Phillips 66 NYSE: PSX reported second-quarter 2026 adjusted earnings of $3.8 billion, or $9.41 per share, as higher refining margins, midstream volumes, marketing margins and renewable fuel credits lifted results. Reported earnings were also $3.8 billion, or $9.55 per share.
Chief Financial Officer Kevin Mitchell said operating cash flow excluding working capital totaled $4.3 billion during the quarter, while capital spending was $726 million. The company returned $887 million to shareholders, including $379 million in share repurchases and $508 million in dividends.
“Our system is operating well. Our assets are well-positioned, and the market environment is constructive,” Chairman and CEO Mark Lashier said. He said the company’s transformation has made it leaner, more agile and more focused on operating improvement, capital discipline and shareholder returns.
Balance Sheet Progress and Shareholder Returns
Phillips 66 ended the second quarter with total debt of $20.6 billion and net debt of $16.5 billion. Mitchell said the company expects net debt to fall below $16 billion by the end of 2026 using current consensus estimates.
The company has targeted reducing total debt to $17 billion by year-end 2027 and returning more than 50% of net operating cash flow, excluding working capital, to shareholders. Mitchell said Phillips 66 expects to meet the debt goal ahead of schedule and plans to increase share repurchases in the second half of the year.
During the quarter, the company repaid all outstanding commercial paper and $1 billion of its March 2027 term loan. The remaining $1.25 billion on that loan was repaid in July. Phillips 66 ended the quarter with $4.1 billion in cash and $6.4 billion in committed capacity, for total committed liquidity of $10.5 billion.
In response to an analyst question, Mitchell said the company sees a net-debt level of roughly $13.5 billion to $14 billion as a potential next target, equivalent to about $15 billion of balance-sheet debt. He said management would not make uneconomic decisions to retire debt early because of the company’s debt maturity schedule.
Refining and Commercial Operations
Refining earnings increased primarily because of stronger realized margins as market crack spreads rose. Lashier said the current refining environment differs from 2022, when a post-pandemic demand surge coincided with maintenance catch-up across the industry. He characterized current conditions as more of a supply shock, citing offline refining capacity and low inventories.
Phillips 66 captured 98% of its market indicator in the second quarter, supported by its commercial organization. For the third quarter, Mitchell said the company continues to expect refining capture of approximately 95%, in line with its historical guidance.
Executive Vice President of Refining Rich Harbison said the company is pursuing more than 200 operating-expense reduction initiatives and expects to achieve its target of $5.50 per barrel in annualized refining operating costs excluding turnarounds next year. Second-quarter operating costs were $5.57 per barrel.
Harbison highlighted projects at the Humber and Ferndale refineries. A low-sulfur gasoline project at Humber is expected to start next year, while a two-phase jet fuel project at Ferndale is expected to lift jet production to about 12,000 barrels per day after the second phase is completed next year.
Executive Vice President of Marketing, Commercial and Renewable Fuels Brian Mandell said commercial operations used the company’s physical footprint and logistics network to optimize feedstock and product flows. He said the company has expanded its time-charter freight fleet fourfold over the past two years, supporting roughly 40% of its asset-backed demand while building a third-party business.
Mandell also said Phillips 66 has received about 20% of Jones Act waivers issued since the current waiver took effect in March. He said the waivers, combined with the company’s freight position, improved its ability to optimize feedstock and product movements across refining, marketing and midstream operations.
Midstream Growth and Chemicals Outlook
Midstream results rose on higher margins and volumes, largely reflecting the absence of first-quarter Winter Storm Fern impacts. Lashier said Phillips 66 has increased fractionation capacity to more than 1 million barrels per day over the past two years and achieved average fractionation utilization above 100%. The company also recorded LPG export volumes during the quarter.
Executive Vice President of Midstream and Chemicals Don Baldridge said the company remains on track to reach a $4.5 billion midstream EBITDA run rate by the end of 2027. He cited large expansion projects, including the Iron Mesa gas plant and the Coastal Bend NGL Pipeline Expansion, as well as lower-capital optimization opportunities throughout the system.
Baldridge said Phillips 66 expects to make a final investment decision on its Western Gateway project within about a month. If approved during the summer, the project is expected to begin supplying fuel from the Mid-Continent to the western U.S. in the latter part of 2029.
Management said it is prioritizing organic midstream projects over acquisitions. Baldridge said potential bolt-on deals would need to be highly strategic and readily scalable, while the company would consider selling non-operated assets if they were worth more to other owners.
Chemicals earnings increased as polyethylene sales prices and margins rose. Lashier said market conditions strengthened during the crisis around the Strait of Hormuz before easing, and he expects chemical margins to settle around $0.14 to $0.15 per pound, below mid-cycle levels. He also said two world-scale crackers are expected to begin contributing materially in 2027.
Renewable Fuels and Near-Term Guidance
Renewable Fuels results improved on higher regulatory credit pricing and production. Mandell said the Rodeo renewable diesel facility operated at a record 106% utilization rate during the quarter and ran above nameplate capacity. He said the segment also benefited from a $47 million pre-tax mark-to-market gain carried over from the first quarter and approximately $100 million of one-time benefits, primarily tariff refunds.
Mandell said Phillips 66 updated its renewable diesel indicator to include a $0.40-per-gallon production tax credit benefit under 2026 45Z guidelines released in June. He added that regulatory-policy risks remain, including possible changes to renewable identification number generation for foreign feedstocks after next year.
For the third quarter, Phillips 66 expects global olefins and polyolefins utilization in the low 90% range and worldwide crude utilization in the mid-90% range. The company forecasts turnaround expenses of $100 million to $120 million and Corporate and Other costs of $325 million to $350 million.
About Phillips 66 (NYSE:PSX)
Phillips 66 NYSE: PSX is an independent energy manufacturing and logistics company engaged primarily in refining, midstream transportation, marketing and chemicals. The company processes crude oil into transportation fuels, lubricants and other petroleum products, operates pipeline and storage infrastructure, and participates in petrochemical production through strategic investments. Phillips 66 serves commercial, industrial and retail customers and positions its operations across the value chain of the downstream energy sector.
The company's principal activities include refining crude oil into gasoline, diesel, jet fuel and feedstocks for petrochemical production; operating midstream assets such as pipelines, terminals and fractionators that move and store crude oil and natural gas liquids; and marketing and distributing fuels and lubricants through wholesale and retail channels.
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