phillips 66 (psx) earnings report: q4 2015 conference call ... · the following phillips 66...

CompanyName:Phillips66CompanyTicker:PSXSector:BasicMaterialsIndustry:Energy

EventDescription:Q42015EarningsCallMarketCapasofEventDate:41.98BPriceasofEventDate:80.15

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

Phillips66(PSX)EarningsReport:Q42015ConferenceCallTranscriptThefollowingPhillips66conferencecalltookplaceonJanuary29,2016,12:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

ClaytonReasor;Phillips66;EVPofIRGregGarland;Phillips66;Chairman&CEOKevinMitchel;Phillips66;CFOKevinMitchell;Phillips66;CFOTimTaylor;Phillips66;President

OtherPart icipants

FaiselKhan;Citigroup;AnalystPaulCheng;BarclaysCapital;AnalystDougLeggate;BofAMerrillLynch;AnalystRogerRead;WellsFargo;AnalystBlakeFernandez;HowardWeil;AnalystEdWestlake;CreditSuisse;AnalystPaulSankey;WolfeResearch;AnalystJeffDietert;Simmons;AnalystPhilGresh;JPMorgan;AnalystRyanTodd;DeutscheBank;AnalystBradHeffern;RBC;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Welcometothefourth-quarter2015Phillips66earningsconferencecall.

(OperatorInstructions)

Pleasenotethisconferenceisbeingrecorded.

IwillnowturnthecallovertoClaytonReasor,ExecutiveVicePresidentInvestorRelations,Strategy,CorporateandGovernmentAffairs.Pleasegoahead,Mr.Reasor.

ClaytonReasor (EVPofIR):

Thankyou,Sally.WelcometothePhillips66fourth-quarterearningsconferencecall.WithmetodayareChairmanandCEO,GregGarland;President,TimTaylor;andChiefFinancialOfficer,KevinMitchell.

Thepresentationmaterialwe'llbeusingduringthecallcanbefoundontheInvestorRelationssectionofthePhillips66websitealongwithsupplementalfinancialandoperatinginformation.

Slide2containsourSafeOperatingstatement.It'sareminderwe'llbemakingforward-lookingstatementsduringthepresentationandourquestionandanswersession.Actualresultsmaydiffermateriallyfrom




today'scommentsandfactorsthatcouldcausethesechangesortheseactualresultstodifferareincludedonthesecondpageaswellasinourfilingswiththeSEC.Sowiththatsaid,I'llturnthecallovertoGregforsomeopeningremarks.

GregGarland (Chairman&CEO):

Thanks,Clayton.Goodmorning,everyone.Thanksforjoiningustoday.

Wehadagoodyearin2015,adjustedearningswere$4.2billion,whichwasourhighestsince2012.Wegenerated$5.7billionincashfromoperations.Thisallowedustomaintainastrongbalancesheetandexponentialflexibility,whilefundingourcapitalprogramandreturning$2.7billiontoshareholdersthroughdividendsandsharerepurchases.

Wemadesignificantprogressonourgrowthprojectsinmidstreamandchemicalsandwecontinuedtoimprovereturnsinourrefiningandmarketingbusinesses.Despitethedifficultenvironmentexperiencedthroughouttheenergyindustry,ourdiversifiedassetportfoliohasperformedwell.Wecontinuetoexecuteourplan.Forus,itallstartswithoperatingexcellence.

Wespent$1.2billioninsustainingcapitalin2015andfromanoperatingreliabilityperspective,ourbusinessesranwell.2015wasaverysafeyearforus.Wetiedourbestyeareverforrecordableinjuries.Andrefining,chemicalsandmidstreamweretopperformersininjuryrates.Wealsomaintainedtheimprovementinourenvironmentalperformancedemonstratedinpreviousyears.

Weended2015withasolidquarter,especiallywhenconsideringthecurrentcommoditypriceenvironment.Adjustedearningswere$710millionor$1.31pershare.Marketcracksweredownsignificantlyinthefourthquarterfromthehighsthatwesawlastsummerbutourglobalrefiningbusinesscontinuedtorunwellwith94%utilization.

Marketingearningswerehealthyandthiscontinuestobeahighreturnbusinessforus.2015adjustedreturnoncapitalemployedwas35%forthissegment.

Inmidstream,wecommencedoperationsoftheSweenyFractionatorOneandsupportingClemensStorageCaverns.2016willbeanotherbusyyearforuswithseveralothermidstreamprojectsscheduledforcompletion.OurFreeportLPGExportTerminalisnow80%complete.It'sontrack,onbudget,withanexpectedstartupinthefourthquarterof2016.

TheDakotaAccess,andETCOPpipelineprojects,alsocontinuetomakegoodprogressandremainonscheduleforcompletionbytheendofthisyear.Ourmasterlimitedpartnership,Phillips66Partners,remainsanimportantpartofourmidstreamgrowthstrategy.ThefeebasedassetswithinPSXP'sportfoliocontinuetoperformwellandarenotimpactedbythecurrentmarketconditions.

PSXPcontinuesontracktoachieveitsstatedgrowthobjectiveofafive-year,30%distributioncompoundannualgrowthratethrough2018.AdjustedEBITDAwasupnearly90%fortheyearatPSXPwhiledistributiongrowthandcoveragewerealsostrong.Inaddition,PSXPwasabletoraise$1.5billionoflowcostcapitalthroughthedebtandequitycapitalmarketsin2015.

DCPcontinuestoworkonreducingcostandconvertingcontractstofee-basedstructurestoimproveitsfinancialstrengthandflexibility.Equitycontributionsfromtheownersinthefourthquarterhelpedinthatregard.WeexpectthatDCPwillbeself-fundedgoingforward.

Inchemicals,cashmarginsfellduringthefourthquarter;howevertheyremainstrongbyhistoricalstandards.CPChem'sgeographicallyadvantagedfootprintallowsittoremainprofitableandabletoself-funditsgrowthprojects.DevelopmentcontinuesonCPChem'sUSGulfCoastpetrochemicalsprojectwhichwillincreaseCPChem'sUSethyleneandpolyethylenecapacitybyover40%.




Overallprogressontheprojectisapproaching70%completewithstartupplannedinmid-2017.Thisprojectremainsontimeandonbudget.Wehadanotherstrongcash-flowquarter,wegenerated$1.5billionincashfromoperations.

Weused$1billionofthatcashflowoncapitalspendingtosupportmidstreamgrowthandmaintainingoperatingintegrityinourrefiningsystem.We'llalsocontinuetoreturncapitaltoourshareholders.Duringthefourthquarterwereturnedover$700millionthroughdividendsandsharerepurchases.

Overthelastthreeyears,shareholderdistributionshavetotaledmorethan$9billion.Lookingforwardto2016,ourfocusremainsonoperatingwellandexecutingour$3.9billioncapitalbudget.

Wecontinuetotargeta60/40splitbetweenreinvestmentanddistributionsandwehavetargetedadividendincreasein2016ofatleast10%.SonowI'dliketoturnthecallovertoKevinMitchelltotakeusthroughthequarter'sresults.

KevinMitchel(CFO):

Thanks,Greg.Goodmorning.Startingonslide4,fourthquarteradjustedearningswere$710millionor$1.31pershare.Reportednetincomewas$650millionincludingseveralspecialitemsexcludedfromadjustedearnings.

Thesespecialitemsdecreasedearningsby$60millionandincluded$104millioninimpairmentsatDCPanda$33millionlowerofcostormarketwrite-downofinventoryatourWoodRiver-Borgerjointventureoffsetbyan$88milliongaintiedtofavorablechangesinGermantaxlaw.

Excludingnegativeworkingcapitalchangesof$300million,cashfromoperationswas$1.8billion.Capitalspendingforthequarterwas$1billion,excludingthe$1.5billioncontributiontoDCPMidstream.

Dividendsandsharerepurchasesinthefourthquartertotaled$704million,andexcludingspecialitems,ouradjustedeffectiveincometaxratewas31%.Slide5comparesfourthquarterandthirdquarteradjustedearningsbysegment.Quarter-over-quarter,adjustedearningsweredown$937million.Allsegmentshadlowerearningsbutrefiningaccountedformostofthereduction.

Nextwe'llcovereachofthesegments.I'llstartwithmidstreamonslide6.Transportationbenefitedfromhigherequityearningsandvolumes.

InNGLs,SweenyFractionatorOnecameonlineduringDecember.IncludedinthetransportationandNGLresultsisthecontributionfromPhillips66Partners.Duringthequarter,PSXPcontributedearningsof$37milliontotheMidstreamsegmentandincreaseditsquarterlyLPdistributionby7%overthethirdquarter.

DCPMidstreamcontinuestoworkonitsself-helpinitiativestoreducecosts,manageitsportfolioandrestructurecontracts.2015adjustedreturnoncapitalemployedtothemidstreamsegmentwas5%basedonanaveragecapitalemployedof$6.8billion.ThereturnforthissegmentcontinuestoreflecttheimpactofincreasedcapitalemployeddrivenbyoursignificantgrowthinvestmentsaswellastheimpactoflowcommoditypricesonDCPearnings.

MovingtoSlide7.Midstream'sfourthquarteradjustedearningswere$42million,down$49millionfromthethirdquarter.Transportationadjustedearningsforthequarterwere$78million,up$1millionfromthepriorquarter.NGLadjustedlosseswere$2millionforthequarter.

The$34milliondecreasefromthepriorquarterwaslargelydrivenbythetimingofadjustmentsrelatedtothetaxextendersbillsignedinDecemberaswellasadditionalcostsassociatedwiththeSweenyhub.AdjustedlossesforDCPMidstreamwerehigherinthefourthquartermainlyduetolowernaturalgasandnaturalgasliquidsmarketingmarginsaswellastheimpactoflowercommodityprices.




Inchemicals,theglobalolefinsandpolyolefinscapacityutilizationrateforthequarterwas92%andmarginstrendedlower.SA&Swasnegativelyimpactedbyplantturnaroundactivity.The2015adjustedreturnoncapitalemployedforourchemicalssegmentwas19%,basedonanaveragecapitalemployedof$4.9billion.

AsshownonSlide9,fourthquarteradjustedearningsforchemicalswere$182million,downfrom$272millioninthethirdquarter.Inolefinsandpolyolefins,thedecreaseof$80millionwaslargelyduetolowercashmargins;howeverdemandforpolyethyleneandnormalalphaolefinproductsremainedhealthyduringthequarter.

AdjustedearningsforSA&Sdeclinedto$9milliononlowerequityearningsdrivenbylowervolumesduetoturnaroundactivitiesatCPChem'sequityaffiliatesandlowermargins.Thiswaspartiallyoffsetbyhighervolumesinspecialtychemicals.Inrefining,realizedmarginswere$9.41perbarrelforthequarterasmarketcrackspreadsdecreasedsignificantly.

Marketcaptureincreasedfrom72%to74%inthefourthquarteraswesawimprovementsincleanproductdifferentialsandlowerlossesonsecondaryproducts.Refiningcrudeutilizationwas94%.Cleanproductyieldwas85%representingarecordquarter.

Pre-taxturnaroundcostswere$130millioncomparedtoguidanceofapproximately$150million,dueprimarilytothedeferralofsomeplannedmaintenance.2015adjustedreturnoncapitalemployedforrefiningwas19%.Thisisbasedonaveragecapitalemployedof$13.6billion.

Slide11showsaregionalviewofthechangeinadjustedearningscomparedtothepreviousquarter.Therefiningsegmentofadjustedearningsof$376million,down$676millionfromlastquarter.Thereductionwasprimarilyduetolowermarketcracksinallregions.

AtlanticBasinadjustedearningswerelowerthisquarterduetolowergasolineanddistillatemargins,partiallyoffsetbyhighervolumesascapacityutilizationexceeded100%.TheGulfCoastregionsawlowermarginsandhadlowervolumesduetodowntimeatLakeCharlesandSweeny.Inthecentralcorridor,marketcracksdroppedbymorethan$8perbarrelwhichaccountedforapproximately90%ofthe$251millionreductioninadjustedearningsfromthethirdquarter.

Inaddition,WoodRiverandPoncaCityalsohaddowntimeduetoturnaroundactivity.Inthewesternregion,gascracksfellnearly$15perbarrel.VolumesandcontrollablecostswerealsoimpactedbyamajorturnaroundatourLArefinerythatwecompletedintheFourthQuarter.SantaMariacontinuedtobeimpactedbytheplainspipelineoutage.

Nextwewillcovermarketcaptureonslide12.Ourworldwiderealizedmarginwas$9.41perbarrelversusthe3:2:1marketcrackof$12.77perbarrel,resultinginanoverallmarketcaptureof74%.Marketcaptureisimpactedinpartbytheconfigurationofourrefineriesasitrelatestoourproductionrelativetothemarketcrackcalculation,with85%cleanproductyieldforthequarter,wemadelessgasolineandslightlymoredistillatethanpremisedinthe3:2:1marketcrack.

LossesduetosecondaryproductswerelowerthisquarterasthepricedifferentialbetweencrudeoilandlowervaluedproductssuchascokeandNGLsnarrowed.Feedstockadvantagewassomewhathigherthanthethirdquarterbutstillbelowaverageascrudedifferentialsgenerallyremaintight.TheothercategorymainlyincludescostsassociatedwithRINs,outgoingfreight,productdifferentialsandinventoryimpacts.

Let'smovetomarketingandspecialties,wherewepostedasolidquarterthankstofavorglobalmarketingmargins,howeverspecialtiessawreducedearningsonlowerlubricantsmargins.The2015adjustedreturnoncapitalemployedforM&Swas35%onaveragecapitalemployedof$2.7billion.




Slide14showsadjustedearningsforM&Sinthefourthquarterof$227million,down$117millionfromthethirdquarter.Inmarketingandotherthe$93milliondecreasewaslargelyduetolowermarginsinbothdomesticandinternationalmarketingwhichdecreasedfromthenotablyhighmarginsinthethirdquarter.Thiswaspartiallyoffsetbytherenewalofbiodieseltaxcredits.Specialtiesadjustedearningsdecreasedto$29millionduetonarrowingbaseoilandfinishedlubricantsmarginsandlowerfinishedlubricantsvolumes.

Onslide15,thecorporateandothersegmenthadanafter-taxnetcostof$117millionthisquarter,anincreaseof$5millionfromthethirdquarter.Netinterestexpenseincreasedby$4millionprimarilyduetolowercapitalizedinterestwhilecorporateoverheadandotherexpenseswereinlinewiththepriorquarter.

OnSlide16wesummarizeourfinancialresultsfortheyear.2015adjustedearningswere$4.2billionor$7.67pershare.Excludingnegativeworkingcapitalchangesof$200million,cashfromoperationswas$5.9billion.

Capitalspendingfortheyearwas$4.3billionexcludingthe$1.5billioncontributiontoDCPMidstream.Totalshareholderdistributionswere$2.7billion.Attheendofthefourthquarter,ouradjusteddebt-to-capitalratio,excludingPhillips66Partners,was25%andaftertakingintoaccountourendingcashbalance,ouradjustednetdebt-to-capitalratiowas17%.Theadjustedreturnoncapitalemployedfor2015was14%.

Movingtoslide17,2015adjustedearningswerehigherthan2014aslowerearningsfrommidstreamandchemicalsweremorethanoffsetbyimprovementsfromourrefiningandmarketingandspecialtiesbusinesses.Wehadan11%increaseinadjustedearningsandadjustedearningspershareincreasedby$1.05or16%.

Slide18showscashflowfor2015.Webegantheyearwithacashbalanceof$5.2billion.Excludingworkingcapitalimpacts,cashfromoperationswas$5.9billion,workingcapitalchangesreducedcashflowby$200million.

Inthefirstquarter,$1.1billionindebtandapproximately$400millioninequitywasissuedbyPSXP.Wealsoretired800millioninPhillips66seniornotes.During2015,wefunded$5.8billionofcapitalexpendituresandinvestments.

Thisincluded$4.3billionofcapitalspendincluding$3billioninmidstreamand$1.1billioninrefining.Wealsodistributed$2.7billiontoshareholdersintheformofdividendsandsharerepurchases.Weendedtheyearwith529millionsharesoutstanding.

ExcludingtheDCPcontribution,61%ofouravailablecashwenttoreinvestmentand39%todistributions.Attheendof2015,ourcashbalancewas$3.1billion.Thisconcludesmyreviewofthefinancialandoperatingresults.

NextI'llcoverafewoutlookitems.For2016weexpectfullyearturnaroundexpensestobebetween$525millionand$575millionpre-tax.Weexpectcorporateandothercoststocomeinbetween$480millionand$500millionandweexpectfullyearD&Aofabout$1.2billion.

Inthefirstquarter,chemicals,weexpecttheglobalO&Putilizationratetobeinthemid-90s.

Inrefining,weexpecttheworldwidecrudeutilizationratetoalsobeinthemid-90sandpre-taxturnaroundexpensetobeapproximately$150million.

Incorporateandother,weexpectafter-taxcoststobebetween$120millionand$125million.




Company-wide,weexpecttheeffectiveincometaxratetobeinthemid-30s.

Withthat,we'llnowopenthelineforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

FaiselKhanfromCitigroup.

FaiselKhan (Analyst-Citigroup):

Thanks,guys,goodafternoon.

KevinMitchell(CFO):

Goodafternoon,Faisel.


Justacouplequestions.Onthemidstreamprojects,DAPLandETCOP,giventhatsomeofthepartnerslookliketheymayneedcapitaloverthenextcoupleofyearsastheircostofcapitalgetshigher,Ijustwanttounderstandwouldyoubewillingtotakesortofabiggerinterestinthoseassetsiftheopportunitypresenteditself?

T imT aylor (President):

Yes,thisisTim.YouknowIthinkthatwithourpartnersonDAPL,ETCOP,havebeenexploringvariousoptionsonthat.Ithinkourcommitmentiswherewewouldlikeittobeatthispointbutcertainlywillconsiderthatit'sallaboutwhatdeliversthebestvalueforus.


Okay,gotyou,andthenyoutalkedinyourpreparedremarksyou'retargetingadividendgrowthratefor10%forthisyear.Isthatlockedinoristheresortofawiggleroomifmarketschangeorifthingsbecomealittlebitmoredynamic?


Yes,wesaidatleast10%.Wehada12%lastyearbutwe'lltakealookatthat.Obviously,needtheBoardtoapprovethistoo,butwehadgivenguidancethreeyearsagothatwewoulddodoubledigitincreasesin2014,2015and2016andwestandbythatguidance.


Lastquestionforme.IntheAtlanticBasin,youguysranover100%,throughputwasstrongandsowasuptime.IsthissortofanewsetofreliabilityintheAtlanticBasinoristhisanunusualcircumstancewherethingsjustranatahigherlevelforthequarter?


Youknow,whenyoulookatthat,you'llrememberwejustcameoutoftheHumberturnaround,reallycameoutofthatingoodshape,goodcleanrefinery,soIthinkthatitreflectsthatandthenatBaywaywecontinuedtorunalotofprocessedinputstofilloutourdownstreamunitsinthatfacility.Soitwasreally




goodquarterandIwouldanticipate(technicaldifficulty)obviouslythemarketconditionsthatwecontinuetotrytorunasfullaswecan.


Gotit.Thanks,guys.


Thankyou.

Operator :

PaulChengfromBarclays.

PaulCheng (Analyst-BarclaysCapital):

Hi,guys,goodmorning.


Hi,Paul.


Just,maybethisisforGreg.WiththechangingmarketconditionsrelatedtothemarketacceptanceforthefundingmodelintheMLPsector,howthatisgoingtoimpactyour[way]ofthedropdownthatIthinkpreviouslythatyou'vebeenlookingforupto$2billionayear,Idon'tknowthatwhetheryouhavechanged.

AndalsothatfromtheCapExthatyouspend$3.9billionindividendsabout$1.3billion,withyourcashflowfromoperationsyoudon'thavemuchforthebuyback,soshouldweassumethatyoucan'tdomuchofthedropdown,youwillcorrespondinglythescaledownyourbuybackorareyougoingtoincreaseyourbalancesheettomaintainthebuybackatacertainrate?


Wellokay,soletmekindofstartwiththequestionarounditandcertainly,weunderstandthequestion,Paul.Aswelookoutthere,there'salotofstressinthespacewithpeoplethatareover-leveredandwillhavedifficultyaccessingthecapitalequitymarketsgiventheirprohibitivelyhighcostofcapital.

WhenwelookatPSXP,strongsponsorship,stronginvestmentgraderating,youmightevencallusthedropdownTitanmaybe,butagreatportfolioofexistingEBITDAthatcanbedroppedandwe'vegottheseprojectslinedupinthequeuethatareinflight,thatreallyaddtothat.AndthenyoulookatwherePSXPistrading,kindofaround3%,soIthinktheinvestorslookat[PSP],theygetthegrowthstory,theyunderstandthegrowthstoryandIthinkit'saconfidenceinourabilitytoexecutethatandsowewouldsaythatwethinktheCapitalMarketsaregoingtobeopentousin2016.Ourplanistobeoutthere,inthere.

Andyou'vegotthenumberaboutright.We'vesaidkindof$2billionayearthatweneedtobethroughthecapitalmarketsandthedebtmarketstohitthis$1.1billionofEBITDAin2018attheMLP,sowestandbythatguidanceandwestaythere.Weshouldgenerate$4billionto$5billionmid-cycleofcashandyouaddanother$1.5billionto$2billioncomingoutoftheMLP,soIthinkwe'refineintermsoffundingourcapitalprogramandintermsoffunding--growingdistributionsthroughincreasingourdividendsandwe'llhave--aslongasoursharesaretradingbelowintrinsicvaluewe'regoingtotakesharesin.





Thesecondquestion,Greg,ondidDCP,youguyshavethatcapitalrestructuringinwithyourpartnerinthefourthquarterbutthemarketconditionscontinuetodeteriorateinthatbusiness.Soisthereapossibilitythatlaterthisyear,whetherit'sduetoifthere'sanymoredebtthat'sbeingmature,doweneedtodoadditionalcapitalinfusionintothatorthatyou'rereallyasconfidentthatyoualreadyfixedtheproblematthispoint?


Well,IthinkthatthecontributionsbybothSEandourselveshavegonealongwaytowardsfixingthebalancesheetissuesatDCP.Theotherthingyou'vegottogivethefolksatDCPalotofcredit.

They'vedoneagreatjobofpullingcostout,restructuringcontractswheretheycanintheportfolioandsoifyoulookpre-2015cashbreak-even,weneededabout$0.60tobreakevenoncashonNGLs.Andit'skindof--weexited2015,wehadmovedthatdowntoabout$0.40agallonbreakevenandthentheactionsthatarebeingfurthertakenin2016,weexpectthatthecashbreakevenwillbesomewheremid-$0.30s.SoIthinkDCPwillbefineinthisenvironmentwe'reinfor2016.

TheotherthingI'dsayisDCPdoesn'thaveadebtdueuntil2019.DPMactuallyhasoneduein2017,butDPMisinprettygoodshape.SoIthinkourviewisthatDCPisonprettystrongfooting.We'vepurposelysetthemupforsuccessinthislowcommoditypriceenvironment.

KevinMitchell(CFO):

Youmightwanttosaysomethingaboutcapital.


Theotherthingis,wehaven'treallyannouncedthecapital,butDCPCapitalthisyearisgoingtobedownabout50%fromwhatitwaslastyear.IthinkourshareofDCPcapitalisabout$233millionthisyear,thereabouts,giveortake.Sowe'recontinuingtomanagecapitalatDCP.We'llbemorecoststakenoutofDCPthisyear,moreworkaroundtherestructuringofthecontractsthisyear,soIthinktheyareinprettygoodshape.


CanIhaveafinalquestion?Onelastone?


Sure.


IfIlookatwhynowyou'reinvestinganumberofprojectsthatyoucommitonthemidstream,sothat'swhyyourCapExlastyearandthisyearfortotalCorporationisnotveryhigh.$4.3billionand$3.9billion,andyetwebaseon--yousuggestthatyou'restilltargetingonthelonghaul60/40betweenreinvestmentandthepayouttotheshareholder.

At60%,ifwesay$3billionthatwouldtranslateintoa$5billioncashflow,sofromthatstandpointshouldweassumeafterthenextoneortwoyearsweshouldseeyourCapExdropbackdowntowithintothe$2.5billionto$3billionrangeorwhenyousay60/40you'realsoincludingthedrop-downproceedinthatcalculation?





Yes.Well,yestoboth.Ithinkcapitalprobablydoescomedownintheyears.We'vealwayssaid2015wouldbeapeakyearforus,andsoyouseethatcomingdownatPSX,youseeitcomingdownatDCPandalsoatCPChem,theircapitalbudgetforthisyearisgoingtobedownabout20%,sothey'llbe$1.45billionwillbeourshareoftheCPChemcapitalfor2016.SotrulyIthink2015isapeakyearforus.ButyouneedtoaddintheproceedsfromthedropsintheMLPtothecashandthinkaboutthatintermsoftotalamountfordistributions.


Allright.Thankyou.

Operator :

DougLeggatewithBankofAmericaMerrillLynch.

DougLeggate (Analyst-BofAMerrillLynch):

Thanks,goodmorning,everybody


Hi,Doug.


IguessI'llstartwith--Canyouhearme?


Yes.


Yes,sorryIthoughtyoucouldn'thearmethere.I'llstartwithchemicalsifImay.IthinkKevinmentionedthattherehadbeensomedown-time.Itlookedtousthat,givenyou'reverticallyintegratedchemicalsbusinesshasnormallybeensomewhatresilientcomparedtosomeothers,itlookedabitweakerthisquartertous.Wasitjustthedowntime?Inwhichcasecanyouquantifytheopportunitycostoristheresomethingstructuralthereyouseeischanginginthislowercommodityenvironment?


Doug,thisisTim.Youknow,IlookedatdeltabetweenQ3-Q4,it'sabout$90million.Iwouldsaythatabout$50millionofthatorsowascompressioninthemarginintheolefins/polyolefinschainmarginandtheotherremainingamountwaslargelytheimpactofturnaroundcostsandsomeimpactfromthevolumesasaresultofthat.


Okay,soarewedonenowordidwebouncebackintermsofoperatingactivityinQ1?


Yes,soIthinkwe'vegotittohigheroperatingrateinQ1withthat.Thesewereactuallyturnaroundsinpolymerunitssothere'salwayssomeofthatbutgenerallyvolumescomeback.Therealquestionabout




themargins,Ithink,largelydependonwhereyouthinkcrudepricesendupbutaspricesfall,andgaspricedoesn'tfallasmuchandtheethanepricethenyougetsomecompressiontherebutIwillthatsaywecontinuetoseegooddemand.Wedon'tseeinventoriesbuildinginthatandthatdemandreallyisaroundtheglobe.Soforus,we'vebeenlookingattheunderlyingfundamentalsandstillseethedemandpiecethere.Themovingpiecereallyisgoingtobearoundtheenergypriceandwhathappens.Butbarringasignificantchange,wewouldexpectsimilarindustrymarginsthatwesawinthefourthquarter.


So,Tim,Idon'twanttobelaborthepointbutyousaidthedowntimeoftheturnaroundswereinyourpolymerunitssowouldthatmeanthatyoudidn'thavetheverticalintegrationbenefitinQ4thatwouldnormallyhavecushionedyoualittlebit?


Yes,ifyou'rethinkingaboutwhenyoudon'thavethepullonthederivativeunitsyoucan'timpactthetotaloutputonthetotalintegratedbetweenethyleneandpolyethylenespecifically.


That'swhatIwasgettingat.Thatwashelpfulthankyou.Thisthingwithchemicals,forasecond.So,Sweenyisupandrunningnow.Ithinkyou'repreviousguidancewas$400millionto$500millionofEBITDA.Whatdoesthatlooklikeintoday'senvironmentintermsofthecontribution.

KevinMitchell(CFO):

Intheexportfacility.


Oh,exportLPGterminal?


Right.


Yes,Ithinkthatwe'reatthelowerendofthatbecausetherewassomecommercialopportunity,we'vesaidabout80%fee-basedinthatnumber,andsowe'restillinthatrangewhenyoulookatboththefracandthedockandthecavernsandtheservicesthat,thatprovides.Andthenwhat'shappenedtoday,the[arbs]betweentheUSandothermarketsintheworldarenarrowerbutIwouldalsosaythatweseeshippingconstraintsbeingalleviated,soIthinkwe'rekindofinfluxaboutwhatthearbultimatelywillbe.

ButwestilllookatthemarkethereandknowthattheNGLsneedtofindanotherhomeoutsidetheUS.SoIthinkarestillfundamentaldriversthatwillpushthatandtherealquestionis,howmuchofthearb?Dowehave$100millionofEBITDAfromthearborsomethingdifferent?Butonthelongterm,Ithinkwefeelthere'sgoingtobeasignificantcommercialopportunityaswellasthefee-basedbuttheprimarydriveronthoseprojectsarethefees.


LastoneformeifIcouldfollowMr.Cheng'sleadandsqueezeanotheronein.(Laughter)Theheavy/lightdifferentials,obviouslyspreadshavecomeinforlightcrude.Youguysareheavyrelativelyresilient.Youmadeyouspentalotoftimetellingushowmucheffortyouweremovingtomaximizeyourlightsweet




crudethroughput.Whatareyoudoingtodayandhowmuchflexibilitydoyouhavetoswingbackifyouchoseto?AndI'llleaveitthere,thankyou.


Yes,wetalkedalotinfactalllastyearabouthowmuchmorelightscouldwerun.Ithinktheamazingthingaboutoursystemiswehavetheabilitytoflex.Eveninthefourthquarterweprobablyran3%moremediumsours.Wedidn'trunquiteasmuchheavysoursbecauseofturnaroundsatLosAngelesandLakeCharlesduringthequarterasweprobablywouldhavelikedto.WeranalittlebitmoreCanadianheavyduringthequarter.Butyes,Ithinkwehavetheabilitytoflexthat.Ithinkwe'restillinmax-gasolinemodeasyouwanttothinkaboutitthatway.

Butyes,Ithinktheimportantspreadsforusthisyeararegoingtobethelight/heavy,thesweet/sourandtheTI/WCSspreads.IthinkBrentandLScantradenearparityandit'sgoingtobeaveryvolatilemarketandthingsaregoingtomovearoundintermsoftheTI/Brentdifferentialsowe'lljusthavetowatchthat.


Doug,actuallywehaveaprojectatBillingstocontinuetogotoevenheaviersourgradestherethatwouldimproveandkindofcapitalizeonthatlight/heavyandthenatWoodRiverwe'redoingsomeworkaroundlightsdebottleneckingthatwillallowustopushmoreheaviesintothatfacility,sowe'retakingsomeincrementalstepstoincreaseourabilitytohandleheavyandmediumsourcrudes.


Thanksguys,Ilookforwardtoseeingyouinacoupleweeks.


Okaytakecare.

Operator :

RogerReadfromWellsFargoSecurities.

RogerRead (Analyst-WellsFargo):

Yes,goodmorning.


Hi,Roger.


Iguessacoupleofthethingswealwaysliketotalkabout,productexports,whatareyouseeinginthatmarkethereQ1andthoughtsonwhatalotofpeoplearefocusingonintermsofsomesoftnessinthedieselside?


Well,Ithinkglobally,justtocommentondistillateinventories,that'salwayssomethingthatwe'rewatchingandclearlywiththewarmwinter,youknow,andlessindustrialactivityseeingsoftnessinthatdemandwestillexpectgrowthonthedistillate.OntheexportsideoutoftheUS,wehavetheoptionstoeitherplaceproductintheUSorexportandwejustsimplypickedthebestvalueatthetime,whenwemakethatdecision.Butwestillfeelthere'sstillgooddemandthatwhenwelookacrosstheglobeforboth




gasolineanddistillatesoutoftheUS.


Okay,greatandthenshiftinggearstothemidstreamsegment.Thenewfractionatoronline,theexportfacilitylaterthisyear.CanyougiveusanideaofhowweshouldthinkabouttheimpactsofthosetwoeventsaswelookattheEBITDAguidanceoriginallyforthoseprojects,kindofthinkingQ1thisyearprobablytoQ1ofnext,andwhat'sthereasonableprogressofhowthatworksitswayin?


Sothefirststeponthoseisthefractionator,arelativelyminorpieceofthattotal$400millionto$500millionofEBITDAguidancethatwegave.ThenextbigstepislaterintheyearwhenyoureallyreachwhattheLPGexportterminal,alargerfee-basedcomponentaswellassomecommercialopportunities.Sosmallerimpactinthebeginningandthentoward,youknow,assumingthatwestartupontimeinthethirdquarter,inthefourthquarteryou'llbegintoseethenthatfullimpactofthat$400millionto$500million.


Andjustaquickfollow-uponthat.Oncetheexportfacilityisavailable,isthatsomethingwhereyouramptofullutilizationfairlyquicklyorshouldwethinkofthatasastepprocess?I'mnotfamiliarwiththosetypeofunitssoI'mjustwonderingwhattheexpectationshouldbe.


Yes,wellwe'reconnectedbothtoourfractionatorandit'ssayit's150,000barrel-a-dayequivalentinitially,roughly40,000barrelsorsoofpropanecomesoffofournewfracandthenwe'reconnectedtoMontBelvieuandotherfacilitiestosupplementthat.Soitreallyisaboutgettingthecapacityinplace,thecommercialagreementsandthenyou'vegotthecapacitytonotonlytaketheoutputfromourfracbutalsosupplementthatwithfeedsoutoftheNGLsystemontheGulfCoast.


Ithinkwesaid,though,weexpectabouteightcargoesamonthcomingthroughtheterminalandIwouldsaywe'vemadegreatprogressoncontractingthoseeightcargoes.


Andhasmarginonthatbeenaffectedatallbythechangeinpricingoristhat,sinceit'smoretariff-relatedwedon'thavetoworryasmuchaboutthelowerpricestoday?


Tariff,thetariffimpacthasbeenwherewethoughtintermsofthefee.That'sabout80%ofthat.Whatisnarrowertodayisthecommercialopportunity,althoughweexpectthattowidenagainwithshippingconstraintsremovedandasmarketsbegintoequilibratewhenyouestablishthat.


Okay,greatthankyou.

Operator :

BlakeFernandezwithHowardWeil




BlakeFernandez (Analyst-HowardWeil):

Hi,guys,goodmorning.Greg,youmentionedmaxgasolinemodeandIguesshistoricallywe'vealwaysviewedPSXashavingkindofoneofthehighestdistillateyieldsandthat'sbeenanadvantageuntiljustrecentlywherethemarket'sobviouslyshiftedinfavorofgasoline.Arethereanyopportunitiesthatyou'relookingattomaybereconfigureorchangeyouropportunitiestocapturesomeofthegasolinestrengththatwe'vebeenseeing?


Yes,atthemargin,butIthinkweran44%gasolineinthefourthquarterandIthinkthat'spushingthemaxofwhatwecando.


Okay,sothere'snocapitalinvestmentprojectsoranythingthatyou'reevaluating?


Wedohaveaprojectthatwe'veauthorizedatBaywaytoimprovetheyieldontheFCCtherethatwouldincrementallyaddsomevolumetothat.Andaswegoaroundoursystemwe'relookingatthatbutthosetakeabitlongerbecausetheyarecapital.ButIthink,asGregsaid,intermsofoptimizationaday,we'redoingallwecantopushthatgivenwherethemarketistoday.


IthinktheFCCupgradeatBaywayis2018,sowe'reacoupleyearsoutonthatprojectbutwe'reexecutingitrightnow.


Gotit,okay.Thesecondone,thismaygonowherequicklybutI'llaskitanyhow.SoBuffetcontinuestoincreasehisstakeholdingandI'mjustcuriouswhat,ifany,dialogueyou'rehavinginanysenseofwhatthelongertermintentionsare?


You'reright.It'sgoingnowhere.(Laughter)Youknowwhat,Blake?Wedon'tcommentonconversationswithshareholders.


It'sagoodquestionthough.(Laughter)


Fairenough,thanks.


Takecare.

Operator :

EdWestlakewithCreditSuisse.

EdWestlake (Analyst-CreditSuisse):




Hithere,goodafternoon.Congratsoneverythingyou'veachievedlastyearandlookingforward.Quickquestiononrisk.Really,inthemidstreamarea,obviouslyoilprices,gaspricesarelow.Volumesaregoingtobecomingdownacrossthepiste,somaybejustgiveus,Idon'tknowifyou'vedoneanassessmentofvolumeandcounter-partyrisk.AndI'mthinkinglessaboutyournewprojectswhichobviouslyyouspentalotoftimeworkingonbutmoremaybeinsomeofthelegacyandDCParea.


Well,IthinkthatwelookacrosstheDCPportfolioand90%ofitiskindofinvestmentgradesoIthinktheyhavegoodcounter-partiesontheothersideofthat.Aswethinkthroughthevolume-risksideofitandtheportfolio,wethinkPermianisprobablygoingtodoalittlebetter,wethinkD-Jwilldogood,SCOOPisgoingtodogood,EagleFordwilldeclineaswethinkacrossthat.AndsoIwouldsayjustfromapurevolumetricperspective,we'reprobablygoingtobeflattomaybeslightlylowerin2016atDCP.

Wethinkthatgasolinedemandisgoingtobegood.Wethinkdistillatedemandisgoingtogrowalthoughwehavechallengedinventoriesthere.Wethinkpetrochemicaldemandisgoingtogrow.Soonbalanceaswethinkacrosstheportfolio,midstreamkindofflattodownatDCP,ofcoursewe'regrowingourmidstreamiswhatwe'redoing,withthefraccomingup,exportfacility,BayouBridge,DAPLcomingonlate2016,sowe'llseeincreasedvolumesinthetransportationsegmenttherethatflowthrough.Andthenwethinkpetrochemicalswillbeokay.Timifyouwanttoadd-onthat?


IthinkthatreallyisandIjustthinkwe'relookingatthemacro-environment,withtheproductionbreakingoverintheUSthere'snotalotofextravolumedrivethroughthatandsoIthinkit'sjustaquestionofhowmuchdeclineoccursaroundthat.

Wedothinkthegasmarketswillcontinuetohaveaprettygoodpullandthat'sapieceofwhatunderliesDCPaswellandsotothispointwe'venotbeenconcernedandIthink,toreiterate,thecounterpartiesonourmidstreambusinesslookverysolid.


YoumightjusttalkalittlebitaboutourviewandwhatthatdoestoPSXPandtheinvestmentportfoliothatwe'rethinkingout2018andbeyond?


Todatewe'vedone--we'veexpandedontheNGLchain,majorcrude[line]withDAPL,ETCOP,relatedtokindofnewproduction,goodcounterparty,solidvolumesonthatontheT&Dside.Butaswegoforward,aswelookatourportfolioIthinkthatwe'reshiftingourattentiontothingsthatsupportourrefiningbusinesslogistically,thattouchexistingmidstreamassetsoraddvalue,perhapsasthechemicalsvaluechain.Sowe'reshiftingmoretothedownstream,thedemand-sideaswethinkaboutthemidstreamoptionsversusaheavyfocusinitiallyonthatupstreampartofthat.


Solessonproductiongrowthandmorearoundliberatinghigherreturnsinourexistingassets.


Okay,clear.Andthenjustasmallerpoint.Yourrefiningturnaroundexpense,ImeanIthoughtitwouldmaybecomedownabitthisyear.It'sstillahealthychunkmaybejusttalkthroughwhatthekeyplansareontherefineryandturnaroundsideforthisyear.




KevinMitchell(CFO):

Fromanexpenseside,Ed,weactuallyspentquiteabitlessin2015thanweoriginallyplannedandsotheoutlookfor2016issomewhathigherthanwepreviouslytalkedaboutsothatreflectsthetimingoftheactivitythatendedupmovingfrom2015into2016.Asyouknow,wedon'tgivespecificguidanceonexactlywhatwe'redoingandwhen.Wegivecostguidancefortheupcomingquarterandthefull-yearoutlookonthat.


Rightbutit'sashiftingsowecanlookintothat.Okay,thankyou.


Yes,right.

Operator :

PaulSankeyfromWolfeResearch.

PaulSankey(Analyst-WolfeResearch):

Goodmorning,all.CanyoujustupdateusonhowthechangesinoilpriceandtheeffectsontheUSE&Pindustryarecomingthroughfromyourpointofview.I'mparticularlyinterested,thetoughestoneforusisalwaystheNGLmarket.Canyoutalkaboutthedynamicsthereandifthere'sashiftinwheresupplycomingfrom,shiftintheoversupply?Andthenupdateusonhowyou'regettingonwiththeexportswhichyouhavepartlydonebutitwouldjustbeinterestingifyoucouldgiveitmorefromamacroperspective.Thanks.


Paul,ontheNGLside,wecontinuetoseegrowthintheNGLsupplybutthere'snoquestionthatit'sgoingtobeataslowerpaceaswelookout.Theotherinterestingthingisthatthere'salotofethanerejectiontoday,asthevaluesdon'tpullitforward,soIthinkasthecrackersstartupthere'sgoingtobeaninfluxofethanesotospeakintotheNGLpiece.ButIthinkthatcertainlycausesussomepausewhenwethinkabouthowlargeandhowmuchincreasebeyondtodayweseeintheNGL.StillseeitbutprobablynottotheextentthatwehadseenacoupleyearsagowithalloftheE&Pactivity.

Ontheexportside,alotofintereststillinLPGcargoesforbothpetrochemicaloperationsandheatingmarkets,Asia,LatinAmerica,andevenEurope.SoIthinkwe'restillseeingalotofinterestaroundtheworldaspeoplelookatalternatesupply,sotospeak,onboththefuelsandpetrochemicalsside.SoasGregmentionedearlier,alotofgoodprogressonthecontractsidesandjustalotofinteresttherethatwe'reworkingtocontinueto[load].


Welookatthebalancesandwe'regoingtobelongpropanesowethinkwe'regoingtohavetoexportpropanetomakeeverythingworkforthenextfewyearsinthiscountry.


Gotit.Andforgivemeifyou'vegiventhesenumbersbutdidyousayhowmuchgasolineanddistillateyouexportedandhowmuchinfactmaybecrude?Idon'tknow.





Wehaveinthepast.Idon'tknowifwedidforthequarter.


Inthequarter,it'slike122,000forthequarterandit'satypical80%distillate,20%gasoline.


Okay,andagainIguesswhat--Iassumethatthedemandthereisrobust?


Yes,Iwouldsaydemandisrobustbutwe'veactuallyexportedfewerbarrelsthisyearthanwedidlastyearandit'sbecausewe'vehadbetterplacementopportunitiesinthedomesticMarkets.


Understood,and--oh,yes,sorry.Thecrudeexportthing,doesthatmakeanydifferenceandI'llleaveitthere.Thanksguys.


We'llsee.Taylorwantstoanswerthequestion.(Laughter)Idon'tthinkitreallymatters.Idon'tthinkyou'regoingtoseealotofcrudeexportsoutoftheUS.Idon'tthinkthenumbersworkallthatmuch.Ithinkitprobablycapsthedifferentialandyou'renotgoingtoseethebigblowoutsthatwesawin2013and2014.ButIthink2016isgoingtobeareallyvolatileyear.Andthere'sgoingtobetimeswhereit'sjusthardtocallwhatthatdifferentialisgoingtobe.Wethink4-6longterm,itoughttobeinthat.That'swhatit'sgoingtotaketoexportbarrelsofcrudeoutoftheUS.

KevinMitchell(CFO):

CouldcreateopportunitiesforusatBeaumont.


Ithinktheotherwaytolookatthatwe're--withBeaumontandevenwithSweenyandFreeport,wehaveoptionstocapitalizeonshouldtheydevelop.ButIthinkgenerallyourviewisthere'sjustkindofabalancingpointtodaywhereexcesscrudeintheworldistryingtopushinandthenwe'vegotlocalproductionshere.SoIthinkitjustnarrowsthatdipatthecoastandIthinkthat'sgoingtocontinueandIthinkthat'sasignificantchangefromoverthelasttwoyears.


Great.


Thanks,Paul.


Bye.

Operator :

JeffDietertwithSimmons&Company.




Jef f Dietert (Analyst-Simmons):

Goodafternoon.


Hi,Jeff.


Youtalkedalittlebitaboutshiftingyourorganicgrowthawayfrommeetingproductionneedstowardsmaybebetterintegratingexistingassets.WhataboutM&A,assetM&A,corporateM&A,wheredoesthatfallinthepeckingorder?


Wellcertainly,Ithinkwelookateverythingthat'soutthereandwethinkaboutbuild-multipleversusabuy-multipleandaslongasthebuild-multiplesarebetterIthinkyou'llseeusdothat.Butwe'llcertainlytakealookatwhatcomesacrossandeverythingoutthere,Jeff.


AndIsaw--IhadreadthatWhitegatemaybebackonthemarket.Canyoutalkabouttheprocessthere,ifthereisone,andperhapsanyotherassetsyoumayconsiderdivesting?


HereiswhatIcantellyou,that,yes,weareinaprocessinWhitegateandwe'rekindofwellintothatprocesssoweobviouslycan'ttalkaboutthespecifics.Butwehavepeoplethatareinterestedandsothere'salistofpeopletherethatwe'regoingthroughwiththatasset.Ithinkthatonbalancethat'stheonlyprocesswehavegoingonrightnowintermsofassets.

PeoplegetaskedalotabouttheWestCoastandtheUS.AndWestCoastis,we'vesaidit,it'sanoptiononthefuturebutwehavenocurrentprogramsorthere'snothinginourwaytodayintermsoftheWestCoast.Andmarginhadbeenprettygoodtherethelastyearortwoandwe'vegotgoodassetsoutthere.We'vegotgreatpeoplerunningthoseassetsandsoit'sanoptiononthefutureisthewayIlookattheWestCoast.


Gotyou,andfinally,asfarasSweenyfracTwoisconcerned,shouldwethinkaboutthatprojectjustbeingonholduntildrillingactivityre-accelerates?


Wellasyouknow,wepushedfrac2FIDfromlastyearintothisyearsowe'restilldoingengineeringworkonthatandwe'llmakeadecisiononthatlaterthisyear,midyearthirdquarter.Butwewon'tproceedunlesswegetitfullycontractedandwe'relongNGLtodaybutit'snotfullycontractedsowearen'tgoingtobuildaspeculativefrac.


Gotit.Thanksforyourcomments.

Operator :




PhilGreshfromJPMorgan.

PhilGresh (Analyst-JPMorgan):

Firstquestionisjustonchemicals,giventhecompressionofthegas-to-oilpriceratio,asyoulookaheadareyoustillconsideringasecondcrackeratthispoint?Wouldtheeconomicsworkatthisstageifwewerejustindeedstayatthesetypesoflevels?


Phil,it'sTim.Wecontinuetodoengineeringworkand,againI'llreiterate,thisisaglobalviewwithaglobalbusiness.NorthAmericastilllooksattractivelongtermandtoday'smarginsdowork.It'sobviouslynotthesamereturnthatwewouldhaveifitwas$0.10apoundbetter.SoIthinkthat,forus,it'sreallyaboutcontinuingtomeetthecustomerdemand,theopportunityandthenstructurallyourviewofthelongtermadvantageonUSorMiddleEastrelatestoethanecrackinginthecasethattheethylenechainstill,tous,hasthegreatestappealandwethinklongtermacompetitiveadvantage.Althoughit'slessthanitwas,it'sstillquitegoodbyhistoricalstandards.


Okay,soisthereaperiodoftimeinwhichyou'retryingtomakeadecisiononasecondFIDorisitopenendedatthispoint?


Sodoingengineeringwork,anythingyoustartnowputsitoutpost-2020andIthinkwejustcontinuetoevaluatetheoptions,siting,permitsallthosekindofthings,tolookatithereandthenlookatoptionsthatwemighthaveavailableinotherpartsoftheworldaswell.


Okaygotit.Secondquestionisjustonthespecialtiesbusiness.Youmentionedlowermarginsinthestepdownsequentially.Wouldyousaythatacomponentofthatisseasonalordoyouthinkthat,that'smoreofastructuralstepdownfromincreasedcompetitioninthatbusinessthatweshouldthinkaboutasamoreofanewrun-rateormaybesomecombinationofthetwo.Howwouldyouthinkaboutthat?


Acoupleofthings,youhavealageffectinthatbusinessinpricessoaspricescomedownyoutendtoholditthenitcatchesup.AndsoIthinkthisquartertherewasapieceofthat.ButifyouthinkaboutfinishedlubricantspriceversusVGOfeedstockintothebaseoilbusiness,theonesegmentthatweseeintheUSthat'sweakerisoilandgasasyoumightexpect.Butgenerallystrongautomotivebusinessthatwhenyou'relookingatwhat'sgoingoninDetroit,andsoourviewisvolumesarestillprettygoodthisyearversuslast.Andnotalotofgrowthinherentlyinthatbusinessbythenatureofitbutweseenothingfundamentalthere.

AndIthinkwewouldsaynextyear,tous,probablylooksalotlike,orthisyearlooksalotlikelastyear,intermsofhowwelookatthelubricants.Butit'sabusinesswelike,goodreturns.IthinkthisquarterjusthadsomenoisearounditandIwouldalsosaythatyoucanimaginecustomersdon'tparticularlyliketobuyalotwhentheyseethepricefalling.Sowedon'tseealotofinventoriesbuildingthechainbuttheydon'twanttogetcaughtonhighercostinventorysothere'salwayssomeeffectwhenyou'llseethatinanyquarterinwhichthatoccurs.





Okay,understood.Lastquestionisjustontheglobalgasolinesupplydemandoutlookfor2016.Wheredoyouguysstandonthat?Becauseifwehaveglobaldemandgrowthinthe400,000to500,000barrel-a-dayrange,isthereenoughglobalsupplytokeepupwiththatandwhat'syourviewongasolinecracksforthisyear?


Well,IthinkwearefairlywellsuppliedtodaybutbasicallyifIbreakthecomponentswewouldexpectstrongergasolinegrowthgloballythandistillate.We'rethinkingit'slessthanthisyearbutintotalthetwo,probablyinthemillionbarrel-a-dayrangeorsowith2/3orsoofthatbeingonthegasolinesideand1/3reallycomingfromthedistillates.Clearly,distillatehasmoreheadwind,Ithink,becauseofthegeneraleconomicconditionsandlesscapitalspendasyouthinkaboutindustrialactivitywhereaswestillseeaprettystrongconsumermarketaroundtheworldthatpullsalonggasolineandtosomeextentthechemicalsbusinessaswell.


Okaythanks.

Operator :

RyanToddwithDeutscheBank.

RyanT odd (Analyst-DeutscheBank):

Greatthanks.Goodafternoon,everybody.Maybeacouple,ifIcouldaskoneon,yougavealittlebitofcoloronBayouBridgeandDAPLpipes.Couldyoumaybegivealittlebitmoregranularityintermsofthetimingoftheramponeachandmaybewhattheimpactthatyou'relookingfor,bothtotheslatesinyourrefiningbusinessorpotentialimpactondifferentials?


Yes,solet'sstartwiththeBayouBridgebecauseit'sclosesttobeinginservice.Sotherearetwosegments.OneisNederland,theBeaumontareaovertoourLakeCharlesrefineryandthenfromLakeCharlestoSt.James.ThatfirstlegtoLakeCharleswillbeinserviceattheendofthisquarterandthatwillhavesomeinitialimpactintermsofthemidstreamearnings.Andthenlaterthisyearwe'llcompletethelegintoSt.James.Sothosearebothunderway.

IthinkitclearlyconnectstheWest,theTexasmarketwithLouisiana.There'sstilladriveforthat.ThatlineisunderwrittenonthecommitmentsidewithT&D,sothere'sbeeninterestinthatontherefiningsidetogetanewsourceofsupply.AndIthinkthat'sstillapieceofwhatneedstohappensoIthinkthatjustcontinuestomakecrudeoptionsmoreavailablenowtotheEasternGulfversuswhatwe'veseenjustreallyintheWesternGulf.

IfyoulookatDAPL,ETCOP,theBakkentoPatokaandthenPatokatoBeaumont,Ithinkthere'saprettygoodcallonthenortherntierontheBakkentoday.Againthatline'sunderwrittenwithT&DsbyverygoodcounterpartiesandsoIthinkyou'llcontinuetoseewhenthatcomesinserviceattheendofthisyear,earlynextyear,theabilitytomovethosecrudesthenintothemarketsthatwantthatandthenultimatelydownintotheBeaumontareaasanoptionaswell.Andultimately,forus,wethinkaboutDAPL,ETCOPasapotentialwaytosupplyBaywayviathepipeandaroundwiththeJonesActtankerintoBaywaytomakeitverycompetitivewiththerailoptionthatexistsfromtheBakkentoBaywaytoday.

SoIthinkit'sallaboutcreatingmoreoptionsontherefiningsideforourselvesaswellasothersanditdoesalso,onceyougettoBeaumont,createstheopportunitytoexportshouldthatdevelop.SoIthink




justalotofgoodoptionsandthatprojectwelookisgoingtocontinuetobethelowestcostoptiontogetBakkentothemarketswe'retalkingaboutserving.


What'syourexpectedcostfromBakkentotheGulfviathatroute?


We'venotdisclosedthat.Ithinkwejustsimplysaythatit'sthemostcompetitivebutit'ssubstantiallylessthanrailandlookatotherpipingsystem,it'sstillmoreeffectivewaytomove.


Greatthanksandmaybeonefinalone.We'veseensomeofyourpeerseithertalkaboutoractuallyinvestinvariousways,youknow,capitalinvariouswaystoaddressperceivedoctaneshortages.What'syouroutlookonthisregardandisthereanyinterestinyourorabilitywithintheorganizationtoinvest,toaddresstheshortages?


Sowehaveincrementalopportunitiesthatwe'regoingtopursue.They'revaluecreativebutsmallprojectsandtheydon'taddalot.We'relookingatstandalonealkyandtryingtoseeifthatmakessense.OnotherhandIdon'twanttobethelastoneifeveryoneelsebuildsalky,probablybenoreasonforustodoitsowe'llhavetoassessthatagainstourotheropportunities.Thesmallincrementalthingsthatwe'lldothisyearandnextyearmakealotofsenseandwe'lldothose.


Great.ThanksalotI'llleaveitthere.

Operator :

BradHeffernfromRBCCapitalMarkets.

BradHef f ern (Analyst-RBC):

Goodmorning,everyone.Thanksfortakingmyquestions.

Greg,IjustwantedtogobacktoanearlierquestionaroundDCP.IthinkyouexplaineditrelativelywellbutIwashopingyou'dputafinerpointonit.Ifyoujusttakestrippricing,doyouthinkDCPjustdoesnotrequireanyfurtherequityinjections?


Ifyoutakecurrentpricing?No,wedon'texpect.Theyhaveabalancesheettheycanworkfrom.Theyareworkingtogettheircashbreak-evendowninthemid$0.30thisyearsoIthinkDCPwillbefinein2016.


Okaythanksfortheclarification.AndthenjusttalkingaboutSantaMaria,Iwascuriousifyouhadanyupdateortimelinearoundcrudesourcingthere?Obviously,itsbeenimpactedbytheplant'sdowntime?


Sowe'veincreasedtruckunloadingatSantaMariatomitigatethat.WedorunmoreprocessedinputsatSanFranciscotosupplement.Thepipeisstillsomethingwewouldliketoseesowecontinuetoworkon




moretrucks,otheroptions.WewouldliketogetthepipebackbutIthinkthatisoutsomewhatbasedonpermitsandpublicandgovernmentacceptanceofthat,soIthinkwe'reinthismodeforawhilesowecontinuetolookatnewwaystogetmoreoptionsintherebutuntilwegetthatpipebackinserviceoranalternateit'shardertogetthefullvolumethatweneed.


Thepipe'sthepreferredroutebutwedon'tcontrolthat.SoIthinkfolkshavedoneagreatjobofmitigatingitbutit'skindof[20-25]todayimpactatSantaMaria.WeprobablycutthatinhalfwithtrucksandthenwemadeupthevolumetricsonprocessinputsatRodeo,butobviouslythemargin[tellsus]notasgood.


Great.I'llleaveitthere,thanks.


Thankyou.

Operator :

Thankyou.Wehavecometotheendoftheallottedtime.I'llturnthecallbackovertoClaytonReasor.

ClaytonReasor (EVPofIR):

Well,thankyouverymuchforyourinterestinPhillipsandparticipatinginthecalltoday.You'llbeabletofindatranscriptofthecallpostedonourwebsiteshortlyandifyou'vegotadditionalquestionsdon'thesitatetoreachouttoeitherCWorme.Wewouldbehappytotakeyourcall.Thanksagain.

Operator :

Thankyou,ladiesandgentlemen.Thisconcludestoday'sconference.

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