Q1 2026 Phillips 66 Earnings Call

April 29, 2026

Speaker #1: Case call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

Speaker #1: I will now turn the call over to Shawn Maher, Vice President, Investor Relations, and Chief Economist. Shawn, you may begin.

Speaker #2: Hello everyone. Good morning, and thank you for joining Phillips 66 First Quarter 2026 earnings conference call. 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 commercial.

Speaker #2: Today's presentation can be found on the Investor Relations section of the Phillips 66 website. Along with supplemental financial and operating information, Slide 2 contains our Safe Harbor statement.

Speaker #2: 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.

Speaker #2: With that, I'll turn the call over to Mark.

Speaker #3: Thank you, Shawn. Geopolitical events in the Middle East drove unprecedented commodity price volatility during the quarter. To put this in context, March was the first month that price moves in major crude oil, refined product, and European natural gas benchmarks all exceeded the 95th percentile.

Speaker #3: In the face of this volatility, we remain focused on operational excellence. Our team has executing safely and reliably. The majority of our assets are in the U.S.

Speaker #3: We have pipeline connectivity to some of the lowest-cost and most reliable hydrocarbon corridors in the world. This positions us to reliably supply energy, to support global demand.

Speaker #3: Due to the closure of the Strait of Hormuz, a significant amount of global refining and petrochemical capacity is down. We, however, continue to operate at high utilization, supplying products to our customers.

Speaker #3: Additionally, we have global placement optionality through our commercial organization. This quarter has seen a significant and favorable shift in market fundamentals. First, the importance of U.S.-sourced hydrocarbons has increased due to a need for diversification and access to reliable supply.

Speaker #3: Second, unplanned downtime in global refining assets has reduced inventories and will support margins. Finally, reduced petrochemical production globally due to downtime and higher NAFTA prices has reduced inventories and will also support margins.

Speaker #3: As a reminder, 80% of CP Chem's capacity is on the U.S. Gulf Coast, with competitive ethane feedstock. Recent global events show the importance of reliable domestic energy supply.

Speaker #3: Our Western Gateway pipeline project will address long-term refined products needs, improve supply flexibility, and increase reliability for the West Coast markets. We're excited about the future due to our strong asset footprint, culture of operating excellence, and attractive fundamental outlook across all of our businesses.

Mark Lashier: The need for diversification and access to reliable supply. Second, unplanned downtime in global refining assets has reduced inventories and will support margins. Finally, reduced petrochemical production globally due to downtime and higher naphtha prices has reduced inventories and will also support margins. As a reminder, 80% of CPChem's capacity is on the US Gulf Coast with competitive ethane feedstock. Recent global events show the importance of reliable domestic energy supply. Our Western Gateway Pipeline project will address long-term refined products needs, improve supply flexibility, and increase reliability for the West Coast markets. We're excited about the future due to our strong asset footprint, culture of operating excellence, and attractive fundamental outlook across all of our businesses. Anchored by the strength of our balance sheet, we're confident in our ability to navigate market volatility and capture opportunities.

Speaker #3: Anchored by the strength of our balance sheet, we're confident in our ability to navigate market volatility and capture opportunities. Brian will now share more on Slide 4 about how our commercial organization is one of our competitive advantages.

Speaker #4: Thanks, Mark. We have a strong commercial organization with six offices across the globe. Our business enhances our asset footprint by optimizing feedstocks, delivering products into the marketplace, and capturing value.

Recent Global events, show the importance of reliable domestic energy Supply.

Speaker #4: We capitalize on geographic dislocations and turn volatility into opportunity. With our expertise in global market dynamics, we're ahead of the game. We have an asset-backed trading model and can leverage our physical footprint to take advantage of of liquid hydrocarbons every day.

Our Western Gateway pipeline project will address long-term refined products needs, improved supply, flexibility, and increased reliability for the West Coast markets.

We're excited about the future due to our strong asset footprint. Culture of operating excellence and attractive fundamental Outlook across all of our businesses.

Speaker #4: This creates optionality, and economic value. Markets are fluid right now, and volatility is likely to persist into next year. Recent disruptions have created multiple opportunities.

Mark Lashier: Brian will now share more on slide four about how our commercial organization is one of our competitive advantages.

Anchored by the strength of our balance sheet, we're confident in our ability to navigate market volatility and capture opportunities.

Brian Mandell: Thanks, Mark. We have a strong commercial organization with 6 offices across the globe. Our business enhances our asset footprint by optimizing feedstocks, delivering products into the marketplace, and capturing value. We capitalize in geographic dislocations and turn volatility into opportunity. With our expertise in global market dynamics, we're ahead of the game. We have an asset-backed trading model and can leverage our physical footprint to take advantage of opportunities. We trade over 6 million barrels of liquid hydrocarbons every day. This creates optionality and economic value. Markets are fluid right now, and volatility is likely to persist into next year. Recent disruptions have created multiple opportunities. For example, we moved Bakken crude oil to our Beaumont terminal on the US Gulf Coast, and then leveraging the Jones Act waiver to our Bayway Refinery.

Speaker #4: For example, we move back in crude oil to our Beaumont terminal on the U.S. Gulf Coast, and then leveraging the Jones Act waiver to our Bayway refinery.

Brian will now share more on slide 4 about how our commercial organization is 1 of our competitive advantages. Thanks Mark. We have a strong commercial organization with 6 offices across the globe.

Speaker #4: We displace international crudes with domestic grades into our refining system, and sold the international barrels into tight overseas markets. We place gasoline from our U.S.

Our business enhances our asset footprint by optimizing feedstocks, delivering products into the marketplace, and capturing value.

We capitalize and Geographic, dislocations and turn volatility into opportunity.

Speaker #4: Gulf Coast commercial blending facilities into the West Coast using the Jones Act waiver. We leverage our global footprint to deliver LPGs and NAFTA produced at our Sweeney Hub to global petrochemical customers around the world.

With our expertise in global market dynamics, we are ahead of the game.

We have an asset back, trading model, and can leverage our physical footprint to take advantage of opportunities.

We trade over 6 million barrels of liquid hydrocarbons, every day, this creates optionality and economic value.

Speaker #4: Commercial performance is included in the results of our operating segments, enhancing their margins, and improving market capture. Moving to Slide 5, the recent shock to the global energy system has been universal.

Markets are fluid right now, and volatility is likely to persist into next year.

Speaker #4: Refining capacity has been damaged, logistics have shifted, arbitrage routes have changed. We are watching these and other signposts closely to capture additional value. The differentials between global indices and physical markets have spiked and forward markets are heavily backwardated.

Brian Mandell: We displaced international crudes with domestic grades into our refining system and sold the international barrels into tight overseas markets. We placed gasoline from our US Gulf Coast commercial blending facilities into the West Coast using the Jones Act waiver. We leveraged our global footprint to deliver LPGs and naphtha produced at our Sweeny Hub to global petrochemical customers around the world. Commercial performance is included in the results of our operating segments, enhancing their margins and improving market capture. Moving to slide five, the recent shock to the global energy system has been universal. Refining capacity has been damaged, logistics have shifted, arbitrage routes have changed. We are watching these and other signposts closely to capture additional value. The differentials between global indices and physical markets have spiked. Forward markets are heavily backwardated. This dynamic reflects tight global crude oil balances.

Recent disruptions have created multiple opportunities. For example, we moved back in crude oil to our Bowmont terminal on the US Gulf Coast, and then leveraged the Jones Act waiver to our Bayway refinery.

We displaced international crudes with domestic grades into our refining system and sold the international barrels into tight overseas markets.

Speaker #4: This dynamic reflects tight global crude oil balances. The outlook for product markets looks even tighter, and we expect refining margins to be constructive through the remainder of the year.

We place gasoline from our us Gulf Coast commercial blending facilities into the West Coast, using the Jones act, waiver.

We leverage our Global footprint to deliver lpgs and Napa produced at our Sweeney Hub to Global petrochemical customers around the world.

Speaker #4: Our market analysis, commercial capabilities, and global footprint enable us to optimize the flow of molecules around our system. Our team maximizes the margin uplift across our value chains.

Commercial performance is included in the results of our operating segments, enhancing their margins and improving market capture.

Moving to slide 5, the recent shock to the global Energy System has been Universal.

Speaker #4: Here are two examples of how we are optimizing our system. First, we've added two dozen originators around the globe. They speak the language. They know the culture.

Refining capacity has been damaged.

Logistics have shifted Arbitrage routes have changed.

Speaker #4: And they know how to source deals that unlock more value and optionality providing long-term access to key global markets. Second, we've tripled our vessels on time charter in the past two years, securing roughly half of our waterborne crude slate.

We are watching these and other sign posts closely to capture additional value.

The differentials between global indices and physical markets have spiked and moved forward. Markets are heavily backward. Dated.

Brian Mandell: The outlook for product markets looks even tighter, and we expect refining margins to be constructive through the remainder of the year. Our market analysis, commercial capabilities, and global footprint enable us to optimize the flow of molecules around our system. Our team maximizes the margin uplift across our value chains. Here are two examples of how we are optimizing our system. First, we've added two dozen originators around the globe. They speak the language, they know the culture, and they know how to source deals that unlock more value and optionality, providing long-term access to key global markets. Second, we've tripled our vessels on time charter in the past two years, securing roughly half of our waterborne crude slate. The global tanker fleet has become tight with limited spot availabilities and a large share of sanctioned vessels. This has caused freight rates to increase to historic levels.

Speaker #4: The global tanker fleet has become tight with limited spot availabilities, and a large share of sanctioned vessels. This has caused freight rates to increase to historic levels.

This dynamic reflects tight, global crude oil balances. The outlook for product markets looks even tighter, and we expect refining margins to be constructive through the remainder of the year.

Speaker #4: By locking in our freight rates early, we reduce the cost of crude to our refineries. We optimize around our refineries, pipelines, and terminals to ensure that we're leveraging every molecule and driving additional value from our fundamental knowledge of the global markets.

Our market analysis, commercial capabilities, and global footprint enable us to optimize the flow of molecules around our system.

Our team, maximizes, the margin uplift of our value chains.

Here are 2 examples of how we are optimizing our system.

Speaker #4: Backed by world-class assets, we find opportunity and volatility to deliver greater shareholder value. Now, I'll turn the call over to Kevin.

Speaker #5: Thank you, Brian. On Slide 6, the first quarter reported earnings were $207 million or $51 per share. Adjusted earnings were $200 million or $49 per share.

First, we've added 2 dozen, Originators around the globe, they speak the language. They know the culture and they know how to Source deals that unlock more value and optionality, providing long-term access to key Global markets.

Second, we've tripled our vessels on time charter in the past two years, securing roughly half of our waterborne crude slate.

Speaker #5: As a result of a sharp increase in commodity prices during the first quarter, the company's financial results were impacted by mark-to-market losses of $839 million related to short derivative positions used as economic hedges to manage price risk on certain physical positions.

The global tanker fleet has become tight with limited spot availabilities, and a large share of sanctioned vessels.

Brian Mandell: By locking in our freight rates early, we reduce the cost of crude to our refineries. We optimize around our refineries, pipelines, and terminals to ensure that we're leveraging every molecule and driving additional value from our fundamental knowledge of the global markets. Backed by world-class assets, we find opportunity and volatility to deliver greater shareholder value. Now, I'll turn the call over to Kevin.

This has caused freight rates to increase to historic levels. By locking in our freight rates early, we reduce the cost of crude to our refineries.

Speaker #5: We had a use of operating billion. Operating cash flow excluding working capital was approximately $700 million. Capital spending for the quarter was $582 million.

We optimize around our refineries pipelines and terminals to ensure that we're leveraging every molecule and driving additional value from our fundamental knowledge of the global markets backed by world-class assets, we find opportunity and volatility to deliver greater shareholder value.

Kevin Mitchell: Thank you, Brian. On slide six, Q1 reported earnings were $207 million or $0.51 per share. Adjusted earnings were $200 million or $0.49 per share. As a result of a sharp increase in commodity prices during Q1, the company's financial results were impacted by mark-to-market losses of $839 million related to short derivative positions used as economic hedges to manage price risk on certain physical positions. We had a use of operating cash flow of $2.3 billion. Operating cash flow excluding working capital was approximately $700 million. Capital spending for the quarter was $582 million. We returned $778 million to shareholders, including $269 million of share repurchases and $509 million of dividend payments.

Now, I'll turn the call over to Kevin.

Speaker #5: We returned $778 million to shareholders, including $269 million of share repurchases and $509 million of dividend payments. We increased the quarterly dividend 7% on an annualized basis.

Thank you, Brian. On slide 6, first quarter reported earnings were $207 million, or $0.51 per share.

Adjusted earnings were $200 million, or $0.49 per share.

Speaker #5: I will now cover the segment results on Slide 7. Total company adjusted earnings were $200 million. Midstream results decreased, mainly due to lower volumes, largely due to impacts from winter storm Fern, lower margins associated with customer re-contracting, and accelerated depreciation associated with a Permian Basin gas plant.

Hedges to manage price risk on certain physical positions.

We had a use of operating cash flow of 2.3 billion.

Speaker #5: In chemicals, results increased, mainly due to higher polyethylene margins. Across refining, marketing, and specialties, and renewable fuels, results decreased, mainly due to mark-to-market impacts.

Operating cash flow, excluding working capital, was approximately $700 million.

Capital spending for the quarter was 582 million.

Speaker #5: In corporate and other, the pre-tax loss increased, primarily due to the inclusion of costs, associated with the decommissioning and redevelopment of the idled Los Angeles refinery site.

Kevin Mitchell: We increased the quarterly dividend 7% on an annualized basis. I will now cover the segment results on slide seven. Total company adjusted earnings were $200 million. Midstream results decreased mainly due to lower volumes, largely due to impacts from Winter Storm Fern, lower margins associated with customer recontracting, and accelerated depreciation associated with a Permian Basin gas plant. In Chemicals, results increased mainly due to higher polyethylene margins. Across Refining, Marketing and Specialties, and Renewable Fuels, results decreased mainly due to mark-to-market impacts. In Corporate and Other, the pretax loss increased primarily due to the inclusion of costs associated with the decommissioning and redevelopment of the idled Los Angeles refinery site. Slide eight shows cash flow for the quarter. We started the quarter with a $1.1 billion cash balance. Cash from operations, excluding working capital, was approximately $700 million.

We returned $778 million to shareholders, including $269 million of share repurchases and $509 million of dividend payments.

We increased the quarterly dividends 7% on an annualized basis.

I will now cover the segment results on slide 7.

Speaker #5: Slide 8 shows cash flow for the quarter. We started the quarter with a $1.1 billion cash balance. Cash from operations, excluding working capital, was approximately $700 million.

Total company adjusted earnings were $200 million.

Speaker #5: There was a $3 billion use of working capital, mainly reflecting an inventory build, and an increase in cash collateral on derivative positions, partly offset by the net benefit in our payables and receivables positions, associated with rising commodity prices.

Midstream results, decrease mainly, due to lower volumes. Largely due to impacts from winter storm, Fern low margins, associated with customer recontracting and accelerated depreciation. Associated with a permanent Basin gas plant.

In Chemicals, results increased mainly due to higher polyethylene margins.

Speaker #5: We funded $582 million of capital spending and returned $778 million to shareholders through share repurchases and dividends. Our commitment to return greater than 50% of net operating cash flow to shareholders remains unchanged.

Across Refining, Marketing and Specialties, and Renewable Fuels, results decreased mainly due to mark-to-market impacts.

In Corporate and Other, the pre-tax loss increased primarily due to the inclusion of costs associated with the decommissioning and redevelopment of the idled Los Angeles Refinery site.

Speaker #5: The company increased debt in the first quarter. Given the sharp increase in commodity prices, we issued a term loan and increased borrowings on short-term facilities to manage the margin collateral requirements.

Slide 8 shows cash flow for the quarter.

We started the quarter with a $1.1 billion cash balance.

Kevin Mitchell: There was a $3 billion use of working capital, mainly reflecting an inventory build and an increase in cash collateral on derivative positions, partly offset by the net benefit in our payables and receivables positions associated with rising commodity prices. We funded $582 million of capital spending and returned $778 million to shareholders through share repurchases and dividends. Our commitment to return greater than 50% of net operating cash flow to shareholders remains unchanged. The company increased debt in Q1. Given the sharp increase in commodity prices, we issued a term loan and increased borrowings on short-term facilities to manage the margin collateral requirements. We ended the quarter with $5.2 billion in cash. We are well-positioned to manage further commodity price volatility through significant liquidity, including a high cash balance and cash generated from operations.

Cash from operations, excluding working capital, was approximately $700 million.

Speaker #5: We ended the quarter with $5.2 billion in cash. We are well positioned to manage further commodity price volatility through significant liquidity including a high cash balance and cash generated from operations.

There was a 3 billion use of working capital, mainly reflecting an inventory, build, and an increase in cash. Collateral on derivative positions, partly offset by the net benefit in our payables and receivables positions associated with Rising commodity prices.

Speaker #5: Slide 9 shows the projected path from the current debt level to year-end 2026 and 2027 debt. We remain fully committed to a total debt balance of $17 billion by year-end 2027, consensus cash from operations for 2026 and 2027 is approximately $8 billion.

Our commitment to return greater than 50% of net operating cash flow to shareholders remains unchanged.

The company increased debt in the first quarter.

Speaker #5: In the remainder of 2026, we expect operating cash flow working capital benefits and the reduction of cash balances as markets stabilize to enable us to reduce debt to approximately $19 billion.

Given the sharp increase in commodity prices, we issued a Term Loan and increased borrowings on short-term facilities, to manage the margin collateral requirements.

We entered the quarter with 5.2 billion dollars in cash.

Speaker #5: In 2027, we expect operating cash flow to enable us to reduce debt by a further $2 billion to $17 billion. This is consistent with the capital allocation framework we have previously laid out, with approximately $2 billion each to dividends, share repurchases, capital spend, and debt paydown.

We are well positioned to manage further commodity price volatility through significant liquidity, including a high cash, balance and cash generated from operations.

Kevin Mitchell: Slide nine shows the projected path from the current debt level to year-end 2026 and 2027 debt. We remain fully committed to a total debt balance of $17 billion by year-end 2027. Consensus cash from operations for 2026 and 2027 is approximately $8 billion. In the remainder of 2026, we expect operating cash flow, working capital benefits, and the reduction of cash balances as markets stabilize to enable us to reduce debt to approximately $19 billion. In 2027, we expect operating cash flow to enable us to reduce debt by a further $2 billion to $17 billion.

Slide 9 shows the projected path from the current debt level to year end 2026 and 2027 debt.

Speaker #5: Looking ahead to the second quarter on Slide 10, in chemicals, we expect the global O&P utilization rate to be in the low 80s driven by the uncertainty of operating levels at CP Chem's joint ventures in the Middle East.

We remain fully committed to a total debt balance of 17 billion by year. End 2027 consensus cash from operations for 20126 and 2027 is approximately 8 billion dollars.

Speaker #5: In refining, we expect the worldwide crude utilization rate to be in the low to mid-90s. Turnaround expense is expected to be between $120 and $150 million.

In the remainder of 2026, we expect, operating cash flow, working capital benefits, and the reduction of cash balances. As Market stabilized to enable us to reduce debt to approximately 19 billion dollars.

Speaker #5: We anticipate corporate and other costs to be between $430 and $450 million. Moving to Slide 11, Mark will now provide some final thoughts. We will then open the line for questions.

Kevin Mitchell: This is consistent with the capital allocation framework we have previously laid out, with approximately $2 billion each to dividends, share repurchases, capital spend, and debt paydown. Looking ahead to Q2 on slide 10. In chemicals, we expect the global O&P utilization rate to be in the low 80s, driven by the uncertainty of operating levels at CPChem's joint ventures in the Middle East. In refining, we expect the worldwide crude utilization rate to be in the low to mid-90s. Turnaround expense is expected to be between $120 and 150 million. We anticipate corporate and other costs to be between $430 and 450 million. Moving to slide 11, Mark will now provide some final thoughts. We will then open the line for questions.

In 2027, we expect operating cash flow to enable us to reduce debt by a further $2 billion to $17 billion.

Speaker #6: Great things happen when preparation meets opportunity. The current environment is attractive across all our businesses. We've prepared by focusing relentlessly on what we control: cost, culture, competitiveness, and capital with discipline, all in the service of safe, reliable operations that deliver strong shareholder returns.

This is consistent with the capital allocation framework we have previously laid out, with approximately $2 billion each to dividends, share repurchases, capital spend, and debt paydown.

Looking ahead to the second quarter on slide 10.

In chemicals, we expect the global on P. Utilization rate to be in the low 80s driven by the uncertainty of operating levels at cpm's joint. Ventures in the Middle East.

Speaker #6: Our teams are performing and we're pressing in and capturing those opportunities. Fully prepared, fully committed, the execute and win. When we win, you win.

In refining, we expect the worldwide crew utilization rate to be in the low to mid 90s.

Turnaround expense is expected to be between $120 million and $150 million.

We anticipate corporate and other costs to be between $430 million and $450 million.

Speaker #1: Thank you, Mark. We will now begin the question-and-answer session. As we open the call for questions, as a courtesy to all participants, please limit yourself to one question and a follow-up.

Mark Lashier: Great things happen when preparation meets opportunity. The current environment is attractive across all our businesses. We've prepared by focusing relentlessly on what we control: cost, culture, competitiveness, and capital with discipline, all in the service of safe, reliable operations that deliver strong shareholder returns. Our teams are performing, and we're pressing in and capturing those opportunities, fully prepared, fully committed to execute and win. When we win, you win.

Moving to slide 11, Mark will now provide some final thoughts. We will then open the line for questions.

Speaker #1: 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 one again.

Great things happen when preparation meets opportunity. The current environment is attractive across all our businesses. We've prepared by focusing relentlessly on what we control: cost.

Speaker #1: 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.

Culture competitiveness and capital with discipline, all in the service of safe, reliable operations, that deliver, strong shareholder returns.

Speaker #1: Steve Richardson from Evercore ISI, please go ahead. Your line is open.

Speaker #7: Hi. Thank you. Guys, I was wondering if we could start on the mark-to-market adjustments and wondering if you could give us some color on some of these impacts by segment, if you could, and I know you addressed this in the 8K, but if you could get into a little bit of how the volatility that you witnessed was outside the bands of expectations.

Our teams are performing and we're pressing in and capturing those opportunities fully prepared, fully committed to execute and win when we win you win.

Operator: Thank you, Mark. We will now begin the question-and-answer session. As we open the call for questions, as a courtesy to all participants, please limit yourself to one question and a follow-up. Stephen Richardson from Evercore ISI, please go ahead. Your line is open.

Speaker #7: And can you also just be sure to hit on how you think about that draw of liquidity, what it means going forward, and what any impacts it may have on your shareholder return commitments?

Speaker #8: Yes, Steve. This is Kevin. Let me walk through some of that detail. So as we laid out in the first quarter, we saw a $839 million mark-to-market loss from an income statement standpoint.

Should be removed from the queue. Please press star. Then 1 again, if you are using a speaker-phone, you may need to pick up the handset. First before pressing the numbers, once again, if you have a question, please press star then 1 on your touchtone phone.

Steve Richardson from evercore isi, please go ahead. Your line is open.

Stephen Richardson: Hi. Thank you. Guys, I was wondering if we could start on the mark-to-market adjustments. Wondering if you could give us some color on some of these impacts by segment, if you could. You know, I know you addressed this in the 8-K, but if you could get into a little of how the volatility that you witnessed was outside the bands of expectations. Can you also just be sure to hit on how you think about that draw of liquidity, what it means going forward, and what it, you know, any impacts it may have on your shareholder return commitments?

Speaker #8: That impacted refining M&S and renewables and the specific amounts by segment were detailed in the press release. This is broadly consistent with what we put out in the 8K.

Speaker #8: We said approximately $900 million at that point. That was our best estimate at that point in time. And so I think it's important to make it clear that these are mark-to-market impacts on paper hedges that we have in place to offset physical purchases.

Hi, thank you. Um, you guys, I was wondering if we could start on the uh, Mark to Market adjustments. Um, and wonder if you give us some color on some of these impacts by segment if you could and and you know, and I know you addressed this in the 8K. But um if you could get into a little bit of how the volatility that you witnessed was outside the bands of expectations,

And can you also just be sure to hit on, um, how you think about that draw liquidity? What it means going forward, and what it, you know, any impacts it may have on your shareholder return commitments.

Kevin Mitchell: Yeah. Steve, this is Kevin. Let me walk through some of that detail. As we laid out in Q1, we saw a $839 million mark-to-market loss from an income statement standpoint that impacted Refining, M&S, and Renewables, and the specific amounts by segment were detailed in the press release. This is broadly consistent with what we put out in the 8-K. We said approximately $900 million at that point. That was our best estimate at that point in time. I think it's important to make it clear that these are mark-to-market impacts on paper hedges that we have in place to offset physical purchases.

Speaker #8: The purchases are mark-to-market at the end of each month, but the physical inventory is not. And so there's a net impact through the income statement.

Speaker #8: I do think it's important to emphasize that we do this to protect economic value. There is this is a risk mitigation tool. We've been doing this for some time.

Speaker #8: It's standard practice. And in the normal course, the impacts of these mark-to-market transactions are just not that significant, not that material. But as Mark mentioned in his comments, we saw unprecedented volatility across the commodity markets in which we participate.

Yes, Steve, this is Kevin, uh, let me walk through some of that detail. So, as we laid out, uh, in the first quarter, we saw a 839 million dollar, Mark to Market, uh, lost, um, from an income statement standpoint that impacted refining M&S and Renewables. And the specific amounts by segments were, uh, detailed in the, in the press release. Uh, this is broadly consistent with what we put out in the 8K. We said approximately 900 million um at that point that was our best estimate at that point uh in time. And so I think it's important to make

Kevin Mitchell: Those purchases are mark-to-market at the end of each month, but the physical inventory is not, and so there's a net impact through the income statement. I do think it's important to emphasize that we do this to protect economic value. This is a risk mitigation tool. We've been doing this for some time. It's standard practice. In the normal course, the impacts of these mark-to-market transactions are just not that significant, not that material. As Mark mentioned in his comments, we saw unprecedented volatility across the commodity markets in which we participate, that caused this, what we'll say is a sort of outsized impact.

Speaker #8: The core of this we'll say is a sort of outsized impact. As you look ahead, in terms of what you can expect on a go-forward basis, it's very much a function of where the commodity prices move from end of March through, say, the end of the year.

Make it clear that these are, um, mark-to-market impacts on paper. Hedges that we have in place to offset, uh, physical, uh, uh, purchases. Um, the, uh, the, those purchases are marked to market at the end of each month. Um, but the physical inventory is not, and so there's a, a net impact through the income statement.

Speaker #8: And if we were to use the forward curve as of end of day yesterday, we'd recover by the end of the year about $500 million of that $893.

Speaker #8: And it's a commodity-by-commodity calculation on a quarter-by-quarter basis. So based on the forward curve, if that were to play out as reality, that's what you'd see come back in that context.

I do think it's um important to um emphasize that we do this to protect economic value. There is this is a risk mitigation tool. We've been doing this for some time, it's standard practice and then the normal course, the impacts of these Mark tomarket transactions are just, not that significant not that material but as Mark mentioned in his comments, we saw

Speaker #8: From a cash standpoint, we have at the end of the quarter, we had a total of $3.2 billion out on margin, associated with all of this activity.

Kevin Mitchell: As you look ahead in terms of what you can expect on a go-forward basis, it's very much a function of where the commodity prices move from end of March, think through, say, the end of the year. If we were to use the forward curve as of end of day yesterday, we'd recover by the end of the year about $500 million of that $893. It's a commodity by commodity calculation on a quarter by quarter basis. Based on the forward curve, if that were to play out as reality, that's what you'd see come back in that, in that context. From a cash standpoint, we have, at the end of the quarter, we had a total of $3.2 billion out on margin associated with all of this activity.

unprecedented volatility across the commodity markets in which we participate um that caused this or we'll we'll say as a sort of outsized, um, impact

Speaker #8: That differs from the income statement effect because there are other barrels being marked where we actually do a corresponding impact to reflect the physical gain.

Speaker #8: And so you have more paper activity than is subject to the income statement-related mark-to-market. That cash impact will come back two ways it comes back.

As you look ahead, in terms of what you can expect on a go-forward basis, it's very much a function of where the commodity prices move from end of March, I think, through, say, the end of the year. And if we were to use the forward curve as of end of day yesterday, we'd recover by the end of the year about $500 million of that $893 million. And it's a commodity-by-commodity calculation.

Speaker #8: One, directly in falling prices. You'll see the reverse effect. But in normal course, because this is a continual process, as volatility subsides, we effectively consume this cash through our normal purchasing activities.

Ation on a quarter by quarter basis. So based on the forward curve if that were to play out as reality, that's what you'd see come back um in that in that context um from a cash standpoint.

Kevin Mitchell: That differs from the income statement effect because there are other barrels being marked where we actually do a corresponding impact to reflect the physical gain. You have more paper activity than is subject to the income statement related mark-to-market. That cash impact will come back two ways it comes back. One, directly in falling prices, you'll see the reverse effect. In normal course, because this is a continual process, as volatility subsides, we effectively consume this cash through our normal purchasing activity.

Speaker #8: So just to put some context around that, $3.2 billion out on margin at the end of March at the end of yesterday, it was $2.1 billion, even though the absolute price levels are pretty similar to where they were at the end of the first quarter.

Speaker #8: And so you will see that come down as we work our way through the year. And then as we get into what does this mean in terms of capital allocation, debt reduction, share buybacks, big picture, and I covered it in the earlier comments and the slide that we put in the presentation on debt targets, we think we will be able to utilize between working capital benefits and the remainder of the year operating cash flow and as the market stabilized.

We have, uh, at the end of the quarter, we had a total of $3.2 billion out on margin associated with all of this, uh, activity. Uh, that differs from the, uh, the income statement effect because there are other barrels being, um, marked where we actually do a corresponding, uh, impact, uh, to, um, reflect the physical gain. Uh, and so you have more paper activity than is subject to the, um, the income statement-related, uh, mark-to-market. That cash impact, uh, will come back.

Kevin Mitchell: Just to put some context around that $3.2 billion out on margin at the end of March, at the end of yesterday it was $2.1 billion, even though the absolute price levels are pretty similar to where they were at the end of Q1. You will see that come down as we work our way through the year. As we get into, you know, what does this mean in terms of capital allocation, debt reduction, share buybacks? Big picture, and I covered it in the earlier comments and the slide that we put in the presentation on debt targets. We think we will be able to utilize between working capital benefits and the remainder of the year operating cash flow.

Speaker #8: We don't need to carry that much cash, which is what we showed at the end of the quarter, and still do. But we can draw down that cash, get debt down to about $19 billion at the end of this year, and then down to our target $17 billion next year, all while still returning 50% of our operating cash flow back through dividends and buybacks and, quite frankly, we used the street estimates for cash generation in that calculation.

Two ways. It comes back. One, directly in falling prices. You'll see the reverse effect, but in normal course, because this is a continual process, as volatility subsides, we effectively consume this cash through our normal purchasing activities. So, just to put some context around that, $3.2 billion out on margin at the end of March. At the end of yesterday, it was $2.1 billion, even though the absolute price levels are pretty similar to where they were at the end of the first quarter. And so, you will see that come down as we work our way through the year. And then

As we get into, you know, what does this mean in terms of capital allocation, debt reduction, share buybacks?

Big picture.

Speaker #8: But I feel pretty optimistic with this upside there as well. And we'll hold true to that. So 50% back to shareholders and the other excess will just accelerate debt reduction.

Kevin Mitchell: As the market stabilize, we don't need to carry that much cash, which is what we showed at the end of the quarter and still do. We can draw down that cash, get debt down to about $19 billion at the end of this year, and then down to our target $17 billion next year, all while still returning 50% of our operating cash flow back through dividends and buybacks. Quite frankly, we used the Street estimates for cash generation in that calculation. I feel pretty optimistic that there's upside there as well. We'll hold true to that. 50% back to shareholders and the other excess will just accelerate debt reduction.

Speaker #7: That's great. Thanks for the fulsome answer, Kevin. I was wondering if I could just hit as well while we've got you on CPCAM. The consultants have full-chain margins up, I believe, 33 cents at last check for the second quarter.

Speaker #7: I was wondering if you could talk about what your seeing in your business and your view on capturing this with, obviously, very high utilization rate on the US Gulf Coast, into the second quarter and the balance of the year.

Speaker #8: Yeah, absolutely, Steve. This is Mark. Yeah, CPCAM is well positioned to go out and capture those margins. There can be some contractual step-ups that occur, but there's certainly out there aggressively pushing that.

Stabilized. We don't need to carry that much cash, which is what we showed at the end of the quarter and still still do but we we can draw down that cash get that down to about 19 billion at the end of this year and then down to our Target 17 billion. Next year, all while still returning, 50% of our operating cash flow back through uh, dividends and BuyBacks. And, uh, and quite frankly, we used uh, the street estimates for a cash generation in, in that calculation. But I, I feel pretty optimistic that there's upside there as well. Um, and we'll hold through to that. So 50%, um, back to shareholders and, uh, the the other excess will just accelerate debt reduction.

Stephen Richardson: That's great. Thanks for the fulsome answer, Kevin. I was wondering if I could just hit on as well while we've got you on CPChem. The consultants have full chain margins up, I believe $0.33 at last check for Q2. I was wondering if you could talk about what you're seeing in your business and your view on capturing this with obviously very high utilization rate on the US Gulf Coast into Q2 and the balance of the year.

Speaker #8: You've seen the supply and demand situation tighten up dramatically with the limitations coming out of the Middle East. And additionally, you've seen limitations for producers in Asia that, frankly, some countries in Asia are selectively moving hydrocarbons away from petrochemical production and into energy use, to protect that.

Speaker #8: And so that further tightens things up. And the cost curve has dramatically shifted as the price of oil has gone up versus low-cost ethane in North America.

That's great. Thanks for the uh Forum uh answer Kevin. Um, I was wondering if I could just hit as well. We've got you on on CB cam. Um the Consultants have full chain margins up. I believe 33 cents at last check for the second quarter. Um, I was wondering if you could talk about what your, um, seeing in, in your business and your view on capturing this with obviously, very high utilization rate, on the US Gulf Coast, um, in to the second quarter and the balance of the year.

Mark Lashier: Yeah, absolutely, Steve. This is Mark. CPChem's well positioned to go out and capture those margins. There can be some contractual step-ups that occur, but they're certainly out there aggressively pushing that. You've seen the supply and demand situation tighten up dramatically with the limitations coming out of the Middle East. Additionally, you've seen limitations for producers in Asia that frankly, some countries in Asia are selectively moving hydrocarbons away from petrochemical production and into energy use to protect that. That further tightens things up. The cost curve has dramatically shifted as the price of oil has gone up versus low cost ethane in North America. You see that price floor going up, driving the margin increases.

Speaker #8: You see that price floor going up, driving the margin increases. And then there's this factor that prior to Venezuela, prior to the activities in Iran, China was accessing deeply discounted crude.

Speaker #8: And so they were converting that into deeply discounted NAFTA. And then pouring that polyethylene into the world market. We think that somewhere in a 5 to 6 cents per pound advantage versus what the cost curve should have been.

Speaker #8: Now, that's been eliminated with the things that have been going on. And so it's very constructive for CPCAM. They can operate from the US Gulf Coast at high rates, over 80% of their capacity, is in the US, access to advantage ethane feedstocks that have been that feedstock cost has been stable versus what's been going on in the rest of the world.

Mark Lashier: There's this factor that, prior to Venezuela, prior to the activities in Iran, China was accessing deeply discounted crude. They were converting that into deeply discounted naphtha and pouring that polyethylene to the world market. We think that somewhere in a $0.05 to $0.06 per pound advantage versus what the cost curve should have been. Now that's been eliminated with the things that have been going on. It's very constructive for CPChem. They can operate from the US Gulf Coast at high rates. Over 80% of their capacity is in the US. Access to advantage ethane feedstocks that feedstock cost has been stable versus what's been going on in the rest of the world. They're very well positioned to go out and capture those margins.

Speaker #8: So they're very well positioned to go out and capture those margins.

Yeah, absolutely, Steve. This is Mark, um, the cpm's well, positioned to go out and capture those margins. There can be some contractual step ups that occur, but they're certainly out there aggressively pushing that. Uh, you've seen the, uh, the supply and demand situation, tighten up, dramatically with the limitations coming out of of the, uh, the Middle East and additionally, you've seen limitations for producers in Asia that. Frankly some countries in Asia, are are selectively moving hydrocarbons away from petrochemical production and into energy use to protect that. And so that further tightens things up and uh and the cost curve has dramatically shifted as the price of oil has gone up uh versus low cost. Ethane in North America, you see that price floor going up driving, uh, the margin increases and then there's this factor that uh, prior to, uh, Venezuela prior to

Speaker #7: Thanks very much.

Speaker #1: Neil Mehta from Goldman Sachs. Please go ahead. Your line is open.

Speaker #9: Yeah. Good morning, Mark and team. The standout number from this quarter was really the worldwide market capture, which ticked up to 138%. And maybe you can bring this to life a little bit.

Speaker #9: Can you give us a couple of examples of dynamics that specifically drove that strength? And then when we think about sort of a mid-cycle market capture rate, you've talked about mid-90s type of utilization.

The uh activities of Iran. China was accessing deeply, discounted crude and so they were converting that into deeply discounted Napa and then uh and then pouring that polyethylene into the World Market. We think that somewhere in a 5 to 6 cents per pound Advantage versus what the cost curve should have been now, that's been eliminated with the things that have been going on, and so, it's very constructive for CPM. They can operate, uh, from the US Gulf Coast at high rates,

Speaker #9: I think there are a lot of investors on the call who are thinking that Q2 could be lower than that mid-90s number, though, just because of the backwardation in the curve and just your perspective if that is actually achievable, as we set up for Q2.

Over 80% of their capacity is in the US access to uh, advantage that thing feed stocks that have been that feed stock cost has been stable versus what's been going on the rest of the world. So they're very well positioned to go out and capture those margins.

Stephen Richardson: Thanks very much.

Thanks so much.

Operator: Neil Mehta from Goldman Sachs, please go ahead. Your line is open.

Speaker #8: Yeah, Neil, it's a great question. Brian was he was pretty humble in his opening remarks. But we always talk about optionality and creating optionality.

Neil Mehta: Yeah. Good morning, Mark and team. The standout number from this quarter was really the worldwide market capture, which ticked up to 138%. Maybe you can bring this to life a little bit. Can you give us a couple of examples of dynamics that specifically drove that strength? When we think about sort of a mid-cycle market capture rate, you've talked about mid-90s type of utilization. I think there are a lot of investors on the call who are thinking that Q2 could be lower than that mid-90s number, though, just because the backwardation in the curve and just your perspective if that is actually achievable as we set up for Q2.

Speaker #8: And what he and his commercial team demonstrated in Q1 is leveraging that optionality. You think about moving Bakken crude to New Jersey without using a train.

Speaker #8: And leveraging the shipping logistics that they've at least in advance. So we've got an advantage over shipping using the Jones Act waivers. All those things lined up to where Brian and his team could take and pull advantage of that and to drive that.

Speaker #8: And that's what drove that pretty remarkable capture number. And we're really proud of what they've been doing. They weren't sitting around watching the world in a crisis.

Mark Lashier: Yeah, Neil, it's a great question. Brian was, you know, he was pretty humble in his opening remarks. We always talk about optionality and creating optionality. What he and his commercial team demonstrated in Q1 is leveraging that optionality. You think about moving Bakken crude to New Jersey without using a train and leveraging the shipping logistics that they've, they have at least in advance. We've got an advantage over shipping using the Jones Act waivers. All those things lined up to where Brian and his team could take full advantage of that and to drive that. That's what drove that pretty remarkable capture number and we're really proud of what they've been doing. They weren't sitting around watching the world in a crisis.

Neil Mehta from Goldman Sachs, please go ahead. Your line is open. Yeah, good morning Mark and team. Um, the standout number from the quarter was really the worldwide Market capture which ticked up to to 138% and um maybe you can bring bring this to life a little bit. What are can you give us a couple of examples of dynamics, that specifically drove that strength? And then when we think about sort of a mid-cycle market capture rate, you've talked about mid90s type of utilization. I think there are a lot of investors on the call who are thinking that 2q could be lower than that. Mid90s number though, just because the backwardation and the curve and just your perspective of that is actually achievable as we set up for Q2.

Speaker #8: They were moving things to take advantage of the optionality that we've created and were prepared for. So Brian, you can go ahead and talk a little bit more about what your folks have been up to.

Speaker #10: Hey, Neil. As Mark said, with the huge amount of volatility in the market, with market dislocations and just the integration of our businesses, there was a lot of value to be had in the market.

Yeah, I know it's a great question. Brian was, uh, you know, he was pretty humble in his opening remarks, but, uh, we always talk about optionality and creating optionality. And what he and his commercial team demonstrated in Q1 is leveraging that optionality. You think about moving Bakken crude to, uh, to New Jersey without using a train, uh, and leveraging the, uh, the shipping logistics.

Speaker #10: Just maybe some examples. We profited from a long-run position, including runs we generated at a Rodeo Renewable facility. And we were also able to roll some lower-cost runs from prior year into this year.

Speaker #10: We had really strong results in our European and Asian trading businesses. As I mentioned earlier, and as Mark mentioned, the time charters that we put on over the last couple of years really helped in the elevated freight market.

Mark Lashier: They were moving things to take advantage of the optionality that we've created and were prepared for. Brian, you can go ahead and talk a little bit more about what your folks have been up to.

That they've they've at least Advanced so we've got an advantage over shipping using the the uh, the Jones act waivers. All those things lined up, uh, to where Brian and his team could could take it full advantage of that and to drive that. And that's what drove that, pretty remarkable capture number. And uh, we're really proud of what they've been doing. They weren't sitting around watching the world in a crisis. They were, they were moving things to take advantage of the optionality that we've created. And, and, and we're prepared for. So Brian. You can go ahead and

Brian Mandell: Neil, you know, as Mark said, you know, with the huge amount of volatility in the market, with market dislocations and just the integration of our businesses, there was a lot of value to be had in the market. Just maybe some examples. We profited from a long RIN position, including RINs we generated at our Rodeo renewable facility, and we were also able to roll some lower cost RINs from prior year into this year. We had really strong results in our European and Asian trading businesses. As I mentioned earlier and as Mark mentioned, the time charters that we put on over the last couple of years really helped in the elevated freight market and reduced our accrued costs into our refineries.

Speaker #10: And reduced our crude costs into our refineries. And then finally, you saw some of the product differentials, like on Octane and Jet, were higher than the indicators.

Talk a little bit more about what your focus has been up to. And, you know, as Mark said, you know, with the, uh,

Speaker #10: So that helped as well. And so to give you some context, maybe going forward, if we use our refining indicator, it includes a lot of the impacts already.

Speaker #10: It's embedded in the indicator. Historically, an average for the year would be 98%. In Q1, we captured benefited from all the commercial opportunities I just mentioned.

Speaker #10: Normally, in Q2, beginning of summer driver season, we would think about mid-50s. So just thinking about some of the tailwinds and headwinds, tailwinds, things like butane blending, we think there'll be more butane blending due to the RVP waivers.

Brian Mandell: Finally, you saw some of the product differentials, like on octane and jet, were higher than the indicators, so that helped as well. To give you some context maybe going forward, if we use our refining indicator, it includes a lot of the impacts already. It's embedded in the indicator. Historically, an average for the year would be 98%. In Q1, we captured, benefited from all the commercial opportunities I just mentioned. Normally, in Q2, beginning of summer driver season, we would think about mid-50s. Just thinking about some of the tailwinds and headwinds. Tailwinds, things like butane blending. We think there'll be more butane blending due to the RVP waivers. Strong jet or octane dips can help us there.

Speaker #10: Strong Jet or Octane diffs can help us there. And additional commercial value. And I think we'll continue to see some of the same value we saw in Q1.

Speaker #10: But then there's some headwinds, as you said, backwardation, the inventory impacts, and even turnarounds if we had some in Q2 would impact capture. So I'd start with the mid-90s and think about what you think the market will look like in Q2.

Maybe some examples we profited from a long run position, including rims. We generated at a rodeo renewable facility and we also able to roll some lower cost rims from prior year into this year. We had really strong results in our European and Asian trading businesses. Um, as I mentioned earlier and as Mark mentioned the time Charters that we put on over the last couple of years, really helped in the elevated, trait, uh, market and reduced our crude, uh, costs into our refineries. And, and then, finally, you saw some of the product differentials, like on Octane and Jet or higher than the indicators so that helped as well. And so, to give you some context, maybe going forward, if we, uh, use our refining indicator, it includes a lot of the impacts already. It's embedded in the indicator. A historically, uh, an average for the year would be 98% in q1. We captured, uh, benefited from all the commercial opportunities. I just mentioned normally

Speaker #10: And then work your way from there.

Speaker #9: Is it fair to say mid-90s is a good starting point, though, based on the pluses and minuses? Okay.

Speaker #10: Yep. Mid-90s would be a good starting point.

Speaker #9: Okay. All right. And then, Kevin, can you hit slide 9 again, maybe in a little bit more detail? Because this is on the pushback since the AK came out that I know you and we have gotten on the PSX stories.

Brian Mandell: Additional commercial value, and I think, we'll continue to see some of the same value we saw in Q1. There's some headwinds, as you said, backwardation and inventory impacts, and even turnarounds if we had some in Q2 would impact capture. I'd start with the mid-nineties and think about what you think the market will look like in Q2, and then work your way from there.

Speaker #9: Is leverage pretty elevated. And I think part of that is you're just holding excess cash. And so if you could spend a little more time just unpacking this slide, because I think it is important.

In Q2 beginning of Summer driver season we would think about mid-50s. So just thinking about some of the Tailwinds and headwinds Tailwinds things like a butane blending. We think there'll be more more butane blending due to the RVP waivers strong. Jetter octane discs can help us there and additional commercial value, and I think we'll continue to see some of some of the same value we saw in, uh, in q1, but then there's some headwinds as you said, backwardation and inventory.

Speaker #8: Yeah. And that is a really important point that we've effectively, from a debt and cash standpoint, we've sort of grossed up the balance sheet.

Neil Mehta: Is it fair to say mid-nineties is a good starting point, though?

Impacts and even turnarounds, if we had some in Q2, would impact, uh, capture. So, I'd start with the mid-90s and think about what you think the market will look like in Q2, and then work your way from there.

Speaker #8: By borrowing more than we need from a normal day-to-day standpoint, but being positioned in the event that we see more extreme volatility. And have a need on, for example, margin calls in the event that significant price increases.

Brian Mandell: Yeah

Neil Mehta: based on the pluses? Okay.

Brian Mandell: Yeah. Mid-nineties would be a good starting point.

Is it fair to say mid-90s is a good starting point, though, based on...

Neil Mehta: Okay. All right. Kevin, can you hit slide nine again, maybe, in a little bit more detail? 'Cause this is on the pushback since the 8-K came out that I know you and we have gotten on the PSX stories is leverage pretty elevated. I think part of that is you're just holding excess cash. If you could spend a little more time just unpacking this slide 'cause I think it is important.

Okay. Yep. Mid to mid-90s would be a good starting point.

Speaker #8: It does feel like since the end of the first quarter, that dynamic has settled down a little bit. I mean, the market's still continuing to fluctuate.

Speaker #8: But we've been in this, if you look at crude in this sort of 90 to 110-ish dollar band over that period. And so our expectation is, as market conditions stabilize, we'll be able to draw that cash down.

Kevin Mitchell: That is a really important point that we've effectively from a debt and cash standpoint, we sort of grossed up the balance sheet by borrowing more than we need from a normal day-to-day standpoint. Being positioned in the event that we see more extreme volatility and have a need on, for example, margin calls in the event that significant price increases. That it does feel like since the end of Q1, that dynamic has settled down a little bit. I mean, the markets still continue to fluctuate. We've been in this, if you look at crude, in this sort of $90 to 110-ish band over that period. Our expectation is as market conditions stabilize, we'll be able to draw that cash down.

Okay. All right. And then Kevin can you can you hit slide 9 again maybe uh, in a little bit more detail because this is on the push back. Since they take him came out that I know you and and we have gotten on the PSX story is is leverage pretty elevated. And I think part of that is you're just holding excess cash and so if you could spend a little more time just unpacking this slide because I think it is important.

Speaker #8: And clearly, that will have an offset on debt. Likewise, on working capital, we had a big working capital use in the first quarter. We expect that to more than come back over the course of the remainder of the year, through the combination of normal sort of annual trends.

Speaker #8: First quarter is usually a working capital use for us. It was exacerbated by the margin calls. This year, but we expect that we recover that and end up our projection is a slight working capital benefit for the year for the full year.

Yeah. And that, that is a really important point that, uh, We've effectively from a debt and Cash, Stop standpoint. It was for the gross stuff, the balance sheet, um, by borrowing more than we need from a normal day-to-day standpoint. But being positioned in the event that we see more extreme volatility and have a need on, for example, uh, margin calls in the event that, um, significant price increases. Um, that it, it does feel like since the end of the first quarter that Dynamic has settled down a little bit. I mean, the, the market still continue to fluctuate. Um, but we've been in this, if you look at crude and this sort of 90 to 110,

Speaker #8: That's our assumption. And then operating cash flow, we expect to have healthy operating cash flow. And that will go to debt reduction. And as you roll into next year, we continue to have that sort of $8 billion of operating cash flow then, a couple of billion of that can go to debt reduction pretty comfortably.

Kevin Mitchell: Clearly that will have an offset on debt. Working capital, we had a big working capital use in Q1. We expect that to more than come back over the course of the remainder of the year through the combination of normal sort of annual trends. Q1 is usually a working capital use for us. It was exacerbated by the margin calls this year. We expect that we recover that and end up our projection is a slight working capital benefit for the year, for the full year. That's our assumption. Operating cash flow. We expect to have healthy operating cash flow, that will go to debt reduction.

Speaker #8: All that gets us to our projected $17 billion target. And I will emphasize that if we see a continuation of strong margin conditions in refining and chemicals, that will further enhance the cash generation.

Speaker #8: We'll enable us to pay down the debt quicker. And also enable us to return more cash to shareholders.

Speaker #9: Very clear. Thank you, Kevin.

Kevin Mitchell: As you roll into next year, that we continue to have that sort of $8 billion of operating cash flow, $2 billion of that can go to debt reduction pretty comfortably. All that gets us to our projected $17 billion target. I will emphasize that if we see a continuation of strong margin conditions in refining and chemicals, that will further enhance the cash generation, will enable us to pay down the debt quicker, and also enable us to return more cash to shareholders.

Speaker #11: I'm going to have Gupta from UBS Financial. Please go ahead. Your line is open.

Dollar band, um, over that period. And so our expectation is, as, as market conditions, stabilize, we'll be able to draw that cash down and, uh, clearly that will have an offset on debt, likewise on, um, uh, working capital. Um, we had a big working capital use in the first quarter, um, we expect that to more than come back over the course of the remainder of the Year through the combination of, uh, normal sort of, uh, annual Trends, or first quarter is usually a working capital use for us. Um, it was exacerbated by the margin, um, uh, calls this year. Um, but we expect that, we, uh, recover that and end up our projection is a slight working capital benefit for the year for the full year. That's our assumption. Um, and then uh, operating cash flow. Um, we we expect to have healthy operating cash flow and that will go to debt reduction and as you roll into next year.

Speaker #12: Good morning, guys. I have more of a theoretical question. What I'm trying to get to the bottom of this, based on your preliminary comments, it feels your refining system, which is in the US, mostly is relatively insulated from these crude supply disruptions.

Speaker #12: And other things that are happening in the world where certain refining assets may be very good, but can't run. You are relatively insulated from these things.

Um, that we're we we continue to have that sort of 8 billion dollars of of operating cash flow. Then a couple of billion of, that can go to debt reduction, pretty comfortably all that gets us to our, our projected 17 billion dollar Target, and that will emphasize that. If we see a continuation of strong margin conditions in refining and chemicals, that will further enhance. The cash generation will enable us to pay down the debt quicker.

Speaker #12: And what I'm trying to understand is, does that mean somebody like a Philips or even any US refiner in this environment is structurally better off than their global counterparts?

And also enable us to return more cash to shareholders.

Neil Mehta: Very clear. Thank you, Kevin.

Very clear. Thank you Ken.

Operator: Manav Gupta from UBS, please go ahead. Your line is open.

Speaker #12: And if that is the case, in your opinion, is this the time to be bullish US refining, or is it this time to be bearish US refining?

Manav Gupta: Good morning, guys. I have a more of a theoretical question, but I'm trying to get to the bottom of this. Based on your preliminary comments, it feels your refining system, which is in the US mostly, is relatively insulated from these crude supply disruptions and other things that are happening in the world where certain refining assets may be very good, but can't run. You are relatively insulated from these things. What I'm trying to understand is, does that mean somebody like a Phillips or even any US refiner in this environment is structurally better off than their global counterparts? If that is the case, in your opinion, is this the time to be bullish US refining or is it the time to be bearish US refining? If you could help us answer that.

Manav Gupta from UBS Financial, please go ahead. Your line is open.

Speaker #12: If you could help us answer that.

Speaker #8: I mean, it's Brian. You're absolutely right. This is the time to be bullish US refining. If we look at what's happened in the marketplace, it started in Asia, moved to Europe, but US has been relatively insulated on supply.

Speaker #8: Refinery runs are strong. Consumer demand is healthy. Crude production is relatively stable. And this kind of highlights how we're immune to the crisis, although not to the higher prices.

Speaker #8: But largely, our crude, for instance, at Philips 66, we only purchase about 1% of our crude from the Middle East. Our crude is generally from Canada, from the US, and from Latin America, and of course, from Canada and the US.

Speaker #8: It's all pipeline connected. So we are in a very, very good position. Yeah. And I would add to Brian's comments, and you think about the activities that they undertook in the first quarter, they do interface with the rest of the world.

Brian Mandell: Manav, it's Brian. You know, you're absolutely right. This is the time to be bullish US refining. You know, if we look at what's happened in the marketplace, it started in Asia, moved to Europe, US has been relatively insulated on supply. Refinery runs are strong, consumer demand is healthy, crude production is relatively stable. This kind of highlights how we're immune to the crisis, although not to the higher prices. Largely, our crude, for instance, at Phillips 66, we only purchase about 1% of our crude from the Middle East. Our crude is generally from Canada, from the US, and from Latin America. Of course, from Canada and the US, it's all pipeline connected, we are in a very, very good position.

Which is, in the US, mostly relatively insulated from these crude supply disruptions and other things that are happening in the world, where certain refining assets may be very good but can't run. You are relatively insulated from these things. And what I'm trying to understand is, does that mean somebody like a Phillips, or even any US refiner in this environment, is structurally better off than their global counterparts? And if that is the case, in your opinion, is this the time to be bullish US refining, or is it the time to be bearish US refining? If you could help us answer that?

Speaker #8: So they're able to move around and leverage domestic supply and push normal imports out into what the global markets are demanding. And then in addition to that great position in North American refining, CP Chem is rock solid in North America, petrochemicals in the high-density polyethylene value chain.

It's Brian. You know, you're absolutely right. This is the time to be bullish on U.S. refining. You know, if we look at what's happened in the marketplace, it started in Asia, moved to Europe, but the U.S. has been relatively insulated on supply. Refinery runs are strong, consumer demand is healthy, food production is relatively stable.

Speaker #8: So all of our product lines, all of our businesses really have tailwinds in this environment. And we think that those tailwinds will persist for a considerable amount of time.

Mark Lashier: I would add to Brian's comments, you think about the activities that they undertook in the Q1. You know, they do interface with the rest of the world, so they're able to move around and leverage domestic supply and push normal imports out into what the global markets are demanding. In addition to that great position in North American refining, CPChem is rock solid in North America petrochemicals in the high-density polyethylene value chain. All of our product lines, all of our businesses, really, have tailwinds in this environment. We think that those tailwinds will persist for a considerable amount of time.

And this kind of highlights how we're immune to the crisis, although not to the higher prices. But largely, our crude—for instance, at Phillips 66—we only purchase about 1% of our crude from the Middle East. Our crude is generally from Canada, from the U.S., and from Latin America, and of course, from Canada. And the U.S.—it's all pipeline connected. So we are in a very, very good position.

Speaker #12: We completely agree. Quickly pivoting to sometimes people want to forget that you actually own significant amounts of renewable diesel capacity in the US. You never actually entered into a JV to split your capacity.

Speaker #12: Renewable diesel margins were negative. Everybody was losing money. But we are in a very different environment. Given the size of your footprint, would it be fair to say, year over year, you could see a material free cash flow inflection in your renewable diesel business, given where we are right now?

Speaker #8: Well, absolutely. Even if you just think about the RINS Manav, the current blended RIN is more than twice what it was in 2025. So just the credit value alone.

And I would add to to Brian's comments and you think about the activities that the undertook in the in the first quarter, they you know, they do interface with the rest of the world so they're able to move around and leverage, domestic Supply, and push normal Imports out into, uh, what the, the global markets are demanding. And then, in addition to, that great position in North American refining, that CPM is Rock Solid in North America, petrochemicals in the, uh, the high, the high density polyethylene value chain. So, uh, all of our product lines all of our businesses really, uh, have Tailwind, uh, in this environment. And we think that those Tailwinds will persist for uh, considerable amount of time.

Manav Gupta: We completely agree. Quickly pivoting to sometimes people don't forget that you actually own significant amount of renewable diesel capacity in the US. You never actually entered into a JV to split your capacity. Renewable diesel margins were negative. Everybody was losing money. We are in a very different environment. Given the size of your footprint, would it be fair to say year over year you could see a material free cash flow inflection in your renewable diesel business given where we are right now?

Speaker #8: And we are running very, very well right now. In fact, above nameplate capacity. So you should see substantial difference than prior year.

Speaker #11: Thank you so much. Doug Laggat from Wolf Research. Please go ahead. Your line is open.

Speaker #13: Hey, good morning, everybody. Thank you for taking my questions. Brian, I wonder if I could direct this to you. So we've got extraordinary margins, you pointed out multiple times, and it's deeply back-related.

Brian Mandell: Well, absolutely. Even if you just think about the RINs, Manav Gupta, the current blended RIN is more than twice what it was in 2025. Just the, just the credit value alone. We are running very, very well right now, in fact, above nameplate capacity. You should see a substantial difference than prior year.

We completely agree, uh, quickly pivoting to sometimes. People don't want to forget that. You actually own significant amount of renewable diesel capacity in the US. You never actually entered into a JV to split your capacity. Renewable digital margins were negative. Everybody was losing money but we are in a very different environment given the size of your footprint. Would it be fair to say year-over-year? You could see a material free free cash flow infection in your renewable diesel business given where we are right now.

Speaker #13: And I get the bullish near-term outlook. The question is duration. And what breaks it? And we're seeing a lot of airlines cutting capacity or balancing demand through demand disruption, you could argue, versus physical supply constraints.

Manav Gupta: Thank you so much.

Absolutely. Even if you just think about the, uh, RINs, Manav, the current blended RIN is more than twice what it was in 2025. So, just the, just the credit value alone— and we are running very, very well right now, in fact, above nameplate capacity—so, uh, you should see a substantial difference from the prior year.

Speaker #13: What's your response to that in terms of margins are great, but what's your view on duration? And I've got a follow-up for Kevin, please.

Thank you so much.

Operator: Doug Leggate from Wolfe Research, please go ahead. Your line is open.

Doug Leggate: Hey. Good morning, everybody. Thank you for taking my questions. Brian, I wonder if I could direct this to you. We've got extraordinary margins you pointed out multiple times that are steeply backwardated. I get the bullish near term outlook. The question is duration and what breaks it. We're seeing a lot of airlines cutting capacity or balancing demand through demand destruction, you could argue, versus physical supply constraints. What's your response to that in terms of margins are great, but what's your view on duration? I now got a follow-up for Kevin, please.

Douglas from Wolfe research, please go ahead. Your line is open.

Speaker #8: Thanks, Doug. Our view is throughout this is going to last throughout the rest of this year and into early next year. If you think about what's going on, it's less about demand destruction and more about demand constriction.

Hey, uh, good, uh, good morning, everybody. Thank you for taking my questions.

Um, Brian, I wonder if I could direct this to you. Um, so we've got extraordinary margins. You pointed out multiple times that it's simply backward dated.

Speaker #8: Trying to manage the need for products. And we kind of think of it as a race to the top. We're watching very tight crude markets and crude prices keep moving up 106 today in TI, 118 on Brent.

And I get the bullish near-term outlook. The question is duration.

And what, uh, what breaks it?

and we're seeing a lot of airlines cutting capacity, or

Speaker #8: And as crude prices move up, products are going to have to move up even further to open up the refinery margin to keep refiners producing the products that the world needs.

Um, balancing demand through demand destruction—you could argue that versus physical supply constraints.

What's your response to that? In terms of uh margins are great, but uh, what's your view on duration?

Speaker #8: Clearly, the world is tight. And as you mentioned, it's probably jet fuel is the tightest. So it's the refinery margins are going to have to keep opening.

Brian Mandell: Thanks, Doug. You know, our view is this is gonna last throughout the rest of this year and into early next year. If you think about what's going on, it's less about demand destruction and more about demand constriction, trying to manage the need for products. We kind of think of it as a race to the top, where we're watching very tight crude markets and crude prices keep moving up over $106, say, MEO, $118 on Brent. As crude prices move up, products are gonna have to move up even further to open up the refinery margin to keep refiners producing the products that the world needs.

And then I've got a follow-up for Kevin, please.

Speaker #8: And we saw that even for instance, in our European refinery recently, where we saw the gasoline crack was somewhat weak compared to the distillate crack, which seemed to be slowing down the European refineries.

Speaker #8: And then all of a sudden, the gasoline crack made a large move to the upside, opening up margins. So that European refiners could produce the products that they need.

Speaker #8: So I think we'll continue to see that through this year and through the early part of next year, even if the straits are opened in the next month or two months.

Speaker #13: Brian, would you treat this as a would you immunitize this or treat it as a windfall?

Brian Mandell: Clearly the world is tight, and as you mentioned, it's probably jet fuel is the tightest, it's the refinery margins are gonna have to keep opening. We saw that even, for instance, in our European refinery recently, where we saw the gasoline crack was somewhat weak compared to the distillate crack, which seemed to be slowing down European refineries. All of a sudden, the gasoline crack made a large move to the upside, opening up margins so that European refiners could produce the products that they need. I think we'll continue to see that through this year and through the early part of next year, even if the straits are opened in the next month or two months.

Speaker #8: What was the question?

Speaker #13: Would you immunitize this or would you treat it as a windfall?

Speaker #8: In other words, are the margins going to persist? I think we see them persisting for longer than the straits being closed. Immunitize it, I don't know that we're at the point where we would immunitize anything.

Thanks Doug. You know, our view is throughout its this is going to last throughout the rest of this year and into early next year. Um, if you think about what's going on, it's it's less about demand destruction and more about demand constriction, trying to manage the, uh, the need for products. And we kind of think of it as, as a race to the top. We're watching, uh, very tight food, markets, and food prices. Keep, moving up over. 106 dollars today in TI 118 on Brent and as crude prices. Move up, products are going to have to move up. Even further to open up the refinery margin to keep to keep, uh, refiners producing the products that the world needs. I clearly the world is tight, and as you mentioned, it's probably jet fuel is the Titus. So it's the refinery margins are going to have to keep opening. And we saw that even for instance in in our European Refinery recently, where we saw the gasoline crack with somewhat weak compared to the distillate crack, which seem to be slowing down European refineries. And then all of a sudden, the gasoline cracked made a large move.

Speaker #8: But we see it more than just a few months phenomenon.

Speaker #13: So thank you for that. This leaves my follow-up question, which is for Kevin. Kevin, your share price is 5% off its high. And I think Mark just said we wouldn't immunitize this.

Doug Leggate: Brian, would you annuitize this or treat it as a windfall?

We'll continue to see that through this year and through the early part of next year, even if the Straits are opened in the next month or 2 months.

Brian, would you treat this as—uh, would you unitize this or treat it as a windfall?

Brian Mandell: What was the question?

Doug Leggate: Would you annuitize this, or would you treat it as a windfall?

Speaker #13: The opportunity to permanently shift this windfall to your equity value. Comes from debt reduction versus buying back your shares. Why is that not the right answer if this is indeed a windfall?

What was the question?

Would you attach this as a new item, or would you treat it as a windfall?

Mark Lashier: In other words, are the margins gonna persist?

Brian Mandell: Yeah.

Mark Lashier: I think we see them persisting for longer than the straits being closed. Annuitize it, I don't know that we're at the point where we would annuitize anything. But we see it more than just a few months phenomenon.

Speaker #8: Yeah. So you are correct that debt reduction is creates equity value as well. And debt reduction is a priority. The $17 billion target that we laid out there is a target.

Doug Leggate: Thank you for that. This leads to my follow-up question, which is for Kevin. Kevin, your share price is 5% off its high. You know, I think Mark just said we wouldn't annuitize this. This is the opportunity to permanently shift this windfall to your equity value comes from debt reduction versus buying back your shares. Why is that not the right answer if this is indeed a windfall?

In other words, are the margins going to persist? I think we'll see them persisting for, uh, longer than the Straits being closed. Um, I—it's, I—I don't know that we're at the point where we would annuitize anything, but, uh, but we see it as more than just a few months, uh, phenomenon.

Speaker #8: If we have significant excess cash generation, we will reduce debt below that level. I'm not going to go so far as to say we will stop buying back shares so it can all go to debt reduction.

So, thank you for that. This is my follow-up question, which is for Kevin. Kevin, your share price is 5% off its high.

And, you know, I think more just said, we wouldn't have new attached. This this is the, the opportunity to permanently shift this windfall to your Equity value.

Speaker #8: I think having maintaining a degree of balance through the cycle on capital allocation, we've been pretty clear on the 50% return of which at current levels, about half of that is the dividend and the other half is buybacks.

Comes from debt reduction versus buying back your shares. Why is that not the right answer if this is indeed a windfall?

Rich Harbison: Yeah, Doug, you are correct that debt reduction creates equity value as well, and debt reduction is a priority. The $17 billion target that we laid out there is a target. If we have significant excess cash generation, we will reduce debt below that level. I'm not going to go so far as to say we will stop buying back shares so it can all go to debt reduction. I think maintaining a degree of balance through the cycle on capital allocation, we've been pretty clear on the 50% return, of which at current levels, about half of that is the dividend and the other half is buybacks.

Kevin Mitchell: Yeah, Doug, you are correct that debt reduction creates equity value as well, and debt reduction is a priority. The $17 billion target that we laid out there is a target. If we have significant excess cash generation, we will reduce debt below that level. I'm not going to go so far as to say we will stop buying back shares so it can all go to debt reduction. I think maintaining a degree of balance through the cycle on capital allocation, we've been pretty clear on the 50% return, of which at current levels, about half of that is the dividend and the other half is buybacks.

Speaker #8: But as the absolute level of cash generation increases, by definition, if you take 50% back to shareholders, that's an increasing amount also going to the balance sheet.

Speaker #8: And so we view it as a balance across the board. As of right now, while we may only be a few percent off of our high, we still think there is good value in our share price.

Speaker #8: And so we feel comfortable with that plan and capital allocation.

Speaker #13: Thanks so much for taking my questions, guys.

Speaker #14: Joe Latsch from Morgan Stanley. Please go ahead. Your line is open.

Rich Harbison: As the absolute level of cash generation increases, by definition, if you take 50% back to shareholders, that's an increasing amount also going to the balance sheet. We view it as a balance across the board. As of right now, while we may only be a few percent off of our high, we still think there is good value in our share price, we feel comfortable with that plan and capital allocation.

Speaker #15: Hey, good morning, Mark and team, and thanks for taking my questions. So I wanted to start on the macro and just given where product prices are today, can you talk about the demand trends that you're seeing within your system in the US?

Kevin Mitchell: As the absolute level of cash generation increases, by definition, if you take 50% back to shareholders, that's an increasing amount also going to the balance sheet. We view it as a balance across the board. As of right now, while we may only be a few percent off of our high, we still think there is good value in our share price, we feel comfortable with that plan and capital allocation.

Yeah, doc so, um, you are correct that, uh, that reduction is, um, creates Equity value as well. And debt reduction is a priority, um, the, uh, 17 billion Target that we laid out there is a target. Um, if we have, uh, significant excess cash generation, we will reduce debt below that level. Uh, I'm not going to go so far as to say, we will, uh, stop buying back shares so we can all go to debt reduction. Um, I think having maintaining a degree of balance through the cycle on Capital allocation, we've been pretty clear on the 50%, uh, return of which at current levels about half of that is the dividend. And, um, the other half is, is BuyBacks. Um, but as the absolute level of cash generation increases by definition, if you take 50% back to

Speaker #15: Are you seeing any signs of demand disruption on gasoline and diesel? And then inventory levels in the US have drawn to at or below the five-year range.

Speaker #15: On products, so things are starting to look pretty tight.

Speaker #8: Yeah. Hey, Joe. This is Brian. We haven't seen much demand disruption, probably 1% for down for products, both gasoline and diesel. And then in terms of our system, we've actually done really well.

Shareholders—that's an increasing amount. Also, going to the balance sheet, and so we view it as balanced across the board as of right now. While we may only be a few percent off of our high, we still think there is good value in our share price, and so we feel comfortable with that plan and capital allocation.

Doug Leggate: Thanks so much for taking my questions, guys.

Thanks so much for taking my questions, guys.

Operator: Joe Laetsch from Morgan Stanley, please go ahead. Your line is open.

Speaker #8: We added over 500 franchise stores last year in marketing. So we're actually seeing a lot of value from the good work the sales team has done in marketing.

Joe, a latch from Morgan Stanley, please go ahead. Your line is open.

Joe Laetsch: Hey, good morning, Mark and team, and thanks for taking my questions. I wanted to start on the macro. Just given where product prices are today, can you talk about the demand trends that you're seeing within your system in the US? Are you seeing any signs of demand destruction on gasoline and diesel? Inventory levels in the US have drawn to at or below the five-year range on products. Things are starting to look pretty tight.

Hey, good morning, Mark and team, and thanks for taking my questions.

Speaker #8: But we haven't seen demand disruption in the US.

Speaker #15: Thanks. That's helpful. And then I wanted to just ask on the refining side. So utilization rates of 95% in the quarter were solid. Even with some maintenance, I think some third-party pipeline impacts as well.

Uh, so I wanted to start on the macro and just given where where product prices are today, can you talk about the demand trends that you're seeing within your system in the US? Are you seeing any signs of demand destruction on gasoline and Diesel? Uh, been that inventory levels in the US have drawn to add or below the 5 year range, uh, on on products. So things are starting to look look pretty tight.

Brian Mandell: Yeah. Hey, Joe, this is Brian. We haven't seen much demand destruction, probably 1% down for products, both gasoline and diesel. In terms of our system, we've actually done really well. We added over 500 franchise stores last year in marketing, so we're actually seeing a lot of value from the good work the sales team has done in marketing. We haven't seen demand destruction in the US.

Yep.

Speaker #15: Can you just talk to some of the drivers of the performance during the quarter? And then as part of that, operating costs, they continue to trend in the right direction.

Speaker #15: And I recognize there is variability quarter to quarter. With throughput and natural gas costs. But could you just touch on which any you think you're in in terms of cost reduction efforts and the path to the 550 per barrel?

Speaker #8: Yeah, Joe. This is Rich. Thanks for the question. Yeah. First quarter, I'll start with the cost per barrel and then maybe look back at some of the regional performance opportunities that we see the last quarter.

Hey Joe, this is Brian. We haven't seen much demand destruction, probably 1% down for products, both gasoline and diesel. And then in terms of our system, we've actually done really well. We added over 500 franchise stores last year in Marketing. So we're actually seeing a lot of value from the good work the sales team has done in Marketing.

But, um, we haven't seen demand destruction in the U.S.

Joe Laetsch: Thanks. That's helpful. I wanted to just ask on the refining side. Utilization rates of 95% in the Q were solid, even with some maintenance, I think some third-party pipeline impacts as well. Can you just talk to some of the drivers of the performance during the Q? As part of that, operating costs, they continue to trend in the right direction. I recognize there is variability Q to Q with throughput and natural gas costs, could you just touch on which inning you think you're in in terms of cost reduction efforts and the path to the $5.50 per barrel?

Speaker #8: The cost per barrel 1Q was $6.21. That's actually 80 cents per barrel improvement year over year. So good movement there. I'm very happy with what the team has accomplished on that front.

Speaker #8: Quarter over quarter, as you indicated, it was a slightly higher. And that's primarily due to fewer barrels processed in the quarter. And that was a combination of planned maintenance activity as well as there's just fewer days in the quarter in the first quarter of the year.

Thanks, that's helpful. Uh, and then I wanted to just ask on, on the refining side, uh, utilization rates of 95% in the quarter were solid, uh, even with some maintenance that it's some some third party pipeline impacts as well. Uh, could you just talk to some of the drivers of, of the performance during the quarter? Um, and then, as part of that, uh, operating costs, they continue to Trend in the right direction. And I recognize there is variability quarter to quarter, uh, with throughput and natural gas costs. But, uh,

Could you just touch on which inning you think you're in, in terms of cost reduction efforts and the path to the $550 per barrel?

Rich Harbison: Yeah. Joe, this is Rich. Thanks for the question. Yeah, Q1, I'll start with the cost per barrel and then maybe look back at some of the regional performance opportunities that we see last quarter. The cost per barrel Q1 was $6.21. That's actually $0.80 per barrel improvement year over year. Good movement there. I'm very happy with what the team has accomplished on that front. Quarter over quarter, as you indicated, it was slightly higher, and that's primarily due to fewer barrels processed in the quarter. That was a combination of planned maintenance activity as well as there's just fewer days in the quarter, in Q1 of the year, and that does have a material effect.

Richard Harbison: Yeah. Joe, this is Rich. Thanks for the question. Yeah, Q1, I'll start with the cost per barrel and then maybe look back at some of the regional performance opportunities that we see last quarter. The cost per barrel Q1 was $6.21. That's actually $0.80 per barrel improvement year over year. Good movement there. I'm very happy with what the team has accomplished on that front. Quarter over quarter, as you indicated, it was slightly higher, and that's primarily due to fewer barrels processed in the quarter. That was a combination of planned maintenance activity as well as there's just fewer days in the quarter, in Q1 of the year, and that does have a material effect.

Speaker #8: And that does have a material effect. Total process inputs were down about 2% quarter over quarter. Seasonally higher natural gas price was also a big player in this.

Yeah, Joe. This Rich. Uh, thanks for the question. Yeah. First quarter. I'll start with the the cost per barrel and then and then maybe look back at some of the regional performance. Uh,

Uh, opportunities that we saw last quarter?

Speaker #8: Prices got all the way on the average at about $4.87 per MMBTU at the Henry hub. If we normalize that back to the $3 annual natural gas price which is the basis we've used for the $5.50 target, the number moves into the low 580s on a dollar per barrel OPEX basis.

The cost per barrel. Uh 1 Q was uh $6.21. Uh that's actually 80 cents per barrel.

Speaker #8: So that says we're well within striking range here of this 550 per barrel target in 2027. The organization is really working hard. They've actually got over 200 initiatives that we're actively pursuing right now which are forecasted to drive 15 to 20 cents per barrel out of the base operating costs.

Rich Harbison: Total process inputs were down about 2% quarter over quarter. Seasonally higher natural gas price was also a big player in this. Prices got all the way, I think, average at about $4.87 per MMBtu at the Henry Hub. If we normalize that back to the $3 annual natural gas price, which is the basis we've used for the $5.50 target, the number moves into the low $5.80s on a $ per barrel OpEx basis. That says, you know, we're well within striking range here of this $5.50 per barrel target in 2027. The organization is really working hard.

Richard Harbison: Total process inputs were down about 2% quarter over quarter. Seasonally higher natural gas price was also a big player in this. Prices got all the way, I think, average at about $4.87 per MMBtu at the Henry Hub. If we normalize that back to the $3 annual natural gas price, which is the basis we've used for the $5.50 target, the number moves into the low $5.80s on a $ per barrel OpEx basis. That says, you know, we're well within striking range here of this $5.50 per barrel target in 2027. The organization is really working hard.

Speaker #8: And these are structural changes in our cost profile. And continuing a trend that we've started here well over four or five years ago now.

Speaker #8: And maybe an example of one or two of these. One of them is really changing our approach to how we clean FCC boilers. That doesn't sound like something very exotic.

Speaker #8: But that actually will, once accomplished, will drive down our annual cost by well over $3 million. And another example is really acid consumption in our sulfuric acid alkylation units.

In the first quarter of the Year and that that does have a material effect total process inputs were down about 2% uh, quarter over quarter. Seasonally higher natural gas price, was also a big, big player in this uh prices got all the way in the average at about 4 dollars and 87 cents. Uh, per mmbtu the Henry Hub. If we normalize that back to the 3, an natural gas price was which is the basis we've used for the 5 dollars, 50 Cent Target, the number moves into the low 580s, uh, on a dollar per barrel Opex basis. So so that that says, you know, we're well within striking range here of of this 550 per barrel Target in 2027

Rich Harbison: They've actually got over 200 initiatives that we're actively pursuing right now, which are forecasted to drive $0.15 to $0.20 per barrel out of the base operating costs. These are structural changes in our cost profile and continuing a trend that we've started here well over four years ago now. Maybe an example of one or two of these. One of them is really changing our approach to how we clean FCC boilers. It doesn't sound like something very exotic, but that actually will, once accomplished, will drive down our annual cost by well over $3 million. Another example is really acid consumption in our sulfuric acid alkylation units. We're working on tightening up the process controls and the temperature controls on those.

Richard Harbison: They've actually got over 200 initiatives that we're actively pursuing right now, which are forecasted to drive $0.15 to $0.20 per barrel out of the base operating costs. These are structural changes in our cost profile and continuing a trend that we've started here well over four years ago now. Maybe an example of one or two of these. One of them is really changing our approach to how we clean FCC boilers. It doesn't sound like something very exotic, but that actually will, once accomplished, will drive down our annual cost by well over $3 million. Another example is really acid consumption in our sulfuric acid alkylation units. We're working on tightening up the process controls and the temperature controls on those.

Speaker #8: And we're working on tightening up the process controls and the temperature controls on those that strategy is projected to save another $2 million per year.

Speaker #8: So it's racking these winds up one by one by one across the system. And the team's been doing a fantastic job of doing that.

Speaker #8: So the balance of the closure, I see us continuing to increase our availability and utilization of the assets. That continued maturity of our reliability programs as well as something I've mentioned before which is increasing our total process inputs by filling up the downstream units behind the crude units using all that discipline that we put in for the crude unit side to apply it to the downstream units.

The organization is really working hard. Uh, they've actually got over 200 initiatives, that were actively pursuing right now, which are forecasted to drive 15 to 20 cents per barrel out of out of the base operating costs. And, and these are structural changes, uh, in in our, in our cost profile. And continuing a trend that we, we've started here, well, over 4 or 5 4 years ago now, and maybe an example of 1 or 2 of these uh, uh, 1 of them is really changing our approach to how we uh, clean FCC. Boilers it doesn't sound like something very exotic but that actually will, once accomplished will drive down our annual cost by well over $3 million.

Speaker #8: So this remains an ongoing execution story. And I'm very happy with the way the organization's progressing it. And we do see additional upside on that.

Rich Harbison: That strategy is projected to save another $2 million per year. It's racking these wins up one by one by one across the system, and the team's been doing a fantastic job of doing that. You know, the balance of the closure, I see us continuing to increase our availability and utilization of the assets, you know, the continued maturity of our liability programs as well as something I've mentioned before, which is increasing our total process inputs by filling up the downstream units behind the crude units, using all that discipline that we put in for the crude unit side to apply it to the downstream units. This remains an ongoing execution story, and I'm very happy with the way the organization's progressing it, and we do see additional upside on that.

Richard Harbison: That strategy is projected to save another $2 million per year. It's racking these wins up one by one by one across the system, and the team's been doing a fantastic job of doing that. You know, the balance of the closure, I see us continuing to increase our availability and utilization of the assets, you know, the continued maturity of our liability programs as well as something I've mentioned before, which is increasing our total process inputs by filling up the downstream units behind the crude units, using all that discipline that we put in for the crude unit side to apply it to the downstream units. This remains an ongoing execution story, and I'm very happy with the way the organization's progressing it, and we do see additional upside on that.

Speaker #8: On the market capture regional performance side of the business, Brian covered a lot of that generally at the macro level. But what we saw on the refining side was cargo prices coming in a little bit lower for us in refining.

And another example is really acid consumption, and also sulfuric acid calculation units. We're working on tightening up the process controls and the temperature controls on those. That strategy is projected to save another $2 million per year. So it's racking these wins up one by one by one across the system, and the team's been doing a fantastic job of doing that. So, you know, the balance of the closure.

Speaker #8: And some of that's just the anomaly of pricing where you got prior month pricing that's coming in on crude deliveries. And really good work by the European office to capture strong results.

I see us, uh, continuing to increase our availability and utilization of the assets. You know, that continued maturity of our reliability programs, as well as, uh, something I mentioned before, which is increasing our total process inputs by

Speaker #8: And especially on the jet side of the business, the kerosene fuel as those prices disconnected from traditional tie to distillate. On the Gulf Coast, we saw the same similar story.

Filling up the downstream units behind the crude units using all that uh discipline that we put in for the crude unit side to uh apply it to the downstream units.

Rich Harbison: On the market capture regional performance side of the business, you know, Brian covered a lot of that generally at the macro level. What we saw on the refining side was cargo prices coming in a little bit lower for us in refining. Some of that's just the anomaly of pricing. We got prior month pricing that's coming in on crude deliveries and really good work by the European office to capture strong results and especially on the jet side of the business, the kerosene fuel, as those prices disconnected from traditional tie to a distillate. On the Gulf Coast, we saw the same similar story. Jet production there, quarter on quarter was very high.

Richard Harbison: On the market capture regional performance side of the business, you know, Brian covered a lot of that generally at the macro level. What we saw on the refining side was cargo prices coming in a little bit lower for us in refining. Some of that's just the anomaly of pricing. We got prior month pricing that's coming in on crude deliveries and really good work by the European office to capture strong results and especially on the jet side of the business, the kerosene fuel, as those prices disconnected from traditional tie to a distillate. On the Gulf Coast, we saw the same similar story. Jet production there, quarter on quarter was very high.

So, this remains an ongoing execution story, and I'm very happy with the way the organization is progressing it, and we do see additional upside on that.

Speaker #8: Jet production there quarter on quarter was very high. That's for us. And it was also very timely with the jet pricing blowing out coming out of the Gulf Coast area as well.

uh on the on the market capture Regional performance side of the of the business you know Brian covered a lot of that generally at the macro level but what we saw on the refining side

Speaker #8: And then in the central corridor, this is where we had a lot of our turnaround activity focused for the quarter. So we did see the market capture actually go down a bit there.

Was um uh cargo prices coming in a little bit lower for us in refining. And some of that's uh, just the anomaly of pricing, we got prior month, pricing, that's coming in. Uh on crude deliveries.

Speaker #8: And that was related to maintenance activity at Wood River and Borger facilities. And some mark-to-market impacts that Kevin had pointed out earlier in the call here.

Speaker #8: And last but not least, the West Coast was in a pretty good spot. As you mentioned, there was some impact with third-party pipeline operations there that slowed down our Pacific Northwest operations.

And uh, really good work by the European office to capture, uh, strong results. And especially on the, on the jet, uh, side of the business, the kerosene fuel as those prices disconnected from traditional Thai to distillate.

Rich Harbison: That's for us, it was also very timely with the jet pricing blowing out coming out of the Gulf Coast area as well. In the central corridor, this is where we had a lot of our turnaround activity focused for the quarter. We did see the market capture actually go down a bit there, that was related to maintenance activity at Wood River and Borger facilities, and some mark-to-market impacts that Kevin had pointed out earlier in the call here. Last, but not least, the West Coast was in a pretty good spot. As you mentioned, there was some impact with third-party pipeline operations there that slowed down our Pacific Northwest operations.

Richard Harbison: That's for us, it was also very timely with the jet pricing blowing out coming out of the Gulf Coast area as well. In the central corridor, this is where we had a lot of our turnaround activity focused for the quarter. We did see the market capture actually go down a bit there, that was related to maintenance activity at Wood River and Borger facilities, and some mark-to-market impacts that Kevin had pointed out earlier in the call here. Last, but not least, the West Coast was in a pretty good spot. As you mentioned, there was some impact with third-party pipeline operations there that slowed down our Pacific Northwest operations.

On the Gulf Coast, we saw the same, similar story—jet production. Their quarter-on-quarter was very high, that’s for us, and it was also very timely with the jet. Uh,

Speaker #8: But short of that, the team did a fantastic job of capturing the marketplace.

Pricing, uh, blowing out, coming out of the Gulf Coast area as well.

Speaker #1: Great. Thank you. Appreciate it.

Speaker #3: Philip Jungwirth from BMO Capital Markets. Please go ahead. Your line is open.

And then in the Central Corridor, uh, this is where we had a lot of our turnaround activity focused for the quarter. So we did, we did see the market capture actually go down a bit there, and that was related to maintenance activity at Wood River and Borger facilities.

Speaker #2: Thanks. Good morning.

Speaker #1: How does on midstream just how does the higher crude prices change how you're thinking about investment opportunities if it becomes clear there's going to be a greater call on shale?

Speaker #1: We see the Publix raise CapEx just would you be willing to look more at organic growth here? If so, which parts of the value chain would that consist of?

Rich Harbison: Short of that, the team did a fantastic job of capturing the marketplace.

Richard Harbison: Short of that, the team did a fantastic job of capturing the marketplace.

Speaker #1: GMP, pipeline, frac, or exports? And then just last, just how much sensitivity is there around the four-and-a-half billion midstream EBITDA target by year-end '27 if we do see higher US volumes?

Joe Laetsch: Great. Thank you. Appreciate it.

Great. Thank you. Appreciate it.

Operator: Phillip Jungwirth from BMO Capital Markets, please go ahead. Your line is open.

Speaker #4: Hi, Philip. This is Don. When I think about the crude prices and the activity what I would say first and foremost that capital discipline returns, those are very important to us.

Philip Jungmo, Capital Markets. Please go ahead. Your line is open.

Phillip Jungwirth: Thanks. Good morning. On midstream, how does the higher crude prices change how you're thinking about investment opportunities? If it becomes clear there's gonna be a greater call on shale, we see the public's raised CapEx. Would you be willing to look more at organic growth here? If so, which parts of the value chain would that consist of, GMP, pipeline, frac, or exports? How much sensitivity is there around the four and a half billion midstream EBITDA target by year-end 2027 if we do see higher US volumes?

Uh, thanks. Good morning.

Speaker #4: But certainly, as opportunities evolve whether that's volume growth in the field where we can add gathering and processing capacity to serve our customers and fill our value chain up, we'll certainly pursue those opportunities.

Speaker #4: We've got growth plans in place. You'll see us continue to add capacity as the customer needs evolve. I think that's center of the fairway of our midstream growth plans.

How does on on Midstream? Just how's the higher? Crude prices change how you're thinking about, uh, investment opportunities? Um, if if it becomes clear, there's going to be a greater call on Shale, uh, we see the Public's raised capex. Just what, what would you be willing to look more at or organic growth here? Um if so which parts of the value chain would that consists of GMP pipeline track or exports. And then just last just how much sensitivity is there around the 4 and a half billion Midstream Deepa Target? You're in 27, if we do, see higher us volumes.

Don Baldridge: Hi, Phillip. This is Don. When I think about the crude prices and the activity, what I would say, first and foremost, that the capital discipline returns, those are very important to us. Certainly as opportunities evolve, whether that's volume growth in the field where we can add gathering and processing capacity to serve our customers and fill our value chain up, we'll certainly pursue those opportunities. We've got growth plans in place. You'll see us continue to add capacity as the customer needs evolve. I think that's center of the fairway of our midstream growth plans. You'll see that we try to maintain a balanced value chain.

Speaker #4: You'll see that we try to maintain a balanced value chain. What I mean by that is adding gathering and processing capacity, making sure we've got the downstream infrastructure.

Speaker #4: But also being mindful of what capacities are needed in the market. Again, going back to staying focused on capital discipline and staying focused on the returns that we can generate with those organic growth opportunities.

Speaker #4: In terms of 2027 and our four-and-a-half billion target, we feel very good about that target, the path that we are on. Certainly, the fundamentals are bright.

Um, when I think about the, the crude prices and the activity, what I would say, first and foremost that the capital discipline returns. Those are very important to us. But certainly, as, as opportunities evolved, uh, whether that's the volume growth in the field where we we can add, uh, Gathering and processing capacity, to serve our customers and, and fill our value chain up. We'll certainly, uh, pursue those opportunities. We've got growth plans in place, uh, you'll see us continue to, uh, add capacity as as the

Speaker #4: Coupled with our execution and commercial successes, we feel very comfortable with where we are on that trajectory as well as the ability to sustain that growth beyond 2027.

Don Baldridge: What I mean by that is adding gathering and processing capacity, making sure we've got the downstream infrastructure, but also being mindful of what capacities are needed in the market. Again, going back to staying focused on capital discipline, staying focused on the returns that we can generate with those organic growth opportunities. In terms of 2027 and our four and a half billion target, we feel very good about that target, the path that we are on. Certainly, the fundamentals are bright. Coupled with our execution and commercial successes, we feel very comfortable with where we are on that trajectory as well as the ability to sustain that growth beyond 2027.

Speaker #1: Great. And then coming back to chemicals once the straight opens up, how do you see the progression for getting back to normal operations for CP Chem where you are guiding the lower 2Q utilization but obviously benefiting on the margin front in the Gulf Coast?

Speaker #1: And if you could also just comment on the broader industry, that would also be helpful just in terms of what does that scenario look like steps to take and time duration to get back to normal?

Speaker #4: I think as far as CP Chem is concerned, the assets in the Middle East that are offline are in good shape. The bigger question is then the greater infrastructure in the Middle East and what challenges there there may be.

Uh, customer uh needs. Uh, evolved. I think that's that's uh, sooner than Fairway of our Midstream growth plans. You'll see uh, that we try to maintain a balanced value chain. What I mean by that is, is adding, uh, Gathering and processing capacity. Making sure we've got the downstream infrastructure, but also being mindful of what capacities are needed in the market. Again, going back to staying focused on Capital discipline, staying focused on the returns that that we can generate with those organic growth opportunities in terms of, um, 2027 and, or 4 and a half billion. Uh, Target. We we uh feel very good about that, that Target the path that we are on. Certainly the the fundamentals are bright, uh, coupled with our execution and Commercial successes. Uh, we feel very comfortable with where we are on that trajectory, as well as the ability to sustain.

That growth beyond beyond 2027.

Phillip Jungwirth: Great. Coming back to chemicals, once the strait opens up, how do you see the progression for getting back to normal operations for CPChem, where you are guiding the lower two utilization, but obviously benefiting on the margin front in the Gulf Coast? If you could also just comment on the broader industry, that would also be helpful just in terms of what does that scenario look like, steps to take, and time duration to get back to normal.

Speaker #4: I think that there's probably a greater sense of urgency to get crude oil and refined products moving and then petrochemicals may be a next layer.

Speaker #4: So I think that revival from the Gulf will be a little lagged behind energy recovery and then you're going to see the system need to repopulate the inventory chain.

Great. And then cut coming back to chemicals. Uh on once the straight opens up uh how do you see the progression for getting back to normal operations for CP Kim, we are guiding the lower 2 utilization but obviously benefiting on the margin front and and the Gulf Coast. Um, and if you could also just comment on the broader industry, it would also be helpful. Just in terms of what is that scenario? Look like step.

Rich Harbison: I think as far as CPChem is concerned, the assets in the Middle East that are offline are in good shape. The bigger question is then the greater infrastructure in the Middle East and what challenges there may be. I think that there's probably a greater sense of urgency to get crude oil and refined products moving, and then petrochemicals may be a next layer. I think that revival from the Gulf will be a little lag behind the energy recovery. You're going to see the system need to repopulate the inventory chain, the logistics chain, and that will take some time. I think you'll see this have some, you know, some legs on it.

Don Baldridge: I think as far as CPChem is concerned, the assets in the Middle East that are offline are in good shape. The bigger question is then the greater infrastructure in the Middle East and what challenges there may be. I think that there's probably a greater sense of urgency to get crude oil and refined products moving, and then petrochemicals may be a next layer. I think that revival from the Gulf will be a little lag behind the energy recovery. You're going to see the system need to repopulate the inventory chain, the logistics chain, and that will take some time. I think you'll see this have some, you know, some legs on it.

take and, and time duration to get back to normal,

Speaker #4: The logistics chain. And that will take some time. So I think you'll see this have some legs on it. Now, we've got two big projects underway too.

Kim is concerned the assets.

the Middle East that are

Speaker #4: And those projects the Golden Triangle project in the US and the RLPP project in Qatar are both proceeding as expected. And there's been no disruption in the progress of the RLPP project in spite of what's going on.

Speaker #4: Everybody's been safe. Everybody's doing what they need to do to get that project going. And both those projects will come online fully in 2027.

Speaker #4: You'll see Golden Triangle polymers starting to commission things later this year. And they're making great progress. And so I think they will contribute capacity at a time when it'll be really sorely needed, I think.

Rich Harbison: Now, we've got two big projects underway too, and those projects, the, you know, the Golden Triangle project in the US and the RLPP project in Qatar, are both proceeding as expected. There's been no disruption in the progress of the RLPP project. In spite of what's going on, everybody's been safe.

Don Baldridge: Now, we've got two big projects underway too, and those projects, the, you know, the Golden Triangle project in the US and the RLPP project in Qatar, are both proceeding as expected. There's been no disruption in the progress of the RLPP project. In spite of what's going on, everybody's been safe.

Speaker #4: And so there'll be good progress from multiple dimensions for CP Chem as this crisis itself.

shape. Uh, the bigger question is, then the, the greater infrastructure in the Middle East, and what challenges there, uh, there may be, I think that there's probably a greater sense of urgency to get uh, crude oil and refined products moving. Uh, and and then petrochemicals may may be a next layer. So I think that Revival from the, the, the, the go, the gulf will be a little lag behind energy recovery. Uh, and then you're going to see the system need to, uh, repopulate the inventory chain, the the the logistics chain and that will take some time. So I think you'll see this have some, you know, some legs on it. Uh now, uh, We've Got 2 big projects underway too. And those projects the you know the Golden Triangle project in the US and the uh rlp project in Qatar uh are both proceeded.

Speaker #1: Thank you.

Speaker #3: Lloyd Byrne from Jefferies. Please go ahead. Your line is open.

Mark Lashier: Everybody's doing what they need to do to get that project going. Both those projects will come online fully in 2027. You'll see Golden Triangle Polymers starting to commission things later this year, and they're making great progress. I think they will contribute capacity at a time when it'll be really sorely needed, I think. There'll be good progress from multiple dimensions for CPChem as this crisis resolves itself.

Don Baldridge: Everybody's doing what they need to do to get that project going. Both those projects will come online fully in 2027. You'll see Golden Triangle Polymers starting to commission things later this year, and they're making great progress. I think they will contribute capacity at a time when it'll be really sorely needed, I think. There'll be good progress from multiple dimensions for CPChem as this crisis resolves itself.

Speaker #5: Hey. Good afternoon, Mark, Kevin, team. Thank you for having me on. Can I start by following up on Neil's question on capture? And I know you commented on how well-positioned your transportation is.

Being as expected. Uh, and, uh, there's been no disruption in the progress of the RLP project. In spite of what's going on, everybody's been safe, uh, everybody's doing, uh, what they need to do to get that project going. And both those projects will come online, uh, fully in 2027, you'll see, uh,

Speaker #5: But how does that impact second-quarter capture or maybe even third quarter if rates continue to go on like this?

Speaker #4: Yeah. You should see a benefit. Given that we locked in our shipping rates over the last couple of years and shipping rates are so elevated, you should continue to see a benefit from shipping rates particularly in our Atlantic basin region.

Itself.

Phillip Jungwirth: Thank you.

Thank you.

Operator: Lloyd Byrne from Jefferies, please go ahead. Your line is open.

Lloyd Byrne: Hey, good afternoon, Mark, Kevin, team. Thank you for having me on. Can I start by following up on Neil's question on capture? I know you commented on how well-positioned your transportation is, but how does that impact Q2 capture or maybe even Q3 if rates continue to go on like this?

Lloyd Burn from Jeffries, please go ahead. Your line is open.

Speaker #5: Okay. Thanks. And let me ask a follow-up of I don't know whether Don's on, but maybe Mark can answer it. You can comment on Western Gateway and obviously a very good open season just what are the hurdles left and kind of the timing for FID?

Hey, good afternoon, Mark, Kevin, team. Uh, thank you for having me on. Um, can I start by following up on Neil's question on capture, and I know you commented on—

Speaker #4: Hey, Lloyd. This is Don. I appreciate the question on Western Gateway. We are quite excited about where we are. On the Western Gateway project, the progress we've made to date and where we find ourselves at the end of the second open season, how I see the path forward here is to complete the JV arrangements with Kinder Morgan as well as execute the transportation agreements with the third-party shippers.

How well positioned your transportation is, but how does that impact, second core capture, or maybe even third quarter if rates continue to go on like this?

Brian Mandell: You should see a benefit. You know, given that we locked in our shipping rates, you know, over the last couple years, shipping rates are so elevated, you should continue to see a benefit from shipping rates, particularly in our Atlantic Basin region.

Yeah.

You should you should see a benefit you know, given that we locked in our shipping rates, you know, over the last couple years and shipping rates are are so elevated. You should continue to see a benefit from shipping rates, particularly in our Atlantic Basin region.

Lloyd Byrne: Okay. Thanks. Let me ask a follow-up of, I don't know whether Don's on, but maybe Mark can answer it. You can comment on Western Gateway and obviously a very good open season. Just what are the hurdles left and kind of the timing for FID?

Speaker #4: We've got a team that's working hard to get that done. I would say with the successful conclusion of that work over the next couple of months, I'd expect we would be in a position to FID this project mid to late summer.

Okay. Thanks and let me ask a uh a follow-up of um I don't know whether Don's on but maybe Mark can answer it and you can comment on Western Gateway and obviously,

A very good Open Season. Just what are the hurdles left? And kind of the timing for FID?

Don Baldridge: Hey, Lloyd, this is Don. Appreciate the question on Western Gateway. We are quite excited about where we are on the Western Gateway project, the progress we've made to date, and where we find ourselves at the end of the second open season. How I see the path forward here is to complete the JV arrangements with Kinder Morgan, as well as execute the transportation agreements with the third-party shippers. We've got a team that's working hard to get that done. I would say with the successful conclusion of that work over the next couple of months, I'd expect we would be in a position to FID this project mid to late summer, again for a 2029 in service date.

Speaker #4: Again, for a 2029 in service date. And one of the things that I reflect back on just the progress we've made and what we've learned through the open season is really twofold.

Speaker #4: One, I think there's a strong market interest in having a new build pipeline built to Phoenix and be able to deliver reliable, secure transportation fuels to the West.

Speaker #4: And then two, there's a strong support from the state and federal groups, agencies, and officials in having this pipeline in service as soon as possible.

Speaker #4: So that gives me a lot of confidence that Western Gateway is the right project at the right time and will deliver the right returns.

Don Baldridge: One of the things as I reflect back on just the progress we've made and what we've learned through the open season is really two, twofold. One, I think there is a strong market interest in having a new build pipeline built to Phoenix and be able to deliver reliable, secure transportation fuels to the West. Two, there's a strong support from the state and federal groups, agencies, and officials in having this pipeline in service as soon as possible. That gives me a lot of confidence that Western Gateway is the right project at the right time and will deliver the right returns.

Hey Lloyd. This is Don. Appreciate the question on Western Gateway. Um, we are quite excited about where we are on the western Gateway project. The, the the progress we've made today and where we find ourselves at the end of the second Open Season. How I see the the path forward here is to complete the JV arrangements with Kinder Morgan, as well as execute the transportation agreements. Uh, with the third party shippers, uh, we've got a team that's that's working hard to, to get that done. Um, I I would say, with the successful, conclusion, of that work over the next couple of months. I'd expect we would be in a position to FID, this project. Mid mid mid to late summer again, for a 2029 in service date.

And one of the things that I—I flew back on just

Speaker #5: That's great. Thank you, guys.

Speaker #3: Jason Gabelman from TD Cowen. Please go ahead. Your line is open.

Speaker #6: Hey. Thanks for taking my questions. I know you reiterated the 4.5 billion of EBITDA on midstream 1Q obviously moved sequentially lower particularly in the NGL business.

The progress we've made and what we've learned through the open season is really 2, 2-fold 1, I I think there is a strong Market interest in having a new build pipeline built to, uh, Phoenix and be able to deliver reliable secure, Transportation fuels to the West.

Speaker #6: Quarter over quarter, can you just help us, I guess, bridge the quarter over quarter decline and remind us how you get to that 4.5 billion and perhaps given Western Gateway and potential for continued activity do you see what type of upside do you see from that 4.5?

Lloyd Byrne: That's great. Thank you, guys.

And then 2, there's a strong support from the state and, and federal, uh, groups agencies and officials in having this pipeline in service as soon as possible. So that gives me a lot of confidence that Western Gateway is the right project at the right right time and we'll deliver the right returns.

That's great. Thank you guys.

Operator: Jason Gabelman from TD Cowen, please go ahead. Your line is open.

Jason Gabelman: Hey, thanks for taking my questions. I know you reiterated the $4.5 billion of EBITDA on midstream. Q1 obviously moved sequentially lower, particularly in the NGL business quarter over quarter. Could you just help us, I guess, bridge the quarter over quarter decline and remind us how you get to that $4.5 billion? Perhaps given Western Gateway and potential for continued activity, what type of upside do you see from that $4.5?

Jason Gabelman from TD Cowen, please go ahead. Your line is open.

Speaker #4: Sure, Jason. Appreciate the question. Just in summary, at the very onset, the absent the impact of volume from winter storm winter storm Fern, we're right where I expected us to be from a quarter one performance.

Speaker #4: We continue to have great commercial success not only in the growth but also in the re-contracting which that has some impact in Q1. And let me maybe unpack that a little bit when we think about our renewals.

Speaker #4: We're quite proactive in how we do that. We tend to renew those a year prior to their expiration dates. The ones that came up for this quarter, we had renewed those and what was exciting about that is we had renewed those for 10-year-plus terms.

Hey thanks for uh taking my questions. Um I know you're reiterated the the 4 and a half billion of ibida on Midstream. Um 1 Q, obviously moved sequentially lower. Uh particularly in the NGL business quarter over quarter. Could you just help us I guess Bridge, um, uh, uh, quarter over quarter to decline and, and remind us how you get to that 4 and a half billion. And, and perhaps given Western Gateway and and potential for, um, continued activity. Um, do you see what what type of upside do you see from that 4 and a half?

Don Baldridge: Sure, Jason. Appreciate the question. Just in summary, at the very onset, absent the impact of volume from Winter Storm Fern, we're right where I expected us to be from a Q1 performance. We continue to have great commercial success, not only in the growth, but also in the recontracting, which that had some impact in Q1. Let me maybe unpack that a little bit. When we think about our renewals, we're quite proactive in how we do that. We tend to renew those a year prior to their expiration dates. The ones that came up for this quarter, we had renewed those. What was exciting about that is we had renewed those for 10-year plus terms.

Speaker #4: For me, that really validates the success of our customer service, the success of our relationships with our customers. That execution gives me a lot of confidence in our ability to continue to grow into our 4.5 billion target by 2027.

Speaker #4: The fundamentals are bright. The execution by the team is strong. And as we look through with Western Gateway, whether it's some of the follow-on expansions when we talk about additional gas plants, that gives me confidence that we can sustain this growth rate beyond just 2027.

Don Baldridge: For me, that really validates the, you know, the success of our customer service, the success of our relationships with our customers. That execution gives me a lot of confidence in our ability to continue to grow into our four and a half billion target by 2027. The fundamentals are bright. The execution by the team is strong. As we look through with Western Gateway, whether it's some of the follow-on expansions, when we talk about additional gas plants, that gives me confidence that we can sustain this growth rate beyond just 2027.

Sure, Jason, appreciate the question. I, I just in, in summary at the very onset absent, the impact of volume from winter storm, winter storm Fern. Uh, we're we're right where I expected us to be, uh, from a quarter 1 performance. Um, we we continue to have great Commercial Success, not only in in the growth, but also in the recontracting, which that has some impact in q1. Um, and Let Me Maybe unpack that a little bit when we think about, uh, our renewals, we're quite proactive in how we do that. We we tend to renew those, uh, a year prior to their expiration dates. Uh, the ones that that came up, uh, for this quarter. We had um, renewed those and and what was exciting about that is we had renewed those for for 10 year plus terms

Speaker #6: Got it. And I neglected to ask about the LPG export ARB opportunity in the current environment. So if you could just talk about how you're thinking about that.

Speaker #4: Sure. In the near term, most of our windows are spoken for either with our term customers or by ourselves from our time charters. Where we've had success is really in our delivered time charter market where the team in Singapore has been able to optimize deliveries to be able to take advantage of the volatility much like what you just heard, Brian, talk about.

Ability to continue to grow into uh our 4 and a half billion Target by 2027.

Speaker #4: I think overall what this shows is the importance and the strength of the Gulf Coast LPG export capability. So I think this will continue to be a good tailwind for Gulf Coast exports.

If the fundamentals are bright, the execution by the team is strong. And as we look through with Western Gateway, uh, whether it's some of the, uh, follow-on expansions, when we talk about additional gas plants, that gives me confidence that we can sustain this growth rate beyond just 2027.

Jason Gabelman: Got it. I neglected to ask about the LPG export arb opportunity in the current environment. If you could just talk about how you're thinking about that.

Got it, and I neglected to ask about the LPG export ARB opportunity in the current environment. So if you could just talk about how you're thinking about that.

Don Baldridge: Sure. In the near term, most of our windows are spoken for either with our term customers or by ourselves from our time charters. Where we've had success is really in our delivered time charter market, where the team in Singapore has been able to optimize deliveries, be able to take advantage of the volatility, much like what you just heard Brian talk about. I think overall what this shows is the importance and the strength of the Gulf Coast LPG export capability. I think this will continue to be a good tailwind for Gulf Coast exports, and we expect Freeport to be a beneficiary of that outlook.

Speaker #4: And we expect Freeport to be a beneficiary of that outlook.

Speaker #6: Great. And my follow-up is just on some of the assets you have on the West Coast. One, given Western Gateway, does that make Ferndale any more or less core to the business than it previously was and maybe can you also talk about the opportunity to sell down part of the interest in the renewable diesel plant as your peers have done and as that market has strengthened here?

Speaker #4: Yeah. Absolutely. From a Ferndale perspective, Ferndale is integrating well into the California market. And we see the two things complementary. They're more targeted at Northern California, Western Gateway, is a Southern California opportunity.

Sure, in the near term, most of our windows are are spoken for either with our our term customers or by ourselves from our, our time Charters, uh, where we've had uh, success is really in our, our delivered time Charter Market, uh, where the team in in Singapore, has been able to optimize deliveries be able to take advantage of, of the volatility much like what you just heard Brian talked about? Um, I think overall, what this shows is uh, the importance and the strength of the Gulf Coast LPG, export capability. So I think this will continue to be a, uh, a good Tailwind for Gulf Coast exports and we expect Freeport, uh, to be a uh, a benefit.

Jason Gabelman: Great. My follow-up is just on some of the assets you have on the West Coast. One, given Western Gateway, does that make Ferndale any more or less core to the business than it previously was? Maybe can you also talk about the opportunity to sell down part of the interest in the renewable diesel plant as your peers have done and as that market has strengthened here?

Beneficiary of that, uh, Outlook.

Speaker #4: And so we still see strong tailwinds for Ferndale as they enhance their capability with CARB and sustainable aviation fuel. And blending and so they're in a strong position.

Speaker #4: And Western Gateway will come in and provide some stability in Southern California. The other question about renewable, yeah, I think that we'll see what the market does.

Mark Lashier: Yeah, absolutely. From a Ferndale perspective, Ferndale is integrating well into the California market, and we see the two things complementary. They're more targeted to Northern California. Western Gateway is a Southern California opportunity. We still see strong tailwinds for Ferndale as they enhance their capability with CARB and sustainable aviation fuel and blending. They're in a strong position. Western Gateway will come in and provide some stability in Southern California. The other question about the renewable, yeah, I think that, yeah, we'll see what the market does. The asset is running strong. We would always entertain any interest, but it's a great asset, world-class asset.

Great. And my follow-up is just on some of the assets you have on the west coast. Um 1 given Western Gateway does that make Ferndale any more or less quarter of the business than a previously was? And, and maybe can you also talk about the opportunity, um, to sell down part of the interest in the renewable diesel plant as your peers have done? And as that market has, uh, has a strength in here.

Speaker #4: The asset is running strong. We would always entertain any interest. But it is a great asset world-class asset. Runs like a Swiss watch. And we're seeing great value from that asset today.

Speaker #6: Great. Thanks for the answers.

Speaker #4: That?

Speaker #3: Theresa Chen from Barclays. Please go ahead. Your line is open.

Speaker #7: Hi there. On the midstream front with the crude price outlook likely risk to the upside over the medium term and potential re-acceleration of activity in second-tier basins, can you talk about utilization and the ability to expand your path for NGL assets that are now or soon will be connected to Kinder's double-edged conversion now in NGL service?

Yeah, absolutely from Ferndale perspective, Ferndale is is integrating well into the California market and we see, uh, the 2 things complimentary. They're, they're more targeted at Northern California, Western Gateway. Uh, is a Southern California opportunity and so we we still see strong Tailwind for Ferndale as they enhance their capability with carb and, and, uh, sustainable aviation fuel and, uh, blending and so they're, they're in a strong position. And, uh, and Western Gateway will come in and provide some stability in Southern California.

Mark Lashier: runs like a Swiss watch, and we're seeing great value from that asset today.

Speaker #7: Is there renewed growth? If there is renewed growth and associated gas either in the Bakken or in the Rockies itself, how much incremental pipe capacity could you have on your Rockies to Sweeney NGL system or would that require significantly more investment?

Um, the other question about the renewable. Yeah, I think that uh, yeah, we'll we'll see what the market does. Uh, the, the asset is running strong and we would all always uh, entertain any interest. But uh, it is a, it's a great asset, world-class asset, uh, runs like a, a Swiss watch and uh, we're seeing Great Value from that asset today.

Jason Gabelman: Great. Thanks for the answers.

Mark Lashier: You bet.

Great, thanks for the answers.

Operator: Theresa Chen from Barclays, please go ahead. Your line is open.

Teresa Chen from Berkeley, please go ahead. Your line is open.

Speaker #4: Hi, Theresa. Appreciate the question. In the Rockies, right now, actually, our DJ production we're seeing some record volume. So it's very exciting to see the volume in that area.

Theresa Chen: Hi there. On the midstream front, with the crude price outlook likely risk to the upside over the medium term and potential re-acceleration of activity in second-tier basins, can you talk about utilization and the ability to expand your PAC4 NGL assets, that are now or soon will be connected to Kinder's Double H conversion now in NGL service? Is there renewed growth? If there is renewed growth in associate gas, either in the Bakken or in the Rockies itself, how much incremental pipe capacity could you have on your Rockies to Sweeny NGL system? Would that require significantly more investment?

Hi there. Um, on the mystery front with the crew price Outlook,

Speaker #4: And certainly, as you alluded, there's opportunities whether that's in the Powder River Basin or the Bakken. For additional development, we certainly have a well-positioned NGL network out of Colorado that flows through our system in multiple different routes and feeds into our Sweeney complex.

Speaker #4: We've recently restarted our Powder River NGL pipeline to be able to take some early Bakken barrels if there's growth in that area. We would certainly look at opportunities to be able to expand capacity to be able to fill the downstream pipes that we have out of the Rockies.

Likely risk to the upside over the medium-term and potential, re acceleration of activity. In second, tier basins, can you talk about utilization and the ability to expand your path for NGL assets? Um, that are now or soon will be connected to Kinder's, Double H conversion. Now, in NGL surface, is there a renewed growth? Um, if there is renewed growth in associate gas, either in the bakan or in the Rockies itself, how much incremental pipe capacity? Could you have on your Rocky s Sweeney NGL system or would that require a significantly more investment?

Don Baldridge: Hi, Theresa. I appreciate the question. In the Rockies, you know, right now actually our DJ production, we're seeing some record volumes. It's very exciting to see the volume in that area. Certainly, as you alluded, there's opportunities, whether that's in the Powder River Basin or the Bakken, for additional development. We certainly have a well-positioned NGL network out of Colorado that flows through our system in multiple different routes and feeds into our Sweeny complex. We've recently restarted our Powder River NGL pipeline to be able to take some early Bakken barrels.

Speaker #4: So that is certainly an area that we're keeping an eye on.

Speaker #7: Thank you. And in regards to Western Gateway, now that the commercialization process is done, what range of total CapEx and expected build multiple on a 100% basis can you share at this point regardless of how the economics would be split between the partners?

Hi Teresa, I appreciate the question, uh, in the in the Rockies. I just, you know, right now, actually, our our DJ production, we're seeing some, some record volume. So, it's very exciting to see, uh, the volume in that area. And certainly, uh, as you alluded, there's there's opportunities where that's in the Powder, River Basin, or the or the Balkan, uh, for additional development. We certainly have a well, positioned NGL, uh, Network out of Colorado, that that, that flows through our system in multiple different routes and and feed.

Speaker #4: We still need to kind of work through some of the final details with our partner in terms of scope and connections with our prospective shippers.

Don Baldridge: If there's growth in that area, we would certainly look at opportunities to be able to expand capacity to be able to fill the downstream pipes that we have out of the Rockies. That is certainly an area that we're keeping an eye on.

Speaker #4: So we're probably premature to have that information out there. But it will be out there shortly.

An eye on.

Theresa Chen: Thank you. In regards to Western Gateway, now that the commercialization process is done, what range of total CapEx and expected build multiple on a 100% basis can you share at this point, regardless of how the economics would be split between the partners?

Speaker #7: Thank you.

Speaker #3: Matthew Blair from TPH. Please go ahead. Your line is open.

Speaker #6: Great. Thank you. Just one question for me. Could you talk about the Canadian crude market? Looks like WCS at Hardesty is one of the most attractive crudes out there.

Speaker #6: Are the wider dips relative to TI due to any pipeline constraints coming out of Canada? And then the market structure impacts that you talked about earlier, for US inland barrels, would those apply to Canadian barrels as well, or are they not affected by that?

Thank you. And, um, in regards to Western Gateway. Now that the commercialization process is done. Um, what range of total capex and expected and build multiple on a 100% basis. Can you share at this point regardless of how the economics would be split between the partners?

Don Baldridge: We still need to kind of work through some of the final details with our partner in terms of scope and connections with our prospective shippers. We're probably premature to have that information out there, but it will be out there shortly.

we uh, still

Speaker #6: Thank you.

Speaker #4: I'd say the clearly, the WTI, WCS differentials have moved wider. From very tight bevels earlier on this year, they're now next month at almost 18 dollars off.

With our partner in terms of scope and connections with our, uh, perspective of shippers. So probably, uh, premature to have that, um, information out there. But it will be out there shortly.

Theresa Chen: Thank you.

Thank you.

Operator: Matthew Blair from TPH&Co., please go ahead. Your line is open.

Speaker #4: And a couple of reasons. The first reason is that light-squeak crudes from the US are being pulled to Asia. And so that's tightening up light-squeak crudes.

Matthew Blair from TPH, please go ahead. Your line is open.

Matthew Blair: Great. Thank you. Just one question from me. Could you talk about the Canadian crude market? Looks like WCS at Hardisty is one of the most attractive crudes out there. Are the wider dips relative to WTI due to any pipeline constraints coming out of Canada? The market structure impacts that you talked about earlier for US inland barrels, would those apply to Canadian barrels as well, or are they not affected by that? Thank you.

Speaker #4: And medium sours and the second reason is that the Venezuelan barrels on the market and also some plans and unplanned outages at refineries have put some pressure on the heavy grades.

Speaker #4: And so that's kind of widened the WTI, WCS and our kind of view is they're going to stay wide for some period of time.

Mark Lashier: I'd say the, clearly the, WTI, WCS differentials have moved wider from very tight levels earlier on this year. They're now next month at almost $18 off.

Brian Mandell: I'd say the, clearly the, WTI, WCS differentials have moved wider from very tight levels earlier on this year. They're now next month at almost $18 off.

Great. Thank you. Uh, just 1 question for me. Could you talk about the Canadian crude Market looks like WCS? At Hardesty is 1 of the most attractive crews out. There are are the wider diffs relative to TI due to any any pipeline, constraints coming out of Canada and then the market structure impacts that that you talked about earlier for us, Inland barrels, would those apply to to Canadian barrels as well or, or are they not affected by that? Thank you.

Speaker #4: We're in a very strong position with our Midcon portfolio. We're in a pipeline position, which is competitive advantage given the Canadian crudes. To our refineries and we benefit from those widened differentials, as you mentioned.

If I say the, uh, clearly the WTI WCS, differentials have moved wider um, from very tight levels earlier on this year. They're now, uh, next month at almost $18 off.

Brian Mandell: Couple of reasons. The first reason is that light sweet crudes from the US are being pulled to Asia, so that's tightening up light sweet crudes and medium sours. The second reason is that the Venezuelan barrels on the market and also some planned and unplanned outages at refineries have put some pressure on the heavy grades. That's kind of widened the WTI, WCS. Our kind of view is they're gonna stay wide for some period of time. We're in a very strong position with our MidCon portfolio and our pipeline position, which is a competitive advantage given the Canadian crudes to our refineries. We benefit from those widened differentials, as you mentioned.

Speaker #4: And currently, just as a reminder, our sensitivity is 140 million dollars of additional earnings for every dollar wider that the dips become.

Speaker #3: And this concludes the question and answer session. I will now turn the call back over to Sean Maher for closing comments.

Speaker #4: Thank you for your interest in Phillips 66. If you have any questions or feedback after today's call, please reach out to Kirk or myself.

Speaker #4: Thanks and have a great day.

Brian Mandell: Currently, just as a reminder, our sensitivity is $140 million of additional earnings for every $1 wider that the diffs become.

And, uh, a couple of reasons. The first reason is that lightweight Crews from, uh, the US are being pulled to Asia. And so that's tightening up, lightweight Crews, and, and medium sour. And the second reason is that the Venezuelan barrels on the market and also some planned and unplanned outages at refineries have put some pressure on the, the heavy grades. And so that's kind of widened. Why didn't the uh, WTI WCS? Uh, and our, our kind of view is they're going to stay wide for some period of time. We're in a very strong position with our midcon portfolio and our pipeline position, which is, uh, competitive Advantage, given the Canadian Crews to our refineries and uh we benefit from those wide and differentials as you mentioned. And currently just just as a reminder, our sensitivity is 140 million dollars of additional earnings for every dollar wider at the diffs become

Operator: This concludes the question-and-answer session. I will now turn the call back over to Sean Maher for closing comments.

Sean Maher: Thank you for your interest in Phillips 66. If you have any questions or feedback after today's call, please reach out to Kirk or myself. Thanks, and have a great day.

And this concludes the question and answer session. I will now turn the call back over to Sean Maher for closing comments.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for your interest in Phillips 66. If you have any questions or feedback after today's call, please reach out to Kirk or myself. Thanks, and have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect

Q1 2026 Phillips 66 Earnings Call

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