Phillips 66 Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Safety: 2025 was the best year ever for safety performance.
• Portfolio Optimization: Acquired remaining 50% of WRB, sold 65% interest in Germany and Austria retail marketing business, idled Los Angeles refinery, and expanded midstream with Coastal Bend and Dos Picos Two.
• Refining Focus: Targets adjusted controllable cost per barrel to ~$5.50 by 2027, and has streamlined the business to focus on competitive advantages.
• Midstream Growth: Built an asset base for flexibility and reliability, with expectations of a run-rate adjusted EBITDA of ~$4.5 billion by 2027 and organic growth opportunities in the Permian Basin.
• Shareholder Returns: Returned $756 million to shareholders in the fourth quarter, including share repurchases. Net debt to capital was 38%.

Segment Performance

• Refining: Delivered strong results with high utilization rates, record clean product yields, and enhanced flexibility. Acquired remaining 50% interest in WRB increased exposure to Canadian heavy crude differentials by 40%. Targets adjusted controllable cost per barrel to ~$5.50 by 2027.
• Midstream: Achieved record NGL and fractionation volumes driven by Coastal Bend and Dos Picos Two expansions. Adjusted EBITDA increased 40% since 2022, with ~$1 billion in 2025. Targeted run-rate adjusted EBITDA of ~$4.5 billion by year-end 2027.
• Chemicals: Results decreased mainly due to lower polyethylene margins from lower sales prices.
• Marketing and Specialties: Decreased primarily due to sale of 65% interest in Germany and Austria retail marketing business and seasonally lower domestic margins.
• Renewable Fuels: Improved primarily due to higher realized margins, including inventory impacts, partly offset by lower credits.

Guidance

• 2026 First Quarter: Global O&P utilization rate expected in the mid-90s. Corporate and other costs are between $400 million and $420 million. Refining worldwide crude utilization rate expected in the low 90s. Turnaround expense is between $170 million and $190 million for Q1, with a full year between $550 million and $600 million.
• Midstream: Anticipates mid-single-digit adjusted EBITDA growth, supporting corporate capital allocation priorities.
• Debt and Returns: Targets a debt level of $17 billion, with total debt ~3 times Midstream and Marketing and Specialties adjusted EBITDA, leaving Refining debt-free. Committed to returning >50% of net operating cash flow to shareholders via dividends and share repurchases.

Risks

• Market Volatility: Actual results may differ from forward-looking statements due to commodity price fluctuations, market demand changes, and operational challenges.
• Regulatory Changes: Impact on operations, costs, and profitability due to changing environmental, safety, and trade regulations.
• Integration Risks: Challenges in integrating acquisitions and new projects, including operational, financial, and cultural integration issues.

Question and Answer

• Q: Outlook for Mid Continent products and feedstock opportunities with WRB consolidation A: Brian Mandell discussed exposure to Canadian heavies, widening heavy dips as a tailwind, a robust demand profile in PAD II, and how the Western pipeline helps demand for PAD II products.
• Q: Cost outlook for 2026, particularly refining costs A: Rich Harbison mentioned 2026 priorities include the idling of the LA refinery providing a positive tailwind, targeting a 15¢ a barrel reduction in costs by year-end 2026 with over 300 initiatives.
• Q: Turnaround management and sustainable utilization rate A: Rich Harbison talked about reliability programs improving utilization, structural changes in refineries leading to increased capacities, and disciplined turnaround management.
• Q: Western Gateway project update A: Don Baldridge discussed the second open season extension to the LA market, positive response to the first open season, and support from regulatory and elected officials.
• Q: Midstream growth beyond 2027 A: Don Baldridge highlighted momentum and a platform generating low capital, high return projects, with opportunities in the NGL and crude to clean value chain.