Q1 2024 Phillips 66 Earnings Call

Lydia: Welcome to the Phillips 66 earnings conference call for the first quarter of 2024. My name is Lydia, and I'll 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'll now turn the call over to Jeff Dietert, Vice President, Investor Relations. Jeff, you may begin.

Welcome to the first quarter 2020 for Phillips 66 earnings Conference call My.

Lydia: My name is Lydia and there'll be a great deal for today's call.

Lydia: At this time all participants are in a listen only mode.

Lydia: Later, we will conduct a question and answer session. Please.

Lydia: Please note that this conference is being recorded.

Lydia: I'll now turn the call over to Jeff <unk>, Vice President Investor Relations you.

Jeff: You may begin.

Jeff Dietert: Welcome to Phillips 66's First Quarter Earnings Conference Call. Participants on today's call will include Mark Lashier, President and CEO, Kevin Mitchell, CFO, Tim Roberts, Midstream and Chemicals, Rich Harbison, Refining, and Brian Mandell, Marketing and Commercial. Today's presentation materials can be found in the Investor Relations section of the Phillips 66 website, along with supplemental financial and operating information. Slide 2 contains our Safe Harbor Statement. We will be making forward-looking statements during today's call, and 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 file. With that, I'll turn the call over to Mark. Thanks, Jeff.

Jeff: Welcome to Phillips 66 first earnings first quarter earnings Conference call participants on today's call will include Mark Glazer, President and CEO.

Jeff: Kevin Mitchell CFO, Tim Roberts, midstream and chemicals, rich Harbison refining and Brian Mendell marketing and commercial today's presentation materials can be found on the Investor Relations section of the Phillips 66 website, along with supplemental financial and operating information.

Jeff: <unk>.

Mark E. Lashier: 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 with that I'll turn the call over to Mark.

Mark E. Lashier: Thanks, Jeff.

Mark E. Lashier: Welcome, everyone, to our first quarter earnings call. We continue to progress our strategic priorities, and we return significant cash to our shareholders. While our crude utilization rates were strong during the quarter, our results were affected by maintenance that limited our ability to make higher-value products. We were also impacted by the renewable fuels conversion at Rodeo as well as the effect of rising commodity prices on our inventory hedge position.

Mark E. Lashier: Welcome everyone to our first quarter earnings call.

Mark E. Lashier: We continued to progress our strategic priorities and we returned significant cash to our shareholders.

Mark E. Lashier: While our crude utilization rates were strong during the quarter. Our results were affected by maintenance that limited our ability to make higher value products.

Mark E. Lashier: We were also impacted by the renewable fuels conversion net rodeo as well as the effect of rising commodity prices on our inventory hedge positions.

Mark E. Lashier: Currently, our assets are running near historical highs, and we are ready to meet peak summer demand. Before we provide an update on our strategic priority, we want to recognize our midstream, refining, and chemicals business, which have all received honors for their exemplary safety performance in 2023. Our midstream gathering and processing business received the top 2023 GPA safety award in the large operator category. In refining, the Rodeo and Sweeney facilities both received the AFPM Distinguished Safety Award, which is the highest annual safety award in the industry.

Mark E. Lashier: Currently our assets are running their historical highs and we are ready to meet peak summer demand.

Speaker Change: Before we provide an update on our strategic priorities, we want to recognize our midstream refining and chemicals businesses, which have all received honors for their exemplary safety performance in 2023.

Speaker Change: Our midstream gathering and processing business received the top 2023, GPA Safety award and the large operator division.

In refining the rodeo and sweeny facilities, both received the F. P. M Distinguished Safety Award, which is the highest annual safety award in the industry.

Mark E. Lashier: This was Sweeney Refinery's third straight year to receive the honor. The Ponca City Refinery earned the Elite Platinum Award, and the Lake Charles Refinery secured the Elite Gold Award, and Chemicals, CPChem received two AFPM Safety Awards. I'm very proud of our employees and the employees of CPCAM for their commitment to safety. I would like to congratulate them on a job well done.

Speaker Change: This was sweeny refineries third straight year to receive the honor.

Speaker Change: The Ponca City refinery earned the elite Platinum award and the Lake Charles Refinery secured Daily Gold Award and chemicals CP Chem received two <unk> P. M Safety Awards.

Speaker Change: I'm very proud of our employees and the employees of CP Chem for their commitment to safety.

Speaker Change: I would like to congratulate them on a job well done.

Mark E. Lashier: Today, beginning on slide 4, we'll highlight the progress we've made on our strategic priorities. Next, we'll discuss our first quarter financial results, and then we look forward to your questions. We previously announced plans to monetize assets that no longer meet our long-term objectives, and we set a target to generate over $3 billion in proceeds. The expected proceeds will support our strategic priorities, including returns to shareholders. This quarter, we launched a process to divest our retail marketing business in Germany and Austria and communicated the plans to employees.

Speaker Change: Today, beginning on slide four we will highlight the progress we've made on our strategic priorities.

Speaker Change: Next we'll discuss our first quarter financial results then we look forward to your questions.

Speaker Change: We previously announced plans to monetize assets that no longer meet our long term objectives, and we set a target to generate over $3 billion in proceeds.

Speaker Change: The expected proceeds will support our strategic priorities, including returns to shareholders.

Speaker Change: This quarter, we launched a process to divest our retail marketing business in Germany, and Austria and communicated our plans to employees.

Mark E. Lashier: Completion of the dispositions is subject to satisfactory market conditions and customary approval. We have distributed almost $10 billion through share repurchases and dividends since July of 2022. Over the remaining three quarters of 2024, we expect to achieve our $13 to $15 billion target. Sherry Purchases will continue to be an important component of our capital allocation.

Speaker Change: Completion of the dispositions is subject to satisfactory market conditions and customary approvals.

Speaker Change: We have distributed almost $10 billion through share repurchases and dividends since July of 2022.

Speaker Change: Over the remaining three quarters of 2024, we expect to achieve our 13% to $15 billion target.

Share repurchases will continue to be an important component of our capital allocation.

Mark E. Lashier: We're committed to returning over 50% of our operating cash flows to shareholders. Recently, we announced a 10% increase in our quarterly dividend, contributing to a 16% compound annual growth rate since 2012. The dividend increase reflects the confidence we have in our growing mid-cycle cash flow generation and our disciplined approach to capital allocation, including a secure, competitive, and growing dividend.

We're committed to return over 50% of our operating cash flows to shareholders.

Speaker Change: Recently, we announced a 10% increase in our quarterly dividend contributing to a 16% compound annual growth rate since 2012.

Speaker Change: The dividend increase reflects the confidence we have in our growing mid cycle cash flow generation and our disciplined approach to capital allocation, including a secure competitive and growing dividend.

Mark E. Lashier: In refining, we continue to run at crude utilization rates above the industry average for the fifth consecutive quarter. We remain focused on improving performance, increasing market capture, and reducing costs to enhance our earnings per barrel. We have achieved over $560 million, or more than $0.80 per barrel, in run rate cost reductions from business transformation. We expect to achieve our full $1 per barrel run rate target by the end of the year.

Speaker Change: In refining we continued to run at crude utilization rates above the industry average for the fifth consecutive quarter we remain.

Speaker Change: Focused on improving performance, increasing market capture and reducing costs to enhance our earnings per barrel.

Speaker Change: We have achieved over $560 million or more than 80 per barrel in run rate cost reductions from business transformation.

Speaker Change: We expect to achieve our full $1 per barrel run rate target by the end of the year.

Mark E. Lashier: In midstream, our NGO wellhead to market business is focused on capturing operating and commercial synergies of over $400 million by year end 2024. Midstream's estimated 2024 mid-cycle adjusted EBITDA is $3.6 billion, providing stable cash generation that covers the company's top capital priority, Funding Sustaining Capital, and the dividend.

Speaker Change: In midstream, our NGL wellhead to market business is focused on capturing operating and commercial synergies of over $400 million buy.

Speaker Change: By year end 2024.

Speaker Change: Midstream is estimated 2024 mid cycle adjusted EBITDA is $3 6 billion.

Speaker Change: Providing stable cash generation that covers covers the company's top capital priorities.

Speaker Change: Funding sustaining capital and the dividend.

Mark E. Lashier: During the first quarter, we achieved a major milestone with the start-up of our Rodeo Renewable Energy. Slide five summarizes our journey to transform the San Francisco refinery into one of the world's largest renewable fuels. The facility benefits as a superior location to secure renewable feedstocks and market renewable fuels. The project leverages existing assets and is expected to generate strong returns. We began producing renewable diesel from our Unit 250 hydrotreater in April of 2021.

Speaker Change: During the first quarter, we achieved a major milestone with the startup of our rodeo renewable energy complex.

Speaker Change: Slide five summarizes our journey to transform the San Francisco refinery into one of the world's largest renewable fuels facilities.

Speaker Change: The facility benefits as a superior location to secure renewable feedstocks and market renewable fuels.

Speaker Change: The project Leverages existing assets and is expected to generate strong returns.

Speaker Change: We began producing renewable diesel from our unit $2 50 Hydro treater in April of 2021.

Mark E. Lashier: We have gained valuable operational experience and market knowledge that positions us for success in our expanding renewable fuels business. Unit 250 continues to exceed expectations and has increased production to approximately 10,000 barrels per day. Our Rodeo Renewable Energy Complex is producing 30,000 barrels of renewable fuels daily. We're on track to increase production capability and full rates of approximately 50,000 barrels of fuel per day by the end of the second quarter. Once complete, we'll have the ability to produce renewable jet fuel, which is a key component of sustainable aviation. We're proud of the team's strong project execution and appreciate their commitment to operating excellence in achieving this significant milestone. The Rodeo Renewable Energy Complex positions Phillips 66 as a world leader in renewable fuels.

Speaker Change: We have gained valuable operational experience and market knowledge that positions us for success and are expanding renewable fuels business.

Speaker Change: Unit $2 50 continues to exceed expectations and is increased production to approximately 10000 barrels per day.

Speaker Change: Our rodeo renewable energy complex is producing 30000 barrels per day of renewable fuels. We're on track to increase production capability to full rates of approximately 50000 barrels per day by the end of the second quarter.

Once complete we will have the ability to produce renewable jet a key component of sustainable aviation fuel.

Speaker Change: We're proud of the team's strong project execution and appreciate their commitment to operating excellence and achieving significant milestones.

Speaker Change: The rodeo renewable energy complex positions Phillips 66, as a world leader in renewable fuels.

Mark E. Lashier: Slide six provides an update on business transformation progress. Our run rate savings were $1.24 billion at the end of the first quarter, comprised of $940 million of cost reduction and $300 million of sustaining capital efficiency. Through the first quarter, we've achieved $750 million in annualized cost reductions. The majority of these cost reductions relate to refining operating and SG&A expenses, as well as benefits to equity earnings and gross margin. We're on track to realize $1 billion of cost reductions in 2024 to sustain higher cash generation.

Speaker Change: Slide six provides an update on business transformation progress.

Speaker Change: Our run rate savings were $1 to $4 billion at the end of the first quarter comprised of $940 million of cost reductions and $300 million of sustaining capital efficiencies.

Speaker Change: Through the first quarter, we've achieved $750 million in annualized cost reductions.

Speaker Change: The majority of these cost reductions relate to refining operating and SG&A expenses as well as benefits to equity earnings and gross margin.

Speaker Change: We are on track to realize $1 billion of cost reductions in 2024 to sustained higher cash generation.

Mark E. Lashier: Before I turn the call over to Kevin to review the financial results, I want to stress that the market fundamentals are good. Our assets are running well, and we have a clear path to achieving our strategic priorities and growing Cash Flow. Thank you, Mark.

Speaker Change: Before I turn the call over to Kevin to review the financial results I want to stress that the market fundamentals are good.

Speaker Change: Assets are running well and we have a clear path to achieving our strategic priorities and growing cash flows.

Kevin J. Mitchell: Thank you Mark.

Kevin J. Mitchell: Slide 7 summarizes our first quarter results. Adjusted earnings were $822 million, or $1.90 per share. Operating cash flow excluding working capital was $1.2 billion. We received distributions from equity affiliates of $348 million.

Kevin J. Mitchell: Slide seven summarizes our first quarter results.

Kevin J. Mitchell: Adjusted earnings were $822 million.

Kevin J. Mitchell: A $1 90 per share.

Kevin J. Mitchell: Operating cash flow, excluding working capital was $1 2 billion.

We received distributions from equity affiliates of $348 million.

Kevin J. Mitchell: Capital spending for the quarter was $628 million, including $171 million for a midstream joint venture debt repayment. We distributed $1.6 billion to shareholders through $1.2 billion of share repurchases and $448 million of dividends. The net debt to capital ratio was 38%. Slide 8 highlights the change in results by segment from the 4th quarter to the 1st quarter.

Kevin J. Mitchell: Capital spending for the quarter was $628 million, including $171 million for a midstream joint venture debt repayment.

Kevin J. Mitchell: We distributed $1 6 billion to shareholders through $1 2 billion of share repurchases and $448 million of dividends.

Kevin J. Mitchell: Net debt to capital ratio was 38%.

Kevin J. Mitchell: Slide eight highlights the change in results by segment from the fourth quarter to the first quarter.

Kevin J. Mitchell: During the period, Adjusted Earnings decreased $540 million, mostly due to lower results in refining, midstream, and marketing and specialties, partially offset by improved results in chemicals. In midstream, first quarter adjusted pre-tax income of $613 million was down $141 million from the prior quarter, reflecting lower results in transportation and NGL. Transportation results were down mainly due to a decrease in throughput and efficiency revenues, partially offset by seasonally lower maintenance costs. The NGL business decreased primarily due to a decline in margins, as well as lower volumes reflecting impacts from winter storms.

Kevin J. Mitchell: During the period adjusted earnings decreased $540 million, mostly due to lower results in refining midstream and marketing and specialties.

Kevin J. Mitchell: Partially offset by improved results in chemicals.

Kevin J. Mitchell: And midstream first quarter adjusted pretax income of $613 million was down $141 million from the prior quarter, reflecting lower results in transportation and NGL.

Kevin J. Mitchell: Transportation results were down mainly due to a decrease in throughput and deficiency revenues, partially offset by seasonally lower maintenance costs.

Kevin J. Mitchell: The NGL business decreased primarily due to a decline in margins as well as lower volumes, reflecting impacts from winter storms.

Kevin J. Mitchell: Chemicals adjusted pre-tax income increased $99 million to $205 million in the first quarter. This increase was mostly due to higher polyethylene margins driven by improved sales prices and a decline in feedstock costs, as well as lower turnaround costs. Global ONUP utilization was 96%.

Kevin J. Mitchell: Chemicals, adjusted pre tax income increased $99 million to $205 million in the first quarter.

Kevin J. Mitchell: This increase was mostly due to higher polyethylene margins driven by improved sales prices and the decline in feedstock costs as well as lower turnaround costs.

Kevin J. Mitchell: <unk> utilization was 96%.

Kevin J. Mitchell: Refining's first quarter adjusted pre-tax income was $228 million, down $569 million from the fourth quarter. The decrease was primarily due to lower realized margins. Our commercial results were less favorable than the previous quarter, in part due to inventory hedging impacts in a rising price environment and less advantageous pipeline ARBs. In addition, realized margins decreased due to lower Gulf Coast clean product realizations. Our refining results and market capture of 69% were also negatively impacted by maintenance activities on downstream conversion units, as well as the new renewable fuels conversion at Rodeo. Marketing and Specialties adjusted first quarter pre-tax income to $345 million, a decrease of $87 million from the previous quarter. The decrease was mainly due to lower domestic marketing and lubricant margins.

Kevin J. Mitchell: Refining first quarter adjusted pre tax income was $228 million.

Kevin J. Mitchell: Down $569 million from the fourth quarter.

Kevin J. Mitchell: The decrease was primarily due to lower realized margins.

Kevin J. Mitchell: Our commercial results were less favorable than the previous quarter.

Kevin J. Mitchell: Due to inventory hedging impacts and a rising price environment and less advantageous pipeline arps.

Kevin J. Mitchell: In addition realized margins decreased due to lower Gulf coast clean product realizations.

Kevin J. Mitchell: Our refining results and market capture of 69% were also negatively impacted by maintenance activities on downstream conversion units as well as the new renewable fuels conversion at rodeo.

Kevin J. Mitchell: Marketing and specialties adjusted first quarter pretax income was $345 million, a decrease of $87 million from the previous quarter.

Kevin J. Mitchell: The decrease was mainly due to lower domestic marketing and lubricant margins.

Kevin J. Mitchell: Our adjusted effective tax rate was 21%. Slide 9 shows the change in cash during the first quarter. We started the quarter with a $3.3 billion cash balance. Cash from Operations, excluding working capital, was $1.2 billion. It had a working capital use of $1.4 billion, mainly reflecting a $2.6 billion increase in inventory, partially offset by benefits and accounts payable and receivables, which included the impact of rising commodity prices. Net debt issuances were $802 million. We returned $1.6 billion to shareholders through share repurchases and dividends. Additionally, we funded $628 million of capital expenditures. Our ending cash balance was $1.6 billion. This concludes my review of the financial and operating results.

Kevin J. Mitchell: Our adjusted effective tax adjusted effective tax rate was 21%.

Slide nine shows the change in cash during the first quarter.

Kevin J. Mitchell: We started the quarter with a $3 3 billion cash balance.

Kevin J. Mitchell: Cash from operations, excluding working capital was $1 2 billion.

Kevin J. Mitchell: There was a working capital use of $1 4 billion mainly.

Kevin J. Mitchell: Mainly reflecting a $2 $6 billion increase in inventory, partially offset by benefits in accounts payables and receivables, which included the impact of rising commodity prices.

Kevin J. Mitchell: Net debt issuances were $802 million.

Kevin J. Mitchell: We returned $1 6 billion to shareholders through share repurchases and dividends.

Kevin J. Mitchell: Additionally, we funded $628 million of capital spending.

Kevin J. Mitchell: Our ending cash balance was $1 6 billion.

Speaker Change: This concludes my review of the financial and operating results next I'll cover a few outlook items for the second quarter.

Lydia: Next, I'll cover a few outlook items for the second quarter. For chemicals, we expect the second quarter global O&P utilization rate to be in the mid-90s. In refining, we expect the second quarter worldwide crude utilization rate to be in the mid-90s. Turnaround expense is expected to be between $100 and $120 million, excluding Rodeo. We anticipate second quarter corporate and other costs to come in between $330 and $350 million, reflecting higher net interest expense. Now we will open the line for questions, after which Mark will make closing comments.

Speaker Change: In chemicals, we expect the second quarter global <unk> utilization rate to be in the mid nineties.

Speaker Change: In refining we expect the second quarter worldwide crude utilization rate to be in the mid nineties.

Speaker Change: <unk> expense is expected to be between 101 hundred $20 million excluding rodeo.

Speaker Change: We anticipate second quarter corporate and other costs to come in between 330 and $350 million, reflecting higher net interest expense.

Speaker Change: Now we will open the line for questions after which mark will make closing comments.

Lydia: Thank you. We'll 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.

Mark E. Lashier: Thank you we will now begin the question and answer session.

Mark E. Lashier: As it relates to Nicole's question as a courtesy to all participants please limit yourself to one question and a follow up.

Lydia: If you have a question, please press star then 1 on your touchtone phone. If you wish to be removed from the queue, please press star then 2. If 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 1 on your touchtone phone. Our first question comes from Neil Mehta of Goldman Sachs. Your line is open, please go ahead.

Mark E. Lashier: If you have a question. Please press Star then one on your Touchstone.

Mark E. Lashier: Eddie was to be removed from the queue. Please.

Mark E. Lashier: Jay.

Speaker Change: Thank you you may speak Zhang you may need to pick up the handset before pressing the numbers.

Speaker Change: Once again, if you have a question. Please press Star then one on your Touchtone claim.

Speaker Change: Our first question comes from Neil Mehta of Goldman Sachs. Your line is open. Please go ahead.

Neil Singhvi Mehta: Good morning, Mark and team. The first question was just refining the quarter. The capture rates were really noisy at 69 percent. I know you guys target 75 percent. It looks like a lot of that was on the West Coast because of Rodeo and then also secondary products. So you alluded to some of this in the prepared remarks, but maybe you can just talk a little bit about what happened there and your confidence about the progression as we work our way through the year.

Yes.

Speaker Change: And Mark and team.

Neil Singhvi Mehta: I guess the first question was just refining in the quarter. The capture rates were really noisy and 69% I know you guys target, 75%. It looks like a lot of that was on the west coast because of Rodeo and then also our secondary products. So you alluded to some tests in the prepared remarks, but maybe you can just talk a little bit about.

Neil Singhvi Mehta: What happened there and your confidence about the progression as we work our way through the year.

Mark E. Lashier: Yeah, good morning, Neil. That's a great question. Thank you for asking that.

Speaker Change: Yes, good morning, Neil that's a great question. Thank you for asking that the way I'm looking at this is that those first quarter headwinds that you mentioned and refining are all related to activities that will position us to deliver medium and long term tailwind in support of our strategic priorities and so some of the fundamental work going.

Mark E. Lashier: The way I'm looking at this is those first quarter headwinds that you mentioned in refining are all related to activities that will position us to deliver medium and long-term tailwinds in support of our strategic priorities. And so some of the fundamental work going on around Rodeo and some of the work around our turnarounds are critically important. And Rich and Kevin can drive that a little bit more and include some of the activities in commercial that we have undertaken over the last several quarters that will contribute to our long-term success. So Rich, do you want to?

Speaker Change: Around rodeo and some of the work around our turnarounds are critically important.

Speaker Change: Rich and Kevin can drive that a little bit more and including some of the activities and commercial that we underwent over the last several quarters that will contribute to our long term success. So rich do you want to dive in yes, Mark and now when I reflect.

Richard G. Harbison: Yeah, Mark and Neil, you know, when I reflect back on the quarter, I look at the metrics, and we ran pretty well, but market capture obviously was challenged, and it was primarily driven by activity in the Gulf Coast and the West Coast. We achieved about an 84% clean product yield, which, where our assets are pretty good, is actually 1% higher year over year. So it is a sign that our margin projects are actually playing into the bottom line here as we move forward. However, quarter over quarter, we were 3% lower than the fourth quarter.

Richard G. Harbison: Back on the quarter.

Richard G. Harbison: Look at the metrics and we ran pretty well.

Richard G. Harbison: The market capture obviously was challenged and it was primarily driven by activity in the Gulf Coast and the West Coast.

Richard G. Harbison: We achieved about 184% clean product yield which were our assets is pretty good it's actually 1% higher year over year. So it is a sign that our margin projects are actually playing into the bottom line here as we move forward, however quarter over quarter, we were 3% lower than the fourth quarter.

Richard G. Harbison: 1% of that's very clearly seasonal, it's butane blending related to our conversion as we move towards summer gasoline over the quarter. Another 2% is really related to our turnaround activity. And this was principally focused in the downstream catalytic units across our system, and it was concentrated in the Gulf Coast area. This has really two effects when it comes to market capture and clean product yield. It reduces our ability to produce higher-value products, and it increases our intermediate inventories over the period.

Richard G. Harbison: <unk>, 1% of that is very clearly, it's seasonal butane blending related to our conversion as we move towards summer gasoline over the over the quarter.

Richard G. Harbison: Another 2% really related to our turnaround activity and this was principally focused in the downstream catalytic units across our system and it was concentrated in the Gulf Coast area.

Richard G. Harbison: This has really two effects when it when it comes to market capture and clean product yield it reduces our ability to produce higher value products and.

Richard G. Harbison: And it increases our intermediate inventories over the period.

Richard G. Harbison: Now, on the West Coast, we have the conversion of the Rodeo facility, which is, which is a compounding event. Essentially, it effectively had an $180 million loss and adjusted pre-tax income in the quarter as we transformed the business. And if you think about the business, it went from active to idle to reactive across this first quarter. The good news is we're near completion of the Renato conversion, and I actually would say we're well into the wind-down phase now.

Now on the West Coast, we have the conversion of the rodeo facility, which is which is a compounding event essentially it affect effectively had under $180 million of loss and adjusted pre tax income in the quarter as we transform the business and if you think about the business and went from active to idle.

So really active across process first quarter. The good news is we're near completion of the conversion and that actually would say, we're well into the wind up phase now.

Richard G. Harbison: So to summarize, I guess the Rodeo startup's on schedule, ramping up production. Approximately 50,000 barrels a day of renewable fuels will be achieved out of that facility in the second quarter. And we positioned our units across the system to run full conversion rates with fresh catalyst and ample intermediate inventories for the upcoming driving. Kevin, did you want to add anything?

Richard G. Harbison: So to summarize I guess, the rodeo startups on schedule ramping up production approximately 50000 barrels a day of renewable fuels will be achieved out of that facility in the second quarter and.

And we've positioned our units across the system to run full conversion rates with fresh catalyst and ample intermediate inventories for the upcoming <unk> upcoming driving season.

Richard G. Harbison: Kevin did you want to add anything yes, let me just for a couple of numbers to some of these items. So in terms of.

Kevin J. Mitchell: Yeah, let me just put a couple of numbers on some of these items. So, in terms of some commercial impacts that we talk about on Gulf Coast product pricing differentials, in absolute terms, that was a $50 million headwind in the first quarter. The inventory hedges that I referenced in the earlier comments, which primarily impact Central Corridor, were a $100 million headwind in the first quarter. These are not variances; these are absolutes for the quarter. And then on the West Coast, Rodeo, in overall terms, was a $180 million negative or loss for the quarter. So the West Coast results are bearing that drag from the impact of the Rodeo conversion.

Commercial impacts that we talk about.

Kevin J. Mitchell: On Gulf Coast product pricing differentials in absolute terms that was a $50 million <unk>.

Kevin J. Mitchell: Headwind in the first quarter as the inventory hedges that I referenced in the earlier comments, which primarily impacts central corridor that was a $100 million headwind in the first quarter was eaten up variances. These are absolutes in the quarter and then on the West Coast Rodeo in.

Kevin J. Mitchell: Overall terms was a $100 million $180 million negative.

Kevin J. Mitchell: Our loss for the quarter. So the west coast results are bearing that drag from the impact of the rodeo conversion.

Kevin J. Mitchell: Yeah, and I think just to put that in context, we're taking a disadvantage refinery and converting it into one of the world's largest renewable fuels facilities and so to bridge to that.

Mark E. Lashier: Yeah, and I think just to put that in context, we're taking a disadvantaged refinery and converting it into one of the world's largest renewable fuels facilities. And so to bridge to that, we took the heavy lift this quarter.

Kevin J. Mitchell: Took the heavy lift this quarter and now we are well positioned to start delivering value again from the rodeo facility as we continue to push it to full rates through the second quarter end and then on the Gulf Coast.

Mark E. Lashier: And now we're well positioned to start delivering value again from the Rodale facility as we continue to push it to full rates through the second quarter and then on the Gulf Coast. The way you have to think about that is we're still maximizing our crude utilization throughput, but that crude turned into intermediates instead of clean products by design because of the turnaround work we had underway. So now we've got that inventory of intermediates poised to be converted into clean products as we continue to ramp back up into the summer season. So we're well positioned going forward.

Kevin J. Mitchell: The way you have to think about that as we were still maximizing our crude utilization throughput, but that crude turned into intermediates instead of clean products by design because of the turnaround work. We had underway. So now we've got that inventory of intermediates poised to be converted into clean products as we continue to ramp backup into.

Kevin J. Mitchell: Of the summer season, so we are well positioned going forward.

Speaker Change: Okay. Thanks team, that's a lot of good color there.

Speaker Change: Follow up is just on balance sheet.

Neil Singhvi Mehta: Thanks, team. That's a lot of good color.

Speaker Change: Q1 is always a noisy quarter for working capital and the cash flow bridge, Kevin is really helpful. But just your perspective on.

Neil Singhvi Mehta: The follow up is just on the balance sheet. Team 1 is always a noisy order for working capital, and that cash flow bridge, Kevin, is really helpful. But just your perspective on, you know, where do you want your net debt to capital to be over time? What's the path to get there, including potential asset sales? And then, and then how do we think about working capital fitting in that equation? So, big picture question around that. Yeah, Neil, so let me hit on it.

Kevin J. Mitchell: Where do you get your net debt to capital over time, what's the path to get there, including potential asset sales and then.

Kevin J. Mitchell: And then how do we think about working capital.

Kevin J. Mitchell: Equation, so big picture question around around that metric.

Kevin J. Mitchell: Yes, Neil So let me hit on the working capital piece first so negative $1 4 billion in aggregate, but $2 six of that is a function of inventory build and so we did have some.

Neil Singhvi Mehta: Partial offsetting benefit in payables and.

Kevin J. Mitchell: Yeah, Neil. So let me hit on the working capital piece first. So negative $1.4 billion in aggregate, but $2.6 billion of that is a function of inventory build. And so we did have some partial offsetting benefit in payables and receivables. And that was driven by two items. One, the rising price environment generally is positive for net APAR.

Neil Singhvi Mehta: Receivables.

Neil Singhvi Mehta: That was driven by two items, one the rising price absolute rising price environment generally is positive for net.

Neil Singhvi Mehta: So we saw some benefit there, but we also benefited on receivables by collecting in the first quarter cash from fourth quarter inventory draw down and that was several hundred million dollars that showed up in there but on the inventory build.

Neil Singhvi Mehta: It is sizable build and I would say, it's really a function of both commercial opportunity inventory as well as some operating operational driven inventory and the way to think about that is the the APA.

Kevin J. Mitchell: So we saw some benefit there, but we also benefited on receivables by collecting in the first quarter cash from the fourth quarter inventory drawdown. And that was several hundred million dollars that showed up in there. But on the inventory build, it's a sizable build.

Neil Singhvi Mehta: Operational.

Barrels will turn into margin at a future point in time like the intermediates that.

We've talked about the <unk>.

Neil Singhvi Mehta: Commercial.

Kevin J. Mitchell: And I would say it's really a function of both commercial opportunity inventory, as well as some operationally driven inventory. And the way to think about that is the operational barrels will turn into margin at a future point in time, like the intermediates that we've talked about. The commercial inventory build, those will generate a return that will be in excess of anything we will realize on cash balances. And fundamentally, it's all still sitting as a liquid asset on the balance sheet.

Neil Singhvi Mehta: Inventory build those will generate a return that will be in excess of anything we will realize on cash balances and fundamentally it's all still sitting in a liquid asset on the balance sheet. So that kind of talks to the working capital and consistent with normal practice, you would expect that inventory to come.

Neil Singhvi Mehta: Back down in the towards the end of the year and Youll see some of that cash that cash coming back to us in terms of balance sheet and leverage levels. We are above our targeted range, so 25% to 30% target range still comfortable with that target.

Kevin J. Mitchell: So that kind of talks to working capital. And consistent with normal practice, you would expect that inventory to come back down towards the end of the year, and you'll see some of that cash coming back to us. In terms of balance sheet and leverage levels, we are above our targeted range. So, a 25 to 30 percent target range, still comfortable with that target.

Neil Singhvi Mehta: You'll notice that we've been leaning into the share repurchases quite heavily and thats a function of our confidence in the business and the outlook.

Neil Singhvi Mehta: Our growth that we see coming in terms of the $14 billion of mid cycle adjusted EBITDA and so it feels like still a pretty compelling opportunity for us to be buying shares back even if in the near term. It's at the expense of that leverage metrics. So still expect to get there.

Kevin J. Mitchell: You'll notice that we've been leaning into the share repurchases quite heavily. And that's a function of our confidence in the business, in the outlook, and in the growth that we see coming in terms of the $14 billion of mid-cycle adjusted EBITDA. And so it feels like it's still a pretty compelling opportunity for us to be buying shares back, even if, in the near term, it's at the expense of that leverage metric. So I still expect to get there to that level. That's still our objective.

That level, that's still our objective and the other comment I'd make on leverage the other metric the other way we look at this as the non.

Neil Singhvi Mehta: Although much less commodity sensitive sensitive businesses, the midstream and marketing and specialties business is our ability for those businesses to basically be able to bear the debt that the company has so on a combined basis, that's circa $6 billion of EBITDA generation.

Kevin J. Mitchell: And the other comment I'd make on leverage, the other metric, the other way we look at this is the non or the much less commodity sensitive businesses, the midstream and the marketing specialties business, is our ability for those businesses to basically be able to bear the debt that the company has. So on a combined basis, that's circa $6 billion of EBITDA generation. And if you think of a typical leverage multiple for businesses like that, call it three times, that's $18 billion of net debt, which is roughly where we are.

Neil Singhvi Mehta: And you think of a typical leverage multiple for businesses like that call. It three times at $18 billion of net debt, which is roughly where we are and so that's the other measure we look at.

Neil Singhvi Mehta: And that keeps the the refining business.

Neil Singhvi Mehta: Avoids that volatility being part of that.

Neil Singhvi Mehta: The way, we look at that debt level. So gives us very comfortable from a balance sheet standpoint.

Speaker Change: Thanks, Kevin.

Kevin J. Mitchell: And so that's the other measure we look at. And that keeps the refining business, and avoids that volatility being part of that, the way we look at that debt level. So it was very comfortable from a balance sheet standpoint.

Roger David Read: Our next question comes from Roger read of Wells Fargo Securities. Your line is open.

Roger David Read: Yes, Thank you and good morning, everybody.

Roger David Read: I would like to if we could maybe look at.

Roger David Read: Our next question comes from Roger Read of Wells Fargo Security. Your line is open.

Roger David Read: I guess, it's a combination of the opex that we're seeing in refining.

Roger: Let's say, Jeff supposed against <unk>.

Roger David Read: Yeah, thank you. Good morning, everybody.

Roger David Read: Progress you are making an overall cost reduction so during the first quarter going from 632015 on accumulative basis look at cash Opex is kind of stable over the last three quarters.

Roger David Read: I'd like to maybe look at, I guess it's a combination of the OPEX that we're seeing and refining, I guess, let's say juxtaposed against the progress you're making and overall cost reduction. So, you know, during the first quarter going from 630 to 715 on a cumulative basis, I look at cash OPEX, it's kind of stable over the last three quarters, recognize a But if you could help us kind of put those two together, and maybe where you see the impact on cash OpEx, or maybe if it's embedded in the actual refining margin, where we're seeing the cost savings manifest in refining.

Recognize a lot of stuff going on but if you could help us kind of put those two together and maybe where you see.

Roger David Read: The impact on cash Opex or maybe if it's embedded in the actual refining margin, where we're seeing cost savings manifest in refining.

Roger David Read: Yes, I think that certainly the majority of our business transformation cost impact is showing up in refining and we've been we've been out delivering our targets over delivering against our targets and certainly continue that into into 2024, Theres always a lag and we talk about.

Mark E. Lashier: Yeah, I think that, you know, certainly, the majority of our business transformation cost impact is showing up in refining. And we've been, we've been out delivering our targets over delivering against our targets, and certainly will continue that into 2024. There's always a lag.

Roger David Read: <unk> run rate and then we talk about realized and we were able to make sure that you keep track to the run rate is where the speedometer is at this point in time.

Roger David Read: The realized is what we're actually seeing show up in the numbers and we've seen good progress in refining.

Richard G. Harbison: And we talk about run rate, and then we talk about realized, and we want you to make sure that you keep track of where the run rate is at this point in time. Realized is what we're actually seeing show up in the numbers. And we've seen good progress in refining. And, and we'll continue to see that throughout this year as we rise up to our forecasted 1.1 billion in cost and 300 million in capital, capital synergies, and capital savings. And so Rich can drive into those cost numbers for you, Roger, and give you some color around that.

Roger David Read: And.

Roger David Read: We will continue to see that throughout this year as we as we rise up to our our forecasted $1 1 billion in cost and $300 million in capital.

Roger David Read: Capital synergies capital savings and so rich can drive into those cost numbers for you Roger and give you give you some color around that.

Roger David Read: Yes, so the end to end of last year, Roger we we.

Roger: On a run rate basis.

Roger: Past, the $500 million or 75 roughly 75.

Roger: A barrel number on run rate last year and realized about 41 of that last year as well.

Richard G. Harbison: Yeah, so the end of last year, Roger, we passed the $500 million, or roughly $75 a barrel, number and run rate last year and realized about 41 cents of that last year. As we fast forward now through the first quarter here, we see that realized number creeping up to the 500, actually slightly over the 500 million number. So it's coming in at that 75 cents, and it's roughly that delay that Mark's talking about, roughly a 90 day delay in achieving that.

Roger: Fast forward now into through the first quarter here, we see that realized number creeping up to the 500 actually slightly over $500 million number so.

Roger: It's coming in at that 75.

Roger: Roughly that delay that Mark's talking about roughly 90 day delay.

Roger: And achieving that so when we go back and we validate those spends and remember those spends are over 900 separate initiatives that we've completed across the organization. We go back and re validate. These so we are seeing those start to flow into the bottom line for for refining.

Richard G. Harbison: So when we go back and validate those spends, and remember those spends are over 900 separate initiatives that we've completed across the organization, we go back and revalidate those. So we are seeing those start flowing to the bottom line for refining. And if you look at our year-over-year OPEX, it is noticeably lower, even in the face of inflation, a pretty heavy inflationary period here that we faced over the period of time.

Roger: And if you look at our year over year Opex. It is noticeably lower even in the face of them inflation pretty heavy inflationary period here that we've faced over over the period of time. So so we're happy with the progress on a run rate basis at the end of the first quarter, we've achieved $560 million.

Richard G. Harbison: So we're happy with the progress. On a run rate basis, at the end of the first quarter, we achieved $560 million in run rate, which equates to about 80 cents. And that's on a trajectory for the year of a dollar a barrel target that's set for the organization, which is roughly $650 million by the end of the year. So we're well on the pace to achieve that. And The program is pressing forward.

Roger: Of run rate, which is equates about 80 and thats.

On a trajectory for the year end of one <unk>.

Roger: <unk> a barrel.

Roger: Target.

Roger: That set for the organization, which is roughly $650 million by the end of the year. So we're well on that pace to achieve that win and the program is pressing forward and like I had mentioned earlier.

Richard G. Harbison: And like I mentioned earlier, it's a series of hundreds, if not thousands, of initiatives to execute. And it's really intended to drive work and efficiencies out of our work process. And, As that happens, we want to make sure that that changes how we do our work and influences how we make decisions, but it should not compromise safety, reliability, or earnings power for the organization. Yeah, Roger. And I really want to drive home.

Syriana.

Roger: Hundreds if not thousands of initiatives to execute and it's really intended to drive work and efficiencies out of our work process and <unk>.

Speaker Change: As that happens we want to make sure that that changes how we do our work and influences how we make decisions, but it should not compromise safety reliability our earnings power for the organization, Yes, Roger and I really want to drive home, what rich has said that the cultural impact on the organization.

Mark E. Lashier: I really want to drive home what Rich just said, that the cultural impact on the organization has been impressive, particularly out in the field, whether it's midstream, refining, wherever you are. We have a workforce that has bought into it, and it's committed to driving higher levels of performance. Right out on the front lines, they understand what our strategic priorities are and how they can contribute to us getting there. And so they're digging in, and they're looking at those opportunities every day.

Speaker Change: As Ben has been impressive, particularly out in the field, whether it's midstream refining wherever you are and we have a workforce that is bought into it and it's committed to driving higher levels of performance they understand.

Speaker Change: Right out of the front lines, they understand what our strategic priorities are and how they can contribute to us getting there and so they are digging in and they're looking at those opportunities every day.

Speaker Change: And across the organization, we continue to simplify work to make work easier for people to get done. So good people the right digital opportunities. So they can make better decisions faster, whether it's commercial or whether it's an operator on the frontline and the organization. We're also simplifying and we want to ensure that we've got a streamlined organization.

Mark E. Lashier: And across the organization, we continue to simplify work, to make work easier for people to get done, so we get people the right digital opportunities so they can make better decisions faster, whether it's commercial or whether it's an operator out on the front line. And across the organization, we're also simplifying. And we want to ensure that we've got a streamlined organization that will support sustainable success around both cost and performance. And we're seeing that live as we move forward.

Speaker Change: And that will support sustainable success around both cost and performance and were seeing that live as we move forward.

Speaker Change: No I appreciate the detail there everybody.

Speaker Change: Yes, just a follow up question on the announcement of the potential sale of the.

Roger David Read: Appreciate the detail there, everybody, guess just a follow-up question on the announcement of the potential sale of the European retail assets. How does that affect the partial ownership you have and refining assets on mainland Europe, Miro specifically?

Speaker Change: European retail assets, how does that affect the partial ownership you have in refining assets on mainland Europe.

Speaker Change: Specific.

Speaker Change: Yes, Roger it's Kevin So, we're selling the Germany, and Austria retail assets like we said.

Kevin J. Mitchell: Yeah, Roger. It's Kevin.

Kevin J. Mitchell: Yeah, Roger, it's Kevin. So we're selling the jet's Germany and Austria retail assets. Like we said, that's a company-owned dealer-operated model, primarily, almost 1,000 sites across those two countries. It's a high-performing business, top-rated many years in a row, 10% of the market share in each country, and a great business, but doesn't really integrate with the sort of core strategic focus areas that we have as a company, so just a little bit of background as to why those assets.

Speaker Change: <unk>.

Company owned dealer operated model, primarily almost 1000 sites across those two countries that has a high performing business.

Speaker Change: Top top rated.

Speaker Change: Many years in a row.

Speaker Change: 10%, so the market share in each country and great business, but it doesn't really integrate with the Soc core strategic focus areas that we have as a company. So there is a little back a little bit of background as to why those assets. It does not include our ownership in the micro refinery and <unk>.

Kevin J. Mitchell: It does not include our ownership in the Miro refinery in Germany, and the reason for that is the majority of buyers for those types of retail assets would not be interested in refinery ownership. If there's a buyer that is interested, then that's a separate conversation, and we'll handle that separately, but this package right now is focused on those marketing assets. Great, thanks.

Speaker Change: <unk> and the reason for that is the majority of buyers for those type of retail assets would not be interested in refinery ownership. If there is a buyer that is interested then thats a separate conversation and we'll handle that separately, but this package right now is focused on those marketing assets.

Speaker Change: Great. Thank you.

Speaker Change: Thanks Roger.

Ryan M. Todd: The next question comes from Ryan Todd of Piper Sandler. Your line is open.

Speaker Change: The next question comes from Ryan Todd of Piper Sandler Your line is open.

Ryan M. Todd: Great. Sorry, I'm getting off the mute there.

Ryan M. Todd: Oh, Okay, sorry mute there.

Ryan M. Todd: Maybe if I could start with one on Rodeo. I mean, congratulations on getting the project, the Rodeo Renewed Project, up and running. You mentioned that the loss in the first quarter, like the early days, are challenging as you ramp towards full capacity and optimized performance. But can you walk us through maybe what to expect over the next few quarters there? When do you anticipate hitting full production capacity? You know, how do you anticipate the feedstock mix to change over the next few quarters as you run more advantaged feeds? And how should we think about that? you know, that negative 180 million moving towards towards profitability.

Ryan M. Todd: Maybe if I could start with one on <unk> congrats on getting.

Ryan M. Todd: The project the railroad are renewed projects up and running.

Ryan M. Todd: You mentioned that the loss in the first quarter.

Speaker Change: Early days are challenging as you ramp towards full capacity and optimize performance.

Speaker Change: But can you walk through maybe whats.

Speaker Change: What do you expect over the next few quarters there.

Speaker Change: When do you anticipate meaningful production capacity, how do you anticipate the feedstock mix to change over the next few quarters and you run more advantaged feeds.

Speaker Change: And how should we think about that.

Speaker Change: That negative 180 million moving towards.

Speaker Change: Towards profitability.

Richard G. Harbison: Here, Ryan. I got that. This is Rich here.

Speaker Change: From a timeline point of view as we look over the course of this year.

Richard G. Harbison: So maybe first, I'll start with a timeline of the Rodeo facility. As you know, we've been ramping this facility down and hit a milestone in February of this year with a complete shutdown of the facility after 128 years of running as a crude processing site. That first transition occurred on the first hydrocracker, and they went into new renewable fuels feedstock production in March of this year. So that first phase is up and running. That's the milestone we're talking about here.

Speaker Change: Alright, and I got that this red chair so.

Speaker Change: First I'll start with a timeline of the rodeo facility as you know we've been ramping this facility down and.

Speaker Change: Hit a milestone in February of this year with a complete shutdown of the facility.

After 128 years of legacy of running as a crude processing site.

Speaker Change: That first transition occurred on the first hydro cracker.

Speaker Change: And they went into renewable fuels feedstock production in March of this year. So that first phase is up and running and Thats that milestone we're talking about here and that's that's allowed the facility and complement what the unit to 50 operation that Mark mentioned in the earlier comments with the first hydro cracker.

Richard G. Harbison: And that's that's allowed the facility, in conjunction with the unit 250 operation that Mark mentioned in the earlier comments with the new first hydrocracker, to produce about 30000 barrels a day of renewable fuels. The second hydrocracker and the pretreatment unit will both finish construction in the May time frame, and we will start those up in the June time frame. So by the end of the second quarter, the facility will be at full production rate. Now, what does that all mean when it comes to margin?

Speaker Change: To produce about 30000 barrels a day of renewable fuels, the second hydro cracker and the pretreatment unit will both finish construction in the May timeframe, and we will start those up in the June timeframe. So by the end of the second quarter the facilities.

Speaker Change: We'll be at full production rates.

Speaker Change: Now what does that all mean when it comes to margin. So margin in this business is driven a lot by the carbon intensity of the feedstocks.

Richard G. Harbison: So margin in this business is driven a lot by the carbon intensity of the feedstock, and Brian's team has been actively engaged in that over the last couple of years by aggregating a number of feedstocks. So the way we see this is we will start with essentially the pretreated material in the second quarter, a higher CI, roughly a 50 CI number. And then in the third quarter, we see the carbon intensity of our feedstocks continually ramping down through that third quarter.

Speaker Change: And.

Speaker Change: Bryan <unk> team has been actively engaged in that over the last couple of years on aggregating a number of feedstocks. So so the way. We see this is we will we will start with the essentially the pretreated material in the second quarter at a higher CDI roughly 50, Ci number and over the third quarter, we see the carbon intensity of our fee.

Speaker Change: <unk> stocks continually ramping down through that third quarter, but by the end of the third quarter I would expect to see us.

Richard G. Harbison: And by the end of the third quarter, I would expect to see us in the lower to mid CI range of 30s in that range. And that's primarily driven by processing more recycled fats, oils, and greases that are aggregated throughout the world.

Speaker Change: In the lower to mid <unk> range of <unk> <unk> in that range and Thats, primarily driven by processing more recycled fats oils and greases that are aggregated throughout the world.

Richard G. Harbison: As a supplement to all of that, we're seeing a growing interest in sustainable aviation fuel as well. So we have positioned the facility to begin production of sustainable aviation fuel, which is a key component of the renewable jet that's blended into that. And that production will be capable of starting in the third quarter as well, and we do expect to be a prominent supplier in the market for that. So the good news is, Rodeo's through that startup process, that shutdown startup process, and now we're in the ramp-up phase, I'll call it. It's online, and we're ramping up production right now.

And then.

Speaker Change: As a supplemental all of that we're seeing.

Speaker Change: Growing interest in sustainable aviation fuel as well so.

Speaker Change: So we have positioned the facility to begin production of sustainable aviation fuel Orange, which is a key component is the renewable jet that's blended into that and that production wells.

Speaker Change: We will be capable of starting in the third quarter as well and we do expect to be a prominent supplier in the market on that so the good news is <unk> through that that startup process that shutdown startup process and now we are in the <unk>.

Speaker Change: Ramp up phase all collyn its online and we're ramping up production right now, yes, right when we get up to full rates, we'll be able to produce something on the order of 10000 barrels a day of renewable jet fuel, which which gets blended up then to sustainable aviation fuel.

Mark E. Lashier: Yeah, Ryan, when we get up to full rate... We'll be able to produce something on the order of 10,000 barrels a day of renewable jet fuel, which gets blended up then into sustainable aviation fuel in the marketplace. This kit is going to be designed for continuous optimization, whether it's the split between jet and diesel fuel or the feedstocks coming in. Because of the feed pretreatment unit we'll have, we'll have great flexibility.

Speaker Change: In the marketplace.

Speaker Change: It's just a kit is going to be designed for for continuous optimization, whether it's the split between jet and diesel fuel or the feedstocks coming in because of the feed pretreatment unit will have we will have great flexibility and so we will optimize on ci costs and.

Mark E. Lashier: And so we'll optimize on CI, cost, and revenue, and as well as the incentives that are out there. So it's going to be an interesting facility to have in our kit, and we're looking forward to getting it fully online and generating cash. I think it's complementary.

Speaker Change: And revenue and as well as the incentives that are out there. So it's going to be it's going to be an interesting facility to have in our kits and we're looking forward to getting it fully online and generating cash and think it's supplemented as well by the last mile strategy that Brian's team has put in place that that.

Mark E. Lashier: I think it's supplemented as well by the last mile strategy that Brian's team put in place that prevents leakage of value as we deliver the product to the end user there and that should play out nicely as we increase production from the facility.

Speaker Change: That prevents leakage of value as we as we deliver the product to the end user there and that that should play out nicely as we increased production from the facility.

Ryan M. Todd: And do you have any have you signed contracts on the staff front? Are you in ongoing negotiations there with partners?

Speaker Change: And do you have have you signed contracts on the SaaS, Brian are you in ongoing negotiations there with with partner.

Richard G. Harbison: I work concurrently in negotiations with partners. We've seen a lot of interest in SAP.

Brian M. Mandell: While we are currently in negotiations with partners, we've seen a lot of interest in SaaS.

Ryan M. Todd: Great, thanks. That's maybe just one, you know, changing gears to chemicals, you know, on the chemical side, better than expected performance in CP chem. Can you talk about kind of the drivers of improvement there? Is it primarily feedstock related? Are you seeing any signs of underlying improvement in market conditions and maybe how you're looking at the rest of the year?

Speaker Change: Great. Thanks.

Speaker Change: Maybe just one changing gears to Ken on the chemical side did better than expected performance at CP Chem.

Ken: Can you talk about kind of the.

Ken: Rivers' of improvement there or is it primarily feedstock related are you seeing any signs of underlying improvement in market conditions, and maybe how youre looking at the rest of the year.

Timothy D. Roberts: Yeah, Ryan, this is Tim Roberts, and I'll chat about that. I'll cover three things because I think there'll be other questions around that.

Ken: Yes, Ryan this is Tim Robertson I'll chat about that I'll cover three things because I think there'll be other questions around it first one I wanted to talk about is actually more on the.

Timothy D. Roberts: The first one I wanted to talk about is actually more on the leadership side. I just wanted to recognize Bruce Chen, who is the recently retired CEO at CP Chem. He did a really good job there. Great leadership, great drive for excellence, and he'll be missed.

Timothy D. Roberts: Leadership side.

Timothy D. Roberts: I just wanted to recognize Bruce Chan, who is the recently retired CEO of CP Chem.

Timothy D. Roberts: Did a really good job there great leadership, great drive for excellence and he'll be missed.

Timothy D. Roberts: We have an internal candidate, Steve Prusak, who's assumed the role of CEO. Steve's been very successful in all phases of the chemical business, and we are highly confident in his ability to lead and take CP-Chem to the next level of industry-leading performance. So I wanna thank both of those guys.

Timothy D. Roberts: We have internal candidates <unk> assumed the role of CEO.

Timothy D. Roberts: Steve has been very successful in all phases phases of the chemical business and we are highly confident in his ability to lead and take CP can do the next level of industry, leading performance. So that I want to thank both of those guys now on the macro side, let me talk about that and then I'll get specific to CP Chem macro clearly have.

Timothy D. Roberts: Now on the macro side, let me talk about that, and then I'll get specific to CPCAM. Macro, clearly the heavy light spread with regard to being light feed versus heavy feed. It's really been a boon to those that can crack the light feedstock, especially CPCAM, who's well positioned not only on the US Gulf Coast but in the Middle East. And so the advantage is pretty wide right now. And so they've been able to take advantage of it. In fact, the industry in the US, if you're cracking light, they like it. However, I will tell you, we are not at mid-cycle margins. It has come off the bottom, which is good.

Timothy D. Roberts: Light spread with regard to being like feed versus heavy feed.

Timothy D. Roberts: It's really been a boon to those that can crack the light feedstock, especially CP can who's well positioned not only the U S Gulf coast and in the Middle East and so it's the advantage is pretty wide right now and so they've been able to take advantage of it in fact, the industry in the U S. If you're cracking light you like it.

Timothy D. Roberts: However, I will tell you we are not at mid cycle margins. It has come off the bottom which is good but a lot of that is really related to more about feedstock.

Timothy D. Roberts: A lot of that is really related to more feedstock. So, you know, natural gas has come off, it's come down, and subsequently, ethane's come down with it, as has some propane and butane as well, and so subsequently, that gap has gotten bigger, and anyway, that's showing up, and then also the lower feedstock and natural gas relative to utility costs. So the combination of those two, as well as just a little bit of support on polyethylene pricing, not a lot, but enough to help widen that chain margin a little bit.

Timothy D. Roberts: So natural gas has come off its come down.

Timothy D. Roberts: And subsequently ethane has come down with it as as some propane and butane as well and so subsequently that gap has gotten bigger and in any way that's showing up and then also the lower feedstock in natural gas relative to utility cost. So the combination of those two as well as just a little bit of support.

Timothy D. Roberts: On polyethylene pricing not a lot, but enough to help widen up.

Timothy D. Roberts: <unk> margin a little bit so I think thats been good we still think though that although we're off the bottom we still think it's hard to see us getting to mid cycle anytime during 2025.

Timothy D. Roberts: So I think that's been good. We still think, though, that although we're off the bottom, we still think it's hard to see us getting to mid-cycle any time during 2025. But certainly, you know, supply-demand fundamentals, as destocking goes, we do see that, you know, sometime after 2025, you can see it rebalance and then get back into a mid-cycle environment. Specifically, with CP-CHEM, though, I do want to highlight as well with them that they've had a couple of their mid-cap projects that did come on stream late last year.

Timothy D. Roberts: Certainly.

Timothy D. Roberts: Supply demand fundamentals as Destocking goes we do see that.

Timothy D. Roberts: Sometime after 2025, you can see it rebalance and then get back into a mid cycle environment.

Timothy D. Roberts: Specifically to CP Chem, though I do want to highlight as well with them that they would add a couple of their mid cap projects that did come on stream late last year.

Timothy D. Roberts: C3 splitter, the 1-hexene unit, and then they also added another furnace to one of the large crackers there. And 1-hexene and C3 are adding earnings in the first quarter. So they're up, they're running, they have run at higher than nameplate capacity, which has been really good, and again, generating earnings that are showing up in CPCAM's results. And we're in really a startup mode with the furnace. That works complete, they're starting it up, going through the normal shakedown you will have with those units, and we're hoping in 2Q you'll see something more material on the earnings side there too.

Timothy D. Roberts: <unk> splitter, when Hexion unit and then they also added another furnished one of the large crackers there.

Timothy D. Roberts: And what <unk> seen in <unk>, they are adding earnings in the first quarter. So they are up they're running they have run it are the nameplate capacity, which has been really good and again generating earnings that are showing up in <unk> results.

Timothy D. Roberts: And we're in really a startup mode with the furnace that work's complete their starting it up going through the normal shakedown youll have with those units and were hoping in <unk> youll see something more material on the earnings side, there too yeah, Ryan Youre seeing live the last almost 25 years of what CP Chem has done to position themselves.

Mark E. Lashier: Yeah, Ryan, you're seeing live the, you know, the last almost 25 years of what CPCAM has done to position itself to be able to run flat out at the bottom of the cycle. And they did that, and they did that profitably.

Timothy D. Roberts: <unk> to be able to.

Timothy D. Roberts: Flat out at the bottom of the cycle and they did that and they did that profitably and youre seeing rationalization of assets in Europe, while they're running flat out rates and so that that's encouraging from a CPM perspective, we need to see that in this down cycle to see some of the less competitive assets come out of the.

Mark E. Lashier: And you're seeing rationalization of assets in Europe while they're running at flat-out rates. And so that's encouraging from a CP-CHEM perspective. We need to see that in this down cycle to see some of the less competitive assets come out of the system. And that's going to be constructive, and that will help accelerate the industry out of the bottom of the cycle and into greener pastures in the next couple of years. And Mark.

Timothy D. Roberts: System, and that's going to be constructive and that will help accelerate.

Timothy D. Roberts: The industry out of the bottom of the cycle.

Timothy D. Roberts: And to greener pastures out in the next couple of years.

Mark E. Lashier: And Mark, to add to that point, I think that's a great point, what you're saying is that a lot of your higher cost folks are running at reduced rates, or they're shut down and extending maintenance, or running at reduced rates. And we've even seen some facilities, namely in Europe, two announcements of two crackers that will be shutting down due to some competition there because they're at the wrong place on the cost curve, whereas CP-CHEM is at the right place on the cost curve.

Speaker Change: And Mark can add on to that point I think that's a great point is what youre, saying is that a lot of your higher cost folks.

Speaker Change: They are running at reduced rates.

Mark E. Lashier: Or their shutdown and extending maintenance, we're running at reduced rates and we've even seen some.

Facilities, namely in Europe, two announcements of two crackers that will be shutting down from some competition there because they're at the wrong place and the cost curve, where CP Chem is on the right place and the cost curve.

Manav Gupta: Thank you very much.

Okay. Thank you very much.

Manav Gupta: Our next question comes from Manav Gupta of UBS. Please go ahead; your line is open.

Mark E. Lashier: Our next question comes from Manav Gupta of UBS. Please go ahead. Your line is open.

Manav Gupta: Hey guys, you did a good job of explaining the variability in earnings quarter on quarter in refining. Can we go through some of that in the midstream? I saw a big variation on the NGL and other side. I mean, transportation wasn't off that much, but help us understand what drove the variability in the second part of that.

Manav Gupta: Hey, guys. So you did a good job of explaining the variability in earnings quarter on quarter on refining can be good with some of that in the midstream.

Manav Gupta: We saw a big variation on the NGL and other side, and then transportation, whether or not that much but help us understand what drove the variability in the.

Timothy D. Roberts: Yeah, Manav, thanks for the question. This is Tim Roberts again.

Manav Gupta: Second part about that business.

Manav Gupta: Yeah. Thanks for the question. This is Tim Roberts again, and let me go ahead and.

Timothy D. Roberts: And let me go ahead and address, I mean, the first thing I want to lay out there is that last quarter on the earnings call, I talked about, you know, guiding towards $675 million per quarter, IBT, and we're staying with that. I mean, that still feels good, 3.6 billion per year. That's, that's, that's where we're at.

Timothy D. Roberts: Addressing the first thing I want to lay out there is that.

Timothy D. Roberts: Last quarter on the earnings call I talked about guiding towards $675 million per quarter, IDT and we're staying with that.

Timothy D. Roberts: It still feels good $3 6 billion for the year, that's that's where we're at so I just wanted to make sure. We were that Hasnt changed now if you look at <unk> and <unk>.

Timothy D. Roberts: <unk> was a strong quarter. Okay that was the first thing you had some one time things that showed up in that fourth quarter and then in the fourth and first quarter, what impacted it and especially the variance.

Timothy D. Roberts: So I just wanted to make sure we were, you know, that hasn't changed. Now, if you look at 4Q and 1Q, 4Q was a strong quarter. Okay, that was the first thing.

Timothy D. Roberts: One winter storm, so winter storm it impacted us impacted other people too and really the impact to us and I think it's worth noting.

Timothy D. Roberts: You had some one-time things that showed up in that fourth quarter. And then in the first and in the first quarter, what impacted it, and especially the variance, number one, the winter storm. So winter storm It impacted us and impacted other people too, and really, the impact was, and I think it's worth noting, was really not on our assets. It was to the producers. So we really weren't seeing the volumes come down the pipe due to freeze-offs and a variety of other different issues. So it took a while for those volumes to get back up and running again and then subsequently start working their way through the system.

Timothy D. Roberts: We're really not to our assets.

Timothy D. Roberts: As to the producers so we really weren't seeing the volumes come down the pipe due to freeze offs in a variety of other different issues. So it took a while for those volumes to get back up and get running again and then subsequently.

Timothy D. Roberts: Start working their way through the system, so about $30 million impact there and then also we had some commercial true ups from fourth quarter to first quarter commercial true ups accruals and some inventory timing it showed up between fourth quarter to first quarter.

Timothy D. Roberts: So about $30 million impact there. And then also, we had some commercial true-ups from fourth quarter to first quarter, commercial true-ups, accruals, and some inventory timing that showed up between fourth quarter and first quarter. And so if you put those two quarters together, you really are getting somewhere north of that 675 number where we're at. We think we'll be on a more normalized basis as we go into 2Q, and you'll see some inventory timing issues show up.

Timothy D. Roberts: So if you put those two quarters together you really are getting it in somewhere in north of that 675 number where we're at we think will be on a more normalized basis as we go into <unk> and Youll see some inventory timing issues will show up it's not big but some will show up in the second quarter is a positive but generally that's kind of how we look at it we're still in that 675%.

Timothy D. Roberts: Is the right number as we see throughout the year.

Speaker Change: Okay. My quick follow up is on the on the diesel macro will be seen some pullback in cracks wasn't fully anticipated because the expected Russia volumes to drop which they did not so I know <unk> got a lot of detail on this slide simply help us first of all <unk> lots going on in the diesel.

Timothy D. Roberts: It's not big, but some will show up in the second quarter as a positive. But generally, that's kind of how we look at it. We're still in that 675 is the right number, as we'll see throughout the year.

Speaker Change: And then do you expect the <unk> to get stronger.

Speaker Change: In the year.

Speaker Change: Hey, Rob, it's Brian Mandell I.

Brian M. Mandell: I would say that a number of issues, we had a warm northeast U S winter than refiners came back and they were running really well.

Manav Gupta: Perfect. My quick follow-up is on the diesel macro. We have seen some pullback in cracks, but it wasn't fully anticipated because we expected Russia volumes to drop, which they did not. So I know Jeff does a lot of detailed work on this, so if you could help us with your crystal ball as to, you know, what's going on in the diesel world and do you expect the cracks to get stronger in the year? Hey there, Manav. This is Brian Mandell.

Brian M. Mandell: Prices for diesel and contango, we have seen about 200000 barrels a day of Russian distillate off the market, but we are constructive we do think the market will come back youre seeing starting to see run cuts in Europe, and Asia with Hydrocracking and hydro skimming margins at breakeven.

Brian M. Mandell: As we move into driving season, we could see more gasoline mode. In fact, youre seeing gasoline or distillate on the coast in the U S East West coast that could drive less distillate moving to more jet production from diesel, particularly.

Brian M. Mandell: Hey Manav, this is Brian Mandell. I would say that, you know, we've had a number of issues. We had a warm Northeast US winter, then refiners came back, and they were running really well. [inaudible] As we move into driving season, we could see more gasoline mode. In fact, you're seeing gasoline over distillate on the U.S. coast, east and west coast, and that could drive less distillate, moving to more jet production from diesel, particularly as we're fixing to head into China's Labor Day, Golden Week, and we see real strong jet demand. And then continued issues, geopolitical issues, you know, if Russia's hit again, that means diesel exports as well. So we think that things are going to look better coming out of this trough here.

Brian M. Mandell: Fixing a head into China's labor day, Golden week, and we see a real strong jet demand.

Brian M. Mandell: And then continue to issues geopolitical issues.

Brian M. Mandell: If Russia is hit again.

Brian M. Mandell: <unk> diesel exports as well so we think that things are going to look better coming out of this trough here.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Our next question today comes from John <unk> of Jpmorgan. Your line is open.

Hi, Thanks for taking my question I had a follow up on the retail sell in Europe are there any other assets on the international marketing side that might be U S strategic that could shake out there on the U S marketing side, the majority of that business too integrated with the refining operations in February I'm, just trying to get a sense of the.

John Macalister Royall: Our next question today comes from John Royall of J.P. Morgan. Your line is open.

Speaker Change: Direction in marketing.

Speaker Change: New sales process.

John Macalister Royall: Hi, thanks for taking my question. I had a follow up on retail sales in Europe. Are there any other assets on the international marketing side that might be less strategic that could shake out there? And on the US marketing side, is the majority of that business too integrated with the refining operations to separate? I'm just trying to get a sense of the strategic direction and marketing in light of this new sales process.

Speaker Change: Yes, John from a Europe standpoint, the other marketing businesses are in Switzerland, where we have a joint venture with co op and in the U K and the two are very different in that the Switzerland business is somewhat of a stand alone retail.

Speaker Change: <unk> business.

John: But it's also in the joint venture structure and so the dynamics are a little bit different around that the U K that marketing business is very integrated with our refining in the U K. So it's much more akin to the U S model, where the marketing business serves to help ensure product placement coming out of the Humber refinery and Thats really it.

Kevin J. Mitchell: Yeah, John, from a European standpoint, the other marketing businesses are in Switzerland, where we have a joint venture with Co-op, and in the UK, and the two are very different in that the Swiss business is somewhat of a standalone retail business, but it's also in a joint venture structure. And so the dynamics are a little bit different around that.

Kevin J. Mitchell: The UK, that marketing business is very integrated with our refining in the UK. So it's much more akin to the US model, where the marketing business serves to help ensure product placement coming out of the Humber refinery. And that's really the case for the US marketing business as well. It's very much integrated with the refining system across the different regions.

John: The case for the U S marketing business as well as very much integrated with the refining system across the across the.

John: <unk> regions.

Great. Thank you and then my next question is from the West Coast, I think mark sort of alluded to this a little in his response to Neil but how.

John: How should we think about the structural capture rate on the west coast.

John Macalister Royall: Great, thank you. And then my next question is about the West Coast. I think Mark sort of alluded to this a little in his response to Neil, but how should we think about the structural capture rate on the West Coast and how it's going to be different now with the Rodeo, you know, officially an RD unit and not a refinery? Should we expect it to be higher than what we've seen historically as a result?

John: How it's going to be different now with <unk>.

Officially in our <unk> unit in our refineries should we expect it to be higher than what we've seen historically as a result.

Speaker Change: Well you want me to start with that.

Richard G. Harbison: Over the top this is rich harshman.

Richard G. Harbison: So there is a reason John.

Richard G. Harbison: We've gone or a DAU and converted it into a renewable fuel stock. It has not been a meaning contributor to the earnings profile on the west coast for quite some time now so so that we're looking forward to getting that change fully implemented and then we do think that will have a marked change to the west coast profitability.

John Macalister Royall: Well, you want me to start with that? Sure. Go over the top.

Richard G. Harbison: This is Rich Harbison. So there's a reason John, we've gone to Rodeo and converted it into a renewable fuel stock. It has not been a meaningful contributor to the earnings profile on the West Coast for quite some time now, so we're looking forward to getting that change fully implemented. And we do think that we'll have a marked change in West Coast profitability. The Los Angeles and the Ferndale facilities will continue to operate, and they have.

Richard G. Harbison: Los Angeles, and the Ferndale facilities will continue to operate and they have been.

Richard G. Harbison:

Richard G. Harbison: Good contributors to the West coast, but I will say in general the West Coast is a challenging market to to make money on the refining side of the business, our Los Angeles refineries been challenged with with the.

Richard G. Harbison: Good contributors to the West Coast. But I'll say, in general, the West Coast is a challenging market to make money on the refining side of the business. Our Los Angeles refinery's been challenged with the declining supply of California domestic crude, which has taken away a lot of the original crude advantage for that facility where it was originally built. Now, the TMX pipeline is opening up. So there is a change in the crude flow dynamics, which has the potential to have a positive impact on the Los Angeles facility.

Richard G. Harbison: The declining supply of California, domestic crudes, which has taken away a lot of the original crude advantage for that facility Windows. Originally built on the <unk> pipeline is opening up. So there is a change in the crude flow dynamics, which has the potential to have a positive impact on on the Los Angeles facility and we'll see.

How that dynamic works out here over the next few months as these crude flows change around.

Richard G. Harbison: But.

Richard G. Harbison: And we'll see how that dynamic works out here over the next few months as these crude flows change around. But, you know, changing and pulling the Rodeo Refinery out will have a marked change on the West Coast.

Richard G. Harbison: Changing and pulling refine the rodeo refinery out we will have a marked change on the west coast.

Richard G. Harbison: Yeah.

Richard G. Harbison: Our next question comes from Matthew Blair of Cheetah Pickering Holt. Please go ahead.

Matthew Robert Lovseth Blair: Hey, good morning.

Matthew Robert Lovseth Blair: Our next question comes from Matthew Blair of Tudor Pickering Holt. Please go ahead.

Matthew Robert Lovseth Blair: Are you able to share the approximate EBIT contribution of those German and Austrian retail assets up for sale and then the cash from the sale would that be earmarked for like share buybacks and if so would that mean, an increase to the 13% to $15 billion target.

Matthew Robert Lovseth Blair: Good morning. Are you able to share the approximate EBITDA contribution of those German and Austrian retail assets up for sale? And then the cash from the sale, would that be earmarked for share buybacks? And if so, would that mean an increase to the $13 to $15 billion target?

Kevin J. Mitchell: Yeah, Matt, this is Kevin. The EBITDA, I'll give you the numbers that are in the information that we're providing to the prospective buyers. It's a, the range is 300 to 350 million euros, which the conversion for that is 325 to 375 million dollars. If you pick the midpoint, 350 million dollars of EBITDA is probably your best number to go with on that. In terms of cash generation, as we've previously stated, our cash return target, the 13 to 15 billion dollars, was not dependent on proceeds from asset sales. So it does have the potential to increase that.

Target.

Matthew Robert Lovseth Blair: Yes, Matt this is Kevin the EBITDA I'll give you the numbers that are on the information that we're providing.

Kevin J. Mitchell: The prospective buyers. It's a the range is 300 350 million euros, which the conversion for that is 325 million to $375 million. If you take the midpoint $350 million of EBITDA is probably the best number to go with on that in terms of cash generation.

Kevin J. Mitchell: And as we've previously stated our cash return target of 13% to $15 billion.

Kevin J. Mitchell: It was not dependent on proceeds from asset sales. So it does have the potential to increase that but I would also say it.

Matthew Robert Lovseth Blair: But I would also say that we haven't made any definitive decisions on exactly how that cash would be deployed, and also the timing is still quite uncertain at this point. Anyway, these processes usually take a while to run through. So that will be something that we will make a determination on near the time when that cash inflow becomes real.

Kevin J. Mitchell: We haven't made any definitive decisions on exactly.

Kevin J. Mitchell: That cash will be deployed and also the timing is still quite uncertain. At this point anyway. These processes, usually take a while to run through so that will be something that we will make a determination on near the time when that cash.

Kevin J. Mitchell: Cash inflow becomes real.

Kevin J. Mitchell: That's great, thanks. And then the $180 million hit in the Rodeo conversion, I think that's a little bit higher than what we were expecting. What drove that increase? And can you provide any sort of breakdown on how much of that was in gross margins versus OPEX versus depreciation? And then also, is it fair to assume that the current Rodeo plant is EBITDA negative since it's not running low CIPs yet?

Speaker Change: That's great. Thanks, and then the $180 million.

Speaker Change: The rodeo conversion.

Speaker Change: I think that's a little bit higher than what we were expecting what what drove that increase and can you provide any sort of breakout on like how much of that was in.

Speaker Change: Gross margins versus Opex versus depreciation and then also is it fair to assume that the current.

Speaker Change: Rodeo plant is as EBIT negative since its not running the <unk> yet.

Kevin J. Mitchell: So on the first question, we're not going to give that level of asset-specific breakdown. And I would say the 180 does not include the absolute loss on a gap basis, which is a bigger number again because we had some impairments related to assets that are taken out of service. So the 180 is consistent with the way we report our adjusted earnings.

Speaker Change: So on the first question.

Speaker Change: We're not going to give that level of asset specific breakout.

Speaker Change: And I would say the 180 does not include the absolute loss on a GAAP basis is bigger number again, because we had some impairments related to assets that were taken out of service. So the 100 <unk> is on the consistent with the way we report our adjusted earnings.

Kevin J. Mitchell: And it does show up in the different areas, but we're not going to provide that level of line item breakdown. The second question was around EBITDA while we're in ramp-up mode. My observation and others will supplement.

Speaker Change: And it does show up in the different areas, but we're not going to provide that level of line item.

Speaker Change: <unk>.

Speaker Change: The second question was around EBITDA, while we're in ramp up mode.

Speaker Change: My observation than others can.

Kevin J. Mitchell: This is clearly when we're in ramp-up mode; we're running higher CI feedstocks. We don't yet have the full economies of scale because we're in ramp-up mode. EBITDA generation is gonna be challenged in the early phases, but as we go through that series of bringing all the units up, production coming up to 50,000 barrels per day, and the feedstocks migrating to lower carbon intensities, we should start to see that transition into positive EBITDA contributions.

Speaker Change: Supplement this is clearly one where in ramp up mode. We are running the.

Speaker Change: The higher Ci feedstocks, we don't yet have the full economies of scale because we are in ramp up mode EBITDA generations going be challenged in the early phases, but as we go through that series of bringing all of the units up production coming up to the 50000 barrels per day, the feedstocks move migrating to the more.

The lower carbon intense intensity, we should start to see that transition into positive EBITDA contribution.

Kevin J. Mitchell: All supported by sustainable aviation fuel. That's right. Another uplift.

Speaker Change: Yes.

Speaker Change: <unk> by a sustainable aviation fuel that's writes another uplift production.

Matthew Robert Lovseth Blair: Great. Thanks for your comments.

Speaker Change: Great. Thanks for your comments.

Paul Cheng: Our next question comes from Paul Cheng of Scotiabank. Please go ahead; your line is open. Thank you.

Our next question comes from Paul Cheng of Scotia Bank. Please go ahead. Your line is open.

Paul Cheng: Thank you Hey, good morning, guys.

Paul Cheng: Hey, good morning, guys. I have to apologize, but I want to go back to the West Coast. Can you share what the op-ex is excluding Waddell, and also what Waddell is going to look like once it's fully ramped up in terms of the op-ex? That's the first question.

Paul Cheng: I have to apologize.

Paul Cheng: I wanted to go back to the West Coast.

Can you share that lumpy is the op Inc.

Paul Cheng: Excluding onetime and also what is whats.

Paul Cheng: Going to look like once it's fully ramped up in terms of the Opex.

Kevin J. Mitchell: OPEX excluding Rodeo. Yeah, Paul, I think the best way to answer that is because we don't give that level of asset-level detail out. But we will be providing more reporting transparency on a going forward basis that will enable you to see the kind of level of information that you're getting for the questions that you're asking for. In future periods, we will be providing more transparency around the Rodeo renewable fuels business separate from West Coast refining. And so I would just say I know that doesn't help you in terms of modeling right now, but just watch this space because we will be providing more transparency around that. Right?

Speaker Change: The first question.

Yeah.

Speaker Change: Opex excluding <unk>.

Speaker Change: Yeah, Paul I think the best way to answer that is because we don't give that level of.

Paul Cheng: Asset level detail eight, but we will be providing more reporting transparency on a going forward basis that will enable you to see that kind of level of information that you are the questions that youre asking for.

Paul Cheng: In future periods, we will be providing more transparency around the rodeo renewable fuels business separate from West coast refining and so I would just say I know that doesn't help you in terms of modeling right now.

Paul Cheng: But just watch this space, because we will be providing more transparency around that.

Kevin J. Mitchell: Kevin, can I ask that from the first to the second quarter? I understand that some one-time operational expenses related to their transition in the first quarter. So the operational expenses, should we assume that they're going to stay at this level in the first quarter, or that they're actually going to be done?

Speaker Change: Hey, Kevin can I ask that from the first to the second quarter I understand there's some one time opex, we need to let them transition in the first quarter. So the Olympics.

Kevin J. Mitchell: Should we assume that it's going to stay at this level as the first quarter or that is actually going to be done.

Kevin J. Mitchell: It's.

Kevin J. Mitchell: Well, it's probably down a little. There's still going to be an elevated element of that. And there's some what we would classify as turnaround-related costs associated with the conversion as well that will show up at Rodeo. So, the trend is downward. We're past the peak span, I guess is the way to say it.

Kevin J. Mitchell: Probably down a little.

There is still going to be an elevated element of that and there is some.

Kevin J. Mitchell: What we would classify as turnaround related costs associated with the conversion as well that will show up but rodeo. So.

Kevin J. Mitchell: So.

Kevin J. Mitchell: But the trend is downward we're past the peak spend I guess is the way to say it.

Jason Daniel Gabelman: Our next question comes from Jason Gabelman of Cowan & Company. Your line is open.

Kevin J. Mitchell: Our next question comes from Jason <unk> of Cowen <unk> Company. Your line is open.

Jason Daniel Gabelman: Yeah, hey, thanks for taking my questions. The first one's just on commercial performance.

Jason: Yeah, Hey, thanks for taking my questions.

Jason: The first one is just on commercial performance and I think you had discussed.

Jason Daniel Gabelman: And I think you discussed a desire to integrate different plans in terms of how you buy crude and sell product and try to maximize profitability across the portfolio rather than at a site level. I'm just wondering if you could provide an update on that journey and if you've seen any of that earnings benefit come through in the results. And then second, just a quick clarification; can you remind us what your target cash balance is?

Jason: Our desire to integrate.

Jason: Different plans in terms of how you buy crude and sell product and try to maximize profitability across the portfolio rather than at a at a site level.

Jason: I'm just wondering if you could provide an update on that journey and if you've seen any of that earnings benefit come through in the results.

Jason: And then second just a quick clarification can you remind us what your target cash balances. Thanks.

Brian M. Mandell: Hey, Jason, it's Brian Mandell. I'll give you some kind of flavor of our journey for commercial. Our commercial supply and trading organization is, as you know, an integrated global business. We have offices in Houston, Calgary, London, and Singapore.

Hey, Jason its Brian Mandell, I'll give you some kind of flavor of our journey for commercial or.

Brian M. Mandell: Commercial supply and trading organization is as you know an integrated global business, we have offices in Houston, Calgary, London and Singapore.

Brian M. Mandell: As you mentioned, our focus is now to fully optimize and capture the optionality value embedded in all the assets, and then to capture that kind of integration value between the various business segments to drive additional value for the company. Last year, internally, we announced a reorganization of our commercial group with the goal of reducing our back-office costs and continuing to advance our capabilities and value creation. We've made some really strong hires this year.

Brian M. Mandell: And as you mentioned, our focus is now to fully optimize and capture the optionality value embedded in all of the assets and then to capture that kind of integration value between the various business segments to drive additional value for the company last year internally, we announced a reorganization of our commercial group the goal of reducing our back office costs.

Brian M. Mandell: And continuing to advance our capabilities and value generation. We've made some really strong hires. This year. We also have a companion organization that we call value chain optimization group <unk> for short, which function is to work across the integrated value chain to ensure that we continue to make the best corporate general interest decisions and ultra.

Brian M. Mandell: We also have a companion organization that we call Value Chain Optimization Group, VCO for short, whose function is to work across the integrated value chain to ensure that we continue to make the best corporate general interest decision. And ultimately, we're kind of focused on driving increased earnings, maximizing our return on capital employed, and increasing the market capture for the refining segment. And doing all this while thinking about continuous improvement and continually growing the business, and Jason on the cache.

Brian M. Mandell: And Lee were kind of focused on driving increased earnings maximizing our return on capital employed and increasing the market capture for our refining segment and doing all this while thinking about continuous improvement and continually growing the business.

Brian M. Mandell: And <unk>.

Kevin J. Mitchell: and Jason on the cash number, the target cash balance, the same as we said in the past two to three billion dollars; we were slightly below that level at the end of the quarter. I'd also say the first quarter is typically a heavy drain on cash, so as we look ahead, we're still very comfortable with that target level.

Speaker Change: Jason on the cash number the target cash balance the same as we said in the past two years to $3 billion, we were slightly below that level at the end of the quarter. I would also say the first quarter is typically a heavy drain on cash quarter. So as we look ahead, we're still very comfortable with that target level.

Theresa Chen: And our final question today comes from Theresa Chen of Barclays. Your line is open.

Speaker Change: Thanks.

Speaker Change: And our final question today comes from Theresa Chen of Barclays. Your line is open.

Theresa Chen: Thank you for taking my question first on the near term outlook for capturing and in second quarter, maybe third as well.

Theresa Chen: Thank you for taking my question. First, on the near-term outlook for CAPTCHA in the second quarter and maybe the third as well, just thinking about the different moving parts, you have presumably less noise from the one-time items impacting the first quarter, whether it be from turnarounds or Rodeo, but you do have WCS narrowing based on your sensitivity and the magnitude that we've seen to date. That should be a sizable headwind. And then later, maybe with TMX ramping up online, delivering barrels to PATH-5 indirectly or directly, that should help your West Coast assets. Just help us think about how to reconcile these variables as we look to CAPTCHA in the near term.

Theresa Chen: Thinking about the different moving parts.

Theresa Chen: Yes.

Presumably less noise from the one time items impacting first quarter, whether it be from.

Turnarounds or jal, but you.

Theresa Chen: You do have WCS narrowing based on your sensitivity in the magnitude that we've seen.

It should be a cycle.

Theresa Chen: <unk>.

Theresa Chen: And then later on maybe what's your next ramping online's evergreen barrels to pass five indirectly or directly and that should help your west coast assets, just help us think about how to reconcile these variables as we look to capture in the near term. Please.

Theresa Chen: Okay.

Speaker Change: I think at a high level of <unk>.

Speaker Change: We.

Speaker Change: We have laser focus on the things we can control and that's what we focus on and that's what rich and Brian focus on I think that the things out of our control would be would be speculative, but but I think rich rich can talk about what we're doing to and what we see over the next couple of quarters with respect to market capture potential and Brian can chime in from a commercial perspective.

Theresa Chen: I think at a high level, Theresa, we have

Richard G. Harbison: Yeah, so Theresa, we talked, this is Rich again. We talked a little bit about some of the headwinds on market capture, which when I think about market capture, from a refining perspective, it's It's our clean product yield. And then it's the products that we make.

Richard G. Harbison: Yes, so Theresa we talked this is rich again.

Richard G. Harbison: We talk a little bit about.

Some of the headwinds on.

Richard G. Harbison: Market capture which when I think about market capture from a refining perspective.

Richard G. Harbison: It's our clean product yield so.

Richard G. Harbison: And then it's the products that we make are we moving up the product value chain on that so first quarter, certainly some headwinds with some downstream conversion unit.

Richard G. Harbison: Are we moving up the product value chain on that? So, first quarter, certainly some headwinds with some downstream conversion unit turnaround activity. But the good news is we've refreshed all that catalyst now, and they're ready to run here.

Richard G. Harbison: Turnaround activity. Good news is we've refreshed all of that catalyst now and.

Richard G. Harbison: They are ready to run here some of that did bleed a little bit into the second quarter, but as.

Richard G. Harbison: Some of that did bleed a little bit into the second quarter, but as we roll into the summer driving season, you'll see our clean product yield and product values in about the best place we can put them. Now, we continue to invest in these as well. We've seen over the last two years that we've completed a number of projects on this front and will continue that program through this year as well, with a target of increasing our market capture by 5% from a mid-cycle base.

Richard G. Harbison: As we roll into the summer driving season.

Richard G. Harbison: Youll see.

Richard G. Harbison: Our clean product yield and product values.

Richard G. Harbison: And in about the best place, we can put them.

Richard G. Harbison: Now we continue to invest in these as well we've seen over the last two years that we've completed a number of projects on this front.

Richard G. Harbison: And continue that program through through this year as well with.

Richard G. Harbison: With a target of increasing our market capture by 5%.

Richard G. Harbison: From a mid cycle basis.

Richard G. Harbison: Through last year, we put projects in that have raised that bar by 3%, and we expect to close the balance of that out of the five this year with an additional 15 projects that are currently in construction. So when we think about the market capture..., this quarter at 69%, I see that as a lower part of our market and something to build on as we move through the rest of the quarter as the facilities come out of turnaround, and Theresa's.

Richard G. Harbison: Three went through last year, we put projects in that have raised that bar by 3%.

Richard G. Harbison: And we expect to close the balance of that out of the five this year with an additional 15 projects that are currently in construction.

Richard G. Harbison: At the sites so.

Richard G. Harbison: So when we think about the market capture.

Richard G. Harbison: <unk>.

Richard G. Harbison: This quarter at 69%.

I see that.

Richard G. Harbison: As a lower part of our market and something to build on that as we move through the rest of the core is it some of these come out of turnaround cycle and Theresa. This is Brian mandate I'll just add some color on the commercial side I would say, we're seeing this year gasoline and diesel roughly flat to last year in terms of demand jet fuel a little bit stronger this.

Brian M. Mandell: And Theresa, this is Brian Mandell. Just to add some color on the commercial side, I would say we're seeing gasoline and diesel roughly flat this year in terms of demand, with jet fuel a little bit stronger this year. I talked about our commercial organization, how we are moving up that curve to take advantage of the optionality in our assets. We'll continue to do that. And then, thinking about WCS, you made a good comment.

Brian: This year I talked about our commercial organization, how kind of moving up that curve to take advantage of the optionality in our assets. We will continue to do that and then thinking about WCS you made a good comment I would say that.

Brian M. Mandell: I would say that, you know, WCS will remain volatile. We have the appetite. We can move around different grades, so we can run Canadian Heavy, and we can run Canadian Lights as well. We have an integrated system, a big commercial footprint. And if the WCS isn't favorable, particularly on our Gulf Coast plans or West Coast plans, we can switch to other grades, such as Latin American grades and AG grades. So there is a lot of flexibility in our system.

Brian: But WCS will remain volatile we have appetite we can move around a different grades. So we can run Canadian heavier, but we can run our Canadian lights as well, we have an integrated system and commercial footprint and if the WCS isn't favorable, particularly on our Gulf coast plants, a west coast plants, we can switch to other grades such as Latin American grades in AG.

Speaker Change: Great. So a lot of flexibility in our system.

Theresa Chen: Got it. And if I could ask a follow-up question related to Kevin's earlier comments about what you know is the appropriate leverage for the company and the commentary related to how some of your more cash flow stable businesses can bear more leverage. Can you just share with us what portion of your midstream business at this point, what portion of the EBITDA is paid by third-party customers and not Philips refining paying Philips midstream? It's I.

Speaker Change: Got it.

Speaker Change: If I could ask a follow up related to Kevin's earlier comments about.

Speaker Change: What's the appropriate leverage is split the company.

Commentary related to some of the cash.

Speaker Change: Cash flow stable businesses can bear more leverage.

Speaker Change: Can you just share with us what portion of your midstream business at this point what portion of the EBITDA is paid by third party customers and not fill.

Speaker Change: Refining and midstream.

Speaker Change: Yes.

Kevin J. Mitchell: It's Theresa, and I'll have to verify the number, but we're well into I would say it's 70, 65 to 70 percent third parties.

Speaker Change: Theresa go verify the number but.

Theresa Chen: We're well into I would say, it's 70%, 65% to 70% third parties.

Speaker Change: Thank you.

Mark E. Lashier: This concludes the question and answer session. I'll now turn the call back over to Mark Lashier for closing remarks.

Speaker Change: Yes.

Speaker Change: This concludes the question Seth.

Speaker Change: I'll now turn the call back over to Mark nature for closing remarks.

Mark E. Lashier: All right, thank you all for your great questions. The market fundamentals that we're looking at are supportive, and our assets have been running strong since the completion of seasonal maintenance activities. Our integrated portfolio is well positioned to capture market opportunities and to meet peak summer demand. We've got a clear path forward to achieve our strategic priorities that support $4 billion of growth from our 2022 mid-cycle adjusted EBITDA to our $14 billion target by 2025. We're confident in our ability to grow cash flows and create significant long-term value for shareholders.

Mark E. Lashier: Alright. Thank you all for your great questions.

Mark E. Lashier: The market fundamentals that we're looking at are supportive and our assets are running strong since the completion of seasonal maintenance activities.

Mark E. Lashier: Integrated portfolio is well positioned to capture market opportunities and to meet the peak summer demand.

Mark E. Lashier: We've got a clear path forward to achieve our strategic priorities that support $4 billion.

Mark E. Lashier: Of growth from our 2020 to mid cycle adjusted EBITDA to our $14 billion target by 2025.

Mark E. Lashier: We're confident in our ability to grow cash flows and create significant long term value for shareholders.

Mark E. Lashier: Thank you for your interest in Phillips 66. If you have questions after today's call... Please call Jeff for Owen. Thank you.

Speaker Change: Thank you for your interest in Phillips 66, if you have questions after todays call. Please.

Speaker Change: Please call Jeff Rohan Thank you.

Lydia: This concludes today's call. Thank you for joining us. You may now disconnect your line.

Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your line.

Speaker Change: Yeah.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yeah.