Release Date: April 25, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Phillips 66 (PSX, Financial) returned $716 million to shareholders in the first quarter, demonstrating strong capital return capabilities.
• The company completed one of the largest spring turnaround programs in its history safely, on time, and under budget, enhancing operational efficiency.
• Phillips 66 (PSX) acquired EPIC NGL, which is immediately accretive and expands takeaway capacity from the Permian, supporting long-term fee-based earnings growth.
• The company announced a $0.05 per share increase in its quarterly dividend, continuing a trend of annual dividend growth since 2012.
• Phillips 66 (PSX) has divested more than $3.5 billion of noncore assets, optimizing its portfolio and focusing on strategic growth areas.

Negative Points

• The company reported an adjusted loss of $368 million for the first quarter, impacted by accelerated depreciation and other factors.
• Midstream results decreased due to lower volumes from turnaround activity, despite higher commodity prices benefiting gathering and processing.
• Renewable Fuels results decreased due to the transition from blenders tax credits to production tax credits, inventory impacts, and lower international results.
• Phillips 66 (PSX) faces challenges in the macro environment, particularly in refining renewables and chemicals, affecting overall performance.
• The company remains above its target leverage ratio, with a focus on reducing debt levels to $17 billion, which may impact future capital allocation decisions.

Q & A Highlights

Q: Mark, can you discuss the strategic alternatives considered by Phillips 66, particularly in relation to the Midstream business and the dialogue with Elliott? A: Mark Lashier, Chairman and CEO, explained that the Board has thoroughly evaluated strategic alternatives, including the potential separation of the Midstream business. The Board, composed of experienced members, demands a comprehensive analysis of all options, considering risks and unintended consequences. The Midstream business is integral to Phillips 66's strategy, providing stable earnings and supporting the company's integrated model. The Board has significant experience in executing transformational transactions and remains focused on long-term value creation.

Q: How does Phillips 66 plan to reduce its leverage and return to a 30% debt-to-capital ratio? A: Kevin Mitchell, CFO, stated that the company aims to reduce debt to $17 billion, with a focus on improving operating cash flow and proceeds from asset dispositions. The company remains committed to returning 50% or more of operating cash flow to shareholders while making progress on debt reduction. Improved market conditions and high utilization rates in Refining are expected to support these efforts.

Q: Can you provide insights into the impact of the transition from blenders tax credits to production tax credits on the Renewable Fuels segment? A: Kevin Mitchell, CFO, noted that the transition significantly impacted first-quarter results, with additional effects from LIFO inventory impacts and UK credit recognition timing. Brian Mandell, Executive Vice President of Marketing & Commercial, highlighted ongoing policy uncertainties, including tariffs and RVO for RINs, which complicate guidance. The company anticipates some tailwinds from biodiesel plant closures and seasonal demand firming.

Q: What is the status of Phillips 66's asset disposition program, particularly in Europe retail? A: Kevin Mitchell, CFO, mentioned that the company has completed $3.5 billion in asset dispositions and is actively negotiating the sale of its Europe retail assets, including Jet, Germany, and Austria. Mark Lashier, CEO, added that other non-core, non-operated assets, primarily in Midstream, are also being considered for sale.

Q: How does Phillips 66 view the integration benefits of CPChem within its portfolio, given its joint venture structure? A: Mark Lashier, CEO, emphasized the operational synergies between CPChem and Phillips 66, particularly in the Sweeny complex, where assets are deeply integrated. Despite being a joint venture, the collaboration provides significant advantages, and owning 100% of CPChem could enhance these synergies further.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.