Welcome to the fourth quarter 2024 Philips 66 Earnings Conference Call. My name is Emily and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. 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 will include Mark Lazier, Chairman and CEO, Kevin Mitchell, CFO, Don Baldridge, Midstream and Chemicals, Rich Harbison, Refining, and Brian Mandel, 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. Our results reflect strong operating performance in a challenging margin environment. The strength and stability of our midstream results provided a resilient platform, demonstrating the advantages of the breadth of our integrated portfolio. In the fourth quarter, we achieved our shareholder distribution target, with $13.6 billion distributed through share repurchases and dividends since July 2022. In refining, we set goals to improve performance, lower costs, and capture more of the market. This year was our second consecutive year of above-industry-average crude utilization. We also set record clean product yields, both this quarter and for the full year, while reducing our costs by a dollar per barrel. These results are a testament to the hard work, commitment, and dedication to excellence by the People & Riches organization. We exceeded our $400 million synergy target on the DCP midstream acquisition by capturing $500 million of run rate synergies. In total, the DCP transaction has increased midstream's mid-cycle adjusted EBITDA by $1.5 billion. We set an ambitious goal of $1.4 billion in run rate business transformation savings. We positioned the company for success through these cost reductions and exceeded our goal, achieving $1.5 billion of savings. As part of the enhanced priorities in 2023, we committed to at least $3 billion of non-core asset dispositions. We have high-graded the portfolio and are currently at $3.5 billion of announced asset divestitures. Although our net debt-to-capital ratio ended higher than our target level, we continue to have a strong balance sheet, and we are making debt reduction a key component of our new commitments. We've completed the strategic priorities that we laid out in 2022, enhanced in 2023, and committed to achieving by the end of 2024. 2024. I'm proud of the work our employees have done to accomplish these important priorities and deliver on our commitments to shareholders while maintaining industry-leading safety performance. Slide four shows the progress of the Asset Disposition Program. In January 2025, we received $2.1 billion of cash proceeds for the Co-op and Gulf Coast Express dispositions. This brings the cash proceeds to $3.5 billion, which we're using to advance our new strategic priorities. We continue to evaluate our assets as part of our ongoing portfolio optimization. Slide 5 shows the growth of our midstream business, including the recent announcement of the EPIC NGL transaction. We've advanced our well-head-to-market strategy through organic projects and strategic transactions that provided significant synergies and strong returns. This nearly doubles EBITDA between 2021 and the anticipated transaction close later this year. Similar to the Pinnacle acquisition last year, we saw an opportunity to acquire high-quality assets which are complementary to our existing footprint and provide a platform for further growth opportunities at attractive returns. The transaction furthers our vision of being the leading integrated downstream energy provider and upon closing increases Midstream's mid-cycle adjusted EBITDA to $4 billion. We'll continue to capitalize on our growth platform to generate strong returns and significant free cash flow in 2025 and beyond. Slide 6 outlines our new strategic priorities for 2025 through 2027. Supported by our world-class operations, we are committed to returning over 50% of operating cash flow to shareholders. We've set challenging yet achievable operational targets for our refining and midstream businesses. We've developed a culture of continuous improvement in refining and are targeting $5.50 per barrel adjusted controllable cost, excluding turnarounds, over the next two years. We will grow Midstream and Chemicals' mid-cycle adjusted EBITDA by an additional $1 billion in total by 2027. In Midstream, we have plans in place to continue to expand our wellhead-to-market strategy with high-return opportunities. In Chemicals, the mega-projects in the U.S. Gulf Coast and Qatar are expected to start up in late 2026. These milestones are expected to bring our non-refining mid-cycle EBITDA to $10 billion by 2027, which we expect will represent two-thirds of our total company EBITDA. We also plan to reduce total debt to $17 billion as early as the end of this year, depending on the margin environment and the timing of plan dispositions. We will continue to increase shareholder value through strong operating performance and disciplined capital allocation as we deliver on our new strategic priorities. Now, over to Kevin to cover our quarterly results.

Thank you, Mark. Reported earnings were $8 million, or $0.01 per share. The adjusted loss was $61 million, or $0.15 per share. Both the reported earnings and adjusted loss include the $230 million pre-tax impact of accelerated depreciation due to our plan to cease operations at the Los Angeles refinery at the end of 2025. This reduced earnings per share by 43 cents. We generated operating cash flow of $1.2 billion and returned $1.1 billion to shareholders, including $647 million of share repurchases. I will now move to slide 8 to cover the segment results. Total company adjusted earnings decreased $920 million compared to the prior quarter. Midstream results increased, mostly due to record fractionation and LPG export volumes, in addition to higher margins on LPG exports. In chemicals, results decreased mainly due to lower polyethylene chain margins and higher costs related to turnarounds and maintenance. Lower refining results primarily reflect weaker crack spreads and a full quarter of accelerated depreciation to the Los Angeles refinery. Capture of the new market indicator was 105%. The increase in market capture was partly the result of record clean product yields for the quarter, which included the benefits of butane blending. Marketing and specialties results were mostly lower due to seasonally lower margins. In renewable fuels, results increased due to higher margins of the Rodeo complex, as well as stronger international results. Slide 9 shows the change in cash flow for the fourth quarter. Cash from operations, excluding working capital, was $901 million. There was a working capital benefit of $297 million, mainly reflecting a reduction in inventories. We returned $1.1 billion to shareholders through share repurchases and dividends, and we funded $506 million of capital spending. Our ending cash balance was $1.7 billion, looking ahead to the first quarter of 2025. In chemicals, we expect the global O&P utilization rate to be in the mid-90s. In refining, we have a heavy turnaround quarter and expect the worldwide crude utilization rate to be in the low 80s, and turnaround expense to be between $290 and $310 million. We anticipate corporate and other costs to be between $310 and $330 million. For the full year, we expect turnaround expenses to be between $500 and $550 million. Depreciation and amortization will be approximately $3.3 billion. This includes $230 million per quarter of accelerated depreciation at the Los Angeles refinery. Now, we will open the line for questions, after which Mark will wrap up the call.

Thank you. We will now begin the question and answer session. As we open the call for questions, as a courtesy to all participants, please limit yourself to one question and a follow-up. If you have a question, please press Start, then 1 on your touchtone phone. If you wish to be removed from the queue, please press Start, then 2. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then one on your touchtone phone. Our first question today comes from the line of Neil Mehta with Goldman Sachs. Neil, please go ahead. Yeah, good morning, Mark.

Thank you. Good morning, Mark and team. I wanted to kick off on the midstream transformation. It does feel that the business is evolving to where midstream is becoming a major focus and a much more important part of the business. And I want your perspective on, to the extent that is true, what's the best way to get there? To get there organically or to get there through M&A? And how fast can this business grow? Any parameters around that would be helpful.

You and then Don can dive into the details. But DCP got control of those assets to align with the wholly owned assets that Phillips 66 had with fractionation capacity. And that allowed us to see what we've been talking about. But we knew that we had a strategy to really leverage that position. And that's what you've been seeing both from an organic perspective and an inorganic perspective. And as you look at the inorganic things that we've done, the acquisitions we've done, They've been very focused on getting the right assets for the right value that could be accretive to us immediately, based on the inorganic piece, grow organically, and to capture more of the volumes coming out of the Permian. So both the Pinnacle and the Epic acquisitions really are prime examples of that. So we believe there are opportunities to dive into more of the detail.

Neil, I think what you see is we've put together a midstream platform now, an NGL value chain, that we believe we can grow organically at a mid-single-digit growth rate on an annual basis. That's what you see in the slide deck here, growing to $500 million of EBDA. And being able to do that, because we have a clear line of sight to organic growth opportunities that we can execute within our $2 billion annual capital to the strength of opportunities that make sense, that are attractive from a strategic standpoint and evaluation, we'll take a hard look at it, but are premised on executing return-enhancing organic opportunities within our footprint and not dependent on or require future M&A activity.

Yeah, Neil, as you saw in our strategic priorities that we laid out, everything that we do on enhancing the return on capital employed in each of those businesses as we make these capital allocation choices. So we're very returns-focused and value-focused.

That's very helpful. And then the follow-up is just as midstream becomes a bigger part of the business, how do you think about the optimal capital structure? You're providing new disclosure today about being less than three times net debt to midstream in marketing. So why is that the right number? And, you know, there's an argument that the business can run a little bit more levered as it has more fee-based earnings.

Yeah, Neil, it's Kevin. I mean, in the course of last year, which we were not able to deliver on, partly because we leaned pretty heavy into cash. And so while we have set a target of getting the debt balance back to $17 billion and a sub, Almost on a sum of the Puminesse segments bring the more stable, approximately $2 billion, sorry, $6 billion at mid-cycle or maybe even less than three times. And think of ourselves in the context of those two segments, net refining business. So, in effect, the refining cash flows are all upside in the context of how you look at us, look at the company from a back.

The question comes from Doug Leggett with Wolf Research. Please go ahead.

Thank you. I appreciate the chance to ask a question, guys. Thanks so much. Mark, I think I heard you say something along the lines of our new disposal targets. I don't think I actually heard a new disposal target. So I realize you hit a lot of your targets early for 2025, but what is the scope of the scale? I guess the way I heard it was drop your debt down $17 billion, clearly additional disposals. And I wanted to ask specifically about where you are with the rest of the retail system in Europe. That's my first question. My follow-up is really a follow-up to Neil's. You know, we hear this a lot about the embedded value in Phil, specifically around the midstream and where the midstream companies are trading. And obviously Epic is a terrific bolt-on, but do you ever see a situation where midstream is somehow separated or is a standalone business? I know it's a bit of a curveball question, but just in terms of the scale, the importance, and maybe the failure of the market to recognize the value in your structure versus what you see for the standalone midstream players.

Thanks for your question. We achieved and received the cash for to date. We still have things that we're working on out there, and one of them is the retail opportunity in Europe, in Austria and Germany, and we're still in active discussions there. We think we can strike a deal around that, but we found it a little bit counterproductive to put firm numbers out there when you're out negotiating these deals to determine if we've got assets that people want to talk about things, and we'll entertain those calls as well. But it's recreation, how we can unlock value of what we view as trapped capital and some assets and redeploy those proceeds into our strategic priorities, whether it's returning it to shareholders, augmenting our balance sheet, or investing in our businesses. And so we're going to be doing that ongoing. The firm target is put out there. You can think about it as continuous improvement in our portfolio, just like we're focused on continuous improvement in our operations. And then from the embedded value, I've done in midstream, but we're really just getting started. I think that there's questions, understanding. People are showing some interest and excitement around that. We've got some great long-onlys in our shares because of what we're doing in midstream. So we think that that story is still evolving, and we're going to lean into that story. There's always the question when you have an integrated business like we do, is it better to buy keeping the midstream business integrated with our refining midstream business out to the petrochemical businesses? And you'll hear more about that.

As we move on through the year, if part of the question was more around would we create a vehicle that is complete separation but helps provide some additional valuation, we went down that path. That's a major decision. There are times where we've traded it for some of the parts. There have been times where we haven't, and we've around the midstream business, the integration value that comes from the two primary value chains that we have, and focus on that at this point in time.

I appreciate it. For me, I risked a quick follow-up at the risk of Jeff's last year, but the example obviously I was thinking about was MPLX, because clearly there's a marker there, but I take your point. My follow-up really quick, Mark, is just remind us what the EBITDA is on the German-Austria business, because we can all put multiple on that, I guess.

Yeah, Doug, it's about $300 million.

Great stuff. Thanks so much.

Thanks, Doug.

The next question comes from Teresa Chen with Barclays. Please go ahead.

Hi, thank you for taking my questions. First, on the leverage update, can you help us think about the path forward to achieve the, you know, below 30% net debt to capital, what timeframe would you expect to get to that? And are, you know, future asset sales, including the German-Austrian assets, earmarked for that? How should we think about the path forward there?

Yeah, Teresa, it's a – the path forward to the sub-30%, and I think you look at the absolute $17 billion debt level in one – I'm not saying that one will definitely enable the other, but they won't be too far apart in that context. And, in fact, there's a kind of neat symmetry between all of those metrics that we put out, the $17 billion, the less than 30%, and the less than three times midstream and come together. A combination of shareholders, sustaining capital is a billion dollars. And if you do the math based on a mid-cycle right now, on mid-cycle, you've got about $10 billion. And so $5 billion, $2 billion of capital budget, so that's $7 billion, at least $3 billion. That's a lot of flexibility to either do debt reduction, incremental things you've seen us do. In addition, the Germany Austria retail business. And so there's a fair amount of flexibility there in terms of how we get there. So these targets are all achieved.

Thank you. And then going back to the topic of additional midstream growth, when thinking about, you know, other M&A opportunities here, totally understanding Don's comments about doing what's right from both a strategic and economic perspective, when we think about the midstream assets that have been in the market, there are some that seem like more obvious acquisition candidates for you considering, you know, potential synergies in both Permian and DJ. and then coupling that with, you know, who are the bigger shippers on both Sandhills and Epic, as well as the visible need for incremental premium processing. Is FTC also a major concern here? Do you think that would preclude some of the more obvious opportunities along your midstream footprint?

Yeah, Teresa, I think that obviously we always have to take FTC considerations into play, but I don't think that's necessarily what would have us shy away from looking at any particular assets. But we do take into consideration on what provides us the greatest value creation opportunity. And we know intimately how, from a G&P perspective, what it does from a transfer. What additional opportunities does it open up for? The upside in returns in going in and building things at a low build multiple and realizing that full uptick while adding inner pricing that also.

I think along the lines of that value, what is a platform, and that's really what drives our thought process, not the lens. It's well down as we evaluate opportunities. But, again, I think I go back to opportunities within our footprint, and so we're very focused on executing those and growing our business that way, first and foremost.

Yeah, we recognize our capital constraints. We're not going to grow midstream just to grow midstream, just to get bigger. We're going to grow midstream to create more value for our shareholders, and we're very disciplined around that. We've got capital constraints, and we're going to be very picky about what we do.

Understood. Thank you so much.

Our next question comes from Manav Gipsa with UBS. Please go ahead.

Good morning. Switching gears a little, we saw relatively weaker ethylene chain margins here, and I know it's a seasonally weaker quarter. I'm just trying to understand, in management's opinion, when can we start moving towards closer to the mid-cycle margins as it relates to the ethane chain margins and chemicals?

Of course, ethane pricing is a great advantage with their ethane position, but when both of those things happen, I think their impact continues to grow. You're seeing rationalizations in Europe. You're seeing temporary shutdowns in Europe. I think this year, North American producers had record exports that tells you about the strain in North America versus other locations in the world. I think for the first time ever, more than half of the polyethylene produced in North America was exported into the world market. So they're playing to CPChem's strengths in the midterm and longterm. You can see that in their operating rates. And we see continued margin improvement. And actually, it's good and healthy that you see slow recovery, slow climb out. And we see that continuing this year into next year, really on through 2026. And then their new assets will be stepping right into pretty healthy margins by the end of 2026.

My quick follow-up here is a very big improvement in renewable fuels. Congratulations, breaking even. Help us understand quarter over quarter some of the dynamics that went your way, which allowed you to almost raise earnings and renewables by, like, $150 million.

With that, as a start, we ran well in the quarter. We discussed last earnings call. We processed a higher CI feed in the corner as we ran off less valuable feedstock prior to the implementation of the BTC credit. Additionally, because of the hires for the quarter, we did a million gallons, up to eight million gallons of SAF, and we've seen Q1 to supply renewable diesel margins. We anticipate continued weakness, mostly on the regulatory uncertainty that keeps the market on somewhat weak foot. A number of factors affecting renewable margins, including the PTC, the RBO, LCFS rules, tariffs, renewable or small refinery exemptions, just to name a few. So we'll continue to manage our flexible system. You know, we buy a lot of feedstock. We buy more feedstock than our system needs, and so we can move that feedstock around and manage the optionality in the system. But we'll continue to use the LP at the refinery to provide the most favored renewable feedstock.

Thank you for taking my questions.

Our next question comes from Jean Ann Salisbury with Bank of America. Please go ahead.

Hi, thank you. I wanted to follow up on Teresa's question about the EPIC acquisition. I think most midstream investors I talked to were a little surprised by the move to add more in-jill pipeline capacity without getting more processing to fill those pipelines. Given that you were already kind of under-indexed to processing before the deal compared to peers, I know the PIPESR contract is medium-term, but does this put pressure on you to get more processing, either organically or inorganically, in the next few years as those contracts start to roll off?

Hi, Gina, and this is Don. You know, as you heard from Mark, the capacity and supply, because it's certainly a question we've had a couple of times, But I'll focus on this one key attribute, and that is that EPIC provides us and brings us needed Permian pipeline capacity that is already in an expansion program that is very capital efficient, cost effective. And we see that as being very important to us. And the reason that is, is right now our supply portfolio runs at about 125% of our Sandhills capacity. So that means we move a lot of product on third-party pipelines. And if you kind of look through 25 and out the years, that supply level will continue to grow this year as well as next As we bring on our expansion plant at Pinnacle in July of 2025, as we bring on a third-party plant that's dedicated to us, I'd also expect that we'll be in a position to announce expansion of another plant in the Permian later this year. And so when you think about all of that supply coming on, it really combines very well and fits very well with the Epic capacity. We'll be able to move product off the third-party pipelines. As our GNP volumes grow, we'll be able to fill in the expansion capacity that comes online at the end of 26 with Epic. So it really gives us room to continue to grow our GMP footprint. So that's what's quite exciting. So for us, Epic is really the right size and the right from an expansion and capacity standpoint. It fits really well with our existing assets. We're already highly connected in a lot of spots with them. So when you think about integration and synergies, it's a very straightforward approach with really minimal integration costs to achieve. So very excited to bring this in, allow us to continue to grow our supply, pull supply off third-party lines, and put it all in our system, provide really good service to the Gulf Coast for our shippers and our producers.

Thanks, Don. That's very helpful, and I appreciate the color there. I'll leave it there. Thank you.

Thanks, Jeanette.

Our next question comes from Roger Reed with Wells Fargo. Please go ahead.

Yeah, thanks. Good morning, everybody. So maybe shift gears a little bit to refining, if that's all right. Kind of two main questions. One, just as you look at the overall fundamentals, kind of how do you see the market here? And then the second part of that, digging in a little deeper, you know, on crude supply, crude availability. You've got, obviously, a lot of moving parts on the policy side, tariffs, sanctions on countries that have been supplying crude here, that sort of thing. Just kind of a broad question, but how do you see things?

Hey, Roger, this is Brian. Maybe we'll start with crude and tariffs. Gasoline demand up a bit, mostly on lower Asian demand growth. We saw strong vehicle switching in Europe, where demand was up almost 3%. U.S. demand increased a bit, too, driven by lower retail prices. stable GDP outlooks, and Chinese vehicle fleets showing a reduction in the growth in EV sales. So our demand forecast for 2025 for gasoline globally is up 0.8% and up 0.2% in the U.S. And on the distillate side, 2024 global distillate demand was 0.9% lower than 2023. 4Q24 U.S. demand was actually up 0.4% versus 4Q prior year. Currently, U.S. distillate inventories are about 8% under five-year averages, quite a bit. We're forecasting global distillate demand for 2025 at 1% over 24, with gains particularly focused across India, Malaysia, and Indonesia, and U.S. distillate 2%. On the tariff question, I think, first of all, we don't know if we're going to have tariffs, but assuming that there are tariffs in Canada and Mexico, our view is that both markets will act a little bit differently. So we think tariffs in Canada, the first thing that happens is TMX gets filled. The second thing that happens is currently the inventories are low. The inventories will start to fill. But ultimately the differentials, the WCS differential, will widen to incentivize crude to move into the U.S. Because crude actually has to move into the U.S. There's a lot of value in Canadian crude before there's any production cuts. I think in Pad 4 and parts of Pad 2, where there aren't as many alternative supplies, the crack margins will also have to do some work. And then on the Mexico side, Mexican tariffs, there's about 450,000 barrels a day of Mexican crude that comes into the U.S. We think that crude will be displaced. It will move to Europe, maybe Asia, and other crudes will come in. We would expect to see the heavy crude's firm a bit just on the inefficiency of logistics. But as the year goes on, OPEC puts more barrels back onto the market. We would expect those differentials to widen back out.

Very comprehensive. I'll turn it back.

Thanks, Roger.

Our next question comes from John Royal with J.P. Morgan. Please go ahead.

Thanks for taking my question. So my first question is, maybe you can talk about your outlook for your refining business at mid-cycle. According to your slides, you've achieved the $5 billion of EBITDA. But if I remember correctly, you had a number of initiatives that you touched on at Investor Day around capture rates that weren't officially in those targets. I think you also have some ongoing liability work and work around the OPEX side. So I'm just trying to think through if there's some possibility that that $5 billion could really be moving up over the next couple of years, because it does feel like there's still some opportunity remaining there.

John, you know that in the fourth quarter we were sitting at a very nice 94%, and that's a healthy, healthy number for us. And the underlying parts of that is really driven by our reliability program. We actually achieved a 98% mechanical availability on the crude units with 5% utilization across the entire year. So the reliability programs have been working, And that's fundamental to being in the market when the market's there, right, so that reliability. The other part of the program has really been around increasing our market capture, as you indicated. And we've been working on a series of high-return, low-capital projects there. And, you know, it's tough to see those in this low-margin environment right now. But there are some really good that are showing their way through. And one of them is the record clean product yield that was mentioned in the opening comments, 88% for a quarter, 24%. That is the highest we've ever achieved as an organization. Now, seasonally, that's supported by butane, but that's been going on for years. There's still some underlying clean product yield that's improving. And that also, we achieved 87% clean product yield across the entire year. So a fantastic performance. And what's most important about that is that the gasoline yield stayed pretty flat, which is consistent with Brian's comments on the marketplace, but we've actually increased our distillate yield through that process. So we're actually seeing yield improvements. These aren't just fractionation changes that are occurring inside the plant. And that's led to a pretty solid market capture here in the fourth corridor of 105. 105. The last part of that mantra that we've been working on is really that cost reduction, right, that dollar per barrel. And that's, you know, roughly we've moved $650 million out of our operating expense. And that includes our share of WRB, our proportionate share there. But we clearly see that hitting the line. That, the additional market capture, the reliability components, you know, that mid-cycle target that you're talking about is well within range. And we feel that that's very achievable, that $5 billion. And we're going to continue to strive on that and through that here as the market continues to improve. But don't let me leave you with the opinion that I think we're done with this whole program, You know, we're going to continue to drive the efficiencies out of the business. Our reliability journey is never going to be over. And we're going to continue our focus of these small projects with high return on increasing the production of our most valuable products. And we're going to do all that with our industry-leading standards in health, safety, and environment.

Yeah, our engineers and operators out in the plants are just hyper-focused on taking the reliability journey from the crude units on throughout the downstream units in the refineries because you get better with the crude units, that puts the pressure downstream, and they are out there actively pushing and harvesting those opportunities and teeing them up as well. So we're going to continue to do this each and every day, looking for ways to improve, drive those inefficiencies out and open up opportunities for more throughput and more

reliable throughput. Very thorough. Thank you very much. And if I could just follow up on RD margins, you've already given some thoughts on margins, but I was hoping to dig in on your thoughts on the 45Z in particular. And what are the different scenarios for how that could play out this year? And maybe in the extreme where we have no BTC or PTC for a sustained period of time, What would that look like for the industry? Would you expect the RIN to plug the difference, or would we end up seeing some kind of capacity coming out?

Brian, yeah, I think renewable jet margins, you have to think about all the credits, the cost of the feedstock, and the value of the product. And if there's a PTC or then the other credits, the value of the feedstock margin. And if that doesn't happen, we're going to see plans start to cut. So even now in marginal, we've seen biodiesel plants cut back their runs. So that helps expand the margin as they cut back because there's less renewable diesel on the market. So we'll see all those things work in tandem to drive margins for the operations.

Thank you.

Thanks, John.

The next question comes from Jason Gableman with TD Cohen. Please go ahead.

Thanks for taking my question. I wanted to ask another one on corporate structure. Phillips has been – they've shut down more refining assets since COVID relative to peers. And as you think about the right size of the refining footprint, not only to kind of optimize the system, But to support midstream and get the right multiple within the company, do you see further potential to rationalize some of your refining assets? Or do you feel like after the L.A. refining shutdown, you're in a pretty competitive position with your refining asset base?

Thanks, Jason. Exiting L.A. will have a material impact on our cost structure, and that's part of the story there. I think we're always evaluating our assets, and each location has different pressures, different opportunities, and if those things change, and certainly that's what we saw in California, that it moved to a set of conditions where it would continue assets in our portfolio. But we don't have anything staring us in the face that would indicate we've got other assets that we need to shut down. There may be people that would want to buy some of those assets, and we'd entertain those conversations. We know where we want to focus. We know what we need to do to get better in refining. We don't necessarily need to get bigger in refining, but we're going to focus on getting better every day. And, again, we're not going to grow midstream just to grow midstream. We're going to grow midstream because there's opportunities there to grow. Volumes are growing, and we've got some that we can leverage to enhance the ROCE of our midstream business while we grow the volumes that we process and open up opportunities for upstream customers to get their materials to a wide array of markets that we can facilitate. And that's one of the things that Epic does for us. It brings us into Corpus Christi. We can bring Corpus Christi volumes to the Sweeney Hub all the way to Mount Bellevue. It just really affords our customers from the upstream perspective a wide array of opportunities to monetize their hydrocarbons.

Thanks. And my follow-ups on the marketing business, there was a pretty large decline quarter over quarter, larger than what would seasonally be expected. I think you tend to see outside moves in marketing to the downside when crude prices increase rapidly, but we don't really see that in 4Q. So I was wondering if you could elaborate on what drove the marketing weakness in 4Q and if you expect that to continue or not.

Hey, Jason. Hey, you're right. Marketing margins were off in Q4 with seasonal weakness. But the big thing we saw in Q4 inventory hedging impact from falling prices, and that got reversed out in Q4 when the physical barrels were actually sold. So that created a $100 million negative sequential impact. There were a couple of other little things. We had a 20-day turnaround on our base oil. But overall, the marketing volumes remain strong for the quarter. So I'd say looking forward to Q1 to follow our historical trend. In January, we did see about 3% marketing volume impact from the winter storms and from the California fires, although the addition of new business should close that gap. And we didn't see any operational volume effects from the fires of the cold on our own.

The question comes from Matthew Blair with Tudor Pickering Holt. Please go ahead.

Thank you. Good morning, everyone. On the new target of $5.50 a barrel of controllable refinery costs, I think you were at $6.71 in 2024, which already reflected some pretty good progress. Could you talk about the additional levers that you can pull? And then of the delta of the new target, how much will the closure of the Los Angeles refinery contribute to that further improvement?

The base is pretty important to talk about. In 2024, we ended approximately about $5.90 a barrel in operating expense, excluding turnaround. About a $0.40 addition. So there will be a net deduction across the system impact, and that's roughly 50% of the gap. And the balance of that, we will look at closing using the momentum of the organization that's already been built up through our business transformation opportunities and exercises. You know, we're continually challenging ourselves to reduce the inefficiencies. I've talked a lot about the reliability programs, and that continued reliability actually drives down your operating expense as you become more reliable. And then, of course, there's the denominator on this equation as well, and continuing to push the barrel numbers and the clean product yield up on the backside of the number. So we see this as a pretty clear path. Is it a stretch? It's a bit of a stretch, yes. Is it achievable? Absolutely. We will achieve this, and I'm very confident by 26 we'll have that number down there on a routine basis.

Matthew, just for you and for others listening in, on page 17 of our supplemental, it's the second to the last line there, refining adjusted controllable costs, excluding turnaround expense. So that's where the 550 number is comparable.

Good. Thank you. And then you mentioned that there was no staff production in the fourth quarter. You know, as we turn into 2025, the EU is implementing the 2% staff blending mandate. So could you talk about, you know, what you're seeing in that market? Are you seeing calls for increased staff demand as a result of this EU mandate? Or has that not really materialized yet? And would you expect to increase your staff production as we progress through 2025?

They're going to be important products. We made renewable jet in January. We'll make it again in February if you look at renewable jet versus market. But we continue to use our linear program out of refineries to determine what we should make, what makes the most sense in terms of netback or value in the market. So we'll continue to do that going forward.

Great. Thank you.

This is from Paul Chang with Scotiabank. Please go ahead.

Hey, guys. Good morning. I think the first question is for Calvin and Mark here. You said that reduction target was 17 billion, so that's about 5 billion lower than your current level. Meanwhile, and you're saying that this is a priority, but meanwhile, you're also looking to grow your EBITDA and through perhaps that's some equity both on acquisition. Like EBIT, I think that is probably a good acquisition, but on the other hand, it adds to your leverage. So how we prioritize between the two? I mean, should the debt reduction take a more priority until you are at a lower level or that you think that, as I think Calvin in his prepared remarks saying, you actually feel already reasonably comfortable. So if there's an inorganic opportunity you think is good, you will put it further delay on the debt reduction and go with that acquisition opportunity.

Yes, Paul. Just to be clear, the $17 billion debt level would be a three-

I'm sorry, but I'm including assets, Kevin.

You also have to look at, we've also been selling assets. In January of this year, we've collected from asset disposition, and so there's more inflow than just thinking about the operating. We actually think we're going to have a fair one to do. Now, granted, when I say a bolt-on, I naturally think of something that looks more like Pinnacle, a lot easier to the operating cash flow side. And there's not a – we would love to get to $17 billion of debt by the end of this year. There's a flexibility around that in terms of how we look at it.

Growth in EBITDA is not premised on any bolt-on acquisitions, and about half of it would be CPChem growth projects that are outside of our capital budget, and it's all within.

Mark, I fully understand on that. I'm just trying to get some better understanding. If you do deal with, say, $2 billion or $3 billion of the acquisition opportunity and you think that it's actually quite effective comparing to the objective of delineation. I mean, how is that point that you will consider or which is going to take the priority?

Yeah, we'll make that. If we're faced with that kind of opportunity, we'll make our own assessment on how we need to think about it. We wouldn't be incapable of executing on a transaction.

Kevin, the second one is a real short one. Tom, with still a bit of uncertainty on PTC in the first quarter for your R&D business, do you think you will start recording some of the benefits related to PTC or that you're not going to report any PTC credit until you are 100% certain on everything?

Yeah, Paul, the only thing I can say with certainty is what we have on PTC are notices, not proposed rules. There have also been these sweeping executive orders that have put a pause on many forms of rulemaking. We don't know if what's been published on PTC is subject to these executive orders or not. And so we're still working through all this. The reality is we'll have two options here. One is we just don't record anything in the first quarter or until there's more clarity. The other is we go with the information that is available, which are these notices and the prevails, and this is something that we will provide more clarity.

The stream comes from Ryan, in charge with Piper Sandler. Ryan, please go ahead.

Good, thanks. Maybe a couple of quick ones. I appreciate the comments you gave on refining capture in the fourth quarter, which is really strong. Any comments on how you would see in the early part of this year the outlook, any moving pieces that might drive capture rate higher or lower on the refining side? And then maybe just as part of the business transformation process, curious is where you think you are in terms of progress on the commercial side of things.

Some turnarounds that we've indicated in there. So that will certainly have an impact in those markets that those turnarounds are occurring. The seasonal butane blending, that will continue through the first quarter as well, so that impact should be there. And then the balance is really reflected in our regional indicators that are put out there, Brian, if you haven't run those or seen those. But that will really give you a good insight as to how the market will be. Let me turn that one over to Brian here, and he can comment on that one.

we had a goal to grow the organization we continue to look at opportunities to grow the organization we're hiring from the outside we're building a lot more expertise and so we continue to look at margin opportunities we look at cost cutting opportunities as well we'll continue to do that as we grow our returns in our business and continue to grow the size of our business

great, thank you

concludes the question and answer session I will now turn the call back over to Mark Lazier for closing comments.

We're continuing to make investments to enhance clean product yield and reliability in refining, capture the upside as the market returns. The stable cash generation for Midstream covers the company's sustaining capital and dividends. Combined with $2 billion of expected earnings from our marketing and specialties business, we have a strong base before adding contributions from our other segments. It's a unique, compelling investment opportunity. and in the future as we move forward with our vision to be the leading integrated downstream energy provider. Thank you for your interest in Phillips 66. If you have questions after today's call, please call Jeff or Owen.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.