Q2 2025 Phillips 66 Earnings Call

Operator: Earnings Conference Call.

Operator: My name is Emily and I'll be your operator for today's call. At this time all participants are in a listen only mode.

Welcome to the second quarter 2025 Phillips 66 earnings conference call.

Emily: My name is Emily and I'll be your operator for today's call.

Operator: Later we will conduct a question and answer session. Please note that this conference is being recorded.

Emily: At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.

Jeff Dietert: I will now turn the call over to Jeff Dietert, Vice President, Investor Relations. Jeff, you may begin. Welcome to Phillips 66 earnings conference.

Emily: Please note that this conference is being recorded.

Speaker Change: I will now turn the call over to Geoff dartt, vice president, investor relations.

Speaker Change: Jeff, you may begin.

Jeff Dietert: Participants on today's call will include Mark Lashier, Chairman and CEO, Kevin Mitchell, CFO, Don Baldridge, Midstream and Chemicals, Rich Harbison, Refining, and Brian Mandell, Marketing and Today's presentation can be found on the Investor Relations section of the Phillips 66 website. along with Supplemental Financial and Operating.

Speaker Change: Welcome to Philip 66 earnings conference call.

Speaker Change: Participants on today's call will include mark laser chairman and CEO. Kevin Mitchell, CFO. Don, Baldridge, Midstream and chemicals, Rich, Harbison refining and Brian Mandel, marketing and Commercial.

Jeff Dietert: 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.

today's presentation can be found on the investor relations section of the Philips 66 website, along with supplemental financial and operating information

Mark Lashier: Factors that could cause actual results to differ are included here as well as in our With that, I'll turn the call over to Mark. Thanks, Jeff.

Speaker Change: Slide 2 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.

Mark Lashier: Welcome, everyone, to our second quarter earnings We have a strong financial and operating result. are a reflection of our focused strategy, disciplined execution, and meaningful progress toward achieving our 2027 strategic priority. Coming off our large spring turnaround program, we said we were positioned to capture a strengthening market, and we delivered. are refining assets ran at 98% utilization, the highest since Clean product yield was over 86%. captured 99% of our market indicator and achieved our lowest adjusted cost per barrel since 2021. along with refining the other parts of our integrated business delivery. midstream generated adjusted EBITDA of approximately $1 billion.

With that, I'll turn the call over to mark.

Thanks Jeff.

Mark: Welcome everyone to our second quarter earnings call.

Mark: We had a strong financial and operating results this quarter.

Mark: There are reflection of our Focus strategy, discipline execution and meaningful progress toward achieving our 2027, strategic priorities,

Coming off our large spring turnaround program. We said we were positioned to capture strengthening market and we delivered.

Mark: Our refining assets ran at 98% utilization the highest since 2018.

Mark: Clean product yield was over 86%.

Mark: We captured 99% of our Market indicator and achieved our lowest adjusted cost per barrel since 2021.

Along with refining, the other parts of our integrated business delivered.

Mark Lashier: We're on track to achieve the $4.5 billion annual EBITDA target in midstream by 2027. Marketing and Specialties reported its strongest quarter since 2022. The combination of stable contributions from midstream and marketing and specialties provide a robust platform for our capital allocation framework. We returned over $900 million to shareholders this. The resilience of our integrated business model drives results delivering consistent returns to shareholders. Slide four shows the progress we've made in our refining business from targeted, low-capital, high-return investments and a dedication to operating equity. Results are clear. Utilization is improving, and we're consistently above industry average.

Midstream generated adjusted ibida of approximately 1 billion dollars.

We're on track to achieve the 4 and a half billion dollars. Annual Eva Target in Midstream by 2027.

Marketing and Specialties reported its strongest quarter since 2022.

The combination of stable contributions from Midstream and marketing and Specialties provide a robust platform for our Capital allocation framework.

Mark: We returned over 900 million dollars to shareholders this quarter.

Mark: The resilience of our integrated business model, drives results, delivering consistent returns to shareholders.

With progress, we've made in our refining, business, from targeted, low Capital, High return Investments and a dedication to operating excellence.

Mark Lashier: We've been setting new clean product yield rec- Year-to-date, our yield is 2% higher than the previous record for the same period set in 2024. These factors have contributed to market capture improving to 99% of our published refining indicator. Year to date, market capture has increased 5% compared to the first half of last year. Our goal is to drive performance in any market environment while running our assets safely and reliably. The second quarter PSX market indicator was just over $11 a barrel. As a reminder, for every dollar per barrel that the indicator increases, EBITDA increases by roughly $170 million per quarter.

Results are clear, utilization is improving and we're consistently above industry, average.

We've been setting new clean product yield records year to date. Our yield is 2% higher than the previous record for the same period set in 2024.

Mark: These factors have contributed to Market capture improving to 99% of our public refunding indicator. This quarter

Year to date Market capture has increased 5% compared to the first half of last year.

Mark: Our goal is to drive performance in any Market environment, while running our assets safely and reliably

The second quarter PSX Market indicator was just over $11 a barrel.

Mark Lashier: In the second quarter, we achieved the lowest refining adjusted cost per barrel since 2021. The organization has done a fantastic job embracing a culture of continuous improvement, enabling us to more than offset inflation. By 2027, we expect to see the adjusted cost per barrel number below $5.50 per barrel on an annual basis. Midstream is a key growth driver for our company and creates ongoing value for our shareholders through reliable, long-term cash generation. Slide 5 shows the increase in quarterly average adjusted EBITDA from $500 million in 2021 to $1 billion this quarter. We reached significant milestones in the second quarter as we continue to enhance our integrated wellhead to market strategy.

As a reminder, for every dollar per barrel, that the indicator increases Eva increases by roughly 170 million dollars per quarter.

Mark: In the second quarter, we achieved the lowest refining adjusted cost per barrel since 2021.

Mark: The organization has done a fantastic job, embracing a culture of continuous Improvement enabling us to more than offset inflation.

Mark: By 2027, we expect to see the adjusted cost per barrel. Number below, 5.50 per barrel on an annual basis.

Mark: Midstream is a key growth driver for our company and creates ongoing value for our shareholders through reliable long-term cash generation.

Slyde 5 shows the increase in quarterly average adjusted ibida from $500 million in 2021 to 1 billion dollars this quarter.

Mark Lashier: We acquired Epic NGL, now renamed Coastal Bend at the beginning of the We're also near completion on the capacity expansion pipeline project from 175 to 225,000 barrels per day. The Dos Picos II gas processing plant came online ahead of schedule and on budget at the end of the second quarter. This plant and the previously announced Iron Mesa plant are great examples of highly strategic and selective investments that enhance Midstream's return on capital employment. These projects contribute to our plan to organically grow midstream ebona to $4.5 billion by 2026. Midstream is an important part of the Phillips 66 story.

Mark: We reached significant milestones in the second quarter as we continue to enhance our integrated Wellhead to Market strategy, we acquired epic NGL. Now, renamed Coastal Bend at the beginning of the quarter.

Mark: We're also near completion on the capacity expansion pipeline project from 175 to 225,000 barrels per day.

The dose Picos 2 gas processing plant came online ahead of schedule and on budget at the end of the second quarter,

Mark: this plant and the previously announced iron Mesa plant are great examples of Highly strategic and selective Investments that enhance mid-stream return on Capital employees.

Mark: These projects contribute to our plan to organically grow Midstream IA, to 4 and a half billion dollars by 2027.

Mark Lashier: We're executing on our well-head-to-market strategy, and the results are coming. Over the past several months, we've had the opportunity to extensively engage with shareholders leading up to and following the annual shareholder meeting. These conversations provided valuable, constructive feedback on our strategic direction, along with the support of our priorities.

Mark: Midstream is an important part of the Philips 66 story. We're executing on our well-head to Market strategy and the results are coming through.

Mark: Over the past several months, we've had the opportunity to extensively engage with shareholders leading up to, and following the annual shareholder meeting.

Mark Lashier: We will remain focused on four key areas. Enhancing our Refining Competitiveness driving organic growth in midstream, reducing debt and returning over 50% of net operating cash flow to shareholders through share repurchases and a secure competitive and growing dividend. We've made substantial progress and remain committed to maintaining safe and reliable operations as we execute on achieving these initiatives by 2027.

These conversations provide a valuable constructive feedback on our strategic Direction, along with the support of our priorities.

Mark: We will remain focused on 4 key, areas, enhancing our refining, competitiveness.

Mark: Driving organic growth in Midstream, reducing debt and returning over 50% of net, operating cash flow to shareholders through share repurchases and a secure competitive, and growing dividend.

Mark: We've made substantial progress and remain committed to maintaining safe and reliable operations. As we execute on achieving these initiatives by 2027.

Mark Lashier: In the second quarter, we welcome the addition of three new board members. As we do with all new directors, each new board member participated in a comprehensive multi-day onboarding process with a broad group of our senior leadership. Equipping them to contribute meaningfully and immediately. The extensive industry experience of our board members continues to promote thoughtful discussion and thorough evaluation of all opportunities for maximizing shareholder value.

Mark: In the second quarter, we welcome the addition of 3 new board members, as we do with all new directors, each new board member participated in a comprehensive multi-day. Onboarding process with a broad group of our senior leadership team, equipping them to contribute meaningfully and immediately.

Kevin Mitchell: Now I'll turn the call over to Kevin to cover the results for the quarter. Thank you, Mark. On slide 7, second quarter reported earnings were $877 million, or $2.15 per share. Adjusted earnings were $973 million, or $2.38. Both the reported and adjusted earnings include the $239 million pre-tax impact of accelerated depreciation due to our plan to cease operations at the Los Angeles refinery in the fourth quarter. We generated $845 million of operating cash. Operating cash flow excluding working capital was $1.9 billion. We returned $906 million to shareholders, including $490 million of share repurchase. Net debt-to-capital was 41%, and reflects the impact of the acquisition of the Coastal Bend Act.

Mark: The extensive industry experience of our board members continues to promote, thoughtful discussion and thorough evaluation of all opportunities for maximizing shareholder value.

Now, I'll turn the call over to Kevin to cover the results for the quarter.

Thank you, Mark.

Mark: On slide 7, second quarter reported earnings were 877 million or $2.15 per share.

Mark: Adjusted earnings were 973 million or $2.38 per share.

Mark: Both the reported and adjusted earnings include the 239 million pre-tax impact of accelerated depreciation. Due to our plan to see operations at the Los Angeles refinery, in the fourth quarter.

We generated 845 million of operating cash flow.

Mark: Operating cash flow, excluding working capital was 1.9 billion dollars.

We returned 966 million to shareholders including 419, million of Sheri purchases.

Kevin Mitchell: We plan to reduce debt with operating cash flow and proceeds from the announced Germany and Austria retail marketing which we expect to close in the fourth.

Mark: Net debt to Capital was 41% and reflect the impact of the acquisition of the coastal band assets.

Kevin Mitchell: I will now cover the segment results on slide 8. Total company adjusted earnings increased $1.3 billion to $973 million compared with prior quarters adjusted loss of $368 million. Midstream results increased mainly due to higher volumes, primarily due to the acquisition of the coastal bend.

Mark: To close in the fourth quarter.

Mark: I will now cover the segment results on slide 8.

Total company adjusted earnings, increased 1.3 billion to 973 million compared, with prior quarters, adjusted loss of 368 million.

Kevin Mitchell: In chemicals, results decreased, mainly due to lower polyethylene margins driven by lower salinity. The finding results increased, mainly due to higher realized margins. We came out of a high turnaround season in the first quarter well-positioned to capture improved... market capture was 99% and crude utilization was 98%. In addition, costs were lower primarily due to the absence of first quarter turnaround. Mark's and Specialty's results improved due to seasonally higher margins and volume. In renewable fuels results improved primarily due to higher realized margins, including inventory impact.

Mark: Midstream results, increased mainly due to higher volumes, primarily due to the acquisition of the Coastal, Bend assets,

Mark: In chemicals results, decrease mainly due to lower polyethylene, margins driven by lower sales prices.

Mark: Refining results increased mainly due to higher realized margins.

Mark: we came out of the high turnaround season in the first quarter, well positioned to capture improved crack spreads,

Market capture was 99% and crude utilization was 98%.

Mark: In addition costs were lower primarily due to the absence of first quarter turnaround impacts.

Marketing and Specialties results, improved due to seasonally higher. Margins and volumes,

In renewable fuels results improved primarily due to higher realized margins, including inventory impacts.

Kevin Mitchell: Slide 9 shows cash flow for the second quarter. Cash from operations excluding working capital was $1.9 billion. Working capital was a use of $1.1 billion, primarily due to an increase in accounts receivable from higher refined product sales in the quarter following the spring turnaround program. Debt increased primarily due to the acquisition of the coastal bend assets for $2.2 billion. We funded $587 million of capital spending and returned $906 million to shareholders through share repurchases and dividends. Our ending cash balance was $1.1 billion.

Mark: Slide 9 shows cash flow for the second quarter.

Mark: Cash from operations, excluding working capital was 1.9 billion dollars.

Mark: Working capital was a use of 1.1 billion per Miley. Due to an increase in accounts. Receivable from higher, refined product sales in the quarter, following the spring turnaround program.

Mark: Debt increased primarily due to the acquisition of the coastal band assets for 2.2 billion dollars.

Mark: We funded 587 million of capital spending and returned 906 million to shareholders through Sherry purchases and dividends.

Kevin Mitchell: Looking ahead to the third quarter on slide 10. and Chemicals, we expect the global O&P utilization rate to be in the mid In refining, we expect the worldwide crew utilization. to be in the low to mid 90s. and the turnaround expense to be between $50 and $60 million. We continue to optimize turnarounds and improve performance. We are reducing the full year turnaround guidance by $100 million. The new guidance is $400 to $450 million compared to the previous guidance of $500 to $550 million. We anticipate corporate and other costs to be between $350 and $370 million.

Mark: Our ending cash balance was 1.1 billion.

Looking ahead to the third quarter on, slide 10.

Mark: In chemicals, we expect the global on P. Utilization rate to be in the mid-90s.

Mark: In refining, we expect the worldwide crew utilization rate to be in the low to mid 90s and turn around expense to be between 50 and 60 million dollars.

We continue to optimize turnarounds and improve performance.

Mark: We are reducing the full year turnaround guidance by 100 million dollars.

Mark: The new guidance is 400 to 450 million compared to the previous guidance of 500 to 550 million.

Operator: Now we will move to slide 11 and open the line for questions, after which Mark will wrap up. Thank you.

Mark: We anticipate corporate and other costs to be between 350 and 370 million.

Mark: Now we will move to slide 11 and open the line for questions after which Mark will wrap up the call.

Operator: We will now begin the question and answer session.

Mark: Thank you.

Operator: As we open the call for questions, as a courtesy to all participants, please limit yourself to one question and a follow-up. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press star then two. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touchtone phone.

We will now begin the question and answer session.

Mark: As we open the call for questions as a courtesy to all participants, please limit yourself to 1 question and a follow-up.

Mark: If you have a question, please press star, then 1 on your touch tone phone, if you wish to be removed from the queue please press start. Then 2

Mark: if you are using a speaker-phone, you may need to pick up the handset first before pressing the numbers,

Mark: Once again, if you have a question, please press star then 1 on your touchtone phone.

Doug Leggate: Our first question today comes from Doug Leggate with Wolf Research. Please go ahead, your line is now open. Thanks. Good morning, everyone. Mark, after all the drama of the last six months, quite a quarter you put up. So good to see that.

Douglas: Our first question today comes from Douglas with Wolfe research.

Please go ahead. Your line is now open.

Mark Lashier: I am curious, however, your last part of your prepared remarks, you said, you referenced, I don't want to put words in your mouth here, but it was kind of engaging with shareholders and obviously reviewing or continuing to review the appropriate opportunities to maximize value. I guess it's a strategy question. So after everything that's happened in the last six months, are you still comfortable with the forward strategy of the integrated company, or do you envisage any incremental changes in light of what you've been through the last few years? Yeah, Doug, it's a good, solid question. Thank you for asking that.

Douglas: Uh, thanks. Good morning, everyone. Uh, Mark. Um, after all the drama of the last 6 months, quite a quite a quarter and you put up so uh good good to see that. I I am curious however, uh, your your last part of your prepared remarks. You said

Douglas: You referenced. Um, I don't want to put words in your mouth here, but it's kind of engaging with shareholders and um, obviously reviewing or continuing to review the appropriate opportunities to maximize value. I guess it's a strategy question, so after everything that's happened in the last 6 months, are you still comfortable with?

Douglas: This the forward strategy of the integrated company or do you envision any incremental changes in light of the um you know what you've been through the last few 3 or 4 months?

Mark Lashier: And we've been quite encouraged, frankly, by the constructive engagement we've had with all of our shareholders over the last several months. You know, the results of the vote, we believe, reflect what's been a consistent theme in the conversations that we've had with shareholders. You know, they understand the value inherent in the business, and they recognize that our plans can provide upside as we continue to execute against them. We're fully aligned, and the shareholders agree that there's significant value in Phillips 66, and we've got to go out and capture that upside. So as we always do, we continue to evaluate a wide range of strategic alternatives.

Mark Lashier: Our board is very engaged in the process, constantly, you know, questioning us, is the strategy effective? Do we need to tweak it? Do we need to make major changes to it? We have a wealth of experience and talent on our board. We've got retired chairmen, CEOs, CFOs, corporate executives that are well-established and Wall Street veterans. And so they constructively challenge our strategy every step of the way. And as I mentioned, we've got the three new members that have been deeply immersed in an onboarding process that gives them access to all the data that they didn't have access during the proxy season.

Mark Lashier: And so they have a clearer understanding of where we're headed, why we're headed that way, and how we can unlock value. And as I've said before, there's no sacred cows. We're not ideological about anything. Well, we are ideological about one thing, and that's shareholder value creation. So let me correct myself. But, you know, the right price and for the creation of long-term value, we'll consider any alternatives. But we always, always, always are focused on the long-term value creation opportunities. And so I think our shareholders agree with us in that regard.

Douglas: We have a wealth of experience and Talent on our board. We've got, we've got retired chairman CEOs CFOs corporate Executives that are well established in Wall Street veterans. And so they can they uh, they constructively challenge our strategy every step of the way. And as I mentioned, we've got the 3 new members that have been deeply immersed, uh, in an onboarding process that gives them access to all the data that they didn't have access, uh, during the proxy, uh, season. And so they, they have a clear understanding of where we're headed, why we're headed that way and how we can unlock value, uh, and as I've said before, there's no sacred cows, uh, we're not ideological about anything. We're, well, we are ideological about 1 thing and that's shareholder value creation. So let me correct myself. But, uh, you know, at the right price, uh, and for, uh, the creation of long-term value, we'll consider any alternatives but we always always always, always are focused on the long-term value creation opportunities. And so I think our shareholders agree with us.

Douglas: Uh, in that in that regard.

Doug Leggate: I appreciate the very full answer, Mark. Thank you for that.

Mark Lashier: My follow-up is, I guess I'm asking a lot of people about debt nowadays, but my follow-up is a little different, perhaps in the context of the macro. So strong quarter, two and a half billion of EBITDA, obviously, you're not where you want to be on midstream. But if I annualize that at the margin environment we had, we're still obviously quite a bit shy of the 15 billion. So my question is, if you have to try and normalize for today's environment, what would the 15 billion be? Meaning, rather than making assumptions on the mid-cycle, what would it be in today's environment?

Douglas: I appreciate the very full answer. Um mark thank you for that. My my follow-up is um I guess I'm asking a lot of people about that nowadays but my follow-up is a little different perhaps in the context of the micro so strong, quarter 2 and a half billion of you but that you're not where you want to be on Midstream. But if I annualize that at the margin environment, we had we're still obviously quite a bit shy of the 15 billion.

Kevin Mitchell: In other words, how far away from that are you? And assuming it is less than 15 billion, how does Kevin think about the right level of debt for the combined company as it stands? Yeah, I think what we've said, and I would say the controversy is around, you know, putting a stake in the ground on what everybody believes that mid-cycle conditions are in refining. And so we said that based on our indicators, we see that as a $14 per barrel indicator. And so clearly we're several dollars per barrel below, away from that. And that's the key driver between that and what chemicals does.

So, my question is, if you had to try normalized for today's environment, what would the 15 billion B meaning rather than making assumption on the, on the mid cycle? What would it be at today's environment? Uh, in other words how far away from that are you and if assuming it is less than 15 billion, how does, um, how does Kevin think about the right level of debt for the uh combined company? As it stands today?

Kevin Mitchell: And we're in the bottom of the cycle for chemicals. So we've got a lot of upside in chemicals to add to that number. So we've got a long way to go to get to those levels. Although I would say this quarter, the gap to mid-cycle closed considerably for refining, but chemicals is still a couple years out.

Kevin Mitchell: So, Kevin, I'll turn it over to you for debt. Yeah, and just one additional point, Doug. So refining, David, that was $867 million in the quarter. If you annualize that, you get a three and a half billion number. That's an $11 market indicator. If you use the sensitivity to a $14 market indicator, it puts you just a little bit north of five billion. You can question whether you have your own view on whether $14 per barrel market indicator is the right mid-cycle. But that's what we've put out there. I would also caution, though, that this was a quarter with minimal turnaround activity.

Yeah, I think what we've said and, and I, I would say the controversy is around, you know, putting a stake in the ground and what everybody believes that mid-cycle conditions are, uh, in in refining. And so, we said that based on our indicators, we see that as a, as a 14 billion, a $14, uh, per barrel indicator. And so clearly, we're we're several dollars per barrel below away from that and that's the key driver between that and what chemicals does and we're in the bottom of the cycle for chemicals. So we've got a lot of upside and chemicals to add to that number. So, uh, we've got, uh, we've got a long way to go to get to those levels. Although, I would say this quarter, the Gap to mid-cycle close considerably for refining but chemicals are still uh, a, a couple years out. So Kevin I'll turn it over to you for debt. Yeah. And just 1 additional Point Doug. So refining paper that I was 867 million in the quarter if you annualize that um you get a 3 and a half billion number

Kevin Mitchell: We ran extremely well. Typically, you're not going to have four quarters of that in a given calendar year. So we need to adjust for that. But fundamentally, we're in the ballpark of where we should be relative to our mid-cycle assumptions.

Kevin Mitchell: On the debt question, I go back to what we've been saying, that the $17 billion of debt on a consolidated basis, we feel, puts us in a very comfortable spot relative to not only our mid-cycle assumptions, but also in a less than mid-cycle environment like we're in today. Clearly, we're not at that debt level today. But we have that objective to get there over the next couple of years, and we expect to do that. We expect to accomplish that through a combination of cash generated from operations as well as proceeds from dispositions. Notwithstanding all of that, it does not compromise our ability to continue to return cash to shareholders.

Kevin: That's an 11 dollar market indicator. If you use the sensitivity to a 14 dollar market indicator, it puts you just a little bit north of 5 billion. Um, you can question, whether you have your own view on whether 14 dollars per barrel Market indicator is the right mid cycle. Um but that's what we've put out there. I will. I would also caution though that this was a quarter with minimal turnaround activity. We ran extremely well typically not going to have 4 quarters of that in a given calendar year. So we need to adjust for that. But fundamentally we're in the ballpark of where we should be relative to our mid cycle assumptions. On the debt question, I go back to what we've been saying that that 17 billion of debt on a Consolidated basis. We feel puts us in a very comfortable spot relative to our not only our mid-cycle assumptions but also in the in a less than mid-cycle environment. Like we're at like we're in uh today clearly we're not at that deck level.

Doug Leggate: So 50% of operating cash flow, 50% or more of operating cash flow through share repurchases and dividends. Appreciate the answers, guys. Thanks very much indeed. Thank you, Doug. Thank you.

Kevin: Today, um, but we have that objective to get there over the next couple of years and we expect to do that. Um, we expect to accomplish that through a combination of cash generated from operations, as well, as proceeds from, uh, dispositions notwithstanding. All of that. It does not compromise our ability to continue to return cash to shareholders. So, 50% of operating cash flow. People said, oh, more of operating cash flow,

Kevin: Uh, through, uh, Chevy purchases and dividends.

Appreciate the answers, guys. Thanks very much indeed.

Doug: Thank you, Doug.

Manav Gupta: Our next question comes from Manav Gupta with UBS. Please go ahead. Morning. I wanted to focus a little bit on the refining results. 99% capture, 98% crude utilization. I understand some of those things would be tough to replicate, but even quarter over quarter or year over year, these are remarkable achievements. So can you help us understand what helped you drive close to $1.3 billion in quarter over quarter improvement in refining? I know the cracks were higher, but help us walk through some of the stuff which you were able to achieve here. I think you probably were working on it for some time, but it all came together in the second quarter.

Thank you. Our next question. Comes from a nav Gupta with UBS

Speaker Change: Please go ahead.

Speaker Change: Even quarter over quarter or year over year. These are remarkable achievements. So can you help us understand? What helped you drive close to 1.3 billion in quarter, overall Improvement in refining. I know the cracks were higher but, uh, help us walk through some of the stuff, which you were able to achieve here. I think you probably were working on it for some time but it all came together in the second quarter.

Mark Lashier: Yeah, Manav, thank you. We appreciate that as the data shows. And as we've said, for the last several years in refining, we had full intention to improve refining performance, and we were with a focus on the things that we can control. That's most evident in things like the clean product yield, the utilization rate, market capture is going to have more variability in it, because of the movements in the market and crude diffs and all those variables that we have less control over. But we absolutely will continue to drive costs down in the areas that we can control things like natural gas costs may go up and down.

Rich Harbison: But where we're looking at the things that we can control, we'll continue to drive those costs down where it's responsible to do so. And so we'll continue to fight that fight and position refining. For whatever the market conditions are, we're going to be out there to capture the market that's available. And I think that's what we saw in the second quarter. It's a combination of very disciplined focus over the last three years of preparing and implementing projects and executing to be able to capture that market when it's available to us.

Speaker Change: Yeah, thank you. We appreciate that as as the data shows, and as we've said for the last several years in refining, we had full intention to improve refining performance. And we were with a focus on the things that we can control, but that's most evident in things like the clean product. Yield the utilization rate Market capture is going to have more variability in it because you you because of the movements in the market and crew dips and all those. Those variables that we have less control over but we absolutely will continue to drive costs down in the areas that we can control things, like natural gas costs may go up and down but where we're looking at the things that we can control will continue to drive, uh, those costs now where it's responsible to do so. And so, uh, we we'll continue to fight that fight. And, uh, and position refining, uh, for whatever the market conditions are we're going to be out there uh, to capture the market that's available and I think that's what we saw in the second quarter. It's a combination of very disciplined, Focus over the last 3 years.

Rich Harbison: So Rich can drive into more detail. Yeah, Manav, let me go a little bit, maybe a layer deeper here on this. You know, our mission in refining is to run the assets safely and reliably, and then drive world class performance. And we do this, as Mark indicated, by managing the items we can't control, and then sustainably implementing change over time. And of course, the foundation for all of this is safe and reliable operations. And we are an industry leader in safety. And we have that culture in our organization, that continually challenges ourselves to be the best we can be.

Rich Harbison: We've also established a comprehensive reliability program that has been applied to each of our assets out there in the field. And we're measuring that success by mechanical availability. Ultimately, utilization of the assets will be the final measurement of that one. You talked, you asked a little bit about market capture, and we had a fantastic quarter at 99% market capture. But even if you look at the data a little bit closer, year over year, year to date, we're showing a 5% improvement year over year. So, you know, that's, that's That sustainable improvement is what we're looking for over time.

Of preparing, uh, and implementing projects and executing to be able to capture that market, uh, when it's available to us, so rich can drive into more details. Yeah, man, let me uh, go a little bit. Uh, maybe a layer deeper here on this. You know, our mission and refining is is to run the assets safely and reliably and then drive world-class performance. And we do this as Mark indicated by managing the items we can control and then sustainably implementing change over time. And of course the foundation for all of this is safe and reliable operations and we are an industry leader in safety. And we have that culture. In our organization that continually challenges ourselves to be the best we can be. We've also established a comprehensive reliability program that has been applied to each of our assets out there in the in the field and we're measuring that success by mechanical. Availability ultimately.

Utilization of the assets will be the final measurement of that 1. You, you talked, you asked a little bit about Market capture, and we had a fantastic quarter at 99% Market capture. But even if you look at the data a little bit closer year over year year to date, we are we're showing a 5% Improvement year-over-year. So you know, that's that's

Rich Harbison: And there's a couple reasons we're able to achieve that. One is the reliability program and the impact it's having on our ability to utilize our assets. And crude utilization was at 98% for the quarter. That's actually nine out of the last ten quarters we've been well above industry average on utilization. Only interrupted by a set of turnarounds in the first quarter of this year. We've reached some record clean product yield as well at 87% for the assets. We're on pace this quarter also to meet that and potentially exceed it. And this is a reflection of what I've been talking about over the last three years, which is the execution of these small capital high return projects.

Speaker Change: That's sustainable Improvement is is what we're looking for over time and there's a couple reasons, we're able to achieve that 1 is the reliability program and the impact it's having on our ability to utilize our our assets and crude utilization was at 98% for the quarter.

Speaker Change: it's actually 9 out of the last 10 quarters, we've, we've been well above industry average on utilization, only interrupted by a set of turnarounds, in the first quarter of, of this year,

Speaker Change: we've reached some record clean product yield as well at 87% for for the assets.

Speaker Change: We're on Pace. This quarter, also to meet that and potentially exceed it.

Rich Harbison: They've improved both our clean product yield as well as driven flexibility into the into the system. We've increased our ability to produce gasoline, diesel and jet and swing between those those three components. We've also improved our flexibility to process light and heavy crudes without losing capacity in the overall system. There's no better example of this than at our Sweeney Complex, where we recently completed the Sour Crude Flex Project, we called it. This project actually increased our ability to process light crude by three times the historic volume and the largest crude unit at the site. to reduce our dependence on waterborne crude.

And this is a reflection of what I've been talking about over the last 3 years, which is the execution of these small, Capital, High return projects. They've improved both our clean product yield, as well as driven flexibility into the, into the system. We've increased our ability to produce gasoline Diesel and jet and swing between those those 3 components. We've also improved improved our flexibility to process light and heavy Crews without losing capacity in the in the overall system.

Speaker Change: There's no better example of this than at our Sweeney complex where we recently completed the sour crude Flex project. We called it

Speaker Change: This project actually increased our ability to profit like crude by 3 times, the historic volume and the largest crude unit at the site.

Rich Harbison: And it also takes advantage of the integration of the site with the midstream NGLs and CP-Chem feedstock generation with increased line ends production. And we see a nice improvement with market capture with that project as well. also been driving the inefficiencies out of the business. I think this is also a big important part of refining performance. And we've been managing the fundamental difference here that we've been doing. as an organization is managing the assets. as a fleet, versus a set of independent operations. And that's really opened up our ability to drive inefficiencies out of the business.

Speaker Change: to reduced our, our dependence on waterborne crude,

Speaker Change: And it's also takes advantage of the integration of the site with the Midstream ngls and CPM feed, stock generation with increased light ends production.

Speaker Change: And we see uh, nice improvement with Market capture with that project as well.

Also been driving the inefficiencies out of the business. I think this is also a big important part of refining performance. And we've been managing, the fundamental difference here that we've been doing.

Speaker Change: As an organization is managing the assets.

Rich Harbison: And we've removed well over a dollar per barrel out of the system. We saw a really good number of $5.46 in the second quarter. And we're striving to be below $5.50 on an annualized basis as our goal. The key thing, quarter over quarter, was really higher utilization for the assets. We had a set of turnarounds in the first quarter, we had 17% increase in volume in the second quarter. So that improved, really drove the dollar per barrel cost down. But if you look underneath that even a little bit more, the operating costs for the assets were flat quarter over quarter, with the exception of the turnarounds.

Speaker Change: As a fleet versus a set of independent operations and that's really opened up our ability to drive inefficiencies out of the out of the out of the business. And we've removed well over a dollar per barrel out of the system. We saw a really good number of 5.46 cents in the second quarter. And we're striving to be uh below 550 on an annualized basis as our goal.

Rich Harbison: So that base cost is still there, it's fixed. It's doing, we're able to operate the assets well. And it's a little bit subject, as Mark indicated, to the natural gas price that is moving around a little bit on us right now, which drives a dollar per barrel as well.

Mark Lashier: You know, we're making some portfolio management changes with the Los Angeles refinery. Let me kind of wrap this up, you know, we've made good progress. But we're not done. continue to focus on and drive these strategies. And I think, Manav, if you look at it over time, you see this trend. the steady drumbeat of improvement that's occurred in the refining system. And that means our processes of changing are really sustainably implemented. And most importantly, the people, our organization, our people have proven that we're willing to take on the hard work of change and put it in place and capture the opportunities over time.

Speaker Change: The G. The key thing quarter over quarter was really higher utilization, uh, for the assets, we had the set of turnarounds in the first quarter. We had 17% increase in volume in the second quarter so that that improves really drove the dollar per barrel cost down. But if you look underneath that even a little bit more, the the operating costs for the assets were flat quarter over quarter with the exception of the turnarounds, so that base cost is still there. It's fixed. It's doing, uh, we're able to operate the assets. Well, and it's a little bit subject as Mark indicated to the natural gas, price as, uh, that is moving around a little bit on us right now which drives a dollar per barrel as well. You know, we're making support portfolio management, change changes.

Speaker Change: With the Los Angeles Refinery. Let me kind of wrap this up, you know, we we made good progress.

Speaker Change: But we're not done.

We'll continue to focus on and drive these strategies. And I and I think manav, if you look at it over time you see this trend

Mark Lashier: Yeah, yeah, I just want to echo Richard's closing comments there, whether it's refining, marketing, commercial, midstream or back office. Across the board, we've got a company full of people that are humble enough to know we can always do it better. And we're driven to do it better. We've got the competitive mindset to do it better, and to get up and do it better each and every day. And that's what's going to make this sustainable. And that's going to continue to improve those metrics that you've seen across the board. So thanks for the question.

Speaker Change: The steady drum beat of improvement, that's occurred in in the refining system. And that means our processes of changing are really sustainably implemented. And most importantly, the people are organization. Are people have proven that we're willing to take on the hard work of change and put it in place and capture the opportunities over time. So yeah, yeah, I just want to Echo Rich's closing comments there whether its refining marketing commercial, Midstream, or back office across the board. We've got a company full of people that are humble enough to know. We can always do it better and we're driven to do it better. We've got the competitive mindset to do it better and to get up and do it better each and every day and that's what's going to make the sustainable. And that's going to continue to improve those metrics that you've seen uh across the board. So thanks for the question.

Manav Gupta: guys I'll be quick follow-up very strong results from MNS better than our expectations even if you deduct the 89 million one time help us understand some of the dynamics there and now that you have sold these assets what would be a good run rate of EBITDA normalized for for this business Yeah, Manav, it's Kevin. So yeah, very strong results in the quarter, $660 million, as you as you highlighted, we had about 100 million benefits in the quarter that were really timing with an offset in the first quarter. And so you'd call that a sort of one time effect, if you like.

Speaker Change: Thank you guys. I'll be quick. Follow up very strong results from MNS. Better than our expectations even if you deduct the 89 million 1 time, help us, understand some of the Dynamics there. And now that you have sold these assets, uh, what would be a good run rate of ibitta normalized for for this business?

Kevin Mitchell: And so as we as we as we look at the results, we had higher volumes, as we as the refining system came out of turnarounds and the seasonal effect on demand, as well as stronger margins, which likewise, you have a seasonal driver there. But also just the nature of the way the product prices moved over the course of the quarter falling prices tended to help that on the margin front.

Kevin Mitchell: As you look ahead to the third quarter, we would expect to be at a more sort of normal level for the business in the third quarter, which is somewhere in the order of 450 to $500 million of earnings is where we'd expect that.

Speaker Change: Yeah Kevin. So yeah, very strong results in the quarter 660 million dollars. As you as you highlighted we had about 100 million benefits um, in the quarter that were really timing uh with an offset in the first quarter. And so you'd call that a uh sort of 1 time effect, if you like. Um and so as we as we as we look at the the results we had um higher volumes as we as the refining system came out of turnarounds and the seasonal effect on demand as well as stronger margins uh which likewise you have a seasonal uh driver there, but also just the nature of the way the product prices moved over the course of the quarter falling prices tended, to help that on the margin front as as you look ahead. Um to the third quarter, we would expect to be at a more sort of normal level for the business in the third quarter, which is somewhere in the order of 450 to 500 million dollars of

Kevin Mitchell: your other component to the question on the disposition. So we haven't closed that disposition yet. We expect that to happen in the fourth quarter. That will reduce EBITDA by about 50 million per quarter when we with that disposition of the 65% interest in our Germany and Austria business.

Speaker Change: Earnings is, um, where we expect that to be your your, uh, other component to the question on the disposition. So we haven't closed that disposition yet. We expect that to happen in the fourth quarter that will reduce ibaa by about 50 million per quarter. When we, uh, with that disposition of the 65% interest in our Germany and Austria business,

Manav Gupta: Thank you so much for responses and it was great to see Mark on CNBC today morning. Thank you. Thanks, Manav. Thank you.

Speaker Change: Thank you so much for responses and it was great to see Mark on CNBC today morning. Thank you.

Speaker Change: Thanks man.

Neil Mehta: Our next question comes from Neil Mehta with Goldman Sachs. Please go ahead. Yeah, good morning, good afternoon. I've been spending some time chatting with Mr. Dietert about global refining balances. And there's a healthy debate in the market over the next couple of years about how you guys are thinking about net capacity ads. And then also the swing factor of China, which obviously has excess export capacity, but it's been pretty disciplined about product quotas.

Brian Mandell: And so we just love your your bottoms up view of how you think about those net ads over the next couple of years. Hi, Neil, this is Brian. I would say that net refinery additions are low for as far out as we forecast, certainly through the end of the decade. And that's before you even start thinking about unplanned shutdowns. We had Lindsay, UK Refinery announced that they're shutting down or in the process of shutting down last week or this week, and we expect more of those coming in the system. Also, some of the refineries, as you pointed out, particularly in Asia, they're Pet Chem focused.

Speaker Change: We just love your your Bottoms Up view of how you think about those. Net adds uh over the next couple years.

Say that.

Brian Mandell: So those when you're thinking about crude, you really have to think about clean product yields. And those are very low clean product yields, 30 to 35% clean product yields.

Brian Mandell: So I'd say bottom line is with the net additions below demand expectations, we see a very strong margin environment. Thanks, Brian.

Discussions are below for as far out as we forecast, certainly through the end of the decade and that's before you even start thinking about. Unplanned shutdowns, we had Lindsay, uh, UK Refinery announced that they're shutting down or in the process of shutting down, uh, last week or this week, and we expect more of those coming uh, in the system. Also, some of the refineries that you pointed out, particularly in Asia, they're petcam focused. So those, when you're thinking about uh, crude, you really have to think about uh, clean product yields. And those are very low clean product yields 30 to 35% clean product yield. So I'd say, bottom line is, with the net additions below, demand expectations. We see a very strong uh, margin environment

Kevin Mitchell: Just follow up on the cash flow. Doug's question about just debt levels being, you know, about 10-11 points higher than where you want it to be. You just talk about two dynamics, working capital, there was a $1.1 billion outflow, but I would think that swings back in the back half. So you could just talk about what drove that and how you think that evolves. And then the jet sale, because between those two nuts, I think you can close a lot of the gap that you need to get to the $17 billion level. Yeah, Neil, it's Kevin, you're right on both fronts.

Speaker Change: Thanks Brandon. Just follow up on the cash flow. Um, the Doug's question about just that levels being, you know, about 10 11 points higher than, where you want it to be, you need to talk about 2 Dynamic working capital. There was a 1.1 billion dollar outflow, but I would think that swings back in the back half so you can just talk about what drove that and how you, you think that evolves. And and then the jet sale because between those 2 nuts, I think you can close a lot of the gaps that you need to get to the 17 billion dollar level.

Kevin Mitchell: So the working capital $1.1 billion use of cash, as you highlighted, that was predominantly due to increased accounts receivables. If you think about the end of the first quarter where utilization was much lower, we're still just wrapping up the heavy turnaround activity versus the end of June where we're running full. product production and sales are significantly higher and so that creates a build in accounts receivable. That's the biggest single component to the move in working capital. There's also some inventory impact on the NGLs as we build for the sort of seasonal trade on that. And so over the course of the year, we would expect a benefit of working capital, probably more fourth quarter item, the third quarter item, because the receivables component that I mentioned, you'd expect that to continue at the same sort of levels through the third quarter.

Speaker Change: Yeah, needless Kevin you're you're right on both fronts so the working capital 1.1 billion use of cash. As you highlighted, that was predominantly due to increased accounts receivables. If you think about the end of the first quarter, where utilization was much lower, we're still just, you know, wrapping up the uh, heavy turnaround activity versus the end of June where we're running full

Kevin Mitchell: But come fourth quarter, you'll see the normal inventory reductions that will take place and probably some modest benefit on the receivables payables front. So do expect that to come back, expect the cash proceeds in the fourth quarter, 1.5 billion euros, 1.6 billion dollars. And so you put that together and we'll make some significant inroads towards the debt target. Makes sense. Thanks, Kevin. Thank you.

Speaker Change: Product production and sales are significantly higher. And so, that creates a build in accounts, receivable, that's the biggest single component to the move in in working capital. There's also some, um, inventory impact on the ngls as we uh, build for the sort of seasonal trade on that. And so over the course of the year, we would expect a benefit of working capital probably more. Fourth quarter item, the third quarter item because the the, the receivables components that I mentioned, you'd expect that to continue at the same sort of levels through the third quarter. Um, but come fourth quarter, you'll see the normal, uh, inventory, uh, reductions that, um, will will take place and probably some, uh, modest benefit on the um, receivables. Payables front. So do expect that to come back. Expect the cash proceeds in the fourth quarter, 1 Point, uh, 5 billion euros, 1.6 billion dollars. And so you, you put that together and we'll make some significant inroads, uh, towards the debt Target.

Speaker Change: Makes sense. Thanks Kevin.

Jason Gabelman: Our next question comes from Jason Gabelman with TV Co-op. Please go ahead, Jason. Yeah. Hey, thanks for taking my question.

Thank you. Our next question.

Is in gableman with TV Cohen.

Speaker Change: Please go ahead Jason. Yeah.

Jason Gabelman: I wanted to go back to kind of how you're thinking about the business after the activism campaign that you endured. And, you know, there was a lot of focus on that midstream part of the business. And I'm wondering if the company is thinking about doing a deep dive on that segment and the structure that makes sense. In any way, that would be different than how you kind of evaluate that business in normal course through the year. Great, thanks.

Jason: Hey, thanks for taking my question. Um, I wanted to go back to kind of how you're thinking about the business after the activism campaign that you endured. And um, you know, there was a lot of focus on that Midstream part of the business. And I'm wondering if it if the company is, is thinking about doing a, a deep dive on that segment. And and the structure that makes sense in any way that would be different than, um, how you kind of evaluate that business. Um, in normal course, through the year

I absolutely we've uh we've done that in the past, we'll continue to do that. We will look to see if anything has changed. We will, uh, engage with industry experts to make sure that we're thinking about it the right way. And certainly, uh, we we'll lay it out all all out for our board, uh, to drive to the right conclusion. So as I said earlier, nothing is off the table, uh, but it's got to create long-term value for our shareholders, full stop.

Brian Mandell: And my follow-up is just on a couple of weaker segments, chems and renewable fuels. And on chems, just want to know if your outlook for when we reach mid-cycle in that industry has changed at all. And then renewable fuels, given margins where they are, do you consider tapering back, runs there, and just kind of outlook for margins in general would be great.

Brian Mandell: Thank Yeah, I'll grab the chemicals question. Second quarter was particularly problematic when you think about the disruptions that tariffs caused. At one point, the Chinese had imposed punitive tariffs of 100% on polyethylene imports, and CPCAM has really minimized its exposure to China, but all that material that was flowing into China got pushed back into the world market. So that was a big challenge this quarter. Our longer term view is still consistent. You're seeing rationalization in Europe, you're seeing rationalization rumored in Asia, and I think you're starting to see capitulation of those players that need to take assets off the table.

Speaker Change: Great. Thanks. And and my follow-up is just on a couple of weaker segments Ken's and renewable fuels and on Ken's just want to know. If if your outlook for when we reach mid cycle um in that uh industry has changed at all and then renewable fuels given margins where they are. Um do you consider uh tapering back runs there and just kind of outlook for margins in general, would be great. Thanks.

Brian Mandell: That'll be constructive, and we continue to see things firming up throughout 26 into 27 and beyond without a lot of new capacity coming on other than what CPCAM and Qatar Energy are bringing to the table. And again, CPCAM fares relatively well versus their competitors because of the advantaged ethane position they have both on the Gulf Coast and in the Middle East. And the high density polyethylene volumes continue to be strong. They can run at high rates because demand for that product continues to grow. It's really a very resilient product, and their cost position allows them to continue to operate profitably.

Order was particularly problematic when you think about uh, the disruptions that tariffs caused at 1 Point. The Chinese had imposed, uh, punitive tariffs of of 100% on polyethylene Imports and CPM is really minimized its exposure to China, but all that material that was flowing into China. Got pushed back into the World Market so that, uh, that was a big challenge. This quarter our longer term view, uh, is is still consistent, uh, you're seeing rationalization in Europe, you're seeing rationalizations rumored in in Asia. And I think you're, you're, you're starting to see capitulation of those players that need to take assets off the table. Uh, that'll be constructive. And we continue to see, uh, things firming up throughout 26 into 20 into 27 and Beyond without a lot of new capacity coming on, uh, other than what, uh, CP Cam and Qatar energy are, are bringing to the table and, and again,

Brian Mandell: And so they've built out a strong competitive position that's passing the test of time as others are showing weak Hey, Jason, it's Brian on the renewable front. Renewable margins are indeed weak, and they were weaker in the second quarter slightly than the first quarter. We are running at reduced rates. In the second quarter, we ran at reduced rates, and we continue to run at reduced rates. Maybe I'll give you some color and tailwinds and headwinds in the regulatory and in the renewable segment in general. As you know, there's been a number of changes for 2026.

uh, CPM fairs relatively well, versus their competitors because of the advantaged ethane position. They, they have both on the Gulf Coast and, uh, in the Middle East and and the high density polyethylene volumes continue to be strong. That's that they can run at at at high rates because demand for that product continues to grow. Its it's really a very resilient product uh, and uh, and their cost position. Allows them to continue to operate profitably.

Speaker Change: And so uh they built out a a strong competitive position. Uh that's that's passing the test of time as others are showing weakness.

Speaker Change: Hey Jason, it's Brian on the renewable front. Uh, renewable margins R&D week and they were weaker in the second quarter slightly than the first quarter. We are uh running at reduced rates. Uh in the second quarter we ran it reduced rates and we continue to run at reduced rates. Maybe I'll give you some uh, color and, and Tailwinds, and headwinds in the Regulatory. And in the renewable segment, in general.

Brian Mandell: A number of those are headwinds for the plants, including limiting the eligible feedstocks for PTC credits to those from North America, and also in reducing the premium for sustainable aviation fuel. While we also have RBO obligations that support where they are renewed, other policies included in the RBO, such as that reduced RIN generation for renewable fuels derived from imported feedstocks, will present a challenge. We're doing a lot of things in self-help, including talking to state and federal regulators to promote profitability for the plant. Additionally, we're working very hard on lowering the cost of operating the plant, just like Rich has done in the refining segment.

Speaker Change: As you know, there's been a number of regulatory changes for 2026 and number of those are headwinds for the plants, including limiting, the eligible feed stocks for PTC credits to those from North America. And also in reducing the premium for sustainable aviation fuel,

While we also have uh rvo obligations that support Rodeo renewed, other policies included in the rbo such as that reduced. Uh, Ren generation for renewable fuels, derived from imported feed stocks, will present a challenge. We're doing a lot of things in self-help including talking to state, and federal Regulators to promote profitability for the plant.

Brian Mandell: We're focused on this plant as well, and we're thinking about how to adjust operations to increase SAF production and also to provide additional optionality for feedstocks. I'd say also there are some tailwinds we see in the market, potentially a stronger LCFS and RIN credits with the tighter regulations. European markets are driving greater incentives, including Germany. We've been exporting to Europe almost every month this year. There are stronger biofuels programs in Oregon and Washington and stronger Canadian markets as well. So I would say just in summary, Rodeo Renewed, as you know, is one of the world's largest RD and SAF plants.

Mark Lashier: And we can also generate up to 15% of the country's D4 and D5 RINs. So ensuring profitability for the plant will be important for energy supply, for affordable energy across the country, given the RIN generation, and for energy dominance in the United States. I would just add to that that it's clear that the losses are unacceptable and unsustainable. But this is, as Brian noted, a strategic asset, not just for us, but for the country and for the whole RIN program. It's important as well as the volume of diesel that it produces and its capability to produce sustainable aviation fuel to meet a lot of the policies that are underway.

Uh, additionally, we're we're working very hard on lowering, the cost of operating, the plant, just like Rich has done in the refining segment. We're focused on this plant as well. And uh, we're thinking about how to adjust operations, to increase saf production, and also, to provide additional optionality for for feed stocks. I'd say also there, there are some Tailwinds, we see in the market, potentially stronger, lcfs, and Rin credits, with the tighter regulations. Uh, European markets are are driving greater incentives, including Germany, we've been exporting to Europe almost every month this year. Um, there are stronger, bio fuels programs in, uh, Oregon and Washington, and stronger Canadian markets as well. So I would say just in summary rode renewed, as you know, is 1 of the world's largest Rd and saff plants and we can also generate up to 15% of the country's, D4, and D5 Ren. So ensuring profitability for the plant will be in

Speaker Change: Import important for energy, supply for affordable Energy across the country, given the ring generation, and for energy dominance in the United States. Yeah, I would just, uh, add to that. That, you know, it's clear that the losses are unacceptable and unsustainable, uh, but this is as Brian noted, a strategic asset, not just for us, but for the country, and for, uh, for the whole rent program. Uh, it's important as well as the volume of diesel, that it produces, uh, and

Mark Lashier: So we are fully engaged at the federal level and fully engaged at the state level in California to make sure that all the right choices are made to support this strategic asset. Great. Thanks for the answers. Thank you.

Its capability to produce sustainable aviation fuel, uh, to meet a lot of the the policies that are underway. So we are fully engaged at the federal level and fully engaged at the state level in California. To make sure that all the right choices are made to support this uh, this strategic asset.

Speaker Change: Great, thanks for the answers.

Jean Salisbury: Our next question comes from Jean Anne Salisbury with Bank of America. Please go ahead. Hi, I have a midstream question. Obviously, the top concern right now across Permian volume levered midstream is the falling rig count in the Permian and whether growth could materially slow there next year.

Thank you. Our next question comes from Gann an sberry with Bank of America

Please go ahead.

Don Baldridge: Can you talk about PSX's exposure to potentially slowing growth in the Permian and how you might actually be less exposed than some peers in the medium term, given your high share of contracted third party volume?

Speaker Change: Is the following rig count and the Permian and whether growth could materially slow their next year. Um can you talk about PSX as exposure to potentially slowing growth in the Parian and how you might actually be less exposed than some peers in the medium-term? Given your high share of contracted third-party volumes

Don Baldridge: Hi, Jean and this is Don. A couple things around the Hermion Outlook. We do stay very close with our producer customers. And currently, we see, you know, not a significant change in their plans based on based on where we are from a pricing standpoint and what their what their drilling activity looks like. One of the things I think you have to realize, though, is the NGL content in the new production is higher than the old production. So even when you see some tampering and the dampening of the volume growth in crude, you're still seeing good, robust growth on the gas and NGL side because of the higher GOR from the wells that are being drilled.

Hygiene. And yeah, this is Don, um, a couple things around the, the puran Outlook. Um, we we do stay very close with our producer customers and currently we see, uh, you know, not a significant change in their plans based on based on where we are from a pricing standpoint and what their, um, what their drilling activity looks like.

Don Baldridge: So that certainly creates some buffer when you see some rig count changes or see a change in producer plans. But as you mentioned, our volume outlook is supported both by our GNP processing volumes, as well as a robust third party contract portfolio. Based on conversations we were having across the board, we still have good confidence in the outlook of the volumes coming through our system. See our utilization rates continuing to stay high. We're turning on expansion at Coastal Bend and volumes continue to grow and fill that capacity. So I feel like we're in good shape there.

1 of the things, I think you have to realize though is, is the NGL content in the new production is higher, uh, than than the old production. So even when you see some uh, tampering and the or dampening of the volume growth in in crude, uh, you're still seeing good robust growth on the gas and NGL side because of the higher go, uh, from the wells that are being drilled. So that certainly, uh, uh, creates some buffer, uh, when you see some some rig count, uh, changes or, um, see a change in producer plans. Uh, but as you mentioned, our, you know, our volume Outlook, uh, is supported both by our our G.

Don Baldridge: Great, Don, thanks for that color.

Speaker Change: NP, uh, processing volumes, as well as a robust. Third-party, uh, contract portfolio and based on, you know, the conversations we were having across the board. We, we still have good confidence in in the Outlook of the volumes, coming through our system, see our rate, our utilization rates, uh, continuing to stay high, uh you know, we're turning on expansion uh at Coastal Bend and volumes uh continue to grow and fill that capacity. So feel like we're in good shape there.

Don Baldridge: And then as a as a broader follow up, I think in the most recent PSX deck, there were a lot of examples of the $500 million of operating synergies from integration. Can you just kind of speak high level, like directionally, I guess, on what environments causes operating synergies to be higher? Like, for example, is it just when there's better refining and chems margins, do those numbers go up to or perhaps in more volatile environments, the operating synergies go up, but any, or is it just more of a steady, steady state number? As you guys look at it?

Speaker Change: Great done. Uh, thanks for that color. And then as a as a broader follow-up, um, I think in the most recent PSX deck, uh, there were a lot of examples of the 500 million dollars of operating synergies from integration. Um, can you just kind of speak high level like directionally I guess on what environments cause of operating synergies to be higher? Like for example, if it just when there's better refining in Kim's margins, do those numbers go up to or perhaps in more volatile environments? The operating synergies go up. But any kind or is it just more of a study steady state number as you guys look at it?

Don Baldridge: Sure. I'll take this one. It is fairly steady. I mean, there's some seasonality when you think about butane blending with our refining kit and how that interacts with our NGL business. That has some seasonality. But a lot of it is fairly steady when you think about a lot of this is throughput driven. A lot of this is the operational synergies that we have across the portfolio. And so those tend to get realized on a month in and month out basis. So a lot of stability in that regard. I would echo what you heard certainly from Mark and Rich is that we still see a lot of opportunity to continually improve and even extract more value in the models.

Speaker Change: Sure, I'll take this 1. It's, it is fairly steady. I mean, there's some seasonality when you think about, uh, butane blending, uh, with our refining kit and how that interacts with our our NGL business, that has some seasonality, but a lot of it is, is fairly steady. When you think about a lot of this is throughput driven. Um, a lot of this is the opport.

Don Baldridge: So excited for the opportunities that we see the portfolio is presenting us.

Operational synergies, uh, that we have across the portfolio. And so those those tend to uh get realized on a month in and month out uh, basis. So a lot of stability in that in that regard, I would Echo what you heard certainly from Mark and rich, is that we still see a lot of opportunity to continually improve and even extract more value in the integrated model. So excited for the opportunities that we see the the portfolio is uh, for presenting us.

Don Baldridge: Great. Thanks, Don.

Don Baldridge: That's all for me.

Great. Thanks Don. That's all for me.

Don Baldridge: Thank you.

Ryan Todd: Our next question comes from Ryan Todd with Piper Sandler. Please go ahead. Great, thanks. Maybe first off, one back on refining, distillate markets have been very tight, with really supportive margins. Can you talk about what you see as the primary drivers in your view? How do you see the outlook over the remainder of the year? And as you think about your operations, is there anything more that you can do to increase distillate yields? Or are you maxed out given the current crude site?

Thank you. Our next question comes from Ryan Todd. With Piper Sandler.

Speaker Change: Please go ahead.

Good, thanks. Um, maybe you. Uh, first off, 1 back on refining. Uh, just a little bit Mark has been very tight uh with really supportive. Margins. Uh can you talk about? What about what you see as the primary drivers in your view? How do you see the Outlook over the remainder of the year? Uh and as you think about your operations, is there anything more that you can do?

Brian Mandell: Hey, Ryan, it's Brian. Well, I'd say although distillate's been favored over gasoline every month this year, but May, distillate remains very strong, as you pointed out, with lowest U.S. inventories in decades and recent lower clean product yields versus Q2 of 2024. We would expect distillate margins to remain strong through the end of the year with planting season coming up or hurricane season, you know, to put also bullish pressure on gasoline margins as refineries move to making more and more distillate through the driving season. I'd say, you know, thinking about what would put some pressure on the distillate margins, it'll come from additional OPEC crude and the weakening of fuel oil values with heavy crude pressure.

Um to increase this. So that yields are you maxed out given the current crude site?

Brian Mandell: Additionally, we have Canadian producers ramping up production, putting more heavy crude on the market. And we've seen back and forth moving into the diesel pull. So I'd say that one of the things we're doing is watching the Mideast and India, where the global net distillate length exists for potential imports into Europe. And while we don't think China is going to add any more gasoline or diesel exports, this could also take some steam from distillate. And finally, as many people have talked about, we've seen lower biodiesel and our renewable diesel production. It's also bullish for distillate.

Speaker Change: Thinking about what would put some pressure on the disc lit margins. Uh, it'll come from additional OPEC crude and the weakening of fuel oil values with a heavy crude pressure. Additionally, we have a Canadian producers ramping up production for any more heavy crude on the market and we've seen back and forth. Some jet moving into the diesel Pole,

Brian Mandell: So we would think that distillate margins will remain strong through the year, eventually coming off some when you get these extra barrels, heavy crude barrels back onto the market.

Speaker Change: So um uh I'd say that uh, 1 of the things we're doing is watching the mid East and India where the global net distillate. Length exists for the potential Imports into Europe. And while we don't think uh China is going to add any more I guessing or diesel exports. This could also take some steam from dlet and finally um as as many people have talked about, we've seen lower biodiesel and our our renewable diesel production. It's also bullish for this list. So we would, we would think that distant margins will remain strong through the year, eventually coming off some, when you get these extra barrels, uh, heavy crude barrels back onto the market,

Ryan Todd: All right, thank you.

Ryan Todd: And then one, I, I know a big focus here, improvement and refining performances has also been an improvement on the commercial side of the business. Can you talk about how you view your progress in that regard? And particularly in a quarter like this one, what benefits you might be seeing in terms of your efforts on the commercial side? We continue to drive our commercial business. We've done a lot of hiring. We've done a lot of upgrading in the business. We're focused on driving more value through the integrated system and moving barrels further along the value chain.

All right, thank you. Um and then 1, I I know a big Focus here Improvement and refining performance is has also been an improvement uh on the commercial side of the business, um, can you talk about how you view your progress in that regard, and particularly in the quarter like this? 1, what benefits you might be seeing in terms of your efforts on the commercial side.

Brian Mandell: As you know, we have offices in Houston, Canada and Calgary, in the UK, Singapore, and a small office in China as well. So we are constantly looking to drive value by moving barrel to the highest net back markets. So as an example, LPGs or NAFTAs may end up in Asia, and we have the customers in Asia, we have the boys in Asia to talk to those customers and figure out what they need. So I think we've made a lot of progress. We've added a strong origination group. We've hired two dozen originators around the world. These are people that speak multiple languages, understand multiple commodities, and can drive value with customers thinking about what we might want to buy and sell with customers and how we might use our integrated system to drive more value.

Yeah, we continue to, uh, to drive our Commercial Business. We've, uh, uh, done a lot of hiring. We've done a lot of upgrading in the business, we're focused on driving more value through the integrated system, and moving barrels. Further along the value chain. As you know, we have offices in the Houston, uh, Canada and Calgary in the UK, Singapore and small office in China as well. So we are constantly looking to drive value by moving Barrel to the highest netback markets. So as an example, lpgs or nafta's may end up in Asia, and we have, uh, we have the customers in Asia. We have the boys in Asia to talk to those customers and figure out what they need. So, I think we've made a, we've made a lot of progress. Uh, We've added a strong origination group, we've hired about 2 dozen Originators around the world. These are people that speak multiple languages. Understand multiple Commodities and can drive value with.

Brian Mandell: So we're really excited about the progress we've made in commercial. And I think there's, as Don and Mark have pointed out, there's still more opportunity.

Speaker Change: Customers thinking about what we might want to buy and sell with customers and how we might use the integrated, our integrated system to drive more value. So, really excited about the progress. We progress we've made in commercial and I think there's as Don and Mark have pointed out, there's still more opportunity

Ryan Todd: Okay, thank you.

Okay, thank you.

Ryan Todd: Thank you.

Philip Jungwirth: Our next question comes from Philip Jungwirth with BMO. Please go ahead. Thanks. You guys have been pretty active in managing the midstream portfolio and are now shifting the focus more to organic growth. But wondering if there's more to do on the divestiture side here where there's crude or refined product pipelines that maybe you don't necessarily operate. Are there arguably still integration synergies or is maintaining ownership more about enhancing the cost structure for refining, diversification or just not the right environment to really realize full value?

Thank you. Our next question.

Speaker Change: Jungwirth with BMO.

Please go ahead.

Speaker Change: Uh, thanks. You guys have been pretty active in managing the Midstream portfolio and and are now Shifting the focus more to organic growth. But uh, wondering if there's more to do on the destitute side here. Uh where there's crude or refined product pipelines, that maybe you don't necessarily operate. Um, are there arguably still integration synergies or is maintaining ownership more about enhancing the cost structure for finding diversification or just not the right environment to really realize full value.

Don Baldridge: So Joe, we, or I'm sorry, Phillip, we've got an active list that we look at. We've taken a deep dive and defined what our core assets are, what we believe our non-core assets are, and we're working that list. So there are more potential sales of non-core assets, some primarily in midstream non-operated of assets, and we're not ready to put a number out there or talk about specific assets, but we do have a considerable list of things that we could continue to monetize.

So Joe, we

Or, I'm sorry Philip. We've got, uh, an active list that we look at. We've, we've, uh, taken a deep dive into find what. Our core assets are, what we believe our, our non-core assets are and and we're working that list. So there are more potential sales of, of non-core assets. Uh, some primarily in the Midstream non-operated kinds of assets and we've we're not uh, not ready to put a number out there or or talk about specific assets but we do have uh, we do. Have a considerable list of things that we could continue uh, to monetize.

Don Baldridge: Okay, great.

Brian Mandell: And then I don't think we've asked about the new M&S allocation slide that you have in the deck here, just to be more apple to apple in terms of comparing refining performance, but it was a nice quarter for refining. I mean, typically, PSX tends to really outperform in the central corridor. I assume with the M&S allocation, the outperformance is even greater there. So just in a quarter where WCS didn't really give you much help, what do you guys look at as far as really attributing and driving that relative outperformance?

Brian Mandell: And then in some of the other regions, maybe like the Gulf Coast, I know you mentioned the Sweeney project, but are there other things you can do there, new projects or otherwise, to improve relative margin uplifts, given that you are pretty vertically integrated in the Gulf Coast also?

Philip: Project. But are there other things you can do there, uh, new projects, or otherwise to uh, improve relative margin, uplift, given that you are pretty vertically, integrated in the Gulf Coast also,

Brian Mandell: Hey, fellas, it's Brian. Maybe I'll start on talking about the MidCon strength. Again, we talked about the commercial organization. I think they had a hand in the MidCon as well. We were able to increase value in MidCon by optimizing the system, essentially, on both gasoline and diesel. We anticipated strong MidCon prices in Q2 with heavy turnarounds and decreasing inventories, and we positioned our system appropriately. And also on the gasoline, prior to the emergency RVP waivers, our refineries were able to produce the lower RVP, which received a premium in the market given the limited production. And finally, I think just in general, refineries had minimal maintenance during a heavy MidCon turnaround season, so we benefited by running while others were down.

Hey Philip, it's Brian. Maybe I'll start on talking about the midcon strength. Again, we talked about the commercial organization, I think they had a hand in the midcon as well. We were able to increase value in midcon by optimizing the system. Essentially, on both gasoline and Diesel. We anticipated, strong mid-con prices in Q2, with heavy turnarounds, and decreasing inventories and we positioned our system appropriately and also on the gasoline prior to the emergency RVP waivers. Our refineries were able to produce the lower RVP which received a premium in the market uh given the limited production. And and finally I think just in general our refineries had minimal maintenance during a heavy mid-con turnaround season so we benefited by running While others were down.

Brian Mandell: Yeah, and I guess I'll add on the refining side of the business, what we see an opportunity on in the Gulf Coast and even a bit in the MidCon area is to continue to fill up the secondary units in our processes. And that may not be, native feedstocks may not be generated from the front end of the facility. So that is an opportunity that we've zeroed in on. And we think there's good potential there that we can increase the overall utilization of the assets and generate more clean products for the marketplace.

Yeah, and I guess I'll I'll add on the refining side of the business. What, what? We see an opportunity on in the Gulf Coast, and even, even a bit in the, in the mid-con area is to continue to fill up the secondary units in our in our processes and uh that may not be native feed. Stocks may not be generated from the the front end of the facility. So that that that is an opportunity that we've zeroing in on and we we think there's a good potential there that we can.

Increase the overall utilization of the assets and generate more clean products for the marketplace.

Brian Mandell: Thank you.

Thanks.

Rich Harbison: Our next question comes from Joe Leitch with Morgan Stanley. Please go ahead. Hey team, thanks for taking my questions. So I wanted to start on the full-year turnaround expense guidance, which was used by $100 million. Was this due to outperformance or was prior plan maintenance deferred? What I'm getting at and trying to figure out is if the $400-$500 million level is a fair run rate to use going forward. Thanks.

Thank you. Our next question, comes from Joe leech with Morgan Stanley.

Speaker Change: Please go ahead.

Hey team. Thanks for taking my questions.

Speaker Change: So I wanted to start on, uh, the full year return on expense guidance, which was used by hundred million dollars. Was this due to outperformance or was Prior plan, maintenance deferred. Uh, what I'm getting at and trying to figure out is if the 40500 million level as of our run rate to use going forward, thanks.

Rich Harbison: Yeah, I'll take that. This one, Joe, this is Rich. So the third quarter guidance we gave you was was 50 to 60 million. And if you look, if you look at the the year to date spend We've underspent based on our previous guidance there. So we did feel it was important to adjust the overall guidance for the year. And that's attributed to really two primary things that we've got going on. And one has been our continued focus on execution and planning. And that work has really allowed us to be very efficient on the execution and actually come under our historical productivity or above our productivity numbers but under our historical spend to execute our work.

Speaker Change: Yeah, I'll I'll take the this 1 Joe, this is Rich. Um, so the third quarter guidance we gave you was was 50 to 60 million. And if you look, if you look at the, um, uh, the the year to date spend, um, we've we've under uh, under spent based on our previous guidance there, so we did feel, it was important to to adjust the overall guidance for the year.

And and that's attributed to really 2 2 primary things that we've we've got going on and 1 has been our continued, focus on execution and planning and and that that work has really allowed us to to uh be very efficient on the execution and actually come under our historical product.

Rich Harbison: And the second key component of this is the maturity of our inspection programs where we're moving from a time-based inspection process to a condition-based inspection process. That does two things. One, it allows us to really optimize the interval between turnarounds. So we can, as more data becomes available, we have a technical basis to move a turnaround from call it 36 months to 48 months or whatever that interval is. And the other benefit that this inspection process is driving is actually reduced scope of work inside the turnarounds, which is reducing the complexity of the turnarounds and then it's compounding the effectiveness on the execution and planning side of the business.

Activity or above our productivity numbers, but under our historical, spend to execute our work and the second key component of this is the maturity of our inspection programs where we're moving from a time-based inspection process to a condition based inspection process. That does 2 things.

Rich Harbison: So, you know, year-to-date, we've performed quite well. We've spent around $320 million year-to-date. So looking at the numbers, we felt it was the right thing to do to adjust our full-year outlook down by $100 million. Thanks for that detail and good to see the execution.

1, it allows us to really optimize the interval between turnaround, so we can, as more data comes available, we have a technical basis to move a turnaround. From call it, 36 months to 48 months, or what, whatever that interval is. And the other uh benefit that the this inspection process is driving is actually reduced uh, scope of work inside the turnarounds, which is reducing the complexity of the turnarounds and then compounding the effectiveness on the execution and planning side of the business. So, so you, you know, year to date, we've, we've performed quite well. We've spent around 320 million dollars a year to date. So, looking at the numbers, we felt it was the right thing to do to adjust our full year outlook down by a hundred million dollars.

Don Baldridge: My second question is on the the midstream side. Now that Coastal Bend has been closed for a couple of months, can you talk to how the integration is going, Synergy Capture, and any surprises now that you've had some time with it in the portfolio? Thank you.

Thanks for that, that detail and good to see the execution. Uh my second question is on the the Midstream side. Um, now that Coastal Bend has been closed for a couple of months. Can you talk to how the integration is going, Synergy capture?

Speaker Change: And any surprises. Now that you've had some time with it in the portfolio. Thank you.

Don Baldridge: Sure, this is Don. I'd say our coastal bin integration work is going quite well. As you heard on the call today, the first phase of our expansion is near complete. We are on schedule for completing the second expansion, which would take us up to $350,000 a day of volume capacity in 2026. We're well on our way capturing the cost synergies as well as the commercial opportunities that we saw that would be associated with bringing coastal bin into our broader wellhead to market system. So that's all going quite well. I think you step back, it's a great addition that really supports our organic growth plans that you see us executing in the Permian with our gas gathering and processing plant expansions like Dos Picos II and the Iron Mesa gas plants.

Don: Sure, this is Don. Uh,

Speaker Change: I'd say.

Speaker Change: As you heard on the call today, the first phase of our expansion is near complete. We are on schedule for completing the second expansion, which will take us up to 350,000 a day of uh volume capacity.

Don Baldridge: All of that is volume that's going to come out of those plants and feed into coastal bin and then hit that Gulf Coast market where coastal bin plus what we had really creates a great network of purity product lines that hits a lot of customers. The customer feedback, customer engagement that we've had post-closing coastal bin has been robust and very positive. So really excited about what the acquisition has done for us and what the opportunity set looks like. Great, thanks for taking my question.

Speaker Change: Ing, the cost synergies, as well as the commercial opportunities that we saw, uh, that would be associated with bringing in coastal bin into our broader, Wellhead to market system. So that's all going quite well, I think you, you set back, it's, you know, a great addition that really supports our organic growth plans that you see us executing in the Permian with our, uh, gas Gathering. And and processing plant, expansions like dos Picos 2 and the iron Mesa, gas plants all of that uh is volume that's going to come out of those plants and feed into in into Coastal bin and then the uh hit that um uh Gulf Coast Market where Coastal bin, plus what we had really creates a a great network of Purity product lines that that hits a lot of markets up and down the Gulf Coast and really see, um, robust opportunity there and and, you know, the customer feedback, um, the customer engagement.

We've had post. Uh, closing Coastal bin has been, uh, robust and, and very positive. So really excited about, um, what the acquisition, uh, has has done for us and and what the opportunity set looks like.

Speaker Change: Great. Thanks for taking my questions.

Paul Cheng: Thank you. Our next question comes from Paul Cheng with Scotiabank. Please go ahead. Hey, guys. I think it's still good morning for you guys. Brian, can I go back to the renewable diesel? You're saying that you are wanting a reduced rate. Just curious that if the margin is lower, does that mean that you're going to reduce further from the second quarter level? In other words, how sensitive you are in your one way versus the market condition? And also, whether you have fully booked the PTC in the second quarter or that there's some incremental benefit that we should assume and expect on that?

Thank you. Our next question.

Cheng: Cheng with Scotia Bank. Please go ahead.

Cheng: Hey guys.

Mark Lashier: That's the first question. The second question, I think, is for Mark. Upon the completion of the shutdown of LA, you have no refinery in California, but you have wholesale and retail marketing operation there. And also that in Europe, given the market condition is never really that great for the oil and gas business. So in those two set of business means that in Europe, you're refining and marketing business. And in California, you're marketing business. In the long haul, how you see them fit into your portfolio? They should be part of your portfolio long haul. Thank you.

Speaker Change: Uh good, not good. I think it's still good. Good morning for you guys. Um, Brian. Can I go back to uh the renewable diesel? Uh you saying that you are running a reduced rate, just curious the idea of the margin is lower, if that means that you going to reduce further from the second quarter level, in other words, that how sensitive you are in your oneway versus the, uh, the market condition. And also, the weather, you have 40 book, The PTC, and the second quarter or that that some the incremental benefit that we should assume. And

Cheng: Expand on that.

Uh, that's the first question. Uh, the second question I think is for Mark. Um,

Mark: Upon the competition of the shutdown of La, you have no refunding in California. Uh, but you have, uh, wholesale and marketing and Retail marketing operation there.

Mark: Um, and also that in Europe, given the market condition is never really that great for the oil and gas uh, business. So in those 2 set of business means that in Europe, your refining and marketing business. Uh and in California, your marketing business in the Long Haul. How you see them?

Speaking into your portfolio. Uh, they should be part of your portfolio long call. Thank you.

Brian Mandell: Hey, Paul, it's Brian. I'll start. I'll tell you that we're likely to run Rodeo at reduced rates, even from Q2 and Q3. But that'll be predicated on the market. And the market may be better or may not. We're watching, as you know, there's a lot of aspects to the margins for renewable diesel and renewable jet, including all the credits, including the price of the renewable diesel. Relative to carb diesel, and also the price of the feedstock, and they all move in tandem. So we're watching it all very closely. And depending on what the market gives us, that's what we'll run the plant at.

Paul: Hey, Paul. It's

Paul: I'll tell you that we're likely.

Paul: To run, uh, rodeo at reduced rates, uh, even from Q2, and Q3, but that'll be predicated on the market and the market may be better, or or may not. We're watching. There's as, you know, there's a lot of aspects to uh, the the margins for renewable diesel renewable jet, including all the credits including the uh the price of the renewable diesel. Relative to the carb Diesel and also the price of the feed stock and they all move in tandem. So we're watching it all very closely and uh depending on what the market gives us. That's what we'll run the uh, plant at

Mark Lashier: Paul, on your second question regarding LA shut down, you're right, we'll have no traditional refining capacity in California. I would point you to what we did when we converted Rodeo to renewable feedstocks. In essence, we were neutral on diesel production. It just happened to be renewable diesel versus traditional diesel, but we had to backfill gasoline. We did that, and other market participants did that by importing. We also had the ability to import from our Ferndale refinery in Washington, so it's a good position there. Then as we shut down LA, again, it's primarily a gasoline import opportunity.

Paul: Yeah, Paul on on your second question. Uh, regarding La. Shut down, your right will have no traditional refining capacity. Uh, in California, how it points you to what we did, when we converted uh a road to Rodeo to renewable feed stocks.

Uh, in essence, we were neutral on diesel production and just happen to be renewable. Diesel versus traditional diesel, but we had to backfill gasoline, we did that. And other Market participants did that by importing. We also have the ability to import from our Ferndale refinery in Washington. So it's, uh, it's a good position there, uh, as. And then as we shut down la,

Mark Lashier: The California authorities have been very proactive in helping us address the import opportunities from the water, whether it's international or other domestic sources. We've got a great plan that's been well received by California. I'd also add to Mark's comments, I think what's interesting is we believe that the volatility in California gasoline prices will actually be reduced with more gasoline imports, because if you think about having mature supply chains, which are similar to other markets like Pad 1, which is also a gasoline import market, you're going to have barrels coming in large ships, 300,000 barrels to 700,000 barrels, and those barrels will come off the ship and be stored and ready for market dislocations.

Uh, again it's primarily uh a gasoline import opportunity and the California authorities have been very proactive in helping us uh, address the import opportunities from from the water, whether it's International or, or other domestic sources. And so, we've got a great plan that's been well received by by California.

Mark Lashier: You also have many more destinations that can produce, now, carb gasoline than in the past. Also, as Mark pointed out, destinations that are very close to California, like our Ferndale refinery. In fact, gasoline imports into California versus a five-year average are up 70,000 barrels a day already. We really don't see any constraints on getting the carb gasoline. We see a lot more gasoline coming into the market. The steady stream will help put a lid on volatility to a certain degree. The only issue is infrastructure. That's a potential issue, but what we've seen is the state is aware of this and seems poised to continue to help us on that infrastructure.

Mark Lashier: We think California is in a very good position.

Mark Lashier: Yeah, regarding Europe, we've already exited co-op, we are exiting 65% of our jet position in Germany and Austria. So clearly, that's not strategic for us. We like the deal that we did for jet, it was a solid offer from a high quality buyer. They wanted us to come along for some period of time as they adjust to that market. And we, you know, we still have exposure to the upside there, with clear exit provisions. And so we're comfortable with where we are there in Europe. Around Humber and the integrated position in the UK, Humber is really the leading refinery in the UK, perhaps in all of Europe.

A gasoline in Port Market, you're going to have barrels coming in, large ships, 300,000 barrels or 700,000 barrels and those barrels will come off the ship and be stored and ready for for our Market dislocations. You also have many more, uh, destinations that can produce now carb gasoline than in the past. And also, as Mark pointed out, destinations that are very close to California like our Ferndale Refinery. And in fact, gasoline Imports into California versus a 5 year average are up 70 barrs a day or already. So, um, we really don't see any constraints on getting the carb gasoline. We see a lot more gasoline coming into the market, the steady stream will help help. Help put a lid on volatility to certain degree. The only issue is infrastructure, that's the potential issue. But what we've seen is a state is aware of this and seems poised to continue to help us on that infrastructure. So we think California is in a in a very good position.

Yeah, and regarding Europe uh we've already exited Co-op. Uh, we we are exiting 65% of our jet position in Germany and Austria so clearly that's not strategic for us. We like the deal that we did for jet. Uh, it was a solid offer from a, a high-quality buyer. Uh, they they wanted us to come along for some period of time as they adjust to that market. And we, and we, you know, we still have exposure to the upside there, uh, with clear exit provisions.

Mark Lashier: It's a strong position there, it has good optionality. And as you see others rationalize assets, it's only going to strengthen its position. Thank you.

And so, and so we're comfortable with where we are there in Europe around Humber and the the integrated position in the UK. Uh, Humber is a is is really the leading refinery in in the UK, perhaps in all of Europe. It's it's a strong position there, it has good optionality. Uh, and as you see others rationalize assets, it's only going to strengthen its position.

Matthew Blair: Our next question comes from Matthew Blair with Tudor Pickering Holt. Please go ahead Matthew. Thank you and good morning.

Thank you. Our next question comes from Matthew Blair with Judah. Pickering halt, please go ahead. Matthew

Matthew Blair: I want to check in on the refining guide for Q3. I think it was for utilization in the low to mid 90% range versus the 92 or 98% in Q2. Your turnaround expense is flat quarter over quarter. The indicator in July at least should be higher than the Q2 average. So I guess we're a little surprised that utilization might be coming down fairly significantly in Q3. Is there anything to read into that or what's going on there?

Matthew Blair: Uh, thank you and good morning. I want to check in on the refining guide for Q3. Um, I think it was for utilization in the low to mid 90% range versus the 92 or 98% in Q2, uh, your turn around expenses, flat quarter of a quarter, the indicator in July, at least should be higher than, than the Q2 average. So, I guess we're a little surprised that utilization might be coming down fairly significantly in Q3, is there anything to read into that, or

Paul: Or what? What? What's going on there?

Rich Harbison: I'll take that one. There's a couple things going on that you need to think about on this one, Matt. One is, and this is public information, Bayway, our Bayway facility had an upset here, a power outage during the last set of storms that rolled through, and that took the entire plant down. The plant's back up now and operating well, but that will have an impact on utilization.

Paul: I I'll take that 1 uh there. There's a couple things going on that. Uh you need to think about on this 1, Matt 1 1 is uh I and this is public information. Bayway our Bayway facility had a upset here, power outage during the last set of storms that rolled through and uh that took the entire plant down the plants back up now and operating what

Rich Harbison: And then the second thing is around our Los Angeles refinery. We've indicated that we're going to cease operations in the fourth quarter, but actually on the backside of the third quarter, you'll start seeing some winding down of the operation that will have also some impact to utilization. Thank you, that's helpful.

Paul: But that, that will have an impact on utilization. And then the second thing is around our Los Angeles Refinery. Um, you know we've indicated that we're going to see some operations in in the fourth quarter. But actually on the back side of the third quarter, you'll start seeing some some winding down of the operation that will have also some impact to utilization.

Matthew Blair: And then on the renewables business, I'm wondering if it would make sense to seek out a partner here. There's a lot of other examples in the space where your competitors are working with partners to provide help on feedstocks. We saw a deal earlier this week where a partner came in and valued sap capacity at about $4.50 a gallon, which seems like a pretty attractive number. So is that on the table for PSX, bringing in a partner on the renewable diesel side? With assets like this, we always look at what the best options are to create value.

Speaker Change: Thank you, that that's helpful. And then on the Renewables business, I'm wondering if it would make sense to seek out a partnership here. There there's a lot of other examples in the space where your competitors are are working with Partners to provide. Help on feed stocks, we saw a deal earlier this week, where a partner came in and valued, zap capacity at about 4 dollars and fifty cents a gallon. Uh, which seems like a pretty attractive number. So, is that on the table for for PSX, bringing in a partner on the renewable diesel side?

Mark Lashier: And I agree with you, that was a very attractive number. But everything, as I said earlier, everything's on the table. Great, thank you. Thanks Matt. Thank you.

Speaker Change: With assets, like this, we always look at what the the best, uh, options are to to create value. And I agree with you, that was a very attractive number, uh, but uh, everything, as I said earlier, everything's on the table.

Speaker Change: Great. Thank you.

Thanks Matt.

Operator: This concludes the question and answer session.

Speaker Change: Thank you.

Mark Lashier: I will now turn the call back over to Mark Lashier for closing comments. Thanks for all your questions.

This concludes the question and answer session. I will now turn the call back over to Mark Leia for closing comments.

Mark Lashier: Before we wrap up, I want to emphasize three points from the call. Strong financial and operating results this quarter show that we're executing well on a proven strategy. Our integrated business model generates competitive returns through disciplined investments and synergy capture along our crude and NGO value and we're committed to returning over 50% of net operating cash flow to shareholders through share repurchases and a secure, competitive and growing dividend.

Speaker Change: Thanks for all your questions.

Speaker Change: Before we wrap up, I want to emphasize 3 points from the call.

Speaker Change: The strong financial and operating results this quarter show that we're executing well on a proven strategy.

Our integrated business model generates competitive returns through disciplined Investments and Synergy capture along our crude and NGL value chains.

Jeff Dietert: Thank you for your interest in Phillips 66. If you have questions or feedback after today's call, please contact Jeff or Olden. Thank you everyone for joining us today.

Speaker Change: Cash flow to shareholders through, share repurchases and a secure competitive and growing dividend.

Thank you for your interest in Phillips 66.

Speaker Change: If you have questions or feedback after today's call, please contact Jeff or Owen.

Operator: This concludes our call and you may now disconnect your line.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.