Phillips 66 : Transcript Open Event Link, PDF file, June 24, 2025,

Published: 2025-06-25 10:26:09 ET PSX

Published on 06/25/2025 at 10:26

24-Jun-2025

Phillips 66 (PSX)

JP Morgan Energy, Power, Renewables & Mining Conference

Mark E. Lashier

Chairman & Chief Executive Officer, Phillips 66

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John M. Royall

Analyst, JPMorgan Securities LLC

John M. Royall

Analyst, JPMorgan Securities LLC

So, all right. Okay. For our next session, we're very pleased to welcome Mark Lashier, Chairman and CEO of Phillips 66. Mark has been CEO since 2022. And he's, I believe, been a lifer with the company back to Phillips Petroleum and inclusive of his time at CPChem, where he had several positions and ultimately ran CPChem prior to taking the helm of Phillips 66. So, Mark, thanks very much for joining us today.

Mark E. Lashier

Chairman & Chief Executive Officer, Phillips 66

John, thanks for having us here.

John M. Royall

Analyst, JPMorgan Securities LLC

So, let's start with probably the key topic, which is the Annual Meeting, if we can. So, you've had this highly public situation with an activist shareholder. Ultimately, you had a split board vote with two of the four board members. Two of your four nominees elected. Can you talk about how you view the outcome of the shareholder vote?

Mark E. Lashier

Chairman & Chief Executive Officer, Phillips 66

Sure, John, thanks. I think, the whole process, I think, gave us an opportunity to really dig in deeply with a broad array of shareholders, investors, and to tell our story, to bring board members in front of them, to give them an inside view to the process around what we do around strategy. So, I think it was great, good constructive feedback from shareholders.

We really appreciate the time that they took to hear our story. I think, it helped us sharpen our message and provide clarity and really double down our commitment to improve our refining performance. We've been on that journey for some time. Employees responded incredibly well during this, and I think that - and now, that we're in the process beyond the Annual General Meeting, we're onboarding three new board members. And that's going well. It's live last week, this week. And I think that they're - now they're getting an inside view of all the things that we've been talking about, all the things that we're doing.

And I believe that across the whole spectrum of our board, we consistently have board members that constructively challenges on our strategies to look at what we're doing. There's no - they know that there's no sacred cows at Phillips 66, that everything is fair game, but the numbers have to make sense at the end of the day. We've got some very experienced investors, very experienced CEOs, very experienced executives on our board that are very independent and they do what they're supposed to do. And that's challenges on our strategy. Make sure that we have the right people doing the right things and delivering long-term value for our shareholders. So, from that perspective, it was very constructive interaction with our shareholders.

John M. Royall

Analyst, JPMorgan Securities LLC

Great. My next question is on the balance sheet and kind of the push/pull between the balance sheet and returns of capital. How do you think about the balance sheet between the leverage target and buybacks in 2025 and beyond? And how much of the proceeds from the JET asset sales do you expect to allocate to debt pay-down?

Mark E. Lashier

Chairman & Chief Executive Officer, Phillips 66

Yeah, John, we're absolutely committed to returning at least 50% of our net operating cash flow to investors. And so, the first priority is our sustaining capital that's less than $1 billion, and then ensure that we're taking good care of our assets, so we can deliver safe, reliable operations over the long term. And then our $2 billion in dividend. Beyond that, we've got opportunities for share repurchases, growth capital and balance sheet.

And when you think about the balance there, we've - we say that we're going to be zeroing in our capital budget to the $2.5 billion. And so, you take $1 billion out. So, we got about $1 billion to $1.5 billion in growth CapEx. So, we think there's plenty of room for share repurchases and balance sheet, getting our balance sheet in shape.

Now, from an ongoing operating cash flow perspective, we'd like to see refining margins be a little more robust to get to that $17 billion number. But the proceeds from selling 65% interest in our JET assets in Germany and Austria, that'll close the second half of this year. And after tax, we should see about $1.5 billion come in from that. That's all going to debt pay-down. So, that'll be a big step towards our goal of getting down to $17 billion.

And really the way we think about debt, we like to think that, look, refining, I think, that there's a lot of incentives for a refining business to be debt-free. We have a Midstream business that and a Marketing business. When they're combined, they generate very consistent earnings of about $6 billion. And when you put a conservative three multiple on those - on that EBITDA, you've got capacity just from those two businesses to easily service about $18 billion in debt. And so, we're - that's where our $17 billion target is coming from. And so, we feel like that's a very conservative balance sheet and the right place to be for now.

John M. Royall

Analyst, JPMorgan Securities LLC

Great. My next question is on Midstream. Can you talk a little bit about the organic expansion that's happening on the gas processing side with both of Dos Picos and the Iron Mesa? Do you need more gas plant capacity from here to achieve the level of integration you're looking for with the NGL value chain?

Mark E. Lashier

Chairman & Chief Executive Officer, Phillips 66

When you step back, and big picture, since we brought up DCP and if you look at what we have in flight with Dos Picos II, Iron Mesa, we'll have added about 700 million cubic feet a day of gathering, processing capacity. And we believe that we can be on a pace of about one gas processing plant a year to ensure that we have the capacity to manage the acreage commitments that we have out there. So, we like to understand that we're going to be able to load these facilities up before we put them in place. And it's a good combination with the contractual commitments we have out there from other people's gas gathering facilities.

So, Dos Picos was an opportunity that came in with the Pinnacle acquisition. They had one operating gas plant here. This is a duplicate of that, another 250 million standard cubic feet a day. That'll come online second half of this year. There is room for a third at that location and there is the capacity for that that could come out later on, because we wanted to next address opportunities out in the Midland and Delaware basins. And that's where Iron Mesa comes in. It'll be 300 million cubic feet a day. It's our largest gas gathering and processing facility. It'll be incredibly cost efficient. It addresses some reliability challenges we had at the Goldsmith plant that is in the same neighborhood. Upstream producers are thrilled to see this asset coming. It'll be on stream in 2027. And again, beyond that, we have the ability to add about another gathering and processing unit per year for the foreseeable future.

And when you look at the Pinnacle acquisition, the EPIC acquisition in particular, it's opened up frontiers for us to add the gathering and processing assets in a very efficient way that we want to add. And we can take full advantage of the competitive advantage we've created with those assets. And when you think about what we're doing in the NGL Midstream, at every step that we've done, we've leveraged the competitive advantage, whether it's the fractionators that we built at Sweeny, the storage that we leverage at Sweeny, the pipelines that we brought in from DCP, the gathering and processing assets that we've acquired have all been very synergistic with existing assets.

And then the EPIC acquisition really opened up a whole new frontier that directly integrates not only with the DCP assets in the basin, but down through Corpus Christi. And now, we've got this bidirectional freeway for NGL volumes from Corpus Christi to Sweeny up to Mont Belvieu, something that no other NGL producer can provide in terms of market access to their upstream customers. And so, we're very pleased with that.

And if you look forward, right now, we're oversubscribed on our capacity on Sand Hills. We're having to move volumes on other people's pipes. And the beauty of the EPIC transaction is there are volumes already moving through EPIC, but there are - there's two-stage expansions that are underway that we'll be able to move either capacity that we will get from our own G&P assets or from third-party G&P assets that are committed to our system. And so, we're quite full and we have control of those volumes.

And at some point in time, we believe we'll have an opportunity to add fractionation capacity either to the existing EPIC footprint down to Corpus Christi or in our Sweeny Complex, whichever makes the most economic sense at the time. So, it really is a fantastic perfect fit for us from the perspective of creating and leveraging the competitive advantages that we have.

John M. Royall

Analyst, JPMorgan Securities LLC

Great. So, my next question is on a business that I'm sure is near and dear to you, which is Chemicals. Ethane-based ethylene margins are well below mid-cycle today and they have been for some time. What are your expectations for margins for the second half of the year? And what will it take for margins to show a recovery? Is China demand the key driver or are there other drivers we should think about?

Mark E. Lashier

Chairman & Chief Executive Officer, Phillips 66

Yeah, no, John, it's - CPChem has been a great business for us. It's been around 25 years as a joint venture. It's been remarkably successful as a joint venture. It's - over the long term, it's our highest return on capital employed business, and it's grown faster and more profitably than any of its competitors. So, it's been a success by any measure. But right now, it's in one of the longest downturns. The industry is in one of the longest downturns that we've seen in 30 or 40 years, certainly, in my career. And maybe I'm an optimist, but those long downturns tend to be the preparation for a very good upswing. And we believe that will happen, because global demand continues to increase there. A lot of capacity was added based on low-cost ethane in North America, low-cost ethane in the Middle East.

We've participated in that because we believe we can be the low-cost producer through CPChem. So, we've got these assets that we're building with QatarEnergy over in the Golden Triangle and one in Ras Laffan, Qatar that will be world-class. And CPChem, even though it's a downturn, CPChem is generating on the order of $1 billion of EBITDA a year, while assets in Europe and assets in the Far East are struggling or rationalizing, shutting down. If they're not shutting down, they're bleeding cash. And so, CPChem was built for this environment and there will be a shakeout. And so, really, I think, the - China aside, I think there are two things that are going to drive the recovery, rationalization of non-competitive assets that need to go away and this continue march up into the right of demand growth in the globe.

Now, we've had some turmoil around tariffs, we've had turmoil around geopolitics this year that maybe have complicated that a bit, but again, those long-term fundamentals still exist. And we believe that the combination of the continued demand growth, rationalization and other than the assets that CPChem and QatarEnergy are

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Phillips 66 published this content on June 25, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on June 25, 2025 at 14:25 UTC.