Q4 2022 Phillips 66 Earnings Call
Startup is expected in late 2026.
At our Investor Day, we announced priorities to reward Phillips 66 shareholders now and in the future.
We're holding ourselves accountable and we know that you are as well.
Slide four summarizes our progress.
We are delivering returns to shareholders. Since July 2022, we've returned $2 4 billion to shareholders through share repurchases and dividends.
We're on track to meet our target return of $10 billion to $12 billion by year end 2024.
In January we reached an agreement to acquire all of the publicly held common units of DCP midstream.
We expect the transaction to close in the second quarter of 2023 at which point, we will have an 87% economic interest in DCP midstream.
The increase in our economic interest from 28% prior to the third quarter transaction is expected to generate an incremental $1 3 billion of adjusted EBITDA, including commercial and operating synergies.
We are executing.
<unk> our business transformation the team achieved savings in excess of $500 million on an annualized basis at the end of 2022, setting us up well for 2023.
This includes cost reductions of over $300 million, mostly related to reducing head count by over 1100 positions during the year as we redesigned and streamlined our organization.
In addition, our 2023 capital program includes a $200 million reduction of sustaining capital.
Transforming to a sustainable lower cost business model and expect to deliver $1 billion of annualized savings by year end 2023.
We're laser focused on executing the strategic priorities to deliver returns and increased distributions in a competitive and sustainable way.
We look forward to updating you on our progress now.
Now I'll turn the call over to Kevin to review the financial results.
Thank you Mark.
Starting with an overview on slide five we summarize our financial results for the year.
Adjusted earnings were $8 9 billion.
Or $18 79 per share.
$442 million decrease in the fair value of our investment in <unk> reduced earnings per share by <unk> 71.
We generated $10 8 billion of operating cash flow.
Cash distributions from equity affiliates were $1 7 billion.
Including $574 million from CP Chem.
We ended 2022 with a net debt to capital ratio of 24%.
Our adjusted after tax return on capital employed for the year was 22%.
Slide six shows the change in cash during the year.
We started the year with $3 1 billion in cash and generated record cash flow during the year.
Cash from operations was $10 8 billion.
We received net loan repayments from equity affiliates of $590 million.
During the year, we paid down $2 4 billion of debt.
This includes $430 million of debt Paydown by DCP midstream since we began consolidating effective August 18.
We funded $2 $2 billion of capital spending and returned $3 $3 billion to shareholders, including $1 5 billion of share repurchases.
The other category includes the redemption of DCP Midstream series, a preferred units of $500 million.
Our ending cash balance increased by $3 billion to $6 1 billion.
Slide seven summarizes our fourth quarter results.
Adjusted earnings were $1 9 billion.
Or $4 per share.
The $11 million decrease in the fair value of our investment in <unk> reduced earnings per share by <unk> <unk>.
We generated operating cash flow of $4 8 billion.
Including a working capital benefit of $2 1 billion and cash.
<unk> from equity affiliates of $261 million.
Capital spending for the quarter was $713 million, including $410 million for growth projects.
We returned $1 2 billion to shareholders through $456 million of dividends and $753 million of share repurchases.
We ended the quarter with 466 million shares outstanding.
Moving to slide eight.
This slide highlights the change in adjusted results by segment from the third quarter to the fourth quarter.
During the period adjusted earnings decreased $1 2 billion.
Mostly due to lower results in refining and marketing and specialties.
In the fourth quarter, we made certain changes to the composition and reporting of our operating segment results.
Our slides reflect these changes in prior period results have been recast for comparative purposes.
The 2022 and 2021 quarterly information has been recast and is included in our supplemental information.
Slide nine shows our midstream results.
Fourth quarter adjusted pretax income was $674 million.
Compared with $608 million in the previous quarter.
Transportation contributed adjusted pre tax income of $237 million.
Up $8 million from the prior quarter.
NGL and other adjusted pre tax income was $448 million compared to $412 million in the third quarter.
The decrease the increase was primarily due to record fractionation volumes as well as a full quarter of consolidating DCP midstream sand hills pipeline and Southern Hills pipeline.
The fractionator at the Sweeny hub averaged a record 565000 barrels per day, reflecting the startup of Frac four at the end of the third quarter.
The Freeport LPG export facility loaded a record 271000 barrels per day in the fourth quarter.
Our <unk> investments as mark to market each quarter.
The fair value of the investment, including foreign exchange impacts decreased $11 million in the fourth quarter compared with a decrease of $33 million in the third quarter.
Turning to chemicals on slide 10.
Chemicals had fourth quarter adjusted pre tax income of $52 million.
Compared with $135 million in the previous quarter.
The decrease was mainly due to lower margins and volumes, partially offset by decreased utility costs and the impact of legal accruals in the third quarter.
Global Olefins <unk> polyolefin utilization was 83% for the quarter, reflecting planned turnaround activities and the impact of the winter storm in December .
Turning to refining on slide 11.
Refining fourth quarter adjusted pre tax income was $1 $6 billion down.
Down from $2 9 billion in the third quarter.
The decrease was primarily due to lower realized margins are.
Our realized margins decreased by 27% to $19 73 per barrel.
While the composite three to one when adjusted market crack decreased by 16%.
Turnaround costs were $236 million.
Crude utilization was 91% in the fourth quarter and clean product yield was 86%.
Slide 12 covers market capture.
We are now using a composite 321, when adjusted market crack to be more consistent with peers and more comparable to our realized margin.
The 321, when adjusted market crack for the fourth quarter was $23 58 per barrel compared to $28 18 per barrel in the third quarter.
Realized margin was $19 73 per barrel and resulted in an overall market capture of 84%.
Market capture in the previous quarter was 95%.
Market capture is impacted by the configuration of our refineries, we have a higher distillate yield and lower gasoline yield in the 321 market indicator.
During the fourth quarter, the distillate crack increased $8 per barrel and the gasoline crack decreased $10 per barrel.
Losses from secondary products of $3 59 per barrel were <unk> <unk> per barrel higher than the previous quarter.
Our feedstock loss of <unk> <unk> per barrel was $1 45 per barrel improved compared to the third quarter due to more favorable crude differentials.
The other category improved realized margins by 46 per barrel.
This category includes freight costs clean product realizations and inventory impacts.
Fourth quarter was $6 66 per barrel less than the previous quarter, primarily due to lower clean product realizations and inventory timing.
Moving to marketing and specialties on slide 13.
Adjusted fourth quarter pretax income was $539 million.
Compared with $828 million in the prior quarter, mainly due to lower domestic and international marketing margins.
On slide 14, the corporate and other segment had adjusted pre tax costs of 280 million $34 million higher than the prior quarter.
The increase was mainly due to higher net interest expense as well as a transfer tax related to a foreign entity reorganization and higher employee related expenses.
Slide 15 shows the change in cash during the fourth quarter.
We had another strong quarter of cash generation.
We started the quarter with a $3 $7 billion cash balance.
Cash from operations was $2 7 billion, excluding working capital.
There was a working capital benefit of $2 1 billion, mainly reflecting a reduction in inventory and a decrease in our net accounts receivable position.
We received a loan repayment from an equity affiliate of $426 million.
During the quarter, we repaid $500 million of senior notes due April 2023, and funded $713 million of capital spending.
We returned $1 2 billion to shareholders through dividends and share repurchases.
Additionally, the other category includes the redemption of DCP Midstream series, a preferred units of $500 million.
Our ending cash balance was $6 1 billion.
This concludes my review of the financial and operating results next I'll cover a few outlook items for the first quarter and the full year.
In chemicals, we expect the first quarter global <unk> utilization rate to be in the mid nineties.
In refining we expect the first quarter worldwide crude utilization rate to be in the mid eighties and turnaround expenses to be between 240 and $270 million.
We anticipate first quarter corporate and other costs to come in between 230 and $260 million.
For 2023 refining turnaround expenses are expected to be between 550 and $600 million.
We expect corporate and other costs to be in the range of 1% to $1 1 billion for the year.
We anticipate full year D&A of about $2 billion.
And finally, we expect the effective income tax rate to be between 20% and 25%.
Now we will open the line for questions.
Thank you.
We'll now begin the question and answer session.
As we open the call for questions.
All participants please limit yourself to one question and a follow up if you have a question. Please press Star then one on your Touchtone phone.
If you wish to be removed from the queue.
Followed by <unk>.
You're using a speakerphone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question. Please press Star then one on your Touchtone touch time fine now.
Okay.
Our first question today comes from Neil Mehta of Goldman Sachs. Please go ahead, Neil Your line is open.
Yes, good morning, good afternoon guys.
I guess the first question I have is around refining.
And if.
If I try to isolate what the market is reacting to you today I think it's the capture rate.
Surprise folks relative to a lot of your large cap peers and so maybe you can simplify it for us.
Talk about what Youre seeing in the system is there anything that you feel it's more temporary versus structural and give us confidence that our capture rate is going to continue to improve as we think about that.
Progression through the year.
Hey, rich share.
Yes.
That's a really good question.
When I look at that capture rate for the fourth quarter.
Three simple things.
Standout to me are.
Really the impact of our turnaround activity. That's the first one it was centric in the Gulf Coast.
And the Pacific Northwest and the Pacific Northwest was an excellent tire refinery shutdown that shoulder the third and fourth quarter of the year.
So I look at those as well.
Temporaries. There was also some product differentials that played out across our system.
The Atlantic.
<unk> between the European Distillate price in the New York Harbor price is reflective in that market capture there was a significant reduction in.
Diesel price there in Europe as well as <unk>.
Turnaround effect in the Pacific Northwest.
And also northern California product prices were dislocated from the Los Angeles marker as well.
The third third and influence in the.
Fourth quarter capture was really centric around the Keystone shutdown of the pipeline as well as the winter storm events in there so.
That's when I look at those those three effects there as the majority of the impact associated with the capture rate in the fourth quarter.
I might just add the turnaround activity occurred in October and early November which was the highest margin part of the quarter.
Okay.
Global.
The follow up to that is just as we think about Q1.
How some of these dynamics potentially reverse, especially given its going to be a pretty heavy turnaround.
It looks like with the <unk>.
Utilization guidance in the mid eighties, or do we really see that in <unk>.
Realizing potentially more.
Q2 balance of the year.
No.
Well I'll start with the turnaround guidance part of that and then kick it over to Brian you can talk about the market outlook, a little bit there for the first quarter. So our first quarter turnarounds you can tell.
By our guidance there that Kevin provided.
Our annual guidance is in the $5 50 to 600 range.
And our first quarter is a majority of that spend so we are.
Heavy centric first quarter on our on our turnarounds and those are primarily related and just a couple of sites. So so I don't.
I see that as.
Really impactful to our Atlantic.
Coastal operations there.
The biggest part of that impact on the turnarounds. There is also some Gulf coast turnaround activity as well that is less impactful. So so although there is a heavy spend it centric really in one primary facility.
And I would add.
In talking about European too, New York Distillate prices in Pacific Northwest and base prices to La <unk>. Both normalize we saw New York is over Europe , that's unusual Europe imported a lot of Russian distillate.
Prior to the price cap next week in New York because of the winter storm didn't get all the barrels that it needs. So that the reason why New York is over Europe now as it's a prompt issue and if you look at colonial pipeline. It's running at full rates now New York will get fed back in Europe will be over.
Or under or over New York, rather going forward and in Pacific Northwest versus NBA versus law that was that's a temporary issue as well pad refineries ran really well in November December which saw inventories really build across the markets and given the oversupply that markets needed to.
Price to incentivize exports and the infrastructure exports as in the Bay in Pacific Northwest, So Thats, where the exports came from.
Also we need to aggregate barrels for the exports. So some of the barrels that normally went too late and go to <unk> at that time, so that that increased la price decrease the Pacific Northwest and Bay price, but going forward with heavy specific northwest turnarounds and work in the Bay, we would expect inventories to moderate as we get back to seasonal.
<unk> spreads between the north and south to come back into normal areas.
Alright, Thanks, guys I appreciate it.
Thanks Neil.
Our next question today comes from Doug Leggate with Bank of America. Please go ahead Doug.
Thank you good morning, everyone I Wonder if you wouldn't mind I'm going to try and hi, good morning, I would like to build on Neal's question, If I may ask it little differently.
Is there any way Kevin that you can quantify the lost opportunity cost in the fourth quarter to help us kind of <unk>.
<unk> sell like capture rate questions all possible.
Yes, Doug.
We've.
We have historically not done that.
In terms of what we have.
What we've put out there into the market, we've talked about that the kind of areas, where that has shown up and rich.
Walk you through that but it is a in any given period there is invariably some element of.
L Po component.
And certainly what we saw in the fourth quarter was quite a bit higher than what I would consider I mean, ideally then when any of it but.
There is usually some degree of that.
Significantly higher than that so.
Not something we've historically given out.
But I guess.
Give you some.
Some help its probably the number is probably in the order of 1% to $200 million of <unk> in the quarter.
Okay.
I guess, Mike Thank you for that.
That's a tricky one sponsor so my.
My follow up is really more of a kind of an outlook question Steve.
Speaks to your comments about northeast I realize everyone's probably Cushing.
Product up to the northeast during the winter.
Because of all the noise around heating oil margins.
<unk> was that that was probably the first normal winter.
Philadelphia Energy solutions 2019, it went on firewall hasnt come back since <unk>.
So now if you think about what is the northeast look like.
A normal summer driving season.
Philadelphia Energy solutions and I'm, just curious if you have any given that any thought given that you did push product up to the northeast how youre thinking about what the gasoline market could look like in the summertime in the U S.
Yes, I think it's.
It's always an important market for gasoline typically up to 800000 barrels a day, we do expect that to continue.
Being an important market the imports may come from different locations in the future, but we would expect that we still need to import gasoline.
At about that level.
Yes, I guess, what I'm asking is do you see the risk of a nice size spiking gasoline the way we saw a nice spike in heating oil.
In the northeast.
I would say any market that is short <unk> resupply and the re supply comes from some distance away has that opportunity for volatility same thing happens on the West Coast West Coast. If we supply. It is further away for weeks away and then.
And the pad, one, but anytime we supply isn't close you'll have that opportunity of volatility.
I think the other thing I would add as you look at gasoline diesel and jet inventories, they're all below five year ranges.
It looks to us as though we've got it on ABA.
The average industry refining turnaround period planned for the spring.
And look it looks tight from our vantage point.
Kind of what we're thinking thanks, so much guys I know, it's a tricky one to answer I appreciate your perspective.
Thank you Doug.
Okay.
Our next question today comes from Roger read with Wells Fargo. Please go ahead Roger.
Hey, good morning, everybody.
I guess I'll continue with the theme of hammering on capture and expectations of capture.
Just curious.
Why this quarter the change the.
The index that you're using and then.
I know you've explained the gasoline and the diesel aspects that configuration I guess makes sense.
Maybe went on with secondary products and is that something that we might see.
Carry through to 'twenty three here.
So Roger when you say index, you're referring to the market crack the RIN adjusted market crack change.
Yes, youre market indicator, yes.
Yes, it really it's we're setting up for we have talked about this for a while and we're setting up for 2023 and the cleanest way to make that change has to do it in the fourth quarter and that enables us to restate.
Our recast in our supplemental information the prior 2021 and 2022 all on that same basis and then the first results. We report for 2023, we'll be on that same basis and so it's just the cleanest timing to make a change like that it's something we've considered for a little while but we felt it was the appropriate thing to do.
And then the secondary products I'll kick that off and then turn it over to Brian maybe for some outlook on it but third quarter to fourth quarter.
In refining we see all of those relatively flat actually theres, some puts and takes associated with that the asphalt and fuel oils drop off in price and volume, but butane picks up and offsets a lot of that so that the overall impact of our secondary products was relatively flat quarter over quarter.
I'd say, we continue to think that high sulfur fuel oil will remain weak just with all the Russian cargoes coming on the market in both high sulfur fuel oil and heavier crude cargoes coming out in the market. So I think we continue to see that in the market.
Okay.
Okay.
Our next question comes from John Royall with J P. Morgan. Please go ahead John .
Hey, guys. Good morning, Thanks for taking my question so.
Just hoping for a little more color on the DCP synergy.
You called out in your press release $300 million.
I think you've probably been pretty anxious to think about those numbers.
Any bucket you can speak to an April one timing.
<unk>.
Yes, I think John the the $300 million really falls into two categories operating synergies that we're actively pursuing upfronts now even before the close of the <unk>.
<unk> of the publicly held units and then there is.
I think even more prolific commercial synergies that we can capture.
As we combine as we roll the business into our own Tim you can provide a little more color there yes at this point.
Mark's correct look we're looking at this is going to probably over a timeframe. We came out with $300 million I think it's probably about a third with regard to costs you get two thirds on the commercial side. We're anticipating this is going to take us around two years to fully capture this.
It's like anything else once you get into it further and deeper we're hoping there is more there and initial indications are that they are likely or no.
And hopefully I can update you.
Other call later.
To validate or confirm that but we do see the commercial side is probably driving that it just makes sense. When you look in the integrated value chain you put these two entities together, we in effect now have gas processing.
And the key regions, we now have fractionation capacity at Conway Mount Belvieu also at Sweeny.
And long haul pipelines coming in and out of the DJ and coming out of the Permian and when you look at those there are tremendous opportunities to make sure that barrel gets to the right place and in our world. The right place means where it creates the most value.
So as we dig further on that like I said, we're looking forward to giving you more details going forward.
Yes.
Thank you Paul and then I'm, just looking at the chemicals market.
Do you expect that we've seen the bottom there.
China reopening impact the future of that market.
Then, let's just say hypothetically the market doesn't improve from here is there any risk of <unk>.
<unk> ability to self fund II.
Two growth projects.
Yes, I think John that you've seen at the at the ethane and the full polyethylene value chain margins kind of hit bottom.
Those those producers that were really squeezed pulled back on production. So you can you can see that clearly.
We've hit a point, where there is great discipline and nobody's going to operate while they're bleeding cash and we've kind of passed through that period.
Margins have modestly ticked up and you'll continue to see as.
The.
Capacity, that's coming on online in North America gets digested.
We'll be at that bottom for some time, but then start to work our way out because demand globally continues to increase in China is certainly an upside and there are number of signs that China is coming back.
Not going to call that they're back I think it could come in fits and starts but certainly the.
He is coming out of China as productive directionally.
Our next question comes from Ryan Todd with Piper Sandler. Please go ahead Brian .
Okay. Thanks.
Maybe starting out with one on shareholder returns the buyback was strong this quarter.
As we think about 2023 going forward you've provided guidance at the recent analyst day and it would suggest something on the order of.
500, $700 million a quarter buyback in a mid cycle environment, we're clearly above the mid cycle environment.
At the high end of the guided pace this quarter.
How should we think about the use of that excess cash.
Should the backdrop remains very constructive and how aggressive might you look to be on shareholder return universities building more cash on the balance sheet.
Yes, Brian it's Kevin.
So youre right we did.
The high end of the range in the fourth quarter and I think it's reasonable to assume that we would continue somewhere around about that level.
So we're sitting on a.
Decent healthy cash.
We ended the year just over $6 billion.
<unk>.
Just to give some context to that.
The overall balance sheet condition relative to where we were before the pandemic.
Pandemic, we added $4 billion.
Ignoring the impact of BCP debt consolidation here, we added $4 billion.
Although the pandemic, we subsequently paid off three and a half of that but we've improved our cash position by $4 $5 billion. Since the end of 2019. So net net we've enhanced the balance sheet by $4 billion.
From where we were going into the into the pandemic and so that gives us a lot of flexibility, but we've also got the DCP rollout to take care of which we expect to be sometime in the second quarter. So thats, a $3 8 billion dollar transaction and while we won't use all cash for that.
We wanted to make sure that we retain plenty of flexibility as we go into.
And to that and close on that rollout, but I do think what it all speaks to if we continue to see these above mid cycle.
Echols conditions, we will have some good flexibility to I would tell you really do a bit of all of it we want to.
Pay off some incremental debt, especially as we think about the impact of the DCP roll up but we should also be positioned to look at that.
Cash returns to shareholders both in the context of the dividend, we would expect to increase the dividend. This year, we remain committed to a secure competitive growing dividend and we will look at the buyback pace.
We're clearly at a very healthy level today.
But there is potential flexibility on that and so it's something that we will prioritize.
Keep very focused on.
But in the near term, we're probably pretty comfortable with where we are given that we've got the DCP transaction out there ahead of us.
Thanks, Kevin and then.
Maybe shifting gears somewhere else I wonder if you could.
Discuss a little bit about what youre seeing and what you expect going forward in European refining.
There are some big moving pieces in recent months than natural gas spread between Europe , and the U S declined significantly and they've got an upcoming <unk>.
Russia product band going into effect.
What are you seeing in the market right now and any thoughts on expectations in a couple of months.
I think I think with natural gas.
Coming off some.
<unk>.
Maybe rich can talk about the natural gas issues in the plant.
So natural gas for us.
It has some impact on our operations.
Primarily for the purchase of electricity, but so we see that really.
Not as a disadvantage to our peers either so the competitive nature of refinery well, we will continue to be there with some cost impacts associated with higher natural gas.
And Thats the numbers, we've put out in the past are still.
In play today as well.
The challenge for for that will be.
Impact of the Russian supply scenarios and then the resupply.
Our debt.
That will set that really the minimum price for those marketplaces, and we will see how that shapes up here as the market moves forward.
I'd like to circle back I Didnt I don't think Ive covered one of the questions that John asked around chems and Thats. The the risk the market risk of CP Chem generating enough cash to self fund these two projects.
Both of those projects so they own 30% of <unk> project, 51% of the U S. Based project, both will be off balance sheet project finance mitigating their cash outflows substantially mitigating our exposure there so.
You can never predict that.
There is no risk, but I think it's it's highly mitigated because of the debt structuring theyre going to undertake to support those projects.
The next question comes from Paul Cheng with Scotiabank.
Please go ahead your line is open.
Hi, guys good morning.
Lawn and garden.
On label, maybe April Calvin cannot go back into the <unk> seen with the two.
Thank you Craig.
It's going to be under construction.
How's that.
CPC distributions at <unk> for the next several years.
I assume should we assume that yes.
Yes, it's going to be quite minimum.
And that bill.
They are only financing and also some cash.
Thank you Kevin.
I've been spending ahead of that.
Thank you Pat.
The session is that they will.
It was more at that capacity and continue to pay off.
If you look again, if you look at those projects and if you look at the assumptions on project financing I think we had talked about earlier, maybe even at Investor day that our our exposure to foregone dividends is really probably about 10% of the aggregate capital spend if you look at those two projects.
<unk> combined and Thats spread out.
Over four years so it's.
It's not a major impact on our ability to generate cash overall, Kevin you want to.
Yes.
Yes, so just to expand on that a little bit.
Mark talks about off balance sheet financing. He is specifically referring to the project level financing. So 19 of those projects at the <unk>.
Rustler fund petrochemical project level and at the Golden Triangle Golden Triangle polymers project level, So thats not on <unk> balance sheet, and we're not anticipating that CP chem, we'd have to go to its own balance sheet to fund this.
Equity contributions into those joint ventures to fund.
Those projects and in fact, we'll still be able to do that and continue making distributions to the owners, obviously theres a dependency on what the overall market environment looks like.
But based on what we're seeing we still expect to be receiving distributions from from CP Chem through this period clearly there is an impact to any anything any discretionary spend by CP Chem.
Into a capital investment as cash is not available for distribution, but it's all pretty manageable within the overall expectation of where their cash flows will be.
Okay.
Any rough estimate.
You would expect sequencing more than satisfy payout.
100% or 50% or 75% or any.
And the estimate that you have.
Yes, well you would expect it to be less than 100% because they do have the.
The capital.
Projects underway. So the two big ones that we've been talking about and then those.
A slate of smaller projects several of which will actually finish.
This year, so it's going to be less than 100%, we've never given specific guidance on what we expect the distributions to be.
And our history has actually been pretty strong with regard to cash coming back from CP Chem.
Our next question comes from Jason <unk> with Cowen. Please go ahead, Jason Your line is open.
Hey, good afternoon.
I wanted to first ask on M&A in midstream and I know when you rolled out <unk> part of the rationale was.
We have more flexibility across the whole portfolio and you've obviously brought in DCP. So I wonder on the other side.
Is there.
Any desire to re optimize.
Some of the midstream assets that you have in the portfolio that may not be core at this point.
And then my second question is just on the marketing business, which is <unk>.
Continue to perform pretty well was wondering if there were any dynamics in your markets.
<unk> continued to support margins.
Is there an outlook that margins can maybe be above mid cycle in that business for 2023.
Yes, Jason This is Tim Roberts, our handle that front, and then hand it off to Brian .
I think it's important you're right.
Did talk about simplifying our overall structure and <unk> in the process of completing DCP and we do think we'll be in a much cleaner position with regard to ownership levels and just having a cleaner slate to work from.
We do recognize as well that.
This market's evolving there is some consolidation going on in the industry producers of consolidating youll see some of the midstream infrastructure guys doing that too so we're going to pay attention to that and what's happening out there and if there's opportunities.
I think it's probably going to be real clear is we've got a task at hand, our task at hand, right now to get DCP integrated and integrated well, we want to be successful at it it's going to take US we believe somewhere towards the end of the year. It may leak into 2024, but our expectation is to get it done by the end of this year and deliver the synergies.
These are all multiple on those and that's pretty impactful with with regard to value of the company. So we want to do that but do rest assure not that we're out on any spending spree. We always have an eye open what's going on out there and what can create value for our shareholders and if there is something that's really compelling we will talk about it and see if it makes sense, but right now.
To get this thing integrated successfully.
On the marketing business I would say that we will continue to perform well, perhaps not as well as 2022 that was a record year.
With increased volatility in a market that generally drives.
Better business. We also had a joint venture retail record year last year and will continue to grow our retail joint venture in the U S and that continues to perform.
Also there are issues in the European market that have helped us even things like expanding our credit card business has been helpful to growing our business. So I think we'll continue to grow the business you will see the earnings strong, but perhaps not quite as strong as 2022.
Thanks for the answers.
The next question comes from Matthew Blair of Tudor Pickering Holt. Please go ahead.
Hey, good morning, Thanks for taking my question I wanted to ask about the WCS discounts that are pretty favorable.
Could you talk about whats driving that and will you be able to capitalize on these wide WCS discounts in Q1 in the Central corridor and then finally.
How do you think the trans mountain expansion might affect these discounts.
I will start with WCS differentials there were a number of things that were kind of pushing and pulling on supply and demand.
Inventories north of the board in Canada have been very high and you had Keystone off the market for 22 days, which was 10 million barrels off the market.
North of the border you had about 4 million barrels of production off the market in December and another half a million barrels off the market in January .
And then you have the winter storm, where refiners shutdown. There was 27 million barrels of crude backed out not all of that's heavy crude but refiners werent pulling as much of the WCS. So all of that if you kind of add all that up.
WCS steps worse were weaker than they have been.
<unk> provided an update in early January that they said that there are 75% of the pipe is now in the ground. They haven't changed their in service dates for fourth quarter of this year, our internal expectations are that startup will slip into 2024 and full rates won't be achieved immediately we don't think you need another pipeline.
To exit the product that's in that's in Canada. So we don't see it.
Doing much.
First call for those barrels will always be pad, two and pad three.
They go to China or anywhere overseas, so they'll have to price to get into those markets.
Okay.
Great. Thank you.
Thanks, Matt.
Yes.
Next we have a follow up question from Paul Cheng from Sascha Bank. Please go ahead.
Hey, guys, just a real quick because of the keys.
Keystone.
Can you share that how much is that WCS that knew Ronnie.
The fourth quarter and then what you expect.
Can you go into one of the first quarter and also I believe.
At the time of lung actually.
It had been running at.
The pathway I think at one point above 60%, 65% and where we end up with me.
Thank you.
So we generally don't up for commercial reasons talk about what we run at the refinery to how much we run but of course Wood River had some hiccups in Q4, we ran less WCS in our system that normally we are the largest importer of Canadian crude.
To the U S. We expect wood.
If it comes back up we'll run more rich maybe you can talk about where we are in wood River.
So wood river.
Yes, there was there was an unplanned event incident that occurred at Wood River.
Let me start by saying our thoughts.
<unk> for the affected employees contractors and their families that were associated with that.
But.
There was an incident there we are working diligently right now to increase the utilization that was affected by this and we expect that utilization to continue to increase through the first quarter.
And returned to normal operations in early second quarter.
As our current outlook on that Paul.
Okay can you tell us about what's occurring one way up with lethal.
We normally give guidance, but by plant.
Unfortunately, Paul we don't give that type of guidance by plant.
To what or.
But our current run rates are.
Okay.
We have now reached the end of today's call I will now turn the call back over to Jeff.
Thanks, Emily Thank all of you for your interest in Phillips 66, if you have questions. After today's call. Please call me or Owen Simpson.
For your time.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
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