Phillips 66 : Transcript Open Event Link, Document, April 25, 2025,

Published: 2025-04-28 09:08:57 ET PSX

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

PSX.N - Q1 2025 Phillips 66 Earnings Call

EVENT DATE/TIME: APRIL 25, 2025 / 4:00PM GMT

OVERVIEW:

Company Summary

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Welcome to the First Quarter 2025 Phillips 66 earnings conference Call. My name is Emily, and I will be your operator for today's call. (Operator Instructions) 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.

Welcome to Phillips 66 earnings conference call. Participants on today's call include Mark Lashier, Chairman and CEO; Kevin Mitchell, CFO; Don Baldridge, Midstream and Chemicals; Rich Harbison, Refining, and Brian Mandell, Marketing and Commercial.

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. 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.

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

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 million to shareholders this quarter. 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 66 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.

Slide 4 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. 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. 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. 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 5. Midstream is critical to our integrated strategy. It's a key growth driver and creates ongoing value for shareholders. 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 66 asset base and provide long-term fee-based earnings growth.

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 ADOS Pecos two expansion plant, which was part of our Pinnacle acquisition strategy, is expected to come online in the third quarter of 2025. 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. The facility is expected to come online in the first quarter of 2027. Both of these projects are great examples of our highly strategic and selective investments at lower build multiples.

‌They contribute to our plan to organically grow Midstream run rate adjusted EBITDA to $4.5 billion by 2027. At Phillips 66, we've embraced a culture of continuous improvement and have taken decisive actions to create long-term value for our shareholders.

Slide 6 shows some of the achievements over the past three years. We have divested more than $3.5 billion of noncore assets at high multiples while making strategic acquisitions within midstream at attractive multiples to build a world-class NGL value chain.

In Refining, we are improvingcompetitiveness by optimizingour 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. 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 $0.05 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 billion 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.

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

Thank you, Mark. First quarter reported earnings were $487 million or $1.18 per share. The adjusted loss was $368 million or $0.90 per share. Both the reported earnings and adjusted loss include the $246 million pretax impact of accelerated depreciation due to our plan to cease operations at the Los Angeles refinery at the end of 2025.

The adjusted loss excludes the $1 billion pretax gain on disposition of our non-operated interest in Coop. We generated $187 million of operating cash flow and returned $716 million to shareholders, including $247 million of share repurchases. I will now cover the segment results on slide 8. Total company adjusted loss increased $307 million 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. 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. 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 9 shows cash flow for the first quarter. Cash from operations, including working capital, was $187 million. We received $2 billion from the sales of the non-operated equity interests in Coop and the Gulf Coast Express Pipeline. We paid down $1.3 billion of debt and returned $716 million to shareholders through share repurchases and dividends. We funded $423 million of capital spending. Our ending cash balance was $1.5 billion.

APRIL 25, 2025 / 4:00PM, PSX.N - Q1 2025 Phillips 66 Earnings Call

Looking ahead to the second quarter of 2025 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 million and $75 million. We anticipate corporate and other costs to be between $340 million and $360 million.

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

(Operator Instructions) Doug Leggate, Wolfe Research.

Mark, obviously, there has been a lot of dialogue, a lot of backwards and forwards between yourselves and Elliott regarding the right structure for the business. 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, separate in the Midstream and kind of rationalize why you came to a different outcome. I think everyone would probably like to hear your perspectives on that. I've got a quick follow-up, please.

Sure, Doug. 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. 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 and diligent 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 want to 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. They are -- I would put them in the classification of brilliant. They ask tough questions and they deeply accountable. And my experience with the Board really goes back to when I came back to Phillips 66 in 2021, and I was asked to prepare the strategic materials for 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 rage was net zero 2050 -- and so we span the whole spectrum from net zero 2050 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 and this analysis informed our strategic alternatives that then we did a deep dive on with the Board members.

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 asked us strong questions around the strategy and the implementation of the strategy, what's changed, what's new should we move this way or that way. And we talk about our stock valuation and the evolving market conditions and the strategic alternatives. And we do this every Board meeting.

Disclaimer

Phillips 66 published this content on April 28, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on April 28, 2025 at 13:05 UTC.