Phillips 66(PSX) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported adjusted earnings of $2 billion or$4.21 per share, marking a record first quarter [4] - Operating cash flow was $1.2 billion, with capital spending of$378 million, including $228 million for growth projects [11][18] - The company returned$1.3 billion to shareholders through dividends and share repurchases [5][12] Business Line Data and Key Metrics Changes - In Refining, adjusted pre-tax income was $1.6 billion, down$18 million from the previous quarter, with realized margins increasing by 5% to $20.72 per barrel [14] - Chemicals saw adjusted pre-tax income of$198 million, up from $52 million in the previous quarter, driven by improved margins and higher sales volumes [14] - Midstream adjusted pre-tax income was$678 million, slightly up from $674 million in the previous quarter, with transportation contributing$270 million [13] Market Data and Key Metrics Changes - The market capture rate increased to 93%, up from 84% in the previous quarter, despite a decrease in the composite 3:2:1 market crack [15] - The distillate crack decreased by $19 per barrel, while the gasoline crack increased by$7 per barrel [15] - Global O&P utilization was reported at 94% for the quarter [14] Company Strategy and Development Direction - The company is focused on operating excellence and disciplined capital allocation, with a commitment to return $10 billion to$12 billion to shareholders over a 10-quarter period [5][7] - The conversion of the San Francisco refinery into a renewable fuels facility is underway, expected to begin commercial operations in Q1 2024 [9] - CPChem is pursuing high-return projects, including a second world-scale 1-hexene unit and propylene splitting capacity expansion [10] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the operational improvements and the ability to capture market opportunities, particularly in refining [22][24] - The company anticipates continued strong performance in refining and chemicals, with expectations for mid-90s utilization rates in the second quarter [19] - Management acknowledged challenges posed by the new California windfall profit penalty, which adds uncertainty to operations [78] Other Important Information - The company achieved a $1 billion annual run rate savings target through business transformation initiatives [8] - The company has a strong cash position with a balance of$7 billion at the end of the quarter, allowing for continued shareholder returns [18] Q&A Session Summary Question: Refining utilization and market capture - Management highlighted improvements in asset availability and turnaround execution as key factors for better refining performance and utilization rates [22][24] Question: Impact of declining crude prices - Management noted that declining crude prices could benefit marketing margins but may also lead to working capital challenges [28][32] Question: Capture rate sustainability - Management indicated that while capture rates have improved, they are influenced by various factors, including reliability programs and turnaround execution [38][40] Question: Demand trends in gasoline and diesel - Management reported better-than-expected gasoline demand and noted that global distillate demand is also showing strength [44] Question: Cost reduction progress - Management confirmed that they are ahead of schedule on cost reduction initiatives, with significant savings expected to continue [49][50] Question: Renewable diesel project updates - Management provided positive updates on the renewable diesel project, with expectations for startup in early 2024 [61][62] Question: California windfall profit penalty implications - Management expressed concerns about the new penalty creating uncertainty and complicating investment decisions in California [78] Question: Changes in refining margin structure - Management noted that US refineries remain advantaged compared to global peers, with expectations for strengthening margins due to seasonal demand [86]