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DATE

Wednesday, April 29, 2026 at 12 p.m. ET

CALL PARTICIPANTS

  • Chairman and Chief Executive Officer — Mark E. Lashier
  • President, Marketing and Commercial — Brian M. Mandell
  • Executive Vice President and Chief Financial Officer — Kevin J. Mitchell
  • Executive Vice President, Refining — Richard G. Harbison
  • Executive Vice President, Midstream — Donald A. Baldridge
  • Vice President, Investor Relations — Sean Maher

TAKEAWAYS

  • Reported Earnings -- $207 million, or $0.51 per share.
  • Adjusted Earnings -- $200 million, or $0.49 per share.
  • Mark-to-Market Losses -- $839 million, arising from short derivative positions used as economic hedges for physical commodity exposure.
  • Operating Cash Flow (excluding working capital) -- Approximately $700 million, distinct from an overall $2.3 billion use of operating cash flow including working capital.
  • Capital Spending -- $582 million deployed during the quarter.
  • Shareholder Returns -- $778 million returned, comprising $509 million in dividend payments and $269 million in share repurchases.
  • Dividend Increase -- Quarterly dividend raised by 7% on an annualized basis.
  • Cash Position -- Quarter-end cash balance of $5.2 billion.
  • Corporate Debt Target -- Commitment to reduce total debt to $19 billion by end of 2026 and $17 billion by end of 2027; consensus cash generation for 2026 and 2027 estimated at $8 billion per year.
  • Worldwide Market Capture -- Achieved 138% for the quarter, driven by optimization, commercial activities, and favorable trading dynamics.
  • Refining Utilization Rate -- 95% achieved during the quarter, with crude processing inputs down approximately 2% quarter over quarter due to maintenance and seasonal factors.
  • Refining Operating Costs -- $6.21 per barrel, reflecting an $0.80 per barrel year-over-year improvement; normalization implies progress toward the $5.50 per barrel 2027 target.
  • Mark-to-Market Segment Impact -- Losses specifically affected Refining, Marketing and Specialties, and Renewable Fuels segments.
  • Midstream Performance -- Results declined due to lower volumes from winter storm Fern, lower margins from recontracting, and accelerated depreciation in the Permian Basin gas plant.
  • Chemicals Segment -- Result improvement attributed to higher polyethylene margins; guidance reflects low-80s utilization for global O&P operations in the next quarter.
  • Cash Collateral on Derivatives -- $3.2 billion on margin at quarter-end associated with price risk management; declined to $2.1 billion soon after the quarter.
  • Commercial Organization Activity -- Over 6 million barrels of hydrocarbons traded daily, supported by geographic diversification and tripling of vessels on time charter, covering half the waterborne crude slate.
  • Western Gateway Pipeline -- Joint venture and shipper agreements targeted for completion mid- to late summer, with an expected in-service date in 2029.
  • Midstream EBITDA Target -- $4.5 billion by year-end 2027, with long-term contracts renewed for over 10 years in key areas.
  • RIN Credits Value -- Current blended RIN credit value is more than double 2025 levels, driving improved renewable diesel cash flow.
  • Ongoing Capital Allocation Policy -- Commitment maintained to return at least 50% of net operating cash flow to shareholders.

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RISKS

  • Kevin J. Mitchell stated, "the company's financial results were impacted by mark-to-market losses of $839 million related to short derivative positions used as economic hedges to manage price risk on certain physical positions."
  • Midstream results declined "mainly due to lower volumes, largely due to impacts from winter storm Fern, lower margins associated with customer recontracting, and accelerated depreciation associated with a Permian Basin gas plant."
  • Refining, Marketing and Specialties, and Renewable Fuels experienced decreased results "mainly due to mark-to-market impacts."
  • "use of operating cash flow of $2.3 billion." cited, with $3.2 billion posted as margin collateral at quarter-end due to price volatility.

SUMMARY

Phillips 66 (PSX +4.91%) reported adjusted earnings of $200 million, with mark-to-market derivative losses and heightened commodity volatility driving significant segment impacts. Management highlighted substantial cash outflows linked to hedging collateral and winter storm-related events within Midstream, but clarified plans for staged debt reduction and robust liquidity. Strategic actions—including operational optimization, expanding commercial trading, and capturing high market capture—enhanced value in volatile markets, while project milestones in key pipelines and chemicals reinforce the growth outlook.

  • Phillips 66 expects inventory-driven working capital benefits in the remainder of the year to support cash flow recovery and debt paydown, even as $2.1 billion of collateral remained temporarily posted after quarter-end.
  • The company reaffirmed its targeted capital allocation balanced across debt reduction, dividends, share repurchases, and capital spending, contingent on maintaining at least 50% of net operating cash flow returns to shareholders.
  • North American petrochemical and renewable fuels positions are expected to benefit from structurally advantaged feedstocks and improved credit values, with utilization and operating cost initiatives supporting potential margin tailwinds.
  • Major new investments, including Western Gateway and the Golden Triangle Polymers and RLPt projects, are poised to enter service within the 2027 horizon, with new customer contracts and regulatory momentum cited for sustained growth in core segments.

INDUSTRY GLOSSARY

  • Market Capture: The ratio of actual realized refining margins to a representative industry margin, reflecting operational and commercial effectiveness in extracting value from market conditions.
  • RIN: Renewable Identification Number; U.S. credit used for EPA Renewable Fuel Standard compliance and a driver of renewable diesel economics.
  • Time Charter: A lease arrangement for vessels where the charterer controls timing and employment, used by Phillips 66 to ensure shipping rate stability for crude and product transport.
  • Backwardation: A market condition where near-term futures contracts trade at higher prices than longer-dated ones, often indicating tight supply and affecting the economics of inventory holding.
  • CPChem: Chevron Phillips Chemical Company LLC, a major joint venture between Phillips 66 and Chevron Corporation, focusing on petrochemical products.
  • Golden Triangle Polymers: A Gulf Coast petrochemical project under development by CPChem, contributing new capacity in polyethylene production.
  • Western Gateway: Phillips 66’s new-build pipeline project to deliver refined products to the West Coast, targeting a 2029 in-service date.
  • ARB (Arbitrage): Capturing price differentials between markets or products, such as exporting LPGs from the Gulf Coast to global buyers at advantageous margins.

Full Conference Call Transcript

Mark E. Lashier: Geopolitical events in the Middle East drove unprecedented commodity price volatility during the quarter. To put this in context, March was the first month that price moves in major crude oil, refined product, and European natural gas benchmarks all exceeded the 95th percentile. In the face of this volatility, we remain focused on operational excellence. Our team is executing safely and reliably. The majority of our assets are in the U.S. We have pipeline connectivity to some of the lowest cost and most reliable hydrocarbon corridors in the world. This positions us to reliably supply energy to support global demand. Due to the closure of the Strait of Hormuz, a significant amount of global refining and petrochemical capacity is down.

We, however, continue to operate at high utilization, supplying products to our customers. Additionally, we have global placement optionality through our commercial organization. This quarter has seen a significant and favorable shift in market fundamentals. First, the importance of U.S.-sourced hydrocarbons has increased due to a need for diversification and access to reliable supply. Second, unplanned downtime in global refining assets has reduced inventories and will support margins. Finally, reduced petrochemical production globally due to downtime and higher naphtha prices has reduced inventories and will also support margins. As a reminder, 80% of CPChem's capacity is on the U.S. Gulf Coast with competitive ethane feedstock. Recent global events show the importance of reliable domestic energy supply.

Our Western Gateway pipeline project will address long-term refined products needs, improve supply flexibility, and increase reliability for the West Coast markets. We are excited about the future due to our strong asset footprint, culture of operating excellence, and attractive fundamental outlook across all of our businesses. Anchored by the strength of our balance sheet, we are confident in our ability to navigate market volatility and capture opportunities. Brian will now share more on slide four about how our commercial organization is one of our competitive advantages.

Brian M. Mandell: Thanks, Mark. We have a strong commercial organization with six offices across the globe. Our business enhances our asset footprint by optimizing feedstocks, delivering products into the marketplace, and capturing value. We capitalize on geographic dislocations and turn volatility into opportunity. With our expertise in global market dynamics, we are ahead of the game. We have an asset-backed trading model and can leverage our physical footprint to take advantage of opportunities. We trade over 6 million barrels of liquid hydrocarbons every day. This creates optionality and economic value. Markets are fluid right now, and volatility is likely to persist into next year. Recent disruptions have created multiple opportunities.

For example, we moved Bakken crude oil to our Beaumont terminal on the U.S. Gulf Coast and then, leveraging the Jones Act waiver, to our Bayway refinery. We displaced international crudes with domestic grades into our refining system and sold the international barrels into tight overseas markets. We placed gasoline from our U.S. Gulf Coast commercial blending facilities into the West Coast using the Jones Act waiver. We leveraged our global footprint to deliver LPGs and naphtha produced at our Sweeney hub to global petrochemical customers around the world. Commercial performance is included in the results of our operating segments, enhancing their margins and improving market capture.

Moving to slide five, the recent shock to the global energy system has been universal. Refining capacity has been damaged. Logistics have shifted. Arbitrage routes have changed. We are watching these and other signposts closely to capture additional value. The differentials between global indices and physical markets have spiked. Forward markets are heavily backwardated. This dynamic reflects tight global crude oil balances. The outlook for product markets looks even tighter. We expect refining margins to be constructive through the remainder of the year. Our market analysis, commercial capabilities, and global footprint enable us to optimize the flow of molecules around our system. Our team maximizes the margin uplift across our value chains.

Here are two examples of how we are optimizing our system. First, we have added two dozen originators around the globe. They speak the language, they know the culture, and they know how to source deals that unlock more value and optionality, providing long-term access to key global markets. Second, we have tripled our vessels on time charter in the past two years, securing roughly half of our waterborne crude slate. The global tanker fleet has become tight with limited spot availabilities and a large share of sanctioned vessels. This has caused freight rates to increase to historic levels. By locking in our freight rates early, we reduce the cost of crude to our refineries.

We optimize around our refineries, pipelines, and terminals to ensure that we are leveraging every molecule, driving additional value from our fundamental knowledge of the global markets. Backed by world-class assets, we find opportunity in volatility to deliver greater shareholder value. I will now turn the call over to Kevin.

Kevin J. Mitchell: Thank you, Brian. On slide six, first quarter reported earnings were $207 million, or $0.51 per share. Adjusted earnings were $200 million, or $0.49 per share. As a result of a sharp increase in commodity prices during the first quarter, the company's financial results were impacted by mark-to-market losses of $839 million related to short derivative positions used as economic hedges to manage price risk on certain physical positions. We had a use of operating cash flow of $2.3 billion. Operating cash flow, excluding working capital, was approximately $700 million. Capital spending for the quarter was $582 million. We returned $778 million to shareholders, including $269 million of share repurchases and $509 million of dividend payments.

We increased the quarterly dividend 7% on an annualized basis. I will now cover the segment results on slide seven. Company adjusted earnings were $200 million. Midstream results decreased mainly due to lower volumes, largely due to impacts from winter storm Fern, lower margins associated with customer recontracting, and accelerated depreciation associated with a Permian Basin gas plant. In Chemicals, results increased mainly due to higher polyethylene margins. Across Refining, Marketing and Specialties, and Renewable Fuels, results decreased mainly due to mark-to-market impacts. In Corporate and Other, the pretax loss increased primarily due to the inclusion of costs associated with the decommissioning and redevelopment of the idled Los Angeles refinery site. Slide eight shows cash flow for the quarter.

We started the quarter with a $1.1 billion cash balance. Cash from operations, excluding working capital, was approximately $700 million. There was a $3 billion use of working capital, mainly reflecting an inventory build and an increase in cash collateral on derivative positions, partly offset by the net benefit in our payables and receivables positions associated with rising commodity prices. We funded $582 million of capital spending and returned $778 million to shareholders through share repurchases and dividends. Our commitment to return greater than 50% of net operating cash flow to shareholders remains unchanged. The company increased debt in the first quarter.

Given the sharp increase in commodity prices, we issued a term loan and increased borrowings on short-term facilities to manage the margin collateral requirements. We ended the quarter with $5.2 billion in cash. We are well positioned to manage further commodity price volatility through significant liquidity, including a high cash balance, and cash generated from operations. Slide nine shows the projected path from the current debt level to year-end 2026 and 2027 debt. We remain fully committed to a total debt balance of $17 billion by year-end 2027. Consensus cash from operations in 2026 and 2027 is approximately $8 billion.

In the remainder of 2026, we expect operating cash flow, working capital benefits, and the reduction of cash balances as markets stabilize to enable us to reduce debt to approximately $19 billion. In 2027, we expect operating cash flow to enable us to reduce debt by a further $2 billion to $17 billion. This is consistent with the capital allocation framework we have previously laid out, with approximately $2 billion each to dividends, share repurchases, capital spend, and debt paydown. Looking ahead to the second quarter on slide 10: In Chemicals, we expect the global O&P utilization rate to be in the low 80s driven by the uncertainty of operating levels at CPChem's joint ventures in the Middle East.

In Refining, we expect the worldwide crude utilization rate to be in the low to mid-90s. Turnaround expense is expected to be between $120 million and $150 million. We anticipate Corporate and Other costs to be between $430 million and $450 million. Moving to slide 11, Mark will now provide some final thoughts. We will then open the line for questions.

Mark E. Lashier: Great things happen when preparation meets opportunity. The current environment is attractive across all our businesses. We have prepared by focusing relentlessly on what we control: cost, culture, competitiveness, and capital with discipline. All in the service of safe, reliable operations that deliver strong shareholder returns. Our teams are performing, and we are pressing in and capturing those opportunities. Fully prepared, fully committed to execute and win. When we win, you win.

Operator: Thank you, Mark. We will now open the call for questions. 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 star then one on your touchtone phone. If you wish to be removed from the queue, please press star then one again. 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. Steve Richardson from Evercore ISI. Please go ahead. Your line is open.

Steve Richardson: Hi. Thank you. I was wondering if we could start on the mark-to-market adjustments and if you could give us some color on these impacts by segment. I know you addressed this in the 8-Ks, but could you get into a little bit of how the volatility that you witnessed was outside the bands of expectations? And can you also hit on how you think about that draw of liquidity, what it means going forward, and any impacts it may have on your shareholder return commitments?

Kevin J. Mitchell: Yes, Steve. Let me walk through some of that detail. As we laid out, in the first quarter we saw an $839 million mark-to-market loss from an income statement standpoint that impacted Refining, Marketing and Specialties, and Renewables. The specific amounts by segment were detailed in the press release. This is broadly consistent with what we put out in the 8-Ks. We said approximately $900 million at that point; that was our best estimate at that time. It is important to make it clear that these are mark-to-market impacts on paper hedges that we have in place to offset physical purchases.

Those purchases are marked to market at the end of each month, but the physical inventory is not, and so there is a net impact through the income statement. We do this to protect economic value; this is a risk mitigation tool. We have been doing this for some time. It is standard practice. In the normal course, the impacts of these mark-to-market transactions are just not that significant. But as Mark mentioned in his comments, we saw unprecedented volatility across the commodity markets in which we participate, and that caused an outsized impact.

As you look ahead, what you can expect is very much a function of where commodity prices move from March through, say, the end of the year. If we were to use the forward curve as of end of day yesterday, we would recover by the end of the year about $500 million of that $839 million, and it is a commodity-by-commodity calculation on a quarter-by-quarter basis. From a cash standpoint, at the end of the quarter we had a total of $3.2 billion out on margin associated with all of this activity.

That differs from the income statement effect because there are other barrels being marked where we actually do a corresponding impact to reflect the physical gain, and so you have more paper activity than is subject to the income statement-related mark-to-market. That cash impact will come back two ways. One, directly in falling prices you will see the reverse effect. But in normal course, because this is a continual process, as volatility subsides, we effectively consume this cash through our normal purchasing activity.

To put some context around that, $3.2 billion out on margin at March; at the end of yesterday, it was $2.1 billion even though the absolute price levels are pretty similar to where they were at the end of the first quarter. You will see that come down as we work our way through the year.

Regarding capital allocation—debt reduction and share buybacks—big picture, as covered earlier and on the slide we put in the presentation on debt targets, we think we will be able to utilize working capital benefits in the remainder of the year, operating cash flow, and, as markets stabilize, we do not need to carry as much cash as we showed at the end of the quarter. We can draw down that cash, get debt down to about $19 billion at the end of this year and then down to our target $17 billion next year, all while still returning 50% of our operating cash flow through dividends and buybacks.

We used the Street estimates for cash generation in that calculation, but I feel optimistic there is upside as well. We will hold true to that—50% back to shareholders—and the excess will accelerate debt reduction.

Steve Richardson: That is great. Thanks for the fulsome answer, Kevin. A follow-up on CPChem. The consultants have full-chain margins up—I believe $0.33 at last check for the second quarter. What are you seeing in your business and your view on capturing this with very high utilization on the U.S. Gulf Coast into the second quarter and the balance of the year?

Mark E. Lashier: Yes, absolutely, Steve. CPChem is well positioned to capture those margins. There can be some contractual step-ups that occur, but they are out there pushing. You have seen the supply and demand situation tighten up dramatically with the limitations coming out of the Middle East. Additionally, you have seen limitations for producers in Asia—frankly, some countries in Asia are selectively moving hydrocarbons away from petrochemical production and into energy use to protect that, which further tightens things up. The cost curve has dramatically shifted. As the price of oil has gone up versus low-cost ethane in North America, you see that price floor going up, driving the margin increases.

Prior to Venezuela and prior to the activities in Iran, China was accessing deeply discounted crude, converting that into deeply discounted naphtha, and then pouring that polyethylene into the world market. We think that was somewhere in a 5 to 6 cents per pound advantage versus what the cost curve should have been. Now that has been eliminated with what has been going on, and so it is very constructive for CPChem. They can operate from the U.S. Gulf Coast at high rates; over 80% of their capacity is in the U.S., with access to advantaged ethane feedstocks that have been stable versus the rest of the world. They are very well positioned to capture those margins.

Operator: Neil Mehta from Goldman Sachs. Please go ahead. Your line is open.

Neil Mehta: Yes. Good morning, Mark and team. The standout number from this quarter was really the worldwide market capture, which ticked up to 138%. Can you give us a couple of examples of dynamics that specifically drove that strength? And then when we think about a mid-cycle market capture rate, you talked about mid-90s type of utilization. I think there are a lot of investors on the call who are thinking that 2Q could be lower than that mid-90s number because of the backwardation in the curve. Is mid-90s actually achievable as we set up for Q2?

Mark E. Lashier: Yes, Neil, it is a great question. Brian was pretty humble in his opening remarks, but we always talk about optionality and creating optionality, and what he and his commercial team demonstrated in Q1 is leveraging that. Think about moving Bakken crude to New Jersey without using a train and leveraging the shipping logistics they have advanced so we have an advantage, including using the Jones Act waivers. All those things lined up to where Brian and his team could take full advantage and drive that remarkable capture number. We are really proud of what they have been doing.

They were not sitting around watching the world in a crisis; they were moving things to take advantage of the optionality we have created and prepared for. Brian, you can talk a little bit more about what your folks have been up to.

Brian M. Mandell: As Mark said, with the huge amount of volatility, market dislocations, and the integration of our businesses, there was a lot of value to be had. Examples: we profited from a long RIN position, including RINs we generated at our Rodeo renewable facility. We were also able to roll some lower-cost RINs from prior year into this year. We had really strong results in our European and Asian trading businesses. The time charters that we put on over the last couple of years really helped in the elevated freight market and reduced our crude cost into our refineries. Finally, some of the product differentials, like on octane and jet, were higher than the indicators, which helped.

For context going forward, if we use our refining indicator, it includes a lot of these impacts already. Historically, an average for the year would be 98%. In Q1, we benefited from all the commercial opportunities I just mentioned. Normally, in Q2, beginning of summer driving season, we would think about mid-90s as a starting point. Tailwinds include butane blending due to RVP waivers, strong jet or octane dips, and additional commercial value. Headwinds include backwardation, inventory impacts, and any turnarounds in Q2. So start with the mid-90s and adjust based on how you think the market will look in Q2.

Neil Mehta: Is it fair to say mid-90s is a good starting point, though?

Brian M. Mandell: Yes, mid-90s would be a good starting point.

Neil Mehta: Okay. And then, Kevin, can you hit slide nine again in a little more detail? There has been pushback that leverage is elevated, and I think part of that is you are holding excess cash. Please unpack this slide.

Kevin J. Mitchell: That is a really important point. From a debt and cash standpoint, we have effectively grossed up the balance sheet—borrowing more than we need from a normal day-to-day standpoint to be positioned in the event that we see more extreme volatility and have a need for, for example, margin calls if there are significant price increases. It feels like since the end of the first quarter, that dynamic has settled down a little bit. While markets still fluctuate, we have been in a $90 to $110 per barrel band on crude over that period. Our expectation is, as market conditions stabilize, we will be able to draw cash down, which will have an offset on debt.

Likewise, on working capital, we had a big working capital use in the first quarter. We expect that to more than come back over the remainder of the year through the combination of normal annual trends—first quarter is usually a working capital use for us—and the margin calls we experienced this year. Our projection is a slight working capital benefit for the full year. Then operating cash flow—we expect healthy operating cash flow, and that will go to debt reduction. Rolling into next year, if we continue to have about $8 billion of operating cash flow, then a couple of billion can go to debt reduction comfortably. All that gets us to our projected $17 billion target.

If we see a continuation of strong margin conditions in Refining and Chemicals, that will further enhance cash generation, enabling us to pay down debt quicker and also return more cash to shareholders.

Operator: Manav Gupta from UBS Financial. Please go ahead. Your line is open.

Manav Gupta: Good morning, guys. A theoretical question: your refining system, which is mostly in the U.S., seems relatively insulated from crude supply disruptions and other global issues. Are U.S. refiners structurally better off than global counterparts in this environment? Is this the time to be bullish U.S. refining or bearish?

Brian M. Mandell: You are absolutely right; this is the time to be bullish U.S. refining. What happened started in Asia, moved to Europe, but the U.S. has been relatively insulated on supply. Refinery runs are strong. Consumer demand is healthy. Crude production is relatively stable. This highlights how we are immune to the crisis, although not to higher prices. At Phillips 66, we only purchase about 1% of our crude from the Middle East. Our crude is generally from Canada, the U.S., and Latin America, and from Canada and the U.S. it is pipeline connected. We are in a very good position.

Mark E. Lashier: I would add that the commercial activities undertaken in the first quarter interface with the rest of the world, allowing us to leverage domestic supply and push normal imports out into what global markets are demanding. In addition to our great position in North American refining, CPChem is rock solid in North American petrochemicals in the high-density polyethylene value chain. All of our businesses really have tailwinds in this environment, and we think those tailwinds will persist for a considerable amount of time.

Manav Gupta: We completely agree. Quickly pivoting: you own significant renewable diesel capacity in the U.S. Renewable diesel margins were negative last year, but we are in a different environment. Given your footprint, is it fair to say year over year you could see a material increase and cash flow inflection in your renewable diesel business?

Brian M. Mandell: Absolutely. Even just thinking about the RINs, the current blended RIN is more than twice what it was in 2025. Just the credit value alone is a significant uplift, and we are running very well right now—above nameplate capacity. You should see a substantial difference versus prior year.

Operator: Doug Leggett from Wolfe Research. Please go ahead. Your line is open.

Doug Leggett: Hey. Good morning, everybody. Thank you for taking my questions. Brian, extraordinary margins are steeply backwardated. I get the bullish near-term outlook. Question is duration—what breaks it? We are seeing airlines cutting capacity or balancing demand. Demand disruption versus physical supply constraints—your response on duration?

Brian M. Mandell: Thanks, Doug. Our view is this will last throughout the rest of this year and into early next year. It is less about demand destruction and more about demand constriction—managing the need for products. We think of it as a race to the top. We are watching very tight crude markets and rising crude prices—over about $106 on WTI, $118 on Brent. As crude prices move up, products will have to move up even further to open up the refinery margin to keep refiners producing the products the world needs. The world is tight, and jet fuel is probably the tightest. Refinery margins are going to keep opening.

We saw that in our European refinery recently where the gasoline crack was somewhat weak compared to the distillate crack, which seemed to be slowing down European refineries. Then the gasoline crack made a large move to the upside, opening up margins so European refiners could produce needed products. We think that will continue through this year and into early next year, even if the Straits are opened in the next month or two.

Doug Leggett: Would you annuitize this or treat it as a windfall?

Mark E. Lashier: We see margins persisting for longer than the Straits being closed. I would not say we would annuitize anything, but we see it as more than just a few months phenomenon.

Doug Leggett: Thank you. Follow-up for Kevin. Your share price is 5% off its high. The opportunity to permanently shift this windfall to your equity value comes from debt reduction versus buying back shares. Why is that not the right answer if this is a windfall?

Kevin J. Mitchell: Debt reduction creates equity value as well, and it is a priority. The $17 billion target we laid out is a target. If we have significant excess cash generation, we will reduce debt below that level. I am not going to say we will stop buying back shares so it can all go to debt reduction. Maintaining a degree of balance through the cycle on capital allocation is important. We have been clear on the 50% return—about half dividend and half buybacks at current levels. As cash generation increases, by definition 50% back to shareholders is a larger amount, and the remainder going to the balance sheet also increases. We view it as a balance.

While we may be only a few percent off our high, we still think there is good value in our share price, and we feel comfortable with our capital allocation plan.

Operator: Joseph Gregory Laetsch from Morgan Stanley. Please go ahead. Your line is open.

Joseph Gregory Laetsch: Good morning, Mark and team, and thanks for taking my questions. To start on the macro—given where product prices are today—can you talk about demand trends you are seeing within your system in the U.S.? Are you seeing any signs of demand destruction on gasoline and diesel? Inventory levels in the U.S. have drawn to at or below the five-year range on products, so things are starting to look pretty tight.

Brian M. Mandell: Joe, we have not seen much demand destruction—probably about 1% down for products, both gasoline and diesel. In our system, we have done really well. We added over 500 franchise stores last year in marketing, so we are seeing a lot of value from the good work the sales team has done. But we have not seen demand destruction in the U.S.

Joseph Gregory Laetsch: Thanks. On the refining side, utilization rates of 95% in the quarter were solid, even with some maintenance and third-party pipeline impacts. Can you talk to drivers of performance during the quarter? And on operating costs, which continue to trend in the right direction—what inning are you in regarding cost reduction and the path to the $5.50 per barrel?

Richard G. Harbison: Yes, Joe, thanks for the question. I will start with cost per barrel and then look back at some of the regional performance and opportunities we saw last quarter. The cost per barrel in Q1 was $6.21. That is actually an $0.80 per barrel improvement year over year—good movement. Quarter over quarter, as you indicated, it was slightly higher, primarily due to fewer barrels processed in the quarter. That was a combination of planned maintenance activity as well as fewer days in the first quarter of the year, which has a material effect. Total process inputs were down about 2% quarter over quarter.

Seasonally higher natural gas price was also a big factor—prices averaged about $4.87 per MMBtu at Henry Hub. If we normalize back to the $3 annual natural gas price, which is the basis we used for the $5.50 target, the number moves into the low $5.80s on a $/barrel OpEx basis. That says we are well within striking range of the $5.50 per barrel target in 2027. The organization is working hard. We have over 200 initiatives we are actively pursuing that are forecast to drive $0.15 to $0.20 per barrel out of base operating costs. These are structural changes in our cost profile, continuing a trend we started over four or five years ago.

Examples: changing our approach to how we clean FCC boilers—once accomplished, that will drive down our annual cost by well over $3 million. Another example is reducing sulfuric acid consumption on alkylation units by tightening process and temperature controls—projected to save another $2 million per year. We are racking these wins up one by one across the system, and the team is doing a fantastic job. On availability and utilization, we will continue to increase both, including increasing total process inputs by filling up downstream units behind the crude units—applying our crude-unit discipline to downstream units. This remains an ongoing execution story with additional upside. On market capture/regional performance, Brian covered a lot at the macro level.

In Refining, we saw cargo prices coming in a little lower for us due to pricing timing (prior-month pricing on crude deliveries) and very good work by the European office to capture strong results, especially on jet/kerosene as those prices disconnected from traditional distillate ties. On the Gulf Coast, similar story—jet production was very high and timely with the jet pricing blowout out of the Gulf Coast. In the Central Corridor, we had a lot of turnaround activity at Wood River and Borger, so market capture went down a bit there, related to maintenance and some mark-to-market impacts Kevin pointed out. Lastly, the West Coast was in a pretty good spot.

There was some impact with third-party pipeline operations that slowed Pacific Northwest operations, but the team did a fantastic job capturing the marketplace.

Operator: Phillip J. Jungwirth from BMO Capital Markets. Please go ahead. Your line is open.

Phillip J. Jungwirth: Thanks. Good morning. On Midstream, how do higher crude prices change how you are thinking about investment opportunities? If it becomes clear there is a greater call on shale and we see publics raise CapEx, would you look more at organic growth? If so, which parts—G&P, pipeline, frac, or export? And how much sensitivity is there around the $4.5 billion Midstream EBITDA target by year-end 2027 if we see higher U.S. volumes?

Donald A. Baldridge: Phillip, first and foremost, capital discipline and returns are very important to us. As opportunities evolve—whether volume growth in the field where we can add gathering and processing capacity to serve our customers and fill our value chain—we will pursue those opportunities. We have growth plans in place, and you will see us continue to add capacity as customer needs evolve. That is the fairway of our Midstream growth plans—maintaining a balanced value chain by adding G&P capacity and ensuring we have the downstream NGL midstream and fractionation/infrastructure while being mindful of what capacities are needed in the market, staying focused on discipline and returns from organic growth opportunities.

In terms of 2027 and our $4.5 billion target, we feel very good about that target and the path we are on. The fundamentals are bright, coupled with our execution and commercial successes. We feel comfortable with our trajectory as well as the ability to sustain that growth beyond 2027.

Phillip J. Jungwirth: And on Chemicals—once the Strait opens up, how do you see the progression for getting back to normal operations for CPChem? You are guiding to lower 2Q utilization but benefiting on the margin front on the Gulf Coast. Can you also comment on the broader industry in terms of steps and timing to get back to normal?

Mark E. Lashier: As far as CPChem is concerned, the assets in the Middle East that are offline are in good shape. The bigger question is the greater infrastructure in the Middle East and what challenges there may be. There is probably a greater sense of urgency to get crude oil and refined products moving, with petrochemicals the next layer. So revival from the Gulf will likely lag energy recovery. Then the system needs to repopulate the inventory and logistics chains, which will take some time. This will have some legs. We have two big projects underway—the Golden Triangle project in the U.S. and the RLPt project in Qatar—both proceeding as expected, with no disruption in progress despite what is going on.

Everyone is safe, and doing what they need to do to advance the project. Both projects will come online fully in 2027. You will see Golden Triangle Polymers start commissioning later this year. They are making great progress and will contribute capacity at a time when it will be sorely needed. There will be good progress from multiple dimensions for CPChem as this crisis resolves.

Operator: Lloyd Byrne from Jefferies. Please go ahead. Your line is open.

Lloyd Byrne: Good afternoon, Mark, Kevin, team. Thank you for having me on. Following up on Neil's question on transportation: how does your locked-in shipping impact second-quarter capture—or maybe even third quarter—if rates continue to run like this?

Brian M. Mandell: You should see a benefit, given that we locked in our shipping rates over the last couple of years and shipping rates are so elevated. We should continue to see a benefit from shipping rates, particularly in our Atlantic Basin region.

Lloyd Byrne: Thanks. A follow-up—can you comment on Western Gateway? Very good open season—what are the hurdles left and the timing for FID?

Donald A. Baldridge: We are excited about where we are on Western Gateway—the progress to date and where we are at the end of the second open season. The path forward is to complete the JV arrangements with Kinder Morgan as well as execute the transportation agreements with third-party shippers. Our team is working hard to get that done. With successful conclusion of that work over the next couple of months, I would expect we would be in a position to FID this project mid to late summer for a 2029 in-service date.

Two key takeaways from the open season: there is strong market interest in having a new-build pipeline to Phoenix to deliver reliable, secure transportation fuels to the West; and there is strong support from state and federal agencies and officials in having this pipeline in service as soon as possible. That gives me a lot of confidence that Western Gateway is the right project at the right time and will deliver the right returns.

Operator: Jason Daniel Gabelman from TD Cowen. Please go ahead. Your line is open.

Jason Daniel Gabelman: Thanks. I know you reiterated the $4.5 billion of EBITDA in Midstream. 1Q moved sequentially lower, particularly in the NGL business. Can you help bridge the quarter-over-quarter decline and remind us how you get to that $4.5 billion? Given Western Gateway and potential for continued activity, what type of upside do you see from that $4.5 billion?

Donald A. Baldridge: Absent the impact of volumes from winter storm Fern, we are right where I expected us to be for Q1 performance. We continue to have great commercial success in growth and in recontracting, which did have some impact in Q1. On renewals, we are proactive—tend to renew a year prior to expiration. For the ones that came up for this quarter, we renewed for 10-plus-year terms. That validates our customer service and relationships and gives me confidence in our ability to continue to grow into our $4.5 billion target by 2027. Fundamentals are bright, execution is strong, and with Western Gateway and follow-on expansions (including additional gas plants), I am confident we can sustain this growth rate beyond 2027.

Jason Daniel Gabelman: And the LPG export ARB opportunity in the current environment?

Donald A. Baldridge: In the near term, most of our windows are spoken for, either with term customers or by ourselves from our time charters. Where we have had success is in our delivered time-charter market where the team in Singapore has been able to optimize deliveries and take advantage of volatility, much like what you heard from Brian. Overall, this shows the importance and strength of the Gulf Coast LPG export capability. This will continue to be a tailwind for Gulf Coast exports, and we expect Freeport to be a beneficiary.

Jason Daniel Gabelman: On West Coast assets—given Western Gateway, does that make Ferndale any more or less core? And can you talk about the opportunity to sell down part of the interest in the renewable diesel plant as peers have done?

Mark E. Lashier: From a Ferndale perspective, Ferndale is integrating well into the California market, and we see the two things as complementary. Ferndale is more targeted at Northern California; Western Gateway is a Southern California opportunity. We still see strong tailwinds for Ferndale as they enhance capability with carbon and sustainable aviation fuel blending. Western Gateway will provide stability in Southern California. On renewable diesel, the asset is running strong. We always entertain interest, but it is a great, world-class asset—runs like a Swiss watch—and we are seeing great value from it today.

Operator: Theresa Chen from Barclays. Please go ahead. Your line is open.

Theresa Chen: On Midstream, with crude price likely biased to the upside over the medium term and a potential reacceleration of activity in second-tier basins, can you talk about utilization and the ability to expand your path for NGL assets that are now or soon will be connected to Kinder’s Double H conversion now in NGL service? If there is renewed growth in associated gas in the Bakken or Rockies, how much incremental pipe capacity could you have on your Rockies-to-Sweeny NGL system, or would that require significantly more investment?

Donald A. Baldridge: In the Rockies, our DJ production is seeing record volumes—very exciting. There are opportunities in the Powder River Basin and the Bakken for additional development. We have a well-positioned NGL network out of Colorado that flows through our system via multiple routes into our Sweeny complex. We recently restarted our Powder River NGL pipeline to take some early Bakken barrels. If there is growth in that area, we would look at opportunities to expand capacity to fill the downstream pipes out of the Rockies. That is certainly an area we are keeping an eye on.

Theresa Chen: And regarding Western Gateway—now that the commercialization process is done, what range of total CapEx and expected build multiple on a 100% basis can you share at this point, regardless of how economics would be split between partners?

Donald A. Baldridge: We still need to work through final details with our partner in terms of scope and connections with prospective shippers. It is premature to put that information out, but it will be out there shortly.

Operator: Matthew Blair from TPH. Please go ahead. Your line is open.

Matthew Blair: Thank you. Could you talk about the Canadian crude market? WCS at Hardisty is one of the most attractive crudes out there. Are the wider diffs relative to WTI due to any constraints coming out of Canada? And do the market structure impacts you talked about for U.S. inland barrels apply to Canadian barrels as well?

Brian M. Mandell: Clearly, the WTI-WCS differentials have moved wider from very tight levels earlier this year. Next month they are almost $18 off. A couple of reasons: first, light sweet crudes from the U.S. are being pulled to Asia, tightening light sweets and medium sours. Second, Venezuelan barrels on the market and some planned and unplanned outages at refineries have put pressure on heavy grades. That has widened WTI-WCS. Our view is they are going to stay wide for some period. We are in a very strong position with our Mid-Con portfolio and pipeline position bringing Canadian crudes to our refineries, and we benefit from those widened differentials.

As a reminder, our sensitivity is approximately $140 million of additional earnings for every $1 wider in the diffs to come.

Operator: This concludes the question and answer session. I will now turn the call back over to Sean Maher for closing comments.

Sean Maher: Thank you for your interest in Phillips 66. If you have any questions or feedback after today's call, please reach out to Kirk or myself. Thanks, and have a great day.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.