Phillips 66 Q1 2025 Earnings Report

Phillips 66 EPS Results

• Actual EPS: -$0.90
• Consensus EPS: $0.07
• Beat/Miss: Missed by -$0.97
• One Year Ago EPS: $1.90

Phillips 66 Revenue Results

• Actual Revenue: $31.92 billion
• Expected Revenue: $31.93 billion
• Beat/Miss: Missed by -$13.00 million
• YoY Revenue Growth: N/A

Phillips 66 Announcement Details

• Quarter: Q1 2025
• Date: 4/25/2025
• Time: Before Market Opens
• Conference Call Date: Friday, April 25, 2025
• Conference Call Time: 12:00PM ET

Phillips 66 (NYSE:PSX) operates as an energy manufacturing and logistics company in the United States, the United Kingdom, Germany, and internationally. It operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). The Midstream segment transports crude oil and other feedstocks; delivers refined petroleum products to market; provides terminaling and storage services for crude oil and refined petroleum products; transports, stores, fractionates, exports, and markets natural gas liquids; provides other fee-based processing services; and gathers, processes, transports, and markets natural gas. The Chemicals segment produces and markets ethylene and other olefin products; aromatics and styrenics products, such as benzene, cyclohexane, styrene, and polystyrene; and various specialty chemical products, including organosulfur chemicals, solvents, catalysts, and chemicals used in drilling and mining. The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasolines, distillates, aviation, and renewable. The M&S segment purchases for resale and markets refined petroleum products, including gasolines, distillates, and aviation fuels. This segment also manufactures and markets specialty products, such as base oils and lubricants. Phillips 66 was founded in 1875 and is headquartered in Houston, Texas.

Phillips 66 Q1 2025 Earnings Call Transcript

Key Takeaways

• Through strong midstream cash flows, Phillips 66 returned $716 million to shareholders in Q1 despite macro challenges and one of its largest spring turnaround programs.
• Refineries completed spring turnarounds safely, on time and under budget, and initiated low-capital, high-return projects at Sweeny (+40 mbd heavy/light flexibility) and Bayway (increased FCC native feed capability).
• Midstream grew its NGL value chain with the EPIC acquisition and announced the Iron Mesa gas processing plant, advancing toward $4.5 billion of run-rate EBITDA by 2027.
• The company has divested over $3.5 billion of non-core assets, rationalized its refining footprint (Alliance sale, Rodeo conversion, LA closure) and boosted its annual dividend by $0.05/share, delivering over $14 billion to shareholders since mid-2022.
• First-quarter reported earnings were $487 million (adjusted loss $368 million), operating cash flow was $187 million, and the company paid down $1.3 billion of debt, funded $423 million of capex, and repurchased $247 million of shares.

Presentation

[Operator]

Welcome to the First Quarter twenty twenty five Phillips sixty six Earnings Conference Call. My name is Emily, and I'll be your operator for today's call. Please note that this conference is being recorded. I will now turn the call over to Jeff Dietert, Vice President, Investor Relations. Jeff, you may begin.

[Jeff Dietert, Vice President-Investor Relations at Phillips 66]

Welcome to Phillips sixty six earnings conference call. Participants on today's call include Mark Glaser, Chairman and CEO Kevin Mitchell, CFO Don Baldridge, Midstream and Chemicals Rich Harvison, Refining and Brian Mandel, Marketing and Commercial. Today's presentation can be found on the Investor Relations section of the Phillips sixty six website along with supplemental financial and operating information. Slide two contains our Safe Harbor statement. We will be making forward looking statements during today's call.

[Jeff Dietert, Vice President-Investor Relations at Phillips 66]

Actual results may differ materially from today's comments. Factors that could cause actual results to differ are included here as well as in our SEC filings. With that, I'll turn the call over to Mark.

[Mark Lashier, CEO & Chairman at Phillips 66]

Thanks, Jeff. Welcome everyone to our first quarter earnings call. During the quarter, we continued to execute on our transformational strategy and deliver returns to our shareholders. By staying focused on what we can control, we made important progress across our 2027 priorities, improving refining operations, enhancing our NGL value chain and executing on our growth opportunities. Underpinned by the strength of cash flow contributions from our midstream business, we returned $716,000,000 to shareholders this quarter.

[Mark Lashier, CEO & Chairman at Phillips 66]

We did this in a challenged macro environment in refining, renewables and chemicals. We also executed one of the largest spring turnaround programs in the history of Phillips sixty six that impacted volumes and margins. These important investments position us well for the future. While our results reflect the challenges of this environment, our ability to return significant capital to shareholders demonstrates the strength of our integrated business model. We remain focused on strategy execution, disciplined capital allocation and cash returns to shareholders.

[Mark Lashier, CEO & Chairman at Phillips 66]

Slide four shows how we continue to improve refining operations through targeted low capital, high return projects. These recent investments lead to greater feedstock flexibility and yield. Before I touch on some of these projects, I want to highlight the success of our spring turnaround program, which was completed safely, on time and under budget. Furthermore, our refineries not in turnaround this quarter ran well. These accomplishments would not have been possible without our employees' unwavering dedication to operating excellence and safety.

[Mark Lashier, CEO & Chairman at Phillips 66]

Thank you to the refining team. Well done. The bulk of the annual turnaround activity and associated costs are largely behind us, which you will see reflected in our guidance going forward. We are well positioned to capture upside in the market for the remainder of the year. During this quarter's turnarounds, we achieved meaningful project milestones.

[Mark Lashier, CEO & Chairman at Phillips 66]

At the Sweeny refinery, we removed constraints and enhanced crude flexibility. We now have an additional 40,000 barrels per day of heavy light crude switching capability. Depending on market conditions, we will run additional Permian barrels displacing imported heavy crudes. We expect this flexibility in a rapidly changing price environment will enhance long term margins at this strategic refinery. Also at our Bayway facility, we completed a project that increases our FCC native feedstock capabilities, reducing the need for VGO imports.

[Mark Lashier, CEO & Chairman at Phillips 66]

Both of these low capital and high return projects are enabling us to enhance market capture. We're committed to our refining business. We have a clear path to increase operational run time, improve yields and reduce cost per barrel. Moving to Slide five, midstream is critical to our integrated strategy. It's a key growth driver and creates ongoing value for shareholders.

[Mark Lashier, CEO & Chairman at Phillips 66]

We've made disciplined investments to build out our integrated wellhead to market strategy, a strategy that allows us to efficiently move products from the wellhead to high value end markets. This strategy provides significant stability to our financial results and adds material benefits to other segments. Our value chain creates optionality in product placement and supports reliable long term cash generation. We acquired EPIC NGL on April 1, which is immediately accretive and expands our takeaway capacity from the Permian. The acquired assets are highly integrated with the existing Phillips sixty six asset base and provide long term fee based earnings growth.

[Mark Lashier, CEO & Chairman at Phillips 66]

This acquisition enhances our ability to offer producers unmatched flow assurance while expanding connectivity to end markets. We also continue to expand our natural gas gathering and processing footprint in the Permian Basin. Our Dos Pikos II expansion plant, which was part of our Pinnacle acquisition strategy, is expected to come online in the third quarter of twenty twenty five. Today, we're announcing the construction of another gas processing plant in the Permian. The Iron Mesa plant will serve Delaware and Midland Basin production and will be funded within our existing capital budget.

[Mark Lashier, CEO & Chairman at Phillips 66]

The facility is expected to come online in the first quarter of twenty twenty seven. Both of these projects are great examples of our highly strategic and selective investments at low build multiples. They contribute to our plan to organically grow midstream run rate adjusted EBITDA to $4,500,000,000 by 2027. At Phillips sixty six, we've embraced the culture of continuous improvement and have taken decisive actions to create long term value for our shareholders. Slide six shows some of the achievements over the past three years.

[Mark Lashier, CEO & Chairman at Phillips 66]

We have divested more than $3,500,000,000 of non core assets at high multiples, while making strategic acquisitions within midstream at attractive multiples to build a world class NGL value chain. In refining, we're improving competitiveness by optimizing our assets to align with long term demand trends. We've made operational improvements throughout the portfolio and we've rationalized our footprint with the sale of Alliance, conversion of Rodeo and plan to cease operations and repurpose the land at Los Angeles. We have taken steps to execute on our transformational strategy and we will do more. We remain committed to maintaining safe and reliable operations, investing in high return growth opportunities and capturing integration benefits.

[Mark Lashier, CEO & Chairman at Phillips 66]

We will return over 50% of net operating cash flow to shareholders through share repurchases and a secure competitive and growing dividend. Demonstrating this commitment, we recently announced a $05 per share increase in our quarterly dividend. Since our formation in 2012, the annual dividend has increased every year resulting in a significant 15% compounded annual growth rate. We have delivered over $14,000,000,000 to shareholders since July 2022. We will continue to create long term value for shareholders as we execute on our 2027 strategic priorities, maintaining operational excellence, pursuing disciplined growth, returning capital and ensuring financial strength.

[Mark Lashier, CEO & Chairman at Phillips 66]

Now over to Kevin to cover the results for the quarter.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Thank you, Mark. First quarter reported earnings were $487,000,000 or $1.18 per share. The adjusted loss was $368,000,000 or $0.90 per share. Both the reported earnings and adjusted loss include the $246,000,000 pretax impact of accelerated depreciation due to our plan to cease operations at the Los Angeles refinery at the end of twenty twenty five. The adjusted loss excludes the $1,000,000,000 pretax gain on disposition of our non operated interest in co op.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

We generated $187,000,000 of operating cash flow and returned $716,000,000 to shareholders, including $247,000,000 of share repurchases. I will now cover the segment results on Slide eight. Total company adjusted loss increased $3.00 $7,000,000 compared with the prior quarter. Midstream results decreased mainly due to lower volumes because of the turnaround activity in refining. This was partly offset by the impact of higher commodity prices benefiting gathering and processing results.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Also during the quarter, the Sweeny Hub had record fractionation volumes of 650,000 barrels per day. In Chemicals, results increased mainly due to higher volumes and lower costs driven by turnaround activity in the prior quarter. Lower refining results reflect the impact of lower volumes and higher costs driven by turnaround activity and higher utility prices. This is partly offset by increased realized margins from higher market cracks. Marketing and Specialties results improved due to lower depreciation and higher margins in the international business.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

In Renewable Fuels, results decreased mainly due to the transition from blenders tax credits to production tax credits, inventory impacts and lower international results. Slide nine shows cash flow for the first quarter. Cash from operations, including working capital, was $187,000,000 We received 2,000,000,000 from the sales of the non operated equity interest in co op and the Gulf Coast Express Pipeline. We paid down $1,300,000,000 of debt and returned $716,000,000 to shareholders through share repurchases and dividends. We funded $423,000,000 of capital spending.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Our ending cash balance was $1,500,000,000 Looking ahead to the second quarter of twenty twenty five on slide 10. In both Chemicals and Refining, we expect utilization rates to be in the mid-90s. In refining, we expect turnaround expense to be between 65,000,000 and $75,000,000 We anticipate corporate and other costs to be between $340,000,000 and $360,000,000 Now we will move to Slide 11 and open the line for questions, after which Mark will wrap up the call.

[Operator]

Thank you. 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. If you have a question, please press star then one on your touch tone phone. If you wish to be removed from the queue, please press then 2.

[Operator]

Our first question today comes from Doug Leggate with Wolfe Research. Please go ahead, Doug. Your line is open.

[Doug Leggate, Managing Director - Senior Research Analyst at Wolfe Research]

Thanks. Good morning or good afternoon, everybody. Thanks for taking my question. I guess it is still morning, sorry. Mark, obviously, there has been a lot of dialogue, lot of backwards and forwards between yourselves and Elliot regarding the right structure for the business.

[Doug Leggate, Managing Director - Senior Research Analyst at Wolfe Research]

I guess my question is, I had an opportunity to chat to you about this a month or so ago. And our understanding at least is you guys have looked at a lot of these proposals before and made decisions that are perhaps different. I wonder if you could share the extent of which you did look at some of these ideas that they're putting forward, for example, separating the midstream and and kind of rationalize why you came to a different outcome? Think everyone would would probably like to hear your perspectives on that. I've got a quick follow-up, please.

[Mark Lashier, CEO & Chairman at Phillips 66]

Sure, Doug. I I I welcome that question. And I think when we're talking about strategic alternatives or the strategy that drives the company forward, it really is important to understand the mindset of our board. And we've got a strong board. We've got talented board members that have deep experience.

[Mark Lashier, CEO & Chairman at Phillips 66]

Many of them have deep experience in refining and energy. And they have high expectations for us when it comes to, preparing and delivering strategic alternatives for them. And they expect a very detailed, intelligent overview of all the options available, and they want to fully understand the risks and the unintended consequences of any strategic actions that we might recommend. In fact, they wanna understand the risks and the unintended consequences of not making strategic actions as well. So it's very comprehensive, and it's not just some simple high level spreadsheet that they might rubber stamp.

[Mark Lashier, CEO & Chairman at Phillips 66]

They are, I would I would put them in the classification of brilliant. They ask tough questions, and they us deeply accountable. And my experience with the board really goes back to when I came back to Phillips sixty six in 02/2021, and I was asked to prepare the strategic materials for our our fall deep dive into strategy. And what we did is we took the board through scenario planning because if you remember back in '21, all the rates was net zero twenty fifty. And so we we span the whole spectrum from net zero twenty fifty to a scenario where the world realized that there was a strong need over the long term for hydrocarbons, and we established milestones to track.

[Mark Lashier, CEO & Chairman at Phillips 66]

And this analysis informed our strategic alternatives that then we did a deep dive on with with the board members. And and we've reviewed all of those options and refreshed our views on those options in the subsequent years. And I would say every board meeting, the board asks us strong questions around the the strategy and the implementation of the strategy. What's changed? What's new?

[Mark Lashier, CEO & Chairman at Phillips 66]

Should we should we move this way or that way? And and we talk about our stock valuation and the evolving market conditions and the strategic alternatives. And we do this every board meeting. And then in the fall, again, we'll take them into another deep dive to review what's changed since the prior year, what is our most recent view of where we stand in those in those scenarios. And and I'll tell you that one of the underlying principles of every discussion is that everything in our portfolio is for sale at the right price, But the board expects us to understand the full consequences if we should dispose of an asset or or or spin out a part of our company that they wanna understand what's the impact on the remaining assets?

[Mark Lashier, CEO & Chairman at Phillips 66]

What's the impact on the remaining company? What are the unintended consequences? What are all the financial impacts? And I'd say that some of the parts is a part of that discussion, but it's not always the total driver of that discussion. One thing that we've learned, and I believe many of you observed this as well, is that really when you talk about the multiple a company realizes in the marketplace, it's really correlated strongly with earnings volatility.

[Mark Lashier, CEO & Chairman at Phillips 66]

And that's midstream business has become such an important part of our business. It generates very steady earnings and we've grown those earnings quite quickly from right around $2,000,000,000 of EBITDA a year to $4,000,000,000 and increasing. And so if there was a spin off opportunity for that business, I will tell you that our board would be the first ones to challenge us to take a look at that, and they have challenges to take a look at that. When you step back and look at our board, you know, the people that we have on our board and the two new new nominees that we have, amongst them, they've overseen more than 300,000,000,000 in major separation transactions during their careers. You know, this includes sales and spin offs.

[Mark Lashier, CEO & Chairman at Phillips 66]

So Phillips sixty six itself was the result of a spin off. So John Lowe, one of our key members, has was involved in that, and he's one of the architects of the spin off. You know, you've got the DowDuPont, three way break up into DowDuPont and and Cortiva. Our nominee, Howard Ungerleader, he was one of the architects of that and was right in the middle of all that in the decision making there. You look at United Technologies.

[Mark Lashier, CEO & Chairman at Phillips 66]

That was a conglomerate that was was broken. It went through a three way breakup into Carrier, Otis and RTX. Greg Hayes was the architect of that. And Abbott Laboratories spin off into AbbVie. Glenn Tilton was right in the middle of that as well.

[Mark Lashier, CEO & Chairman at Phillips 66]

So I would say that few, if any, boards in this country have more experience in executing such transformational transactions than the Phillips sixty six board. They know how to do it when it makes sense, and they're challenging us every step of the way to explain to them what makes sense and what doesn't make sense. And, you know, when I mentioned the split up of United Technologies, a con conglomerate. That word's been used in the same sentence as Phillips sixty six. And the first time I heard that, I thought, well, I thought I knew what a conglomerate was, but I better look it up to be sure.

[Mark Lashier, CEO & Chairman at Phillips 66]

When I looked it up, there was nothing there that resembled Phillips sixty six. We are a hydrocarbon transporter and processor. We gather and transport hydrocarbons from the oil fields or from imports, and we move those to our transportation assets, and we convert those materials into high value products that you use every day. And whether it's the crude value chain or the NGL value chain, it's very synergistic, and we're in the business of managing molecules, optimizing them every day. And if you look at what we have down at our Sweeney complex, all of those value chains come together in a deeply integrated way, whether it's the fractionators where we've got we've got massive fractionation capacity.

[Mark Lashier, CEO & Chairman at Phillips 66]

We've got we've got 260,000 barrel per day refinery, 550,000 barrel per day fractionation capacity. There's three ethane crackers on that site owned and operated by CPChem. We've got 37,000,000 barrels of capacity in 23 salt dome caverns at our Clemens Dome, and we've got direct access to Freeport export terminals. And we leverage that in that infrastructure. We leverage it in an integrated way every day, moving the molecules where they can create the most value.

[Mark Lashier, CEO & Chairman at Phillips 66]

And we've got a commercial organization that trades around that information every day. So there is no no hint of conglomerate in what we do. And if you look at if you look at the potential to spin off businesses, the board also asked us to bring in third parties to get a cold eyes review of what we do. And we've hired, you the best investment banks out there to look at strategic alternatives. And when you look at the midstream organization specifically, the third party independent analysis will tell you that there are incredible dis synergies based on that deep physical integration, that there's massive tax burden that any spin would realize and that there are just economies of scale.

[Mark Lashier, CEO & Chairman at Phillips 66]

We've got a very strong balance sheet as as an integrated company. The balance sheets of RemainCo and SpinCo would be would be impaired compared to what we have today. You throw additional SG and A on those remaining businesses. And the public company costs, you know, none of these things are fully reflected in a simple sum of the parts analysis. And so we take that into account, and we make sure that our board understands every step of the way and is verified by independent parties.

[Mark Lashier, CEO & Chairman at Phillips 66]

And then if you look at just you know, you you just heard in our narrative that, you know, the accomplishments we've had over the last three years, the board was front and center in all those decisions. We took bold actions to to make sure that we were in position to be successful over the long term, the 3 and a half billion dollars of non core assets. The only way we could define non core assets is to have a well defined strategy that was blessed by our board. That's how we define what is core and what is noncore. We expand our NGL wellhead to market strategy with the Pinnacle and Epic acquisitions fully supported by our board.

[Mark Lashier, CEO & Chairman at Phillips 66]

We sold the Alliance Refinery. We converted Rodeo, and we have planned to cease the Los Angeles Refinery. Every one of those major strategic actions have been deeply considered, vetted, and approved by our board. In refining operations, we've improved we've improved utilization, we've raised clean clean product yield and reduced operating costs over the last three years, and we have plans for further progress. Again, part and parcel of our conversations with our board every time that we meet, every action that we take.

[Mark Lashier, CEO & Chairman at Phillips 66]

And because of all these actions that we put in place with the blessing of our board, we believe there's substantial upside to our stock as we implement our 2027 strategic priorities. And we're going to maintain operational excellence, We're pursuing disciplined growth, and we're returning capital and ensuring financial strength. And I just finally the final point I want to make, be crystal clear on is we're making these strategic decisions at the board level, as we're making operational decisions at the operating and the management level, we are focused on data. We are focused on facts. We don't act out of fear or short term trends.

[Mark Lashier, CEO & Chairman at Phillips 66]

We act on what we believe will create the most long term value for our shareholders each and every time. And I will tell you that since the activists launched their campaign in February, the investor sentiment around their thesis has become more and more negative, and they become more and more positive around the process that or the progress that we've made in our refining in all of our businesses. And so we believe we're in a strong position. We're committed to it. And we're going to base it on data and facts going forward.

[Mark Lashier, CEO & Chairman at Phillips 66]

So Doug, thank you for that question. And I look forward to your follow-up.

[Doug Leggate, Managing Director - Senior Research Analyst at Wolfe Research]

Well, I think first of all, Mark, thanks for the thorough answer. I think I've taken enough time. I want to be respectful to my sales side colleagues. I'll I did have a follow-up, but I'll pass it back. Thanks so much for the answer.

[Mark Lashier, CEO & Chairman at Phillips 66]

Thanks, Doug.

[Operator]

Thank you. The next question comes from John Royall with JPMorgan. John, please go ahead.

[John Royall, Executive Director at JP Morgan]

Hi, good morning. Thanks for taking my question. Tough to follow that back and forth, but maybe go with a balance sheet question. So you're remaining well above your target at 38%. You got the big turnaround quarter for the year in the rearview and you also have a potential asset sale coming, which is good.

[John Royall, Executive Director at JP Morgan]

But also the macro environment remains uncertain. So my question is, what do you view as your path to getting back to 30%? And does the path include maybe buying back a little less stock than your framework would otherwise imply?

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Yes. John, it's Kevin. Let me respond to that question. It's a very valid question. It's one we put a lot of focus on.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

We have targets on leverage, the 30%. The real target that I focus on is the $17,000,000,000 absolute debt level. That's what I'm and the 30% becomes an output because it's a measure of debt and equity as you know. And so our expectation is that between the cash that comes in from disposition of assets and some improvement in the overall operating environment from where we were in the fourth quarter and the first quarter combined with in refining now being very well set for the remainder of the year to run at high utilization and you combine that with some margin recovery, which we have seen. As you look into April, we're seeing margins that are sort of $3 to $4 per barrel higher than where we were on average in the first quarter then that should position us quite well in terms of being able to make progress on debt reduction.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

I'd love to hit that $17,000,000,000 number by the end of this year. I can't guarantee that will happen. It will be dependent on where operating cash flow comes out. But the overlay here is we're still committed to the 50% or more cash returns to shareholders, in terms of operating cash flow. So that's the sort of basic criteria around returning cash to shareholders fifty percent or more of operating cash flow and at the same time through hopefully strong cash generation and proceeds from asset dispositions be able to make progress on debt reduction.

[John Royall, Executive Director at JP Morgan]

Great. Thank you, Kevin. And then my next question is on renewables. This was a little bit of a noisy quarter with the PTC coming into effect mid quarter. Can you help us really as detailed as you're willing to be on what the post PTC world kind of looks like in your renewables business?

[John Royall, Executive Director at JP Morgan]

If you could give us any kind of sense for maybe the proportion of production that's eligible and how much you expect to receive on a per gallon basis based on your current feedstock slate that would be very helpful. Thank you.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Yes. John, let me first just clear the first quarter result because that was a it was somewhat of a messy result to be honest. And let me just walk through what drove that and then Brian will give a bit of the sort of forward expectations around it. So we had a significant drop from fourth quarter to first quarter. The transition from BTC was a significant impact.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

It was the largest driver of that drop. But we also had LIFO inventory impacts from drawing down low CI feedstock inventory where the LIFO rate exceeded market prices. That was about a 60,000,000 hit in the first quarter. And then also in international, the recognition of The U. K.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Credits, these are the RTFC credits is not ratable. So we recognize about $50,000,000 of those in the fourth quarter. We did not have any credit recognition in the first quarter. And so when you put all those things together, you get back to why the result was where it sits. So maybe Brian can give a forward look.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

Yes. So I would say, it's hard to provide guidance for Q2. And you can tell I'm losing my voice, so I'm going try as hard as I can. But with so many outstanding policy issues, including the tariffs and the RVO for RINs that hasn't been set yet, It's difficult, but we believe the RVO will need to strengthen the D4 RIN or the biodiesel RIN to continue to provide an incentive for RD production. And margins continue to be challenged even in April and the current market has us running the plant at reduced rates.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

And in terms of tailwinds, there are some tailwinds we were seeing biodiesel plants closing given the tight margins. And we've also seen demand for renewable diesel permitting and that's a seasonal firming of demand. And finally, we look forward to collaborating with the administration to support U. S. Manufacturing by addressing the unintended consequences of tariffs on feedstocks given international RD imports to The U.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

S. Are untariffed with which disadvantages domestic producers like Rodeo.

[John Royall, Executive Director at JP Morgan]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Roger Read with Wells Fargo. Roger, please go ahead.

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

Yes. Thank you. Good morning. Maybe just to kick this off, update on where you are on kind of final asset dispositions. I think there's still some stuff in retail, maybe something in the midstream space.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Yes, Roger. It's Kevin. So as you know, we've done $3,500,000,000 of dispositions to date. So we're ahead of the target that we laid out, back in almost a couple of years ago, guess. The major item we're still working is the Europe retail, so the JET Germany, Austria.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

That is a very active process. And I know I've said this several times, but we are legitimately in in-depth negotiations, on that and hope to have some updates soon.

[Mark Lashier, CEO & Chairman at Phillips 66]

Yeah. As far as this is Mark. As far as other asset dispositions, we have other assets that we would define as non core, non operated assets. Many of them are in the midstream. We're not we're not going to name any specific assets, but certainly, we're we're we know what what the value of those assets are and we know that there are potential buyers out there.

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

And as a follow-up on that, how should we think about the use of cash flows or cash raised, I guess, maybe I should say, from those asset sales at this point? Do you see it, Kevin, as you were talking earlier in terms of return of capital to shareholders? Or is most of this targeted for debt reduction?

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

I would expect most of this to be debt reduction and think of the the cash returns to shareholders being the relative to operating cash generation. So different, you know, different part of the cash flow statement driving the cash returns.

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

Okay. And then if I could just toss in one more that didn't count as my, my follow-up, Jeff. I apologize if I'm I'm violating the rules. But heavy maintenance q one in refining, very low in q two. Were you essentially wrapped up as we started q two?

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

Or is there a little lingering into q two that we should think of within that mid nineties guidance?

[Richard Harbison, Executive Vice President of Refining at Phillips 66]

Yeah. This is Rich, Roger. Thanks for the question. You know, the q q one was the heavy concentration of of the turnaround activity, and you can tell by the guidance that we provided for the second quarter there that the there there is a little bit of linger that comes from quarter to quarter, but it it's certainly winding down in the second quarter. And you you see that in the in the overall guidance.

[Roger Read, Senior Energy Analyst at Wells Fargo Securities]

Good. Thank you.

[Operator]

Thank you. The next question comes from Manav Gupta with UBS. Please go ahead. Your line is now open.

[Manav Gupta, Executive Director at UBS Group]

Good morning, team. Can you help us better understand how some of these LPG exports will have to reset to accommodate around tariffs? Because I think you were sending like 48% of our ethane to China and about 22% of propane to China. So how do these NGL exports now reset globally to work around the tariffs?

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

Manav, this is Brian. I'd say, like you said, the majority of China's LPG supply, which is primarily propane, comes from The U. S. Tariffs will likely alter those routes for Chinese supply. It's possible that China could get their supply from the AG, from Australia, from Southeast Asia.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

And then The U. S. Will just supply will backfill the hole left by those regions, just rerouting trade flows And maybe bringing it back to our assets, our Freeport LPG is mostly termed up, and we haven't seen any FOB cancellations for cargoes. We also have a strong international trading team and that they manage deliberate cargoes, which allows us to capture additional value and optimize the Freeport exports when we see changes to fundamentals or when we have market dislocations like those caused by tariffs.

[Manav Gupta, Executive Director at UBS Group]

Perfect. My quick follow-up here is on the polyethylene chain margin. It was weaker even before the tariffs were announced. And again, some portion of polyethylene resin definitely moves to China, made into products and sold back into U. S.

[Manav Gupta, Executive Director at UBS Group]

Those flows cannot be sustainable with the tariffs. So your medium term outlook for the polyethylene chain margin here?

[Mark Lashier, CEO & Chairman at Phillips 66]

I think that there certainly is pressure from the tariff situation, purchasing decisions, they are going to be impacted. I do believe that CPChem has minimized their exposure to China And they've also they've got the ability to source material from The Middle East similar to to the propane discussion, and so they there would be rebalancing. But but, no, it is certainly that you know, clear that tariffs do. The uncertainty around tariffs causes people to slow down their decision making. You see that across the economy.

[Manav Gupta, Executive Director at UBS Group]

Thank you.

[Operator]

Thank you. The next question comes from Neil Mehta with Goldman Sachs. Please go ahead, Neil.

[Neil Mehta, Analyst at Goldman Sachs]

Yes. Thank you. Appreciate the thorough answer to the question around some of the parts. Kevin, I had a follow-up for you around the midstream side of the equation because that's where I think there's been a lot of focus around you've built a good business, but it makes sense to try to monetize it. And I think you made a comment that there's significant tax leakage around monetization.

[Neil Mehta, Analyst at Goldman Sachs]

Is that in the case of the spin as well? And then can you provide a little bit more detail or help us quantify framework for thinking about tax leakage associated with midstream monetization?

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Yeah, Neil. That, the the tax hit is in the context of a sale of the business. A spin off you would expect would be structured in a tax free manner. And so, I would expect minimal tax implications from a spin. But in in terms of an actual disposition of the business, it is significant tax effect because the majority of those assets were constructed or acquired during a period where we had accelerated depreciation.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

So the tax basis is extremely low. So just to put some context around that, you can depending on what number you use for valuation and there's a $50,000,000,000 number that's out there that would drive a $10,000,000,000 tax, hit, to sort of quantify what we mean by significant tax impacts.

[Neil Mehta, Analyst at Goldman Sachs]

Got it. And there's no clear offsets that you could put against that it sounds like?

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Not that I'm aware of.

[Neil Mehta, Analyst at Goldman Sachs]

Okay.

[Neil Mehta, Analyst at Goldman Sachs]

All right. And then the follow-up for the team is really on the refining side. It's obviously challenging conditions in Q1, but you guys are going to be running better here in Q2. Just love your thoughts on the path back to mid cycle. And one of the factors that's suppressing profitability has been the tightness of WCS.

[Neil Mehta, Analyst at Goldman Sachs]

Just how do you guys see that moving from here as we work through turnaround? And can that be a tailwind?

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

Neil. It's Brian. I'll try to get this out just on market outlook. And maybe the caveat is geopolitics and the slowing economy make everything hard to predict. But what we've seen, Kevin's mentioned is The U.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

Margins in April are firming a good bit and you can see that in our market indicator. We're estimating about 1,000,000 barrels worth of the global refining capacity shutting this year, and most of that rationalization will be in The US and in Europe. And in fact, if you look out through the end of the decade, we only show about 300,000 barrels a day of net additions per year, and we're likely to see that number to continue to decrease. But on gasoline, we're forecasting global gasoline demand to be about 05% up for the year and U. S.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

Gasoline demand to be up about 1%. If you take a look at first quarter, that was 1.1% year on year growth in The U. S. Lower pump prices, good unemployment numbers, less working from home all contributed to that strength. U.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

S. Gasoline inventories are now currently at about five year averages. And our current gasoline supply outlook is for those inventories to continue to tighten, particularly as we get in gasoline season and particularly in The U. S. On the distillate side, we see demand globally up about 1% and in The U.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

S. Up about 2% for the year. Part of the demand increase will come from lower biodiesel and renewable diesel production driven by the weaker renewable margins. And also there's a shift to Mediterranean eco fuel in May, which will help. U.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

S. Diesel inventories are really sitting at very low five year seasonal lows in part due to kind of ongoing maintenance, both in the Gulf Coast and in the Mid Con. And then finally on jet, at 1Q twenty five global jet demand was up about 2.3% year on year. We're forecasting 2025 global jet demand to be up 2%. I know a lot of the airlines have talked about they can't predict for the rest of the year.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

And in some ways, if you think there's going to be a recession or more tariffs, the bets are off. But this is if you don't think those things are gonna happen, this is kind of our view. And we're starting to see trimming of of near month flights, so it's really hard to tell. US jet demand, 1.4% up. That's from fleet and flight schedule growth.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

Again, it's very, very difficult to tell. And then on the you mentioned on the Canadian differentials. In Q2, we anticipate about 358,000 barrels a day off the market, mostly driven by planned maintenance at production facilities. And then as you kind of look across the year, we see differentials start to widen out. You'll get the seasonal benefit of diluent in the product.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

And also, you'll get more OPEC barrels on the market, which will also help weaken the heavy differentials.

[Neil Mehta, Analyst at Goldman Sachs]

That's all great color. Thank you so much.

[Operator]

Thank you. The next question comes from Theresa Chen with Barclays. Please go ahead, Theresa.

[Theresa Chen, MD - Equity Research at Barclays]

Hi. I wanted to go back to the NGL conversation. There are some material circulating about a carve out for NGLs within the Chinese reciprocal tariff. Do you have an early view on this, especially for ethane? And in the event of additional downside volatility for NGL prices in The Gulf Coast, how is your business positioned within the backdrop of potentially lower LPG arbs, frac spreads, and POP margins in processing?

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

Well, I think, first of all, most of our business is termed up at the Freeport facility. And as I mentioned, we're not seeing anybody canceling any of those term contracts. I think a lot of the most of the ethane for China comes from The US, and we would we've seen that still moving. We expect it to continue to move. So I don't think that would really have an impact on our business

[Mark Lashier, CEO & Chairman at Phillips 66]

going forward? Yeah. I think, Chris, at a high level, there's few other options for the Chinese that are consuming ethane. And so I think that it's clear that there are at least possibly some rational discussions going on around tariffs. It's all maybe rumor and speculation at this point, but hopefully those discussions move in a rational direction because the Chinese need access to US propane and ethane, and so it's in their best interest to seek that accommodation.

[Theresa Chen, MD - Equity Research at Barclays]

Got it. And related to the FID of Iron Mesa, would you be able to quantify the cost? And is this plant the first of maybe several plants to increase the Y grade under your control, especially in light of a competitor building out their own frac and dock infrastructure later this decade that maybe creates a volume shortfall in Sweeny and Freeport?

[Don Baldridge, Executive VP of Midstream & Chemicals at Phillips 66]

Theresa, this is Don. I mean, it continues, I think, really just to demonstrate the progress we're making in building out our NGL value chain. And it does support our Permian GNP growth and position in terms of barrels coming out of our own gas plants. From a investment standpoint, it's a typical midstream return with a from a build multiple, kind of a sub five times type size. You know, a little bit maybe to unpack Iron Mesa, it's it's gonna be located near our Goldsmith facility.

[Don Baldridge, Executive VP of Midstream & Chemicals at Phillips 66]

And so that really provides us with several benefits. We you know, we'll be able to retire portions of our Goldsmith facility, upgrade the processing. That's gonna improve our operational efficiencies, our reliability, reduces our environmental footprint, improves our cost structure in that area. So we'll get an immediate uplift on the existing throughput that we have there as we'll load this plant first. And then from a location perspective, given our pipeline network in that area, we'll be able to process and bring gas from both the Midland and the Delaware basins to this facility.

[Don Baldridge, Executive VP of Midstream & Chemicals at Phillips 66]

And this facility will be tied into our Sand Hills NGL system. And so it I'd expect us to continue to be successful commercially from a gathering and processing standpoint. We have opportunities then to continue to grow our GMP footprint organically like this, whether that's a partial upgrade of existing facilities as well as just expansion. All of that is helpful for our overall NGL value chain. And maybe just to step back and think about it from a broader context, with this plant and then the two plants in the Midland Basin, the Dos Pikos and Dos Pikos 2, that's about to turn on later this year, we all have added close to 800,000 a day of gas processing capacity.

[Don Baldridge, Executive VP of Midstream & Chemicals at Phillips 66]

That produces over 100,000 barrels a day of NGLs to feed our system. So really making good progress as we grow out the system. So we feel good about where our footprint is going and, again, what our supply outlook for Sweeny is.

[Theresa Chen, MD - Equity Research at Barclays]

Thank you.

[Operator]

Thank you. Our next question comes from Jean Ann Salsbury with Bank of America. Please go ahead. Your line is now open.

[Jean Ann Salisbury, Managing Director at Bank of America]

Hi, good morning. I think many midstream investors don't own PSX stock because of the volatility of the earnings of the other segments. Is that your view as well? And given your answer to Doug's question, which I think suggested you were not that interested in the spin, what other things can PSX do to get fuller credit for the stability of the midstream earnings in your stock?

[Mark Lashier, CEO & Chairman at Phillips 66]

Yeah. Jean Ann, that's that's a great question. And I think I I touched on that earlier that, you know, we're we're in the process of growing those earnings. I think, really, we we weren't recognized as a strong midstream player per se until earlier this year when we announced the EPIC transaction. And so as those stable earnings become a bigger and bigger part of our portfolio, I think those seeking that that that multiple from stable earnings will will take note.

[Mark Lashier, CEO & Chairman at Phillips 66]

And across the spectrum of investors, we're getting solid feedback and support for that.

[Jean Ann Salisbury, Managing Director at Bank of America]

John, just to

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Yeah. I was just going to add on a little bit there in terms of we will continue to look at our disclosures and the information we provide around the midstream segment and enhance where appropriate. And as the midstream business grows, the part of the narrative is that the refining business, yes, has volatility, but it also provides a lot of nice upside from a cash generation standpoint and returns to shareholders. And so that's where I see that value proposition that you've got that, large stable midstream business supplemented by the upside that comes with the refining and marketing business.

[Jean Ann Salisbury, Managing Director at Bank of America]

Great. I'll leave it there. Thank you.

[Mark Lashier, CEO & Chairman at Phillips 66]

Thanks, Jean Ann.

[Operator]

Thank you. Our next question comes from Joe Lache with Morgan Stanley. Please go ahead, Joe.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

Hey, team. Thanks for taking my questions.

[Joe Laetsch, Analyst at Morgan Stanley]

I just wanted to ask on shareholder returns. With the dividend increase a few days ago, the stock is yielding just north of 4.5%, which is above refining peers. Could you just talk through the balance between raising the dividend and leaning into buyback given where shares are trading?

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Yes, Joe. It's the dividend, our principles there are secure, competitive and growing. And the reason for the growing is we do have investors that are clearly dividend investors and one of their criteria is a dividend that increases on an annual basis. And so you can expect to see us increase the dividend every year. It was a relatively modest increase.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

It was $05 4 percent, smaller than some of our more recent increases have been. But we felt appropriate in the overall context of the business environment that we're in today. And so therefore the real upside from a shareholder return standpoint is going to be in share repurchases. And as you see operating cash flow increase then that increases the I go back to the 50% of operating cash flow returned to shareholders. The dividend is easy to get to compute, but so is the share repurchases at the 50% and potentially above level depending on where we are and other priorities including balance sheet.

[Mark Lashier, CEO & Chairman at Phillips 66]

Yeah. And Joe, when you look at the combination of share repurchases and our dividend, gross dividend outlay has remained pretty stable because the shares are declining. And so it's it's it really is almost needed to catch up, and and and we're taking advantage of that. So think about that gross that that overall dividend outlay as as relatively constant, and then share repurchases are the swing item that can grow even faster than the dividend when the cash is there.

[Joe Laetsch, Analyst at Morgan Stanley]

Great. Thanks. That makes sense. And then the other question that I had was around refined utilization in in first quarter, which came in a little bit light versus what we, I think, obviously, have been expecting based on the low 80% guidance. Was that economic driven, was that always part of the plan?

[Richard Harbison, Executive Vice President of Refining at Phillips 66]

Yeah. This is Rich. So our guidance was, low eighties for the quarter. There was, certainly a a heavy focus of that was of that downturn was related to the turnaround activity. And our turnaround activity was heavily focused on crude units as well for the quarter.

[Richard Harbison, Executive Vice President of Refining at Phillips 66]

So that was a big impact, especially in the Atlantic Basin. We had turnaround at the Bayway facility and the Gulf Coast. Both our refineries in the Gulf Coast had turnaround activity at Lake Charles and Sweeney, and then so did Wood River and Borders. So so the those utilizations were were were down quite a bit. That that all said, there those were the majority and the major components of the downturn in the utilization.

[Richard Harbison, Executive Vice President of Refining at Phillips 66]

There were some minor market adjustments as well made through the year, primarily in the January and February time frame. So those were relatively minor, call them a point, a point, maybe two, point and a half on the overall utilization for the quarter.

[Joe Laetsch, Analyst at Morgan Stanley]

Great. Thanks for taking my questions.

[Operator]

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

[Matthew Blair, Managing Director at TPH&Co]

Thank you and good morning. I have a two parter on M and S. First, should we expect a pretty considerable tailwind to your Q2 M and S results from the falling crude price environment? We do track a retail indicator that's looking quite strong in the second quarter. I know your wholesale business is a little bit different, but what are your expectations on M and S for the second quarter?

[Matthew Blair, Managing Director at TPH&Co]

And is there a big pickup in line? And then second, every company reports things a little differently. And I think there's an argument to be made that Philips refining results are a little different than your large cap peers because your U. S. Wholesale activities are in M and S and not in refining.

[Matthew Blair, Managing Director at TPH&Co]

So my question is, could you help us understand roughly what percent of M and S EBITDA and op costs are related to those wholesale activities so we can look at things on a little bit more of an apples to apples basis? Matthew,

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

it's Brian. I'll start and then Kevin can take over. I think you're right. When prices are falling, it's usually somewhat beneficial for marketing. Just to give you a little bit of color, we're seeing a stronger April margins.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

And our view is barring anything significant slowdown in the economy or something like that, we would expect a seasonal uptick in Q2 earnings or margins consistent with prior years.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Yeah. Matt, it's Kevin. And just on the second question, we don't break out our results by channel of trade, which is what you're referring to. Our marketing and specialty segment covers the wholesale business. It also covers the retail to the extent we have retail.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

But the bulk of that business is a wholesale model. And so it's you know, we don't have a breakout of the EBITDA or the costs. The costs are relatively low when you think about the company owned retail business is going to have a higher cost structure, for sure. But it's not something that we're breaking out at that channel of trade level.

[Matthew Blair, Managing Director at TPH&Co]

Thanks. I'll leave it there.

[Operator]

Thank you. Our next question comes from Ryan Todd with Piper Sandler. Please go ahead.

[Ryan Todd, Senior Research Analyst at Piper Sandler Companies]

Great, thanks. Maybe just one follow-up on some of your earlier comments on renewable diesel. Outside of macro backdrop, which is obviously very noisy, as we think about the first quarter and into the second quarter, can you talk about maybe some of the challenges that you had optimizing things from a feedstock point of view in the first quarter because of the timing of some of the announcements? And as you look into the second quarter and then maybe I don't know if you said this earlier, but do you have a rough estimate of maybe what percent of the products you were able to book credits under in the quarter? And as we think into the second quarter, how will both

[Ryan Todd, Senior Research Analyst at Piper Sandler Companies]

of those

[Ryan Todd, Senior Research Analyst at Piper Sandler Companies]

things change and be a potential tailwind for you this quarter?

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

Yes. Maybe I'll start and others can join in. I would say, like everybody, if you don't understand the rules of the game, it makes it more more difficult to play in the game. And the PTCs were it was kind of not completely known. We at that time, we we didn't have we had PTC value for imported used cooking oil, and now we don't.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

And so we made some decisions early on between the end of last year and beginning of this year that were suboptimized, frankly, given our view of what the what the credits would be and how they how they turned out and some of the sanctions. So I think going forward, we'll have maybe a clearer view. We still don't have a complete view of the PTCs. We think that'll come in June or July with the tax bill. We talked about the RVO proposal.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

We expect to come at the May, but not for implementation until Q3. So we're looking forward to that. The good news is, I think, ag and oil are aligned that we need to increase the RVO make up for some of the credit value that we lost in the BTCs. And then LCFS is also up for debate. We think by the June, we'll have some more clarity on that.

[Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66]

So the more clarity we have on the credit values and how they work, then we'll be able to run the plans and and more focus will be on finding the right feedstock to make the right product.

[Ryan Todd, Senior Research Analyst at Piper Sandler Companies]

Great. Thank you.

[Mark Lashier, CEO & Chairman at Phillips 66]

Thanks, Ryan.

[Operator]

Thank you. Our next question comes from the line of Paul Cheng with Scotiabank. Paul, please go ahead.

[Paul Cheng, Analyst at Scotiabank]

Hey, guys. Good morning or good afternoon. Mark, I think it can easy maybe for investors, it's a little bit easier to understand the integration benefit on the midstream to the rest of your business. Maybe it's a little bit more difficult on the chemical. Even CPCam is a joint venture and they won't they run by their own board and their own management and in theory that all transaction between you and CPCam should be in arm's name.

[Paul Cheng, Analyst at Scotiabank]

So maybe you can help us understand a little bit better why I mean, though you have a quick asset, why that is important for them to be part of the portfolio and what up synergy or that integration benefit you can receive from there?

[Mark Lashier, CEO & Chairman at Phillips 66]

Yeah. I'm all glad to take that on. When you look at CPChem, first of all, the model has been great. For the last twenty five years, it's grown faster and more profitably than their competitors. It's been a great return on capital employed business.

[Mark Lashier, CEO & Chairman at Phillips 66]

It's thrived and done quite well. And and we've sat across the table from our partners, each of us expressing our undying love for the the company and interest in owning all of it if the other is interested in in parting from it. And so I think that there is a great operational synergy, between, CPChem and Phillips sixty six as an NGL provider and as an asset operator around the Sweeney Complex where there's a very heavy presence of CPChem, whether it's the storage facilities at the Clemens Terminal, the physical location and streams going back and forth between the assets. Yes, there is an arm's length agreement, but all of that happens quite seamlessly. Now I would say if if Philips owned those a %, it would there would be even greater synergies to capture.

[Mark Lashier, CEO & Chairman at Phillips 66]

But being a 50% owner and being deeply colocated and physically integrated, there there are significant advantages there. And there those represent substantial assets. You've got three, three of their Gulf Coast crackers right there in the Sweeney complex embedded and deeply integrated. And so it is real, and it and it happens every day. And if it was and if it was truly an independent separate entity, there would be more frictional losses in in making things happen over time and less, I think, direct level of financial integration.

[Mark Lashier, CEO & Chairman at Phillips 66]

So there's benefits both ways.

[Paul Cheng, Analyst at Scotiabank]

Okay. Great. The second question I think is for Kevin. Just curious that, I mean, with all the volatility create given the Trump administration economic and tariff policy, should Philip sixty six day visit or what is the cash balance that you really want to keep on on the book as well as what is the debt to capital ratio and your payout ratio. To be quite frank that with higher volatility, should you have a high of a payout ratio still going to pay out more than 50% or should you prioritize and get the debt to be lower than what you even say pocket at 17,000,000,000 at least that for until maybe that the volatility become perhaps a little bit lower and the result recession become less.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Yeah. Paul, it's all about balancing the different priorities. And, you know, there there is a lot of uncertainty in the out there right now. But the point is it is uncertainty, and we don't know exactly which way this will play out. So we don't want to make any any dramatic decisions around that.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

And we think that the way we've set our prioritization is very measured and balanced to where it's it works in a in a low cycle environment or a more volatile environment and it works in a more robust environment as well. The 50% payout ratio is relatively modest. We do have cash from asset dispositions. And from a balance sheet standpoint, the cash at the end of the quarter was $1,500,000,000 We've tended to run around about that somewhere between $1.5 and 2,000,000,000 to $2,500,000,000 at the end of most periods. Would it be nice to have more?

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

Yes, but it's perfectly adequate. There's a natural cycle over the course of the month anyway. The end of the month, the end of the quarter tends to be a relatively low point in that cycle. We have significant liquidity facilities that we can draw on as necessary. And when we need to, we do.

[Kevin Mitchell, Executive VP & CFO at Phillips 66]

But we just we look holistically at what that balance sheet needs to look like and feel that at the $17,000,000,000 level, when you consider that midstream with a pretty stable, very stable $4,000,000,000 of EBITDA, the marketing business also with stable EBITDA in the order of 2,000,000,000 that supports that debt, that supports the leverage at a modest ratio. And so that's how we think about it in terms of leverage ratio. Leverage ratios relative to the different business segments we operate in. So we expect to have a debt level that can be supported by the more stable cash generating businesses and think of the refining business and the chemicals business as being debt free from a Phillips sixty six balance sheet standpoint.

[Operator]

Thank you. This concludes the question and answer session. I will now turn the call over to Mark Lazier for closing comments.

[Mark Lashier, CEO & Chairman at Phillips 66]

Thanks for all of your questions. Less than three years ago, we embarked on a transformative strategy. We've divested multiple non core assets at attractive multiples, strengthened our NGL value chain and rationalized our refining portfolio. We improved refining operational reliability and reduced refining controllable costs, all while returning over $14,000,000,000 to shareholders. Looking forward, we will deliver significant value through our twenty twenty seven strategic priorities: maintaining operational excellence, pursuing disciplined growth, returning capital and ensuring financial strength.

[Mark Lashier, CEO & Chairman at Phillips 66]

We value shareholder feedback. We're committed to maximizing long term value for our shareholders through operational excellence and disciplined capital allocation. Thank you for your interest in Phillips sixty six. If you have questions or feedback after today's call, please call Jeff or Owen.

[Operator]

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

Participants

Executives

• Jeff Dietert, Vice President-Investor Relations
• Mark Lashier, CEO & Chairman
• Kevin Mitchell, Executive VP & CFO
• Brian Mandell, Executive Vice President of Marketing & Commercial
• Richard Harbison, Executive Vice President of Refining
• Don Baldridge, Executive VP of Midstream & Chemicals

Analysts

• Doug Leggate, Managing Director - Senior Research Analyst at Wolfe Research
• John Royall, Executive Director at JP Morgan
• Roger Read, Senior Energy Analyst at Wells Fargo Securities
• Manav Gupta, Executive Director at UBS Group
• Neil Mehta, Analyst at Goldman Sachs
• Theresa Chen, MD - Equity Research at Barclays
• Jean Ann Salisbury, Managing Director at Bank of America
• Joe Laetsch, Analyst at Morgan Stanley
• Matthew Blair, Managing Director at TPH&Co
• Ryan Todd, Senior Research Analyst at Piper Sandler Companies
• Paul Cheng, Analyst at Scotiabank