enhancing its asset base as well as optimizing its existing operations.
This includes growing its normal alpha olefins business with the second World scale unit to produce one hexane are critical components.
<unk> and high performance polyethylene.
Unit is being constructed at <unk> old Ocean, Texas facility and will produce 586 million pounds per year.
<unk> is also building a new propylene splitter at Cedar Bayou facility, which will expand its capacity by 1 billion pounds per year.
Both the <unk> and propylene splitter projects are expected to startup in the second half of 2023.
CP Chem continues to develop two world scale petrochemical facilities on the U S Gulf Coast and in Rosler Fund Qatar.
Final investment decision for the U S. Gulf Coast project is expected before the end of this year.
In refining we're converting our San Francisco refinery into one of the world's largest renewable fuels facilities.
<unk>, our new project is expected to cost approximately $850 million and began commercial operations in the first quarter of 2024.
Upon completion Rodin will have over 50000 barrels per day of renewable fuels production capacity now ill turn the call over to Kevin to review the financial results. Thank you Mark and Hello, everyone.
Before I talk about the financials, let me begin by summarizing the accounting impacts of DCP midstream.
On August 17th we completed the merger of DCP Midstream LLC and Gray Oak pipeline LLC.
In connection with the transaction, we were delegated governance rights over DCP Midstream LP and its general partner entities as well as DCP sand Hills pipeline, LLC and BCP Southern Hills pipeline LLC.
Effective August 18th our financial results reflect the consolidation of these entities.
Starting with an overview on slide four we summarize these financial results.
We reported third quarter earnings of $5 4 billion.
We had special items.
Turning to an after tax gain of $2 3 billion, including the net gain related to the consolidation of DCP midstream sand Hills pipeline in Southern Hills pipeline.
The transfer of interest in Gray Oak pipeline.
Excluding special items adjusted earnings were $3 1 billion or $6 46 per share.
$33 million decrease in the fair value of our investment in Novartis reduced earnings per share by <unk> <unk>.
We generated $3 1 billion of operating cash flow.
Capital spending for the quarter was $735 million.
Including the company's $306 million investment in DCP midstream LLC associated with the merger net of cash acquired.
We returned $1 2 billion to shareholders through $466 million of dividends and $694 million of share repurchases.
We ended the quarter with 473 million shares outstanding.
Moving to slide five.
This slide highlights the change in adjusted results by segment from the second quarter to the third quarter, including the impact of consolidating DCP midstream Central's pipeline and Southern Hills pipeline effective August 18th.
The midstream segment corporate than other income taxes, and noncontrolling interests are impacted by the consolidations.
The higher Noncontrolling interest reflects the portion of these entities not owned by Phillips 66.
During the period adjusted earnings decreased $163 million.
Mostly due to lower results in refining and chemicals, partially offset by higher midstream and marketing and specialties results.
Slide six shows our midstream results.
Third quarter, adjusted pretax income was $645 million compared.
Compared with $292 million in the previous quarter.
The consolidation of DCP midstream results are now reported within NGL and other.
Transportation contributed adjusted pretax income of $229 million down.
<unk> $21 million from the prior quarter.
The decrease was mainly due to lower equity earnings from the Gray oak pipeline, resulting from the merger.
NGL and other adjusted pre tax income was $449 million.
Compared with $282 million in the second quarter.
The increase was primarily due to the consolidation of DCP midstream sand Hills pipeline in Southern Hills pipeline effective August 18.
The fractionator at the Sweeny hub averaged 429000 barrels per day, and the Freeport LPG export facility loaded 249000 barrels per day in the third quarter.
Our <unk> investment as Mark to market at the end of each reporting period.
The fair value of the investment, including foreign exchange impacts decreased $33 million in the third quarter compared with a decrease of $240 million in the second quarter.
Turning to chemicals on slide seven Ken.
Chemicals had third quarter adjusted pre tax income of $135 million compared.
Compared with $273 million in the previous quarter.
Orphans polyolefin adjusted pretax income was $105 million.
The $111 million decrease from the previous quarter was primarily due to lower margins, resulting from a sharp decline in polyethylene prices.
This was partially offset by lower turnaround costs.
Global <unk> utilization was 90% for the quarter.
Adjusted pre tax income for CNS was $60 million in line with the second quarter.
The higher cost in other mainly reflect legal contingencies.
During the third quarter, we received $41 million in cash distributions from CP Chem.
Turning to refining on slide eight.
Refining third quarter adjusted pre tax income was $2 8 billion.
Down from $3 1 billion in the second quarter.
The decrease was primarily due to lower realized margins, partially offset by higher volumes.
Our realized margins decreased by 6% to $26 58 per barrel, while the composite global 321 market crack decreased by 22%.
Pre tax turnaround costs were $225 million in.
In line with the previous quarter.
Crude utilization was 91% in the third quarter and clean product yield was 85%.
Slide nine covers market capture.
Our composite global 321 market crack for the third quarter was $36 29 per barrel compared to $46 72 per barrel in the second quarter.
Realized margin was $26 58 per barrel and resulted in an overall market capture of 73%.
Market capture in the previous quarter was 61%.
Market capture is impacted by the configuration of our refineries, we have a higher yield and lower gasoline yield in the 321 market indicator.
During the third quarter, the distillate crack decreased $8 14 per barrel and the gasoline crack decreased $11 84 per barrel.
Losses from secondary products of $3 50 per barrel were <unk> 47 per barrel higher than the previous quarter.
Our feedstock loss of $1 48 per barrel was in line with the previous quarter.
Let's talk advantage from widening heavy sour crude differentials was offset by the impact of higher feedstock costs relative to dated Brent in the Atlantic Basin.
The other category reduced realized margins by $1 29 per barrel. This category includes rens freight costs clean product realizations and inventory impacts.
Moving to marketing and specialties on slide 10.
Adjusted third quarter pretax income was $847 million.
Compared with $765 million in the prior quarter.
Marketing and other adjusted pre tax income was $717 million up $61 million from the second quarter.
The improvement reflects higher international margins, partially offset by lower domestic results, including inventory impacts.
Specialties generated third quarter, adjusted pre tax income of $130 million.
$21 million increase was largely due to improved base oil margins.
On slide 12, the corporate and other segment had adjusted pre tax cost of $246 million.
$11 million higher than the prior quarter.
The increase was mainly due to consolidating DCP midstream interest expense of $34 million, partially offset by higher interest income.
Slide 12 shows the change in cash during the third quarter.
We started the quarter with a $2 8 billion cash balance.
Cash from operations was $3 1 billion.
During the quarter, we funded $735 million of capital spending, including the company's $306 million investment in DCP midstream LLC associated with the merger net of cash acquired.
We returned $1 2 billion to shareholders through dividends and share repurchases.
Our ending cash balance was $3 7 billion.
We ended the quarter with a net debt to capital ratio of 29%, including the consolidation of DCP midstream.
This concludes my review of the financial and operating results next I'll cover a few outlook items and.
In chemicals, we expect the fourth quarter global <unk> utilization rate to be in the mid nineties.
In refining we expect the fourth quarter worldwide crude utilization rate to be in the low to mid nineties and pre tax turnaround expenses to be between 180 and $220 million.
As a result of strong turnaround execution and timing, we expect full year turnaround expenses to be lower than our original $800 million to $900 million of guidance.
We anticipate fourth quarter corporate and other costs to come in between 300 $325 million pretax, reflecting a full quarter of DCP midstream interest expense.
Now we will open the line for questions.
Thank you Sir.
We will now begin the question and answer session.
We open the call for questions as a courtesy to all participants please limit yourself to one question and one follow up.
If you have a question. Please press Star then one on your telephone keypad with Touchtone phone, if you wish to be removed from the queue. Please press star two.
If you are using a speakerphone you may need to pick up the handset before pressing the numbers. Once again, if you have a question. Please press star one on your Touchtone phone.
And your first question will be from Doug Leggate of Bank of America. Please go ahead.
Thanks, Good morning, everyone. Thanks for taking my questions, Kevin I Wonder if I could just ask you about your thoughts on the balance sheet going forward I mean, clearly you're you're back to I guess.
On a capitalization basis youre back to pre COVID-19 levels pretty much but the absolute debt now you have ECP is still about 30% up on where it was before the downturn. So how are you thinking about where you want the balance sheet to be going forward and how that might play into your cash return strategy.
Yes, Doug Thanks, It's a good question.
So we feel pretty good that even with consolidation of DCP.
The debt to capital ratio net of cash is sub 30%. So we feel good about the metric from that standpoint, and also if you just look at debt to EBITDA metrics. There. There is still very strong but the reality is it's 17.8 circa $18 billion of debt on a fully consolidated basis.
So I think given the overall.
Financial.
Position, we are in the cash generation that we have you will see us continue to do some debt reduction there.
Bear in mind, we haven't yet funded.
The buy in of the public so that puts more pressure on the balance sheet, regardless of how we actually.
Execute on that funding.
Funding between debt and cash and so we will continue to want to make some debt reductions, but but the difference now between where we were over the last couple of years, where we're trying to get rid of the.
Pandemic pandemic.
Debt that we had added is we don't need to make debt reduction the number one priority for discretionary cash cash generation cash balances are sufficient that we'll be able to do some gradually chip away at the debt balance and at the same time continuing to return healthy amount of cash to shareholders.
Well I'm trying hard Kevin not to ask anything that I know you won't answer given that you've got the analyst day, so I'm avoiding some of the obvious things, but I do want to try.
<unk> really came up with the loss the cold that preceded this one with with marathon and that's the issue.
The industry all senior managements view of mid cycle on marathon, we're quite clear to say look this thing mid cycle has moved up.
You guys used to talk about I guess $6 billion to $7 billion of mid cycle cash flow again, not preempting next week, but can you maybe offer.
Mark or anyone else.
Do you feel about the go forward outlook for mid cycle earnings for this business so the refining business.
Yes, we are going to cover that a bit next week I think that there is two things to take into consideration there.
Has the market mid cycle moved it has our ability to generate EBITDA moved.
Certainly.
The piece that we control, we know will be moving and we will provide details.
Next week and as far as the market, we're still watching that to see how that evolves, but we'll be more focused on what we're doing to drive our mid cycle going forward.
On the Sun will wait until next week. Thank you guys.
Okay. Thanks, Doug. Thank you next question will be from Neil Mehta with Goldman Sachs. Please go ahead. Your line is open.
Yes, good morning team.
I wanted to start off on the waterfall on slide 20 of the deck in the central corridor really exceptional cash.
Capture rates.
In that region.
I was wondering if there was anything unusual in there if there is something structural that we should capitalize.
As I know that other bucket can move around a bunch and how much did the WCS helped this quarter or given the fact that.
It typically comes in at a lag is that more of a <unk> <unk> tailwind.
We're very pleased with the central quarter performance. There are a number of factors the differentiator the second quarter to the third quarter and the.
A number of things that happened in the third quarter I'll, let rich dive into the details around that.
Okay.
Good question and yes, they are.
Mid Con second quarter had a very good quarter.
Let me start by resetting the basis for the second quarter second quarter for US was a heavy turnaround in this region. So so a lot of the difference you're seeing is the lack of turnarounds in the third quarter, our mechanical availability during the third quarter was very good we had.
High utilization sitting at around 93%.
Strong clean product yields sitting at 88% for the corridor. So good performance on both of those of course, those directly relate to increased volumes and with the lack of turnarounds, we had a lot lower operating expense for the quarter as well.
As you indicated as well nail the market conditions were quite favorable for our kit, we saw widening Canadian spreads, which which are quite favorable for us as well as a very strong distillate crack in the region and that also plays well for our kit, which is a strong distillate producer so.
I think what Youre seeing here is a strong operating performance and favorable market conditions, playing out for us in the third quarter.
Yeah, and maybe we could stay on that point around Western Canada crude it has.
Been pretty pretty wide here, it's widened out in the curve for 'twenty three as well so would love your guys' perspective on what you think is going on there and and given it does tend to come in at a lag should we see a disproportionate impact of that tailwind in Q4.
Hey, Danielle this is Bryan I'll start by saying that WCS started weakening we had two unplanned maintenance WCS was forced into the Gulf Coast and then forced to compete with SPR barrels. We released about 180 million barrels of SPR crude most of that has been sours that we competed with.
WCS high sulfur fuel oil has also been weak and it competes as well given weaker bunker demand in the end of summer utility burn.
And also generally the WCS is purchased by Asia, and India, and they were out buying euro Russian crude so they werent buying as much.
And finally, WCS has a high netback cut and that NASA has been very very weak because of the chemicals business. So that was also caused some pressure so.
Currently WCS is at about $30 differential.
Q4, if you look at the forward curve is at $26 often next year is about $23 OXXO.
Assume that it will continue to be weak and the market players also feel the same way.
Thanks, guys.
Thanks Neil.
Thank you next question is from Roger read at Wells Fargo. Please go ahead. Your line is open.
Yes. Thank you good morning.
I guess I'd like to maybe take a.
Doug shot here at the chemical side of things. So obviously kind of softer results coming off what was an impressive 21 early 'twenty two Ron.
Richard.
For the Gulf Coast, and then also the <unk> opportunity does the weakness in chemicals here at all in apparel your timing on decision of EFI D or does it have any impact whatsoever.
Thanks, Roger that's a great question I think that Youll see became has a long history of focusing on the long term fundamentals and they never tried to time any particular cycle cyclic movements to to drive there.
Growth plans they are always focused on capturing advantaged feedstocks and <unk>.
And maintain their global market presence and Thats, what they are doing here as well.
Thankfully if you look back in history of the projects that have just happened to be counter cyclical where the investments made when there was a downturn they tend to come online when things are turning back up and thats beneficial to the economics that it.
It looks like that may be the case here you can never predict when things will turn around but it will take about four years to execute.
Each of those projects and so yes, it will be what is the crystal ball sat in that in that timeframe, but we focus on those long term fundamentals and what we see as kind of a mid cycle margin for those those opportunities.
No that makes sense and then my other question on the marketing business.
You had an exceptional Q2 and now in an even more exceptional Q3.
Any kind of background on whats going on there.
Are the fundamentals that created the last two quarters, showing any signs of reversing here.
Sure Roger Brian again.
Maybe I'll start by saying that our diverse geographic portfolio with business. Both here in the U S and Western Europe .
And our diverse channels of trade, we have unbranded branded and retail help us.
When we think about our marketing business, but Q3, a number of things that we saw that helped the business in Germany. It was a top tax holiday starting in January one and ending at the end of August .
So overseas the low Rhine and the one Australian refineries down actually helped us and generally helps us we have alternative supply neuro a refinery there in the south of Germany, which helps us, particularly in the south of Germany, and our exchange agreement terms also gives us a competitive advantage we have the general.
Falling of spot prices, which helped us shortage of Russian distillate in the market as well helped US internationally and then I would say Conversely in the U S. We actually saw margins come off in Q3 from Q2, but overall, we had a very good quarter.
Okay, great. Thank you.
Yeah.
Thank you next question will be from Ryan Todd at Piper Sandler. Please go ahead. Your line is open.
Okay.
Thanks.
Maybe if I could ask one on kind of Atlantic Basin dynamics.
European refining you're exposed to European refining spent a lot of volatility in recent months, there with natural gas prices.
The systems have had to adjust and have adjusted a decent amount looking forward you've got a crude import ban that's about to go into effect and then potentially a product import ban early next year.
Any thoughts as you look forward to how these dynamics play out bolster your asset in the region overall.
How this may impact Atlantic basin balances over the next six months.
Yes. This is mark I'll come in at a high level, then I'll, let <unk>.
Rich and Brian follow up but I think generally those are constructive for us.
I think it could it could.
Could strengthen our position, particularly around around distillate.
It's going from strength to strength.
But I'll, let Brian and rich comment on the details well, maybe I'll start with the macro and Richard can talk more about our assets, but <unk>.
Clearly the market around the world is tight, particularly on distillates in the U S were under 2015 to 2019 ranges by 22% inventories that there was a very very weak inventories given that we're starting to go into the winter season.
Refineries around the world are making diesel over gasoline currently.
There are a lot of things that may take some of the edge off and alleviate some of the stress on the market first around the world, we're coming back from turnarounds here in the U S and elsewhere. The Chinese have increased their quota so youll see more gasoline and diesel on the market in Asia.
Refinery strikes are coming to an end so those refineries will be back up and then we're seeing a kind of moderate weather forecasts for both the U S and for Europe . So why we'd expect our margins to remain strong and I think the ultimate moderator for those margins will be demand.
Yes. This is rich I really don't have much to add to that other than.
From a refining perspective.
Of course, the natural gas price will drive up our operating expenses and we will see higher feedstock cost as this market evolves here into the future on these sanctions go into play so how that all settles out it will be interesting.
Great. Thanks, and then.
That's made.
Step into what you plan on talking about next week, but.
Regarding the.
The buy in of the remainder.
DCP.
I don't know if you have any comment on potential timing for close a deal there but beyond that.
Maybe a reminder of how youre thinking about the incremental benefits of.
Of the kind of a consolidated position there either from a.
Financial free cash flow point of view of operational synergies that come along with closure of that deal and how that may impact your ability to.
To buy back stock in the near term and the longer term.
At a high level Ryan.
The process is underway.
We are negotiating with independent directors that represent the unit holders.
I'll just say that.
We need to let that process play out.
Better to get the right number and then to get a quick number.
And as far as the strategic dial.
Dynamics, Tim can talk more about that but it really is about driving this wellhead to market strategy that we really believe we will create a lot of long term value and opportunity for Phillips 66, Tim do you want to comment on that I think thats right. We mark Thanks, exactly right I think there's a couple of things I wanted to make a point.
Is that where you believe in integration no different than what we see in our integration on our refining marketing and commercial business in midstream, we see the same thing in the NGL and natural gas space. So this allows us to set up that framework.
To do that.
Especially in key basins, and namely the Permian and DJ So we really like that but I think it's probably also worth commenting on that yes, we want to get to buy them done and get that behind us and really capture that full value, but really the important part for us and we've already started the integration. So we are starting the integration and we are pushing down the road as well.
<unk> to identify what the opportunities youre going to be that really are going to position us both from a cost standpoint, as well as the ability to compete and create more value, which we are.
So as we get the buy in that we can talk a lot more about what that potential is going to be.
Alright, thank you.
Thank you next question will be from John <unk> of Jpmorgan. Please go ahead. Your line is open.
Hey, guys. Good morning, Thanks for taking my question.
So on the buyback I think we'll probably have to wait until post DCP to have a real kind of go forward framework.
But for now you did have a pretty big number in <unk> that I think surprised some people and so can you talk about the short term kind of push pull between the buyback and then maybe conserving cash for the upcoming deal with DCP and how do you think about that.
At a high level John .
We are committed to.
Buybacks, we had to hold back in the second quarter due to blackout period, and so that kind of.
That held us back for a bit but.
But what you saw last quarter is just a signal that we are serious about buybacks and I'll, let Kevin talk about the <unk>.
Balanced between what will require to execute the the roll up of DCP versus share repurchases, but we have got a solid plan and like a broken record I'll say youll hear more about it at Investor day.
Yes, John So in terms of the DCP rollout our expectation is that will be a combination of.
Debt issuance and cash on hand, we will use to fund that.
And to my earlier comments, I feel pretty confident that with where the balance sheet sits with the cash position. We have with the cash generation. We have we will be able to manage that in terms of yes, we will want to subsequently reduce debt.
But.
With the overall cash position, we should be in a position to continue to return significant amounts of cash to shareholders. So I'm not too concerned that the DCP transaction is going to negatively impact our ability to buyback shares.
Okay. Thank you and then.
Apologies to repeat a prior question, but just thinking through your commentary on the strength in central corridor and.
Correct me, if I'm wrong, but I'm not sure if the things.
You guys talked about necessarily address the other bar flipping.
Flipping from negative to positive $4 50, you're going from <unk> to <unk>. So I apologize if I missed this but if you could go through.
Im assuming that other bar, specifically that would be really helpful.
Okay.
Let's see in the other bar in the Atlantic.
The central Coast area.
We're really looking at some rent costs in there.
And.
Some inventory timing issues are the two primary drivers of that.
That that bar there.
Sean.
Okay. Thank you.
Thank you next question will be from Matthew Blair. Please go ahead. Your line is open.
Hey, good morning, Thanks for taking my question. The <unk> results came down, but they're really outperformed peers in the third quarter.
Is this just as simple as you don't have Europe exposure and I'm pretty much all your peers do.
Was there anything else that we should look at and I guess, what's your outlook for for.
For Q4.
Yes, Thanks, Matt that's a great question.
We've talked to the folks at <unk> about that I think part of it is that lack of European capacity, though though we do that the middle east assets do.
Supply a lot of volume into Europe .
They continue to perform well.
The interesting thing is.
<unk> have had to cut back production in North America CP Chem continued strong production they had some unplanned outage, but no intentional cutbacks.
That reflects their cost position they didn't have to cut back to contain inventory. They didn't have to cut back due to economics. They had that they ran strong and were profitable and part of that is there. They are heavy into high density polyethylene and the dynamics there a little different than linear low density polyethylene.
Those that were cutting back are more exposed to that segment of the market. So I think while no one is having any fun.
That environment right now they are positioned a little to be a little more productive during this difficult time.
And then as far as the fourth quarter fourth quarter.
Is typically soft.
And we continue to see this new capacity, that's coming online being digested margins have gone down.
Marker margins have gone down to just about the the breakpoint. So I think as you see people that have cut back as you see.
Then signaling to the market that they need.
They need prices to go up in polyethylene to continued to provide what is needed in the marketplace.
Sounding feeling like it's kind of hit hit bottom, we'll probably see it hit bottom in the fourth quarter and then slowly recover they will take a couple more quarters to really.
See a lot of movement upward, but I think youre seeing those signs of bottoming out.
Sounds good and then.
Could you talk about octane spreads have been really quite strong recently is this.
It's just a function of tier three impacts rolling through the market and could you also remind me on on what Philips exposure to premium gasoline is thanks.
Yeah generally when you have weak naphtha, Matt you have high or large octane spreads naphtha has been very very weak so gasoline blenders need the octane to blend into the gasoline to make finished grade.
I would say at most like most marketers were about 11 or 12% on our premium in our marketing business.
Great. Thank you.
Thank you next question will be from Paul Cheng of Scotia Bank. Please go ahead. Your line is open.
Hi, good morning.
Good morning, a few question piece.
First.
The latest news.
By then the top Campbell to punish the industry with the windfall profit tax just wondering that youll.
People.
<unk> seen when.
When they talk to send them to.
<unk> will carry with it that that will be sufficient low in the sand, that's potent and thats the path that.
Yes.
If the peso.
Post one.
The second question with that.
Wanted to see what is our.
Strategy renewable diesel strategy beyond.
We do conversions that you are currently doing that.
The first phase will come on stream soon and then.
Full completion pumping in 2024.
And so that wanted to see that beyond that.
It's going to be one off or if that's a more nascent.
Our strategy going forward on that thank you.
Yeah. Thanks, Paul This is Mark your first question, we've been along with the rest of our peers in the industry engaged with the by the administration around the challenges that they see in the marketplace.
And its earnings season, a lot of a lot of integrated oils are coming out with very very solid results and I think thats the target of <unk>.
The President's latest comments.
Yes.
Our view is.
When we get off of the <unk>.
Public rhetoric and engage with them.
To address the issues of inventories and supply and cost and price.
<unk> been constructive.
They know that they have to proceed with caution because things that they tried to do could disrupt.
It could disrupt the markets, even more and they are listening and they're taking into account the advice that we've been giving them along with our peers.
You have to remember that there is an election next week and I think that theres going to be a lot of a lot of rhetoric right up to that point in time.
Thank you.
Next question will go I'm sorry, Paul.
I was so focused on that first question I forgot to answer your second question Paul.
Diesel strategy.
Obviously, the first step is the successful execution and commissioning.
The rodeo or a new project.
We put our toe in the water there with a small unit at <unk>.
The San Francisco refinery, we call. It unit $2 50, that's been quite successful in the marketplace.
We are involved in in aggregating feedstocks, both in preparation for rodeo as well as our Humber facility.
We're producing.
Renewable fuels, there, including sustainable aviation fuel rodeo will provide some sustainable aviation fuel as well and so we kind of look at that business as renewable fuels not just renewable diesel.
And we're taking a hard look at options around sustainable aviation fuel certainly the DRA Act.
Supportive of Saf and we've got some some thoughts there that were.
We're looking at bottom line is we're going to whatever we do we're going to be incredibly disciplined and we've got to ensure that we've got a competitive advantage. When we go off in these directions.
That we've got line of sight on feedstocks and that we've got the right capital cost when we execute these projects. So that's the primary focus not just getting bigger but being better in every one of those things that we do.
Thank you Sir.
Our last question is from Jason Gere Goldman.
Cowen. Please go ahead your line is open.
Hey, Thanks for taking my questions.
I just wanted to ask on the cash flow since you didn't provide some of the detail that you typically do.
Due on the on the cash flow walk can you just discuss some of the <unk>.
Items that impacted your cash from operations working capital and otherwise that could have impacted cash conversion and then secondly, there were some.
Maybe some running something that he may discuss next week.
There were some reports about.
Reducing head count and optimizing the workforce.
Can you just discuss.
Any.
Plans that you have around doing that and improvement in costs as a result.
Yes, Kevin ill touch on the cash flow detail I'll talk about those reports on head count.
Yes, Jason in terms of operating cash flow that detail will be available next week.
Time early next week, we filed the 10-Q, but what I would say I know there is a lot of interest and working capital.
We're still finalizing that level of detail, but what I would say is based on everything we've seen to date, we don't think that working capital was a very <unk>.
Significant components of operating cash flow so.
There'll be a working capital impact, but it will be pretty minor relative to some of the other numbers that you have.
I've seen out there.
I'll just leave it at that yes.
Yes.
Jason on the head count.
Issue.
Yes, we've been focused on our business transformation for well over a year now.
<unk> is a facet of that work and.
And we've been executing.
That portion of the work it's material.
We will provide more details next week at Investor Day, I think though it's a clear signal of our commitment to lower our cost to eliminate unnecessary work to have an optimal organization to go forward in what is a ever changing volatile environment that we that we did X.
Houston and reduction in force during the best two quarters in our history.
Great. Thanks.
Yeah.
Thank you. This does conclude today's conference Scott Sorry, a question and answer session. At this time I will turn the call back over to Jeff.
Thank all of you for your interest in Phillips 66, if you have questions on today's call. Please call Shannon and me and we look forward to seeing many of you at the Investor Day next week. Thank you.
Thank you ladies and gentlemen, this does conclude today's conference you may now begin.
May now disconnect your lines.
Thank you.
Okay.
Okay.