菲利普斯66 (PSX) 2015 Q1 法說會逐字稿

Welcome to the first quarter 2015 Phillips 66 earnings conference call. My name is Laurel and I will be your operator for today's call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. Please note this conference is being recorded.

I will now turn the call over to Kevin Mitchell, Vice President of Investor Relations. Kevin, you may begin.

Thank you, Laurel. Good afternoon and welcome to the Phillips 66 first quarter earnings conference call. With me today are Chairman and CEO, Greg Garland; President, Tim Taylor; EVP and Chief Financial Officer, Greg Maxwell; and EVP, Clayton Reasor.

The presentation material we'll be using during the call can be found on the Investor Relations section of the Phillips 66 website along with supplemental financial and operating information. Slide 2 contains our Safe Harbor Statement. This is a reminder that we will be making forward-looking statements during the presentation and our question and answer session. Actual results may differ materially from today's comments. Factors that could cause actual results to differ are included here on the second page as well as in our filings with the SEC.

With that, I'll turn the call over to Greg Garland for some opening remarks.

Thanks, Kevin. Good afternoon, everyone, and thanks for joining us today. We had a good quarter. Adjusted earnings were $834 million, or $1.51 per share. Our West Coast refining business ran well and benefited from the significant improvement in cracks; however, in the Gulf Coast we did not perform to the level of our expectations. We didn't execute the Alliance Refinery turnaround as plan and extended downtime prevented us from capturing the full value of the proved margins on the US Gulf Coast. On a positive note, our workers at Alliance achieved a safety milestone of 15 million man hours without a loss time injury. And this is terrific.

During the quarter cash from operations was $1.4 billion. In addition, we received proceeds of $1.5 billion from Phillips 66 Partners debt issuance and first follow on equity offering. We invested $1.1 billion and supported Midstream growth while maintaining operating integrity in our refining system. Consistent with our commitment to capital allocation, we returned $671 million of capital to our shareholders in the form of dividends and share repurchases. Since we started our share repurchase program, we've completed $5.3 billion of the $7 billion authorized. At quarter end, our share count was 542 million.

Our Midstream growth projects continue to be well executed. Sweeny Fractionator One is now over 70% complete and the Freeport LPG export terminal is about 1/3 done. Both projects are on schedule and on budget with start ups expected in the second half of 2015 and 2016 respectively. We continue to aggressively grow Phillips 66 Partners. In March we completed the drop down of our 1/3 interest in the Sand Hills and Southern Hills NGL pipelines as well as our 19.5% interest in Explorer refine products pipeline system. These assets provide portfolio [dispersafication] as well as additional fee-based revenues to PSXP.

As we said, Partners is an important vehicle to grow our Midstream business. Over the last five quarters, PSXP has executed over $2 billion in acquisitions, demonstrating continuing commitment to its top tier distributions growth. PSXP's goal is a 30% compound annual distribution growth rate through 2018. In Chemicals, CPChem's normal alpha olefins expansion project at the Cedar Bayou facility is on schedule for completion in mid 2015. Also, construction continues on the world scale US Gulf Coast petrochemicals project, which is now about 40% complete with a start up in mid 2017. We expect both projects to come in on budget.

DCP continues to be an important part of our NGL value chain. As one of the nations largest natural gas gatherers and processors, over 10% of domestic natural gas flows through DCP Midstream assets. It's a must run business. To address short-term liquidity needs, DCP Midstream achieved covenant relief on its bank revolver until year-end 2015. DCP has also implemented steps to reduce corporate costs and its capital budget. Spectra Energy and Phillips 66 continue to progress a restructuring of the business and we anticipate that we'll be able to share more details with you in the coming months.

And with that, I'll turn the call over to Greg Maxwell to review the quarter's results.

Thanks, Greg. Good afternoon.

Starting on slide 4, our first quarter earnings on adjusted basis were $834 million, or $1.51 per share. Cash from operations was $1.4 billion, including $500 million in positive working capital changes for the quarter. In addition, Phillips 66 Partners debt and equity offerings provided $1.5 billion of cash this quarter. We reinvested $1.1 billion in the business and we returned almost $700 million to shareholders in the form of dividends and share repurchases. At the end of the first quarter our adjusted debt-to-capital ratio, which excludes Phillips 66 Partners, was 26%. And after taking into consideration our ending cash balance, the adjusted net debt-to-capital ratio was 11%. Our annualized adjusted return on capital employed was 12% and, excluding special items, the adjusted effective income tax rate for the quarter was 34%.

Slide 5 compares first quarter adjusted earnings with the fourth quarter on a segment basis. Overall, quarter-over-quarter adjusted earnings were down $79 million with increased earnings from refining being more than offset by reduced earnings in our other segments. I'll cover each of these segments in more detail as we move forward.

Starting with Midstream. The Transportation business continues to be a source of stable earnings. DCP is aggressively addressing the challenges associated with the lower commodity price environment. And as Greg said, the NGL fractionator project is on track and is over 70% complete. Annualized 2015 year-to-date adjusted return on capital employed for this segment was 6% based on an average capital employed of $5.3 billion. The returns for this segment reflect the impact of lower NGL prices as well as increases in capital employed from the significant investments we are making in Midstream that are still under construction and not yet producing returns.

Moving on to the next slide. Midstream's first quarter adjusted earnings were $67 million, down $30 million from the fourth quarter. Transportation earnings for the quarter were $65 million. The overall increase of $12 million compared with the prior quarter is largely due to the write-off of a deferred tax asset in the fourth quarter. DCP Midstream had losses in the first quarter that were comparable with what we saw in the fourth quarter. NGL and crude prices were lower in the quarter but this impact was mostly offset by the lack of hedging losses experienced in the fourth quarter. And our NGL business had lower earnings, mainly due to seasonal propane and butane storage related benefits in the fourth quarter as well as inventory impacts. Included in the Transportation and the NGL results is the contribution from Phillips 66 Partners. During the quarter, PSXP contributed earnings of $19 million to the Midstream segment.

Moving on to slide 8. In Chemicals, the global olefins and polyolefins capacity utilization rate for the quarter was 87%. This reflected a full-quarter of operations at Port Arthur, partially offset by turnaround activities at Cedar Bayou and at a CPChem joint venture facility in Qatar. Results for both O&P and [SANS] were impacted by lower margins. The 2015 annualized year-to-date adjusted return on capital employed for our Chemical segment was 16%. And this is based on an average capital employed of $5 billion.

As shown on slide 9, first quarter adjusted earnings for Chemicals were $203 million, down from $270 million. In olefins and polyolefins, the decrease of $65 million is largely due to lower olefins to polyethylene cash chain margins for US and international operations along with turnaround activities. Specialties aromatics and styrenics earnings were in line with the prior quarter with lower margins being partially offset by reduced cost.

Moving on to refining. Realized margins improved this quarter to $12.26 per barrel, largely driven by strong market conditions in the West and Gulf Coast. Refining crude utilization and clean product yields were both at 84% during the quarter. Annualized 2015 year-to-date adjusted return on capital employed for refining was 15%, on average capital employed of $13.5 billion.

Moving to the next slide. The refining segment had adjusted earnings of $495 million. This is up $173 million from last quarter. Before I dive into the regions, I wanted to point out a change in reporting from previous quarters. We have realigned our refining business to move results that were previously included in other refining into their respective regions. Along with this change, we have recast 2014 quarterly information as well and this can be found in the supplemental pages to the earnings release.

Overall, the improvement this quarter was due to higher realized refining margins, including the benefit of lower crude costs on secondary products, partially offset by lower volumes. Regionally, the Atlantic Basin had lower earnings, mainly due to planned maintenance at the Bayway Refinery and foreign exchange losses of about $30 million due to a strengthening US dollar. The Gulf Coast was up from last quarter reflecting higher crack spreads and improved secondary product margins in the region. Reduced volumes from the down time at the Alliance Refinery partially offset this increase. The central corridor was flat compared to last quarter as improvements in secondary products were mostly offset by lower volumes due to planned turnarounds at the Ponca City and Border refineries. Western Pacific had the largest improvement, driven mainly from significantly higher gasoline cracks. First quarter gasoline cracks for the Western Pacific region were $20.21 per barrel compared with $7.46 last quarter, resulting in record earnings for the region.

Let's move to the next slide on market capture. Our worldwide realized margin was $12.26 per barrel versus the 3:2:1 market crack of $15.26 resulting in an overall market capture of 80%. The overall configuration to produce roughly equal amounts of diesel and gasoline reduced our realized margin as the improved market crack this quarter was largely driven by the strength in gasoline. Improvements from the feed stock advantage more than offset secondary product losses, which are significantly lower in this crude price environment. The other category mainly includes costs associated with [RENs], product differentials and inventory impacts. A regional view of our market capture is available in the appendix.

Moving on to marketing and specialties. Annualized 2015 year-to-date adjusted return on capital employed for M&S was 28%, on average capital employed of $2.8 billion. Slide 14 shows adjusted earnings per M&S in the first quarter were $194 million, down from the high levels we saw in the fourth quarter. In marketing and other, the $112 million decrease was largely due to lower global marketing margins this quarter compared to strong margins that we realized last quarter. The fourth quarter benefited from the timing effects of steeply falling gasoline and diesel spot prices. The decrease in specialties was primarily related to our lubricants business where lower base oil margins were partially offset by increased volumes.

Moving on to corporate and other. This segment had after-tax costs of $125 million this quarter, a $25 million increase over last quarter mainly due to higher interest expense and lower foreign tax credits. The corporate overhead bar includes restructuring costs that were taken during the quarter.

Next I'll talk about our capital structure. With the additional debt and equity financing that Phillips 66 Partners took on for its recent acquisition, we thought it would be helpful to show our capital structure, both on a consolidated basis and excluding PSXP. As shown on the chart on the right, our debt balance was reduced in the first quarter, largely due to the repayment of the $800 million of senior notes that matured in March. Excluding Partners, we ended the quarter with an adjusted debt balance of $7.8 billion, and adjusted debt-to-capital ratio of 26% and a net debt-to-capital ratio of 11%.

The next slide shows our cash flow during the quarter. Starting on the left, excluding working capital, cash from operations was $900 million. Working capital changes were a positive impact of $500 million due largely to a benefit from timing of foreign excise taxes and a US tax refund associated with late 2014 regulation changes. During the quarter, we added $1.5 billion of cash from PSXP's debt and equity issuances. We also repaid $800 million of maturing notes. We funded $1.1 billion of capital expenditures and investments. And distributed about $700 million to shareholders in the form of dividends and share repurchases. And we ended the quarter with a cash balance of $5.4 billion.

This concludes my discussion of the financial and operational results. I'll now cover a few outlook items.

For the second quarter, in Chemicals we expect the global O&P utilization rate to be in the low 90s. In refining we expect the worldwide crude utilization rate to also be in the low 90s and pretax turnaround expense to be about $150 million. In corporate and other we expect this segments after-tax cost to run about $110 million to $120 million for the second quarter. And Company-wide the effective income tax rate is expected to be in the mid 30s. As for 2015 capital expenditures, our original $4.6 billion guidance remains unchanged.

With that, we'll now open the line for questions.

(Operator Instructions)

We have a question from Evan Calio from Morgan Stanley.

Hi. Good afternoon, guys.

Good afternoon.

I look forward to the update on the DCP restructuring and I appreciate if you don't have any comments. But wondering if you could share generally what PSX wants to achieve in the restructuring and your willingness to take commodity exposure in the structure beyond DCP's exposure.

Well so, Evan, just kind of reiterate what we previously said maybe about DCP. It's a great asset. We think that we like their positions in the value chain. We like the areas where they compete. And so we view it as a strong asset. Unquestionably the lower commodity prices put some stress on that and so we're working to correct that. What I would say is that I think both Spectra Energy and ourselves are in agreement on the path forward and that we're executing that. And we don't want to get out in front of the activities that are ongoing. So I would just say we're in process. We're not at the beginning but we're also not at the end of that process. So we're working through it.

Great. That's fair. My second question is on refining and in the fourth quarter and in the first quarter of 2015 and witnessed a heavy Gulf Coast turnaround. Are you largely complete for the year? And any color exiting that heavy turnaround period we should expect any kind of capture up lift or other wise enhancement?

So we've guided that 2015 is going to be a heavier turnaround year than 2014. Normally we're kind of $400-ish million on turnarounds. I think we've guided 650 or so this year. And Greg just gave guidance for $150 million turnaround expense in the second quarter. So this is going to be a heavy year for us all the way through in turnarounds. I don't know if anyone else has color on that.

Okay. Any capture up lift exiting on the back of that? Is this just standard maintenance or is there any kind of enhancement exiting a heavy maintenance period that the system might emerge more flexible profitable?

Well so this is mostly maintenance turnarounds. But there are activities going on where we're doing debottlenecks to push more [lights] we accrued through. We've done it at Alliance. We've done it at Sweeny. And we'll continue to work our way through the system at Bayway and other places to be able to handle those lighter barrels. And we're probably up 100,000 today over what we were say two years ago in terms of our ability to handle light sweet crude across the system today. So we'll continue to do that. But this, by and large, the bulk of the activity is more just routine maintenance.

Great. Thanks, guys.

You bet.

Next we have Jeff Dietert with Simmons on the line.

Good afternoon.

Hi, Jeff.

I was hoping you could talk a little bit about Gulf Coast crude sourcing. LLS has been trading close to parity with Brent and Houston pricing has been depressed relative to St. James. Now Cushing is weak and perhaps pushing more barrels south on Marketlink and Seaway. Could you talk about how that market is evolving and how its influencing your Gulf Coast feed stock procurement?

Hi, Jeff. This is Tim. Yes, I think that structurally, LLS Louisiana remains tight logistically. And so I think that when you think about the logistics out of say Texas into Louisiana, on pipe or ship we've got a lot of constraint there. So I think that supports that differential to a couple of dollars. And then ultimately there's the import option. And so I think that presents kind of a cap on the LLS in terms of where it can separate. But that said, you would -- if you can't get that -- those lighter crudes into Louisiana for competition, it will say that it should continue to keep Texas discounted and Cushing discounted relative to Cushing. And ultimately, we're working this solutions to look at how do we get logistically get more of those crude options into Louisiana. We've talked about a pipeline out of Beaumont into Louisiana that we're working and some other things. So I think that those take more time but it is part of what we work on.

Are you seeing Cushing barrels being priced more attractively into the Gulf Coast market, be it heavy or light?

I think you look at the break over in inventory this month and our view was that at some point if the crude production on light continues, it's got to move to the Gulf Coast for storage. And so I think you've seen some of that. You've also got now more connection out of West Texas to directly to the Gulf Coast. And all those things impact that. But given the storage situation at Cushing, I don't think it's surprising that you've seen movement now out of that region. The real input is going to be how much crude production continues to flow out of the Permian and Mid Con into the system.

Secondly, could you provide opportunity costs associated with the first quarter maintenance?

It was about 8% of production was maintenance. About 6% was unplanned down time and about 2% was planned down time. So normally what we do is we would take that and multiply it by the margins as they lay. So, for instance, we think our unplanned down time is in the neighborhood of about $80 million across the system.

Thanks for your comments.

You bet.

Next we have Doug Leggate with Bank of America Merrill Lynch.

Thanks, guys. I'm not going to push the DCP issue too much but I just wonder if you would respond to one issue. There's been some, I guess, speculation that PSX might be prepared to inject topical but without the need to consolidate DCP and without Spectra contributing any capital. Would you care to comment on that or would you prefer just to leave it alone for now?

I'd let that one lay for right now, Doug.

Alright. I thought I'd try. Sorry about that. (laughter) Two other quick ones because I figured that maybe a quick answer. Crude exports, Greg, not your opinion so much on good crude exports but your opinion on what it could mean for the MLP in terms of opportunity if indeed we did see a relaxing of that rule. Are you exploring any opportunities on those [lines] to this point? And I have got one final follow-up please.

I think in terms of optionality that's one of the things we liked about Beaumont. It certainly gave us a footprint and one that we can certainly expand in terms of optionality around crude exports for the MLP. So I think that that's a potential we certainly think about. I still just -- I still don't see short-term lifting as a ban on crude exports. We'll see. It's a political decision, as everyone knows. And certainly the volume is being turned up in many quarters around exports. And we continue to support lifting the ban on crude exports as a Company. We think it's the right thing to do. We would like to see a broader conversation around energy in our country to including able to build pipelines and a conversation around [joanzack ships] so that we can effectively not be out-competed by moving crude around from the Gulf Coast to the East Coast refineries. But at the end of the day, I think we have some optionality in our portfolio that would play well under that if that happens.

Thanks, Greg. My last one is a little cheeky, really. It's a bit more conceptual but I guess I'm asking you to do our job for us to some extent. When we are on the road, we had this discussion. I just wanted to get your latest thoughts on it. The value of your GP in the Midstream, and I guess in the MLP units as well -- how do you think about getting recognition of the GP, in particular, in your stock? And internally, do you think about your ownership on both those [PC's] on a pretax or a post-tax basis? Do you think the market should be pretax or post tax? I'm just trying to resolve an issue we're trying to get to the bottom of here?

Well so we are a big sum-of-the-parts guys here. So we always think in terms of sum of the parts as we're doing the analysis around the asset, around the portfolio. I think at this point the GP cash flows are so small they don't matter at this point in time. When we get to $1 billion of EBITDA in PSXP, then I think it does matter. And so we'll see. I think that we're prepared to consider many options around how do you get that recognized out there. But today it's small but growing. And in terms of the -- we have conversation around pretax. I think the multiples are kind of on a pretax basis as people look at it. But does that change over time? I just don't know the answer to that. I don't know if Tim or Greg you have a view on that but --

I think the market comps are pretax. And I think that's the relevant measure when you think about other GPs or you think about the LPs. It's a pretax basis and I think that's the fair way to look at that.

I guess what I'm getting at, Tim, is when we think about how that should translate to your -- to the PSX share price on a pretax or post tax basis?

I think we think about it in terms of the EV and EV/EBITDA multiple. And as you value those streams and that translates into that EV and that's how we think about the sum of the parts basis. So it really is on a pretax basis when we think about that up lift.

Doug, this is Greg Maxwell. We did have that discussion when we were on the road. And I will say it's an interesting discussion. We're continuing to look at it so, obviously, we would like to have some different ongoing dialogue with you as we work through this.

Perfect. I appreciate it. Thanks a lot.

Ryan Todd from Deutsche Bank is on the line.

Great. Thanks a lot. Good afternoon, gentlemen. Maybe if I could start with a two part question on CapEx and cash return to shareholders. If we look here -- we know that this is a peak CapEx year in 2015. How should we think about the potential decline in CapEx year-on-year into 2016? And have any of you guys, as a follow-up with that, and looking at the amount of buyback in a quarter, is there -- you've targeted a 60/40 split between capital spend and cash return to shareholders over a multi-year period. Should we expect to hold that same split here in 2015? Or do you think that will be a little bit lighter on the cash return this year and heavier on the cash return next year?

Okay. So let's start with CapEx. I think we've consistently said we've viewed that this is the heavy lift year for us -- peak year. We're still working through 2016 budgets and obviously need to go through our Board approval process. But we're thinking the range is in $3 billion to $4 billion for 2016 in terms of capital. And the 60/40 allocation we remain committed to. And that's an average over essentially the 2014, 2015, 2016 time frame, if you want to think about it that way. What I would say is in any one quarter, you shouldn't look at that quarter and expect that you can annualize that across the year. But on the other hand, as you think about $4.6 billion of capital expense, you think about $1.1 billion or so dividend expense this year. Then you can take your pick on cash. But you also have to roll into that equation the drops and the cash we get back from the drops and the PSXP is part of the funding vehicle. Then you can kind of back into -- share repurchase is going to be in a range of $1 billion to $2 billion this year.

Great. And maybe if I could just do one quick follow-up on the Chems business. Decent first quarter. Clearly going to be better this year than I think what the fears were as we approached the latter part of last year. But can you give us an outlook at this point in terms of kind of the Chemicals outlook for the rest of the year, in particular, as crude prices seem to be ticking up a little bit?

Sure. I'll let you take a stab at that.

Yes, sure. I think that in the first quarter we saw the readjustment the lower energy complex. And it's -- the margins have come in, particularly in the olefins chain. They've stabilized. If you think about the pricing in terms of the feed stocks and the margin and we're seeing increased demand as the energy prices come up. I think it's actually encouraged people to begin their buying. So we're seeing demand up really across the world, so Asia, Europe, US. And I think that supports that margin. So I think we still remain convinced that the Chemicals business is going to continue to perform well. Margin is still less than 14 based on the current crude price outlook but still pretty strong business model from a fundamental demand standpoint.

Great. I'll leave it there. Thank you.

Thank you.

Paul Cheng with Barclays is on the line.

Hi, guys.

Hi, Paul.

Hopefully several quick questions. Greg, do you guys have a outlook you can share in terms of the CapEx for 2016, 2017? I think at one point you guys talking about this year is the peak and the move to as the [$3 billion] tie off mark. Should we assume that next year you will get all the way to $3 billion or that you would take a couple years before you get down there?

Well, yes, I think we're looking at somewhere between $3 billion and $4 billion for 2016, Paul. We obviously need to get that through the Board, get that approved and we're still thinking about it. But it's definitely going to be down from a [$4.6 billion] level this year and in that range of $3 billion to $4 billion next year.

And should we assume that after next year that it will, really on the most sustainable basis, you guys will be more in the $3 billion than the $4 billion or that is still unclear at this point?

Well I think that we're going to have, what I would say, is an aggressive growth profile at PSXP. So as you think about it on a consolidated basis -- but most of that capital is going to start moving to PSXP. As it gets scale, certainly it can stand on its own feet. It can co-invest in a lot of these projects -- ultimately invest in these projects. And so you may see consolidate capital up in that level but at PSX and the level of PSX, we expect that to go down more to a maintenance level type activity.

Secondly, I think in the past that management's view of West Coast or [California] is not necessarily a core partner of the portfolio long term with the market conditions that we have seen in the last several months. Just curious, is there any change in your view about the California market once their position will grow in your portfolio long haul?

Well we like the West Coast this quarter. (laughter) But no, fundamentally our long term view of West Coast hasn't changed. We think it's really a challenged place to do business. We think we have good assets. But we think they are average as you look across that portfolio. And so we'll continue to work the thick strategy around the West Coast as we look at more optionality around getting advantage crude into those assets, looking at cost structure, et cetera around those assets. But I would say there's nothing that's changed our fundamental view on West Coast assets today.

And on the second quarter, the maintenance, can you give us some idea that where is the concentration going to be by region?

We typically won't give guidance there.

Okay. Not even by region -- saying there's maturity in say West Coast maturity and Gulf Coast or anything like that?

No. We probably just don't want to disadvantage our commercial folks.

Sure, understand. And two final questions on the -- trying to hope that you can give us a -- help us in some of your market insight. In Europe, I think that all of us have seem surprised by how strong the margin has been. Initially, we thought it (inaudible) then subsequently, of course, with forward prize stabilized that they remain while their strong. Wanted to see whether that you have any insight, whether that is it because the demand maybe much better or the capacity over there may not be as much as people thought? And second one that in your wholesale network, any insight you can provide in terms of what is the gasoline and the diesel demand growth that we may be actually seeing. It seems to have somewhat different number depends on who we talk to. So want to see what is your market system is telling us?

Paul, it's Tim. On Europe, I think it's a combination of some turnarounds as they've held -- looked through the season right now. Clearly, with Brent moving down they were able to capture margin as well. And then we've seen stronger demand out of the Middle East, particularly on gasoline, and some of West Africa. So I think that's helped support the demand side from a European standpoint. So don't know how long that goes on but that was certainly the dynamic that we see in play in the first quarter and continuing right now.

On our system on gasoline demand, you'd like to have a number of months to really see what a trend is. But generally across our wholesale and branded marketing network, volumes are up. It varies a lot as you look across the system but a couple points of demand seems like where it is. Whether that's sustainable, I think we need more time. But certainly it's been something that supported that on the gasoline side. Diesel demand is off from somewhat to flat because of really seasonal planting and perhaps some impact in the energy. But still pretty strong market on the diesel side as well but gasoline has probably been the surprise on the demand side.

Perfect. Thank you.

Neil Mehta with Goldman Sachs.

Hi. Good afternoon, guys.

Good afternoon.

So there's been a lot of talk about a crude [glod] translating to a product glod the refining markets with an increase in utilization and response to strong margins and spreads we're seeing out there. Just curious what your guys thoughts are on that risk and how you see that as a participant in the market.

So the product inventories are on, as you know, the high side of the five year range. We haven't seen that develop and everything continues to push the run side. You're entering a stronger season now on demand. So I don't think that's something that we anticipate. There's less storage opportunity on the product side. So if it does develop, I think you'd see runs reduced. And of course we keep an eye on what's happening globally with the new supply. And as that comes on, that can have an impact as well. But right now we just haven't seen that as an issue.

And the other big macro debate that we were having, Tim, just a few weeks ago on the last call was the risk that Cushing fills and we finally got that draw earlier this week. But curious on that front what your thoughts are in terms of crude storage and Cushing and then in [PADD] 2 & 3, generally. And is there enough take away that you're not concerned about a broader crude problem?

Yes, I think that when we look at it, we still think -- we are watching the production side and so I think it still needs to find a place for storage. Cushing is pretty close. And so I think part's of that. We look at the Gulf Coast -- you got a lot of room on storage. So I think that was where we thought that would go. And so there's some time, I think, still left to see where inventory build goes versus the production side and the ENP side. And then fundamentally, what would have to happen next is you might have to push on some medium imports or some way to drive that displacement. But I think we're a ways off but certainly you have seen that move and you're watching the PADD 3 inventory on crude grow. So I think that says that there is between imports and inputs from the Permian, in particular, and Cushing, you're seeing that move.

And last question just around capital allocation. Buyback in dividend -- you bought back $400 million in the quarter. So curious how you think about that on a go forward whether that's a reasonable run rate to use. And then on the dividend you've talked about double digit being the growth target in 2015 and 2016. Obviously a lot of financial commitments in 2015, but anything you can do to help us benchmark where that dividend growth should be anchored to?

We stand by the guidance of double digit dividend growth in 2015 and 2016. And getting back to share repurchases, as long as the shares trade under intrinsic value, we're going to be buyers of the shares. We look at that. I would say don't take one quarter and say that's a run rate. We're in the market every day. We buy more some days than others. But in general, I think we've kind of guided you to expect that we will be between $1 billion and $2 billion this year in terms of share repurchase.

All right. Very clear. Thanks, guys.

Thank you.

We have Blake Fernandez with Howard Weil on the line with a question.

Thanks, folks. Good afternoon. Greg, maybe just tying on with the last question on the repurchases, not to try and hold you down to too much of an outlook but you've already alluded to CapEx rolling over into 2016. Do you think it's fair to believe that $1 billion to $2 billion of repurchase run rate kind of continues into 2016 assuming no material changes in macro dynamics?

Yes, I think that's probably -- not a bad -- we purchased about $2.2 billion in 2013 and about $2.2 billion in 2014. And so I think its been a pretty consistent number for us if you want to think about it that way.

Okay. Secondly on CPChem, your partner recently has expressed some willingness to maybe lever up a bit, which has been a bit of a pivot from the previous strategy. I'm just curious how you're thinking about that entity as you move forward past this spending cycle. Do you kind of envision ongoing growth projects beyond the 2017 time frame? Or should we think about moving to a cash harvest phase?

Blake, it's Tim. I think that we anticipate -- we look at Chemicals, we continue to see growth there and we're going to participate at. So we've talked about a second, for instance, cracker project some time past 2020 somewhere in the world. But North American, Middle East being very logical places we think for a light cracker. And beyond that on the financial side is -- I think we -- that business will continue to be self-funding. But generally we would expect surplus cash to return back to the owners as well. And the leverage issue is just something that owners would consider. It needs to be prudent -- want to keep the balance sheet very strong there. It's great shape today but it is something that we can at least think about. But fundamentally, that's a strong business in terms of cash generation and the ability to fund its growth.

Okay. And the last follow on just at CPChem -- I know it's 40% complete. And, Greg, you mentioned that it was on budget. I'm just curious if there's any potential just given the macro dynamics and supply chain deflation that maybe the costs come in a bit lower than anticipated?

Well we'll see. We've got a long way to go on that project. On some of our projects that are nearer to completion, for instance the frac one, and I think we have a good shot at bringing that in under budget. We'll see as we finish execution on that project. But I would say that the odds are in our favor of executing well in this environment. And taking pressure off is a good thing in terms of project execution.

Absolutely. Okay. Thank you.

You bet.

Doug Terreson with Evercore ISI is on the line with a question.

Good afternoon, everybody.

Hi, Doug.

I have a capital discipline question as well. And specifically, Greg, one of the foundations of the Company's success over the past several years has involved the ability to balance both capital spending and distributions in a way that generated both growth and returns for shareholders at the same time. And on this point, it seems like with the investment opportunity set as strong as it's ever been, that maintaining capital discipline might become more challenging than it's ever been too. So my question is, would you agree with the comment about your investment opportunity set first? Or do you think that you guys just might just be in a sweet spot? Or -- and if you do, how would you need to manage the capital allocation and cost monitoring process differently in the future? So can you just spend a minute talking about how you're thinking about this?

Happy to do that. I think that fundamentally our views on capital allocation have been very consistent since the spend. We see an opportunity to create a lot of economic value for shareholders by growing our MLP faster. And so we've had -- kind of had our foot on the accelerator there. Certainly we've been willing to use our balance sheet, use our cash to incubate projects at Phillips 66, but ultimately are destined for the MLP. But we've also said is the MLP gets to size and scale and it grows up, so to speak, it should be able to stand on its own two feet and generate value.

So I think we're kind of in this period of time where, what I call an interim period, where we're building on behalf of the MLP. But that changes with time, I think, as you think about that going forward into the future. But clearly for us to get to $1.1 billion of EBITDA by 2018 and generate $20 billion of value for our shareholders, we've got line of sight on that and we're clearly focused on executing that well.

Great. Thanks a lot.

You bet.

We have Edward Westlake with Credit Suisse on the line.

Thank you and a good segway. So four to -- sorry, I think you said $3 billion to $4 billion on CapEx -- but a number of the MLP projects probably have shifted a little bit to the right relative to what you're thinking, frac 2 -- I'm sure if you look at what's going on in the Permian and then in the Oklahoma basins where obviously DCP has a good footprint once you get past the near term worries there are lots of opportunities that are emerging with the success of shale. So maybe talk a little bit specifically about interested in frac 2 and then perhaps some opportunities, if there are any, to accelerate in the MLP again as oils prices pick up?

Yes. So, Ed, we feel really comfortable with the slate of projects we have with frac 1, LPG export facility. I feel good on both sides of those contract wise in terms of executing on those projects. In our original plans, before we saw the fall off in crude prices, we probably would have taken frac 2 to FID late this year and the [conde] splitter. We've pushed those at least a year at this point. I think we'll see what the ultimate impact of the reduced capital spend is on the ENP side and where liquids are really going to go. But in our planning, they're pushed at least a year at this point in time. But our view is crude doesn't stay at $50 either and that as crude prices come back -- and you can pick your level of what they go to in 2016 and 2017 -- then I think these projects are going to be necessary to get these liquids to the market center and then you'll see the investment go forward. I don't know, Tim, if you want to comment on anything?

I think the other thing is we're seeing, Ed, is we're seeing some opportunities around our existing framework that weren't in that plan so some smaller project execution, the Bayou Bridge East of Beaumont is a possibility. So we continue to develop other opportunities maybe to move it from the market centers into the demand centers. And so I think that's another dimension. So still feel like there's good infrastructure growth that still needs to be filled in the next several years.

On the assets that you have in place in -- which could be used for say Oklahoma, Southern Hills, Texas Express, are those easy to expand or are we going to be at sort of limits and it would have to be Greenfield if those plays take off?

No, there is expansion capability in those new NGL pipes, both out of the Permian on Sand Hills as well as Mid Con. So as volumes can ramp up, we can do fairly low cost debottlenecks to get ramped up on the pipeline. And of course that creates opportunity on the GNP side for DCP.

Right. Okay. And then on the DAPL and ETCOP -- I always say that the wrong way around -- and then down to Beaumont and across to Louisiana, have you kind of like got a tariff yet in terms of what that might cost to get Bakken crude down into Louisiana refineries via that route?

We haven't published that so really can't speak directly. We do believe -- our belief is it's going to be the lowest cost or one of the lowest cost options to get crude from the Bakken into the Gulf Coast.

Right. Okay. Thanks very much.

Paul Sankey with Wolfe Research.

Okay next we have Phil Gresh with JP Morgan.

Hi there. Most of the questions have been asked. But I guess just in terms of the Midstream target, you talked about pushing a couple of the projects maybe a year. But I guess to the extent that you run with the capital budget you're talking about for next year, what would that align with from an EBITDA standpoint in 2018 or 2017 at this point in terms of kind of comparing your old Midstream guidance to what this might imply, considering that if I look at your old CapEx it's about $4.35-plus billion, then you have to add in about 600 for DAPL and ETCOP, I think, so it's closer to $5 billion.

Yes, this is Tim. So we gave guidance Analyst Day of around $7 billion in Midstream. I think that number is still pretty good. So I think the EBITDA associated with that -- you take the existing EBITDA and put in the MLP -- we talked about PSXP being over $1 billion dollars. That still leaves us with that pool of over $1 billion of [droppable] EBITDA, should we desire to do that. A lot of that capital is in development in various stages of development. And then there's a backlog of projects so we still -- we're still on target. The absolute timing of that number may move out a year or so based on that but, fundamentally, that's still got great backlog of droppable EBITDA in the projects we have under development.

Okay. And then just a follow-up on potentially adding debt to the CPChem balance sheet. Given that it's a self-funding proposition already, if you went down that path, is that something where you would consider bringing incremental -- just [divi-netting] incremental cash back to PSX? Or is that a bridge that you haven't really crossed at this point?

Well I think we look at CPChem and you look at the cash generation good -- as we said, good solid business. So it gives us a lot of options and there's a lot of capacity there. So it's possible that could come back if we did that to the owners.

I would say we're not opposed to putting debt at CPChem. And if you look historically, we just don't hold a lot of cash there.

Okay. Thank you.

Brad Heffern with RBC is on the line.

Good afternoon, everybody. Just a follow-up to one of the previous questions. I wonder if you can give your thoughts on condensate splitter project in the context of likely more condensate exports happening this year or lightly processed condensate exports and what the advantage is to maybe having it at the field level versus somewhere else.

Yes, this is Tim. We continue to look at the process piece and say with the slowdown liquids production that we anticipate as the ENPs have reduced their spend, we think that pushes out that push on that really light condensate, perhaps at least a year. But that said, I think we've looked at field and we're prepared, I think, to address it from a how do you get it from the field to a market center or to an export dock is an opportunity. I think having a larger frac offers a lot of opportunities and options about where to go with the product and the types of splitting that you do. Will you do a deeper cut or just a topping piece? So exports are an option. Filling out other parts of the refining system are an option. So we kind of like that centralized idea from the standpoint that we think it provides more market options ultimately in the system.

Okay. That's great color. And then thinking about the Midstream side of things. Have there been anymore attractive M&A opportunities on the market given the downturn in commodity prices? And how do you think about Midstream acquisitions potentially at PSXP versus drop downs?

So I mean, we're looking at that all the time. And what I would say is there doesn't appear to be a lot of distressed prices out there right now. We might say we were a little surprised by that as we think that through. But we just don't see any compelling cases out there today. So we'll continue to watch that.

Okay. Thank you.

You bet.

We have Faisel Khan from Citigroup on the line.

Good afternoon. Just one sort of theoretical question on DCP Midstream. Is there any -- would there be any tax impact to you guys if you were to spin -- if the joint venture partners decided to spinoff the entity to their current shareholders? So meaning that PSX and SE shareholders would get a [prorata] share of DCP -- whoever spun off. I know you guys have both negative tax basis so just trying to understand if that would solve the tax basis issue over the long run?

Faisel, this is Greg Maxwell. As part of the restructuring that Greg mentioned earlier, we're looking at all those different ins and outs and the pros and cons of the different restructuring, of which includes any tax impacts that would come about as well as tax planning opportunities.

Okay. So it's not clear yet if a spinoff of the asset would be tax free to you guys or not. Is that a fair statement?

I would say we're still looking at it.

Okay. Understood. And then just on the Freeport LPG export facility, can you guys just give us an update in terms of where you are with construction on that facility and when you expect first exports?

Faisel, this is Tim. So we're progressing, we're about 35%, 40% complete. [Gone well] -- you're in the field constructing and so we're actually doing dock modifications, building tanks, putting in the compressors, the foundations, still on target to start that up in the fourth quarter of 2016.

Okay. Got you. And then just going back to the results you guys talked about in the Atlantic side. You guys talked about a Bayway being down but you talked about an FX impact. I didn't quite understand what the FX impact is or why it would show up, given that most of what you sell is priced in dollars, including fuel and costs are in oil. So I'm just trying to understand where the FX impact comes from.

Faisel, this is Greg Maxwell again. One thing keep in mind on the Atlantic side is that's inclusive of our European operations. So we also have exposure in euros and pounds. So it basically was driven more from the international piece for operations versus just looking at domestic.

Was that a -- was FX a big impact or was it relatively small and was Bayway just a primary driver?

It was relatively small. But the driver really was in the international operations because when we look at Atlantic region, we're taking into account also our European operations in addition to Bayway.

Okay. Yes. Because I was just trying to understand like most of the refiners in Europe had a pretty stellar quarter. So just trying to understand the results on the Atlantic side and I understand Bayway was a bit of a headwind there.

Faisel, this is Kevin. It's a function of revaluing the crude payable that we have in the UK. So we have UK functional currency and the revaluation of that dollar denominated payable with a strengthening dollar environment creates a loss.

Okay. Understood. Thanks.

Faisel, one last comment. Just so we don't launch another ship today, I would say spinning DCP is way down the list of the things. And so I wouldn't expect that that would emerge as a potential outcome.

No. I hear you. And the only reason I'm asking is because it's -- I understand that it not a near term sort of outcome. But it seems like there's not always alignment at the exact point in time between the joint venture partners. And while the long term alignment seems there, it seems like sometimes in the short run there seems to be a miss alignment. So I'm just trying to understand if the way to solve that is to spin it all off. But I'm not sure.

That's not the current plan. So I think that we -- we're [expecting] ourselves are aligned around the path [forward]. We're progressing or restructuring the business. We'll be able to tell you more about it in the coming months and, I think, from our perspective, we're satisfied that the DCP emerges from this is as a strong company that can meet its commitments and obligations and will be the preferred supplier in the areas where it does business.

Okay. I appreciate those comments. Thanks.

You bet.

Ladies and gentlemen, that's all the time we have for questions today. I now turn the call back to Mr. Mitchell.

Thank you very much for participating in the call today. We do appreciate your interest in the Company. You'll be able to find a transcript of the call posted on our website shortly. And if you have any additional questions, please feel free to contact me or Rosie. Thanks very much.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.