Q2 2025 Phillips 66 Partners LP Earnings Call
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this call being recorded.
Now I'll turn the call over to Jeff detached Vice President Investor Relations, Jeff you may begin.
Welcome to Phillips 66 earnings Conference call participants on today's call will include Mark laser Chairman and CEO, Kevin Mitchell CFO, Don Baldrige, midstream and chemicals, rich harvests in refining and Brian Mandel marketing and commercial today.
Presentation can be found on the Investor Relations section of the Phillips 66 website, along with supplemental financial and operating information.
Slide two contains our safe Harbor statement, we will be making forward looking statements. During today's call actual results may differ materially from today's comments.
<unk> that could cause actual results to differ are included here as well as in our SEC filings with that I will turn the call over to Mark.
Jeff Welcome.
Welcome everyone to our second quarter earnings call.
We had a strong financial and operating results this quarter.
They are a reflection of our focused strategy disciplined execution and meaningful progress towards achieving our 2027 strategic priorities.
Coming off our large spring turnaround program. We said we were positioned to capture a strengthening market and we delivered.
Our refining assets ran at 98% utilization the highest since 2018.
Clean product yield was over 86%, 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 <unk>.
Midstream generated adjusted EBITDA of approximately $1 billion.
We are on track to achieve the $4 $5 billion annual EBIT 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 quarter.
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 excellence.
Results are clear utilization is improving and we're consistently above industry average we've.
We have 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.
These factors have contributed to market capture improving to 99% of our published refining indicator this quarter year.
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.
In the second quarter, we achieved the lowest refining adjusted cost per barrel since 2021 the.
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 create ongoing value for our shareholders through reliable long term cash generation.
Slide five shows the increase in quarterly average adjusted EBITDA from $500 million in 2000 $21 billion to $1 billion this quarter.
We reached significant milestones in the second quarter as we continued to enhance our integrated wellhead to market strategy, we acquired epic NGL now renamed coastal bend at the beginning of the quarter.
We're also near completion on the capacity expansion pipeline project from 175 to 225000 barrels per day.
The dose <unk> two 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 return on capital employed.
These projects contribute to our plan to organically grow midstream EBITDA to $4 $5 billion by 2027.
Midstream is an important part of the Phillips 66 story, we're executing on our wellhead to market strategy and the results are coming through.
Over the past several months, we've had the opportunity to extensively engaged 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.
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.
In the second quarter, we welcomed 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 team.
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.
Now I'll turn the call over to Kevin to cover the results for the quarter. Thank you Mark on.
On slide seven second quarter reported earnings were $877 million.
Or $2 15 per share.
Adjusted earnings were $973 million or $2 38 per share.
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 flow.
Operating cash flow, excluding working capital was $1 9 billion.
We returned $906 million to shareholders, including $419 million of share repurchases.
Net debt to capital was 41% and reflects the impact of the acquisition of the coastal bend assets.
We plan to reduce debt with operating cash flow and proceeds from the announced Germany, and Austria retail marketing disposition, which we expect to close in the fourth quarter.
I will now cover the segment results on slide eight.
Total company adjusted earnings increased $1 3 billion to $973 million compared.
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 assets.
In chemicals results decreased mainly due to lower polyethylene margins driven by lower sales prices.
Refining results increased mainly due to higher realized margins.
We came out of the high turnaround season in the first quarter and well positioned to capture improved crack spreads.
Market capture was <unk>, 99% and crude utilization was 98%.
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.
And renewable fuels results improved primarily due to higher realized margins, including inventory impacts.
Slide nine 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.
Looking ahead to the third quarter on slide 10 and.
In chemicals, we expect the global <unk> utilization rate to be in the mid nineties.
In refining we expect the worldwide crude utilization rate to be in the low to mid nineties and turnaround expense to be between 50 and $60 million.
We continue to optimize ton range and improved performance.
We are reducing the full year turnaround guidance by $100 million.
The new guidance is $400 million to $450 million compared.
Compared to the previous guidance of $500 million to $550 million.
We anticipate corporate and other costs to be between $350 and $370 million.
Now we will move to slide 11, and open the line for questions after which mark will wrap up the call.
Thank you we will now begin the question and answer session.
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Our first question today comes from Doug Leggate with Wolfe 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 quite a quarter you put up so.
Good to see that I am curious however, youre caught your last part of your prepared remarks, you said.
You referenced.
I don't want to reverse in your mouth here, but I'm, just kind of engaging with shareholders.
Obviously, reviewing or continuing to review the appropriate opportunities to maximize volume I guess its a strategy question. So after everything is hot in the last six months are you still comfortable with this.
The forward strategy of the <unk>.
Great that company or do you envisage any incremental changes in light of.
What you've been sort of asked you still four months.
Yeah, Doug it's a good solid question. Thank you for asking that.
Been quite encouraged frankly by the constructive engagement, we've had with all of our shareholders over the last several months.
The results of the vote, we believe reflect what's been a consistent theme in the conversations that we've had with shareholders. They understand the value inherent in the business and they recognize that our plans can provide upside as we continue to execute against them were 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 you always do.
We continue to evaluate a wide range of strategic alternatives. Our board is very engaged in the process.
Constant Lee questioning us as the strategy effective do we need to tweak it do we need to make major changes to it and we have a wealth of experience and talent on our board. We've got we've got retired chairman and CEO CFO corporate executives that are well established and wall Street veterans and so they can they are they constructively chat.
Our strategy every step of the way and as I mentioned, we've got the three new members that have been deeply immersed in.
In an onboarding process that gives them access to all the data that they didn't have access to.
During the proxy season, and so they have a clearer understanding of where we're headed why we're headed that way and how we can unlock value.
As I've said before there's no sacred cows.
Not ideological about anything where well we are ideological about one thing and that's shareholder value creation. So let me correct myself, but.
At the right price and for the.
The creation of long term value, we will 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 and that in that regard.
I appreciate it very full answer Mark. Thank you for that my follow up is.
I guess im asking a lot of people about that nowadays, but my follow up is a little different perhaps in the context of the macro.
So strong quarter $2 5 billion of EBITDA. Obviously, you are not where you wanted to be on midstream, but if I annualize that.
Margin environment behind we're still obviously quite a bit shy of the 15 billion. So my question is if you had to try and normalize for today's environment, what would the 15 billion b.
Meaning rather than make an assumption on the mid cycle, what would it be at today's environment.
In other words, how far away from the <unk> and <unk>.
Assuming it is less than 15 billion how does.
Hi, This is Kevin think about the right level of debt for the combined company as it stands today.
Yeah, I think what we've said and I would say the controversy is around.
Putting a stake in the ground and what everybody believes that mid cycle conditions are.
In refining and so we said that based on our indicators, we see that as a as of 2014, but in $2014.
<unk> per barrel indicator and so clearly there were 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 in chemicals to add to that number. So we've got a we've got a long way to go to get to those levels Although I.
I'd say this quarter the gap to mid cycle close considerably for refining, but chemicals is still a.
A couple of years out so Kevin I'll turn it over to you for that.
One additional point, Doug so refining.
<unk> was $867 million.
The quarter, if you annualize that.
Yes.
Number that's around $11 market indicator, if you use the sensitivity to a $14 market indicators.
Just a little bit north of $5 billion.
A question, whether you have your own view on where the $14 per barrel market indicator is that right.
Nicole.
But thats, what we put out there.
I will I would also caution though that this was a quarter with minimal turnaround activity. We ran extremely well typically you're not going to have four quarters of that.
Kelly, Yes, 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 the $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 a less than mid cycle environment like we're at like we are in.
Clearly, we're not at that level today.
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. So 50% of operating cash flow.
Or more of operating cash flow.
Through share repurchases and dividends.
I appreciate the answers guys. Thanks very much indeed.
Thank you Doug.
Yeah.
Thank you. Our next question comes from Manav Gupta with UBS. Please go ahead.
Good morning, I wanted to focus a little bit on the refining results.
99% capture 98% crude utilization I'm just.
And some of those things.
It would be tough to replicate but even quarter over quarter or year over year.
The remarkable achievement. 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 plaques at higher but help us walk through some of the stuff that you were able to achieve here I think you'll probably a little we're looking on it for some time, but it all came together in the second quarter.
Yes. Thank you.
Appreciate that as the data shows and as we've said for the last several years in refining we have full intention to improve refining performance than 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 our market capture is going to have more variability in it because you you.
Because of the movements in the market and crude 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 cost may go up and down but we're looking at the things that we can control will continue to drive those costs now where it's responsible to do.
So and so we'll continue.
To fight that fight and and position refining for whatever the market conditions are 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 a very disciplined focus over the last three years.
Preparing.
And implementing projects and executing to be able to capture that market.
It's available to us or rich can drive into more detail.
Got a little bit maybe a layer deeper here on this you know our Michigan 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 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 challenging ourselves to be the best we can be we've also established a comprehensive reliability program that has been.
Apply 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 day.
Had a little bit closer year over year year to date, where we are showing a 5% improvement year over year. So.
That's that's.
That sustainable improvement is what we're looking for over time and there's a couple of 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 in crude utilization was 98% for the quarter.
That's actually nine 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 this year.
We've reached some record clean product yield as well at 87% for the assets.
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 the small capital high return projects.
Prove both our clean product yield as well as driven flexibility into the end of 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 Sweeny complex, where we recently completed the sour crude flex project were called at this.
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.
To reduce our dependence on waterborne crudes.
And it's also takes advantage of the integration of the site with the midstream Ngls and CP Chem feedstock generation with increased light <unk> production and.
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 our 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 in the second quarter, and we are 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 have a set of turnarounds in the first quarter, we had 17% increase in volume in the second quarter, so that that improvement.
It really drove the dollar per barrel costs 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. 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 to as Mark indicated to the natural gas price is that is moving around a little bit on us right now, which drives a dollar per barrel as well you know, we're making some portfolio management changes.
The Los Angeles refinery, let me kind of wrap this up we made good progress.
But we're not done.
We will continue to focus on and drive these strategies and I and I think 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 are 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. So I just wanted 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 are 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 sustained.
Well and that's going to continue to improve those metrics that you've seen across the board. So thanks for the question.
Yeah.
Thank you guys I'll be quick follow up the strong results from M&A is 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 this business.
Yes, Manav it's key.
Kevin So yeah very strong results in the quarter of $660 million is as you highlighted we had about 100 million benefit.
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.
And so as we as we as we look at the results we had higher volumes.
The refining system came out of the total range of the seasonal effect on demand as well as stronger margins, which likewise, you'll 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.
That on the margin front.
As you look ahead.
For the third quarter, we would expect to be at a more normal level or the business in the third quarter, which is somewhere in the order of $450 million to $500 million.
Earnings is where we would expect that to be.
Your other component to the question on the dispositions. So we havent 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 would that disposition of 65% interest in our Germany, and Austria business.
Thank you so much for the responses and it was great to see Mark on CNBC today morning. Thank you.
Thanks Manav.
Yeah.
Thank you. Our next question comes from Neil Mehta with Goldman Sachs. Please go ahead.
Yes, good morning, good afternoon.
Yes.
I think some time chatting with Mr. <unk> 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 adds and then also the swing factor, China, which obviously in excess export capacity, that's been pretty disciplined about product quotas and so would just love your.
Your bottoms up view of how you think about the net adds.
Over the next couple of years.
Hi, Neil This is Brian I would say that that refinery additions are blow 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 U.
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.
I'll start with some of the refineries as she pointed out, particularly in Asia, there pet Chem focus so those when youre thinking about crude you really have to think about a clean product yields I know it was a very low clean product yields 30% to 35% clean product yield. So I would say bottom line is with the net additions below demand expectations, we see a.
Very strong margin environment.
Okay.
Thanks, Brandon just follow up on the cash flow that doug's question about debt levels.
You know about 10 11 points higher than where you want it to be.
Can you talk about key dynamics working capital there was a $1 $1 billion outflow, but I would think that swings back in the back half that you could just talk about what drove that and how you think that evolves.
And then the jet sale.
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.
Yes, Neil it's Kevin.
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 as you think about at 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 movement in working capital. There was 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 items, the third quarter item because the receivables component as I mentioned, you would expect that to continue at the same sort of levels through the third quarter, but come fourth quarter, you'll see the normal inventory reductions.
We will take place and probably some modest benefit on the receivables payables front. So do you expect that to come back expect the cash proceeds in the fourth quarter 1.5 billion euros $1 6 billion.
So you put that together and we will make some significant inroads towards the debt target.
Makes sense thanks, Kevin.
Okay.
Thank you. Our next question comes from Jason <unk> with TD Cohen.
Please go ahead Jason.
Hey, Thanks for taking my question.
I wanted to go back to kind of how youre thinking about the business. After the activism campaign that you endured and.
There was a lot of focus on that midstream part of the business and I'm wondering if if the company is.
<unk> is thinking about doing.
A deep dive on that segment and the structure that make sense in any way that would be different than.
How do you kind of evaluate that business.
In normal course through the year.
Yeah, absolutely we've we've done that in the past we will continue to do that we will look to see if anything has changed we will.
Engage with industry experts to make sure that we're thinking about it the right way and certainly.
Well lay it all out for our board to drive to the right conclusion. So as I said earlier nothing is off the table, but it's got to create long term value for our shareholders full stop.
Great. Thanks, and my follow up is just on a couple of weaker segments, Ken's and renewable fuels and Kevin I just want to know if your outlook for when we reach mid cycle.
And that industry has changed at all and then renewable fuels given margins where they are.
Do you consider taper.
Tapering back runs there and just kind of the outlook for margins in general would be great. Thanks.
Yeah, I'll grab the chemicals question I said second quarter was particularly problematic when you think about.
The disruptions that tariffs caused at one point the Chinese had imposed.
Punitive tariffs of up 100% on polyethylene imports and CP Chem is really minimize its exposure to China, but all of that material that was flowing into China got pushed back into the world market. So that that was a big challenge this quarter our longer term view.
Is it still consistent.
Seeing rationalization in Europe, you're seeing rationalization rumored and in Asia, and I think you're starting to see capitulation of those players that need to take assets off the table that'll be constructive and we continue to see.
Thanks.
<unk> throughout 'twenty six into 'twenty into 'twenty, seven and beyond without a lot of new capacity coming on other than what a C. P. Kevin cut our energy are bringing to the table and again.
C P Chem affairs relatively well versus their competitors because of the advantaged ethane position. They they have both on the Gulf Coast and are in the middle East and in the high density polyethylene volumes continued to be strong so that they can run it at high rates because demand for that product continues to grow its.
Really a very resilient product.
And and their cost position allows them to continue to operate profitably and so.
They built out a strong competitive position.
This.
The test of time as others are showing weakness.
Hey, Jason its Brian on the renewable front.
Renewable margins R&D weak and they were weaker in the second quarter slightly than the first quarter, we are running at reduced rates.
For the second quarter, we ran at reduced rates and we continue to run at reduced rates, maybe I'll give you some color.
Color and tailwind and headwinds in the regulatory and the renewable segment in general.
As you know theres been a number of regulatory changes for 2026 and number 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.
Well, while we also have RVO obligations that support where they renewed other policies included in the RVO such as that reduced our RIN generation for knowable fuels drive from imported feedstocks will present, a challenge we're doing a lot of things and 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 which is done in our refining segment. We're focused on this plan 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.
<unk>, we see in the market potentially stronger al CFS and RIN credits with a tighter regulations European markets are driving greater incentives, including Germany, we've been exporting to Europe almost every month this year.
There are stronger biofuel programs in Oregon, and Washington, and stronger Canadian markets as well. So I would say just in summary, where they renewed as you know is one of the world's largest rd and SaaS plants and we can also generate up to 15% of the country's D for an D. Five range so ensuring.
Profitability for the plant will be enforced and important for energy supply for affordable energy across the country, given the RIN generation and for energy dominance in the United States.
Add to that that you know and 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 our 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. 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.
Alright, thanks for the answers.
Thank you. Our next question comes from Jean Ann Salisbury with Bank of America. Please go ahead.
Hi, I Havent midstream question, obviously, the top concern right now across Permian volume Levered midstream as the falling rig count in the Permian and whether a kras could materially slowed there next year.
Can you talk about PSX and its exposure to potentially slowing growth in the Permian and how you might actually be less expensive than some carriers in the medium term given your high share of contracted third party volume.
Hi, Jean Ann This is Don.
There are a couple of things around the Permian outlook.
We do stay very close with our producer customers.
Currently we see.
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.
And then the old production, so even when you see some tam.
Tampering and the dampening of the volume growth in crude.
You'll seeing good robust growth on the gas and NGL side because of the higher <unk> from the wells that are being drilled so that certainly.
Creates some buffer when you see some some rig count changes or <unk>.
See a change in producer plans.
But as you mentioned are you know our volume outlook is.
Supported both by our our G&P processing volumes as well as a robust third party contract portfolio and based on conversations we are having across the board. We still have good confidence in the outlook of the volumes coming into our system see a rate or utilization.
Rates are continuing to stay high.
Ill turn it on expansion at coastal Dan and volumes continue to grow and fill that capacity. So I feel like we're in good shape there.
Great. Thanks for that color and then as a follow up and I think I'm gonna strengthen PSX that there are a lot of examples of that.
$500 million of operating synergies from integration and can you guys speak high level Directionally I guess on what environment caused the operating synergies to be higher like for example, if it just better refining and Ken's margins did those numbers go up to or perhaps a more volatile environment, the operating synergies and scale up but any or is it just more of a study.
Steady state number as you guys look at it.
Sure.
Take this one.
It is fairly steady I mean, theres 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.
It's the operational synergies that we have across the portfolio and so those.
Those tend to.
Get realized on a month in month out 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 portfolio is.
Presenting us.
Great. Thanks, John that's all for me.
Thank you.
Next question comes from Ryan Todd with Piper Sandler.
Please go ahead.
Yeah.
Okay. Thanks.
Maybe.
First of all going back on refining distillate market, they've been very tight with really support of 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 are you maxed out given the current crude slate.
Hey, Brian it's Brian.
Although this what's been favorite over gasoline every month this year, but may distillate remains very strong as you pointed out with the lowest U S inventories in decades, and our recent lower clean product yields versus Q2 of 2024, we would expect a distillate margins to remain strong through the end of the year with planning season coming up.
Hurricane season coming.
Coming up for turnarounds, and then winter demand right after that and so we'd expect a tight distillate margins to put the also bullish pressure on gasoline margins as our 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 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 in for some jet moving into the diesel pool.
So.
I'd say that one of the things we're doing is watching the mid east in India, where the global net distillate length exist 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.
Many people have talked about we've seen lower biodiesel or renewable diesel production. It's also bullish for disciplined so we would we would.
Think that different margins will remain strong through the year.
Eventually coming off some when you get these extra barrels.
Heavy crude barrels back onto the market.
Yeah.
Alright, thank you.
And then one.
A big focus here improvement in refining performance 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 seen in terms of your efforts on the commercial side.
Yes, 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 an integrated system and moving barrels further along the value chain as you know we have offices in Houston, Canada in Calgary.
K, Singapore, and a small office in China as well. So we are constantly looking to drive value by moving barrels to the highest netback markets.
As an example, L P g's or naphtha as May end up in Asia, and we have.
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 we've made a lot of progress we've.
We've added a strong origination group, we've hired about 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 the integrated our integrated system to drive more value.
We're really excited about the progress we progress we've made in commercial and I think there's as Dan and Mark I pointed out there's still more opportunity.
Great. Thank you.
Thank you. Our next question comes from Phillip Jungwirth with BMO.
Please go ahead.
Yes.
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 is more to do on the divestiture side here.
There is crude or refined product pipelines that maybe you don't necessarily operate.
Are there arguably still integration synergies or maintaining ownership more about enhancing the cost structure for refining diversification or just not the right environment to really realize full value.
So Joe.
Our I'm sorry, Philip we've got our inactive list that we look at are we.
We've taken.
Taking a deep dive and defined what our core assets are what we believe are non core assets are.
And we're working that list. So there are more potential sales of noncore assets.
Some primarily in midstream non operated our kinds of assets and we were not.
Not ready to put a number out there or talk about specific assets, but we do have we do have a considerable list of things that we could continue.
To monetize.
Okay, Great and then.
I don't think we've asked about the new Mnf's allocation slide that you have in the deck here just be more apples to apples in terms of comparing refining performance, but.
A nice quarter for refining I.
I mean, typically PSX and to really outperform in the central corridor.
I assume with the M&A asset allocation and 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 it tomorrow is really attributing in driving that relative outperformance and then.
And some of the other regions, maybe like the Gulf Coast.
You mentioned, the Swede Sweeney project, but are there other things you can do there.
New projects or otherwise.
Improved relative margin uplift given that you are pretty vertically integrated in the Gulf Coast also.
Hey, Philip it's Brian maybe I'll start off talking about the mid con 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 and mid con 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 given the limited production and finally I think just in general refineries had minimal maintenance during a heavy mid con turnaround season.
And so we benefited by running why others were down.
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 even a bit and then in the mid Con area is to continue to fill up the secondary units and our and our processes and that may not be the.
Native feedstocks may not be generated from the front end of the facility. So that that is an opportunity that we've zeroed in on and 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.
Yeah.
Thanks.
Okay.
Thank you. Our next question comes from Joe <unk> 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 planned maintenance deferred what I'm getting at and trying to figure out is if the 400 $500 million level.
Run rate can you just going forward. Thanks.
Yeah I'll take that this one Joe this is rich.
So the.
The third quarter guidance. We gave me was was $50 million to $60 million and if you look if you look at the.
The year to date spend.
We've we've under Underspent based on our previous guidance. There. So we did feel it was important to to adjust the overall guidance for the year.
And that's attributed to really to two primary things that we've got going on and what has been our continued focus on execution and planning and that that work has really allowed us to to be very efficient on the execution and actually come under our historical.
Activity are 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 two things one.
One it allows us to really optimize the interval between turnarounds. 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 whatever that interval is and the other benefit that this inspects.
<unk> process is driving is actually reduced.
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're you know year to date, we performed quite well we've spent around $320 million year to date. So looking at the numbers we feel.
It was the right thing to do to adjust our full year outlook down by $100 million.
Yeah.
Yeah.
Thanks for that detail and good to see the execution.
Second question is on the midstream side.
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 within the portfolio. Thank you.
Sure This is Don.
They are our coastal bend integration work is going quite well.
As you heard on the call today, the first phase of our expansion is nearly complete we are on schedule for completing the second expansion, which would take us up to 350000, 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 and that would be associated.
Shaded with bringing in coastal dent into our broader wellhead to market system. So that's all going quite well I think a setback is 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.
<unk> like does pick us too and the iron Mesa gas plants all of that.
As volume that's going to come out of those plants and feed and do in the coastal Bend and then.
Hit that.
Gulf Coast market, where coastal then plus what we had really creates a great network of purity product lines that that hits, a lot of markets up and down the Gulf coast, and really see robust opportunity there and you know the customer feedback.
The customer engagement that we've had post closing coastal Dan has been robust and very positive so really excited about what the acquisition.
Done for us and what the opportunity set looks like.
Great. Thanks for taking my questions.
Thank you. Our next question comes from Paul Cheng with Scotiabank. Please go ahead.
Hey, guys.
Uh huh.
I think there's still good demand for you guys.
Brian can I go back to a.
Renewable diesel.
I'm wondering on reduced way just curious that if the margin is no one does that mean that youre going to meetings.
The second quarter level in other words.
How sensitive you are in your one way business.
The market condition and then also there, but then you have fully booked the PTC in the second quarter or that there's some incremental benefit that we shouldn't assume and expand on that.
The first question.
The second question I think it's four months.
Upon the completion of the shutdown of L. A.
No refineries in California.
But you have wholesale and marketing and retail marketing operation there.
And also that didn't get done.
The market condition isn't that there wouldn't be that great for the oil and gas business. So in those two setup business means that in euro your refining and marketing business.
And in California, NGL marketing business in the long haul how you see them fitting into your portfolio.
It should be part of a portfolio of long haul. Thank you.
Hey, Paul It's Brian I'll start I'll tell you that we're likely to run a rodeo at reduced rates, even from Q2, and Q3, but that'll be predicated on the market and the market may be better or or it may not we're watching as you know theres a lot.
Sort of aspects to them.
The margins for renewable diesel 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 on your second question regarding.
Regarding L. A 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 our road to rodeo to renewable feedstocks.
In essence, we were neutral on diesel production and 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 have the ability to import from our Ferndale refinery in Washington, So it's a it's a good position there.
And then as we shut down L. A.
Again, it's primarily a gasoline import opportunity and 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 and so we've got a great plan that's been well received by my California.
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, one which is also a gasoline import market you're going to have barrels coming.
In large ship 300000 barrels to 700000 barrels and those barrels will come off the ship and be stored and ready for for our market. Dislocations. You also have many more 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 five year average were up 70000 barrels a day are already so 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 I'll put a lid.
On volatility to a certain degree the only issue is infrastructure, that's a potential issue, but what we've seen as a state is aware of this and seems poised to continue to help us on that infrastructure. So we think California is in a very good position yes.
Yeah and regarding Europe.
We have already exited co op. We we are exiting 65% of our debt position in Germany, and Austria. So clearly that's not strategic for US we like the deal that we did forget it was a <unk>.
Solid offer from a high quality buyer.
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.
With clear exit provisions and so and so we're comfortable with where we are there in Europe around Humber and the integrated position in the U K. A Z is is really the leading refinery and in the U K, perhaps a in all of Europe. It's a strong position there it has good optionality.
And as you see others rationalize assets, it's only going to strengthen this position.
Thank you our.
Next question comes from Matthew Blair with Tudor Pickering Holt. Please go ahead Matthew.
Thank you and good morning, I wanted to check in on the refining guide for Q3.
I think it was for utilization in the low to mid 90% range versus the 90, 298% in Q2.
Turnaround expenses flat quarter over quarter 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.
Yeah.
I'll I'll take that one there's a couple of things going on that.
When you think about on this one Matt want one is and this is public information very way or bad way facility had upset here a power outage during the last set of storms that rolled through.
That took the entire plant down the plants back up now and operating well, but that that will have an impact on utilization and then the second thing is around our Los Angeles refinery.
Well you know we've indicated that we're gonna cease operations in the fourth quarter, but actually on the backside of the third quarter, you'll start seeing some some winding down of the operation that will have also some impact to utilization.
Okay.
Thank you that's helpful and then on the renewables business I'm wondering.
It makes sense to seek out a partner here, there's a lot of other examples in this space, where your competitors are working with partners to provide help on feedstocks. We saw deal earlier this week, where a partner came in and valued staff capacity at about $4.50 a gallon.
It 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 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.
Yeah.
Thanks, Matt.
Thank you. This concludes the question and answer session I will now turn the call back over to Mark <unk> for closing comments.
Thanks for all your questions 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 our proven strategy.
Our integrated business model generates competitive returns through disciplined investments and synergy capture along our crude and NGL value chain.
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.
Thank you for your interest in Phillips 66, if you have questions or feedback after today's call.
Please contact Jeff World.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.