PHILLIPS 66 2026 Q3 Earnings Call

Welcome to the third quarter 2026 Phillips 66 earnings conference call. My name is Hillary and I will be your Operator for today's session. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Sean Maher, Vice President, Investor Relations and Chief Economist. Shawn, you may begin. Hello, everyone.

Good morning, and thank you for joining the Phillips 66 third quarter 2026 earnings conference call. Participants on today's call will include Mark Lashier, Chairman and CEO, Kevin Mitchell, CFO, Don Baldridge, Midstream and Chemicals, Rich Harbison, Refining, and Brian Mandell, Marketing, Commercial, and Renewable Fuels. Slide 2 contains our safe harbor statement. We will be making forward-looking statements during today's call. Actual results may differ materially from today's comments. Factors that could cause actual results to differ are included here, as well as in our SEC filings. We will also discuss both GAAP and non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures are included in today's presentation and the Phillips 66 earnings release. Today's presentation, the earnings release, and supplemental financial and operating information can be found on the investor relations section of the Phillips 66 website.

With that, I'll turn the call over to Mark.

Thank you, Shawn. At Phillips 66, we're focused on operating our assets safely and reliably, enabling us to supply the products that our customers depend on and to help the U.S. and global economy grow. In today's remarks, I'll focus on three strengths that define Phillips 66: operating performance, capital allocation, and future growth. First, operating performance remains strong, underpinned by disciplined execution and industry-leading safety performance. We delivered strong refining utilization of 98% and third quarter record distillate yield of 41%. In midstream, we achieved fractionation volumes of over 1 million barrels per day, wellhead volumes of 4.6 BCF per day, and 105% utilization at the Freeport LPG export dock. These results demonstrate our strong operating performance. Second, we remain committed to disciplined capital allocation and to returning greater than 50% of net operating cash flow, excluding working capital, to shareholders.

We will also fund a disciplined capital program, including sustaining capital, while retaining flexibility for additional share repurchases and debt reduction. Third, we have a clear path for future growth. All projects must compete on a risk-adjusted basis. This discipline keeps us focused on increasing corporate ROCE by building the best business, not simply the biggest business. We have a compelling set of organic opportunities across the portfolio, and we're excited to bring them to fruition. These projects support the growth of normalized return of capital into 2030 and beyond. In our Midstream G&P business, we're increasing Permian volumes and adding processing capacity with the Iron Mesa and Zeus gas plants. In NGL transportation and fractionation, we're expanding the Coastal Bend pipeline system and building a third fractionator in Corpus Christi.

Finally, our Western Gateway project creates an integrated value chain opportunity that is expected to generate returns across multiple segments. Through these Midstream projects, we're positioned to achieve our stated targets and deliver mid-single-digit adjusted EBITDA growth through the decade. In Refining, the Humber Gasoline quality improvement project will enable production of higher quality gasoline for premium markets. We're delivering record operating performance in the Central Corridor, supported by the full integration of the Wood River and Borger refineries. Additionally, strong financial results have benefited from greater than $50 million of near-term operational and commercial annual synergies from the WRB transaction, and we have line of sight to more. In Chemicals, CPChem's Golden Triangle Polymers and Ras Laffan Petrochemicals projects remain on track for full operations in 2027. These projects add earnings capacity while leveraging CPChem's advantage feedstock position.

Our integrated liquids portfolio is built to meet growing global demand. Continuous improvement across our operations, ratable Midstream growth, an advantage Refining footprint, and top quartile Chemicals assets strengthen our ability to reliably supply the markets we serve. Supported by attractive infrastructure and global commercial reach, we're well positioned to create value through the cycle. Phillips 66 is defined by strong operating performance, disciplined capital allocation, and a clear path for growth. Together, these strengths deliver high return opportunities and enable us to increase cash returns to shareholders. We're prepared to compete in any environment and generate durable economic value. We've strengthened the foundation of the business and built a culture of continuous improvement. We're moving forward as a stronger, more agile company. Now, I'll turn the call over to Kevin.

Thank you, Mark. Moving to slide 4, our capital allocation framework remains unchanged. We fund the dividend and sustaining capital, invest selectively in high return opportunities, maintain balance sheet strength, and return cash through share repurchases. Our commitment to return greater than 50% of net operating cash flow, excluding working capital, is a priority We recently announced a second dividend increase in 2026, reflecting our confidence in the durability of the business model and the company's ability to generate sustainable cash flow.

This represented a 10.8% increase compared with the fourth quarter of 2025. During the quarter, we reduced debt by $2 billion by paying off the remaining balance of the March 2027 term loan and through open market purchases of debt. Total debt ended the quarter at $18.5 billion, and net debt was $12.7 billion. Additionally, we paid off a $500 million bond maturity on October 1st. We will continue to allocate capital prudently, returning cash through dividends and share repurchases while investing in high return opportunities and strengthening the balance sheet to enhance long-term equity value. On slide five, reported and adjusted earnings were $5.6 billion, or $14.08 per share. Operating cash flow was $7.3 billion.

Excluding the working capital benefit of $1.1 billion, operating cash flow was $6.2 billion. We continue to strengthen the balance sheet and reduce the net debt to capital ratio to 26%. We have achieved the 2027 net debt to capital ratio target ahead of schedule. Capital spending for the quarter was $680 million. We returned $2.8 billion to shareholders through share repurchases and dividends. Looking ahead to the fourth quarter on slide six. In chemicals, we expect the global O&P utilization rate to be in the mid-80s. In refining, we expect the worldwide crude utilization rate to be in the mid-90s. Turnaround expense is expected to be between $140 million and $170 million. We anticipate corporate and other costs to be between $350 million and $380 million. Moving to slide seven, Mark will now provide some final thoughts. We will then open the line for questions.

Before we begin Q&A, I'd like to take a moment to recognize Rich Harbison, our Executive Vice President of Refining since 2022. After a distinguished career with Phillips 66, Rich has decided to retire at the end of this year. Rich has been instrumental in strengthening our focus on safe, reliable, and competitive operations while building an organization positioned for continued success. On behalf of the entire company, I want to extend our deepest gratitude to Rich for his extraordinary leadership, service, and contributions to the company. We wish him all the best in retirement. We're also pleased to welcome Chris Chandler, who will work closely with me over the next few months before assuming leadership of Refining at the beginning of 2027. Chris brings more than 30 years of industry experience in refining and midstream, including more than two decades in leadership roles at Phillips 66.

His capabilities complement the tremendous strengths Rich and our refining organization have built over many years.

Thank you, Mark. We will now begin the question and answer session. As we open the call for the questions, as a courtesy to all participants, please limit yourself to one question and one follow-up. If you have a question, please press star then one on your touch-tone phone. If you wish to be removed from the queue, please press star 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 touch-tone phone. Please stand by while we compile the Q&A roster. Your first question comes from the line of Manav Gupta from UBS. Your line is open. Please go ahead.

Good morning. I actually wanted to ask you about crude differentials. You are most levered to the WCS differential, which is clearly widening out. My broader question, I will keep it to one question only, is I am trying to understand the advantage of North American refining as a whole versus the global peers. When you look at where TTF is trading, where NG, natural gas is trading, and then some of these carbon policies that Europe is looking to implement. I understand you also have some European assets, but I am trying to basically zero down on where the differentials are and the benefits of North American refining versus their global peers. If you could talk about that.