Welcome to the Third Quarter 2014 Phillips 66 Earnings Conference Call. My name is Christine 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 that this conference is being recorded. I will now turn the call over to Kevin Mitchell [ph], Vice President, Investor Relations. You may begin.

Thank you, Christine. Good morning and welcome to Phillips 66 third quarter conference call. With me this morning are Chairman and CEO, Greg Garland; President Tim Taylor; EVP and Chief Financial Officer, Greg Maxwell; and EVP, Clayton Reasor. The presentation material we will be using this morning can be found on the Investor Relations section of the Phillips 66 web site, along with supplemental, financial and operating information. Slide 2 contains our Safe Harbor statement. It's a reminder that we'll be making forward-looking comments 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. So that said, I will turn the call over to Greg Garland for some opening comments. Greg?

Thanks Kevin. Good morning everyone. Thanks for joining us today. Third quarter was a good quarter for us. In refining and marketing, we operated well. We are able to capitalize on a strong market environment. We executed our scheduled turnarounds and we did so safely, and as you know, that's very important to us. Our chemicals business, despite downtime at the CPChem Port Arthur facility, earnings were strong, also reflecting favorable market conditions. We are delivering our commitment to grow our Midstream business. On the picture in front of you, that's a picture of the Sweeny Frac 1, its progressing nicely, as is the LPG Export Facility at Freeport. We look forward to giving you frequent updates on these important projects. We are also evaluating the opportunity for second frac, have a capacity of 110,000 barrels a day. We expect to reach a final investment decision mid-2015. It will be up and operational mid-2017. We are continuing to build on our midstream momentum. We have plans for 200,000 barrel a day crude and condensate line, that will connect the Eagle Ford to our Sweeny refinery and our Freeport terminal. Five Points will have the capacity to expand to over 400,000 barrels a day. We are also considering condensate processing options. Yesterday we announced the formation of two joint ventures with Energy Transfer to develop the Dakota Access pipeline, and the Energy Transfer Crude Oil Pipeline, or DAPL and ETCOP. We will have a 25% in these JVs, and our proportional share of the construction costs is approximately $1.2 billion. Collectively, DAPL and ETCOP will have the capacity to move around 450,000 barrels a day of crude from North Dakota to market centers in the Midwest and the Gulf Coast. ETCOP will collect directly to our Beaumont terminal that we recently acquired. We did close on the Beaumont terminal this quarter. We bought this asset for what I can be. It has a great footprint, has a great location, great employees, and in our view, tremendous value creation opportunity. So we are very excited about this asset. Currently, it has over 7 million barrels of storage capability. We see the opportunity to expand this to 12 million barrels. So I think you will see us move soon to start expansion of this facility. Beaumont gives us deepwater access and the capability to export crude and products of 600,000 barrels a day, that more than doubles our current capacity. We think this terminal integrates nicely with our midstream growth plants, and also provide our Louisiana refineries increased access to advantaged crudes. Last September, we said that by 2018, we expect to have access capable generating about $2.3 billion of EBITDA that could be dropped into our Master Limited Partnership. This estimate did not include EBITDA, which we expect from the newly announced DAPL or ETCOP projects. [Indiscernible], as we continue to execute our midstream strategy of growth, EBITDA destined for our Master Limited Partnership, PSXP will continue to expand as well. We will utilize Phillips 66 Partners as a source of funds to grow midstream. Last weeks announced 340 million drop further demonstrates our commitment to PSXP and our desire to grow it. The rail-unloading facilities at our Bayway and Ferndale refineries and the Cross Channel Connector Pipeline are great assets, they tie into and they support our operations. Also with Cross Channel Connector, PSXP will grow organically, and we anticipate PSXP's ability to continue to execute additional midstream growth projects will increase. Integrated with our Midstream growth plans is our focus on enhancing refining returns by accessing advantaged crudes. We see crude by rail continuing, delivering domestic crudes to the East and West Coast. By early 2015, we will have 3,700 railcars dedicated to crude oil movement. We are constructing a rail-loading facility, with up to 200,000 barrels a day of capacity in North Dakota. In August, our company began operations at a 75,000 barrel a day rail-rack at the Bayway refinery, and a 30,000 barrel a day of rail-rack at our Ferndale refinery is in the commissioning phase. This quarter, we improved our advantaged crude capture to 95%. So we are working on a great portfolio of midstream projects. Our Board recently approved a $1.2 billion additional capital for DAPL and ETCOP pipelines, and we expect that this spend will occur over the next two years. This is in addition to our prior guidance around 2015, and we do not plan on slowing down our investments in NGL and LPG projects. We will provide you with an update of our 2015 capital program in December, once we have reviewed it with our Board. As a management team, we remain focused on capital allocation. You should expect double digit increases in dividends for the next couple of years. Our view is that our dividends are secure. They need to be growing and they need to be competitive. We have increased the dividend 28% this year. Of the $7 billion of share repurchases that have been authorized by our board, we have repurchased $4.4 billion. During the quarter, we repurchased 6 million shares, and at quarter end, we had 554 million shares outstanding. We will continue to buy our shares, as long as they trade below the intrinsic value. We believe doing so creates value for the shareholders of Phillips 66. And finally I'd say, we feel comfortable that we have the capacity to fund an aggressive capital program, and still maintain a strong focus to shareholder distributions. We are committed to sharing our success with the owners of our company. We have multiple sources of funds, including cash from operations, our balance sheet, cash on hands, our Master Limited Partnership. We are at the low end of our debt-to-cap ratio, and that provided with other sources, provides us with optionality, and also the capacity to continue to grow, and grow our distributions. So with that, I will turn it over to Greg, to go through the quarter's results.

Thanks Greg. Good morning. Starting on slide 4, third quarter adjusted earnings were $1.1 billion or $2.02 per share. We had two special items this quarter, that impacted our Chemicals and our Marketing and Specialties segments. In Chemicals, there were impairments at CPChem, mainly related to the Specialties, Aromatics and Styrenics business and in Marketing, we recognized a portion of the deferred gain from the sale of a power plant last year. Adjusting for these special items, the effective tax rate was 33% for the third quarter. Cash from operations excluding working capital for the quarter was $1.3 billion. We funded $1.5 billion in investments, and we paid $771 million in shareholder distributions. Our debt-to-capital ratio was 22%, and after taking into consideration our ending cash balance of $3.1 billion, our net debt-to-capital ratio was 12% at the end of the third quarter. And finally, our annualized adjusted year-to-date return-on-capital employed was 14%. Slide 5 compares third quarter adjusted earnings with the second quarter on a segment basis. Overall, third quarter adjusted earnings were up $277 million, mainly driven by higher results in refining, as well as in our Marketing and Specialties segment. I will cover each of these segments in more detail, as we move forward. Starting with Midstream; during the quarter, we saw increased volumes across all of our business lines, and in transportation, we closed on the Beaumont terminal acquisition. The annualized year-to-date return on capital employed for Midstream was 14%, and this is based on an average capital employed of $4.1 billion. Slide 7 shows Midstream's third quarter earnings of $115 million, up slightly from the $108 million last quarter. Transportation and DCP Midstream earnings were in line with the prior quarter. In Transportation, higher volumes and throughput fees were more than offset by increased operating costs, mainly due to higher maintenance activity. And at DCP, the increased volume activity from the various projects that have come online, was mostly offset by a decline in commodity prices. In our NGL business, we had gains on seasonal propane and butane storage, as well as higher overall volumes on the Sand Hills and the Southern Hills pipeline. In Chemicals, CPChem's global olefins and polyolefins capacity utilization rate for the quarter was 83%. This reflects downtime at the Port Arthur facility, resulting from the fire that impacted their ethylene furnaces early in the third quarter. SA&S had higher equity earnings this quarter, coming off turnaround activity in the prior quarter. The annualized adjusted year-to-date return on capital employed for our Chemicals segment was 29% on an average capital employed of $4.4 billion. As shown on slide 9, third quarter adjusted earnings for Chemicals were $299 million, down from last quarter's record earnings of $324 million. In olefins and polyolefins, the decrease of $51 million is largely due to the CPChem's Port Arthur ethylene cracker being down. Although Port Arthur represents approximately 11% of CPChem's total O&P production capacity, the impacts from it being offline were lessened, as CPChem was able to pull down inventory. In Specialty, Aromatics and Styrenics, the $25 million increase in earnings was primarily due to less turnaround activity during the third quarter. Moving on, Refining had a good quarter. WE operate our refineries well, and we safely worked through several turnarounds. To annualize year-to-date return on capital employed for refining was 12% on average capital employed at $13.5 billion. Moving on to the next slide, the refining segments had earnings of $558 million, this is up over 40% from last quarter. Although market crack spreads were down in all regions, except for the Atlantic Basin Europe region, we were able to benefit from higher realizations on clean products. We also benefited from our configuration, as we produced more distillate than what is implied in the 3-2-1 market crack, and distillate cracks improved this quarter. In addition, secondary product markets increased, primarily due to the decline in crude prices. The Atlantic Basin Europe and Central Corridor regions had the benefit of an improved feedstock advantage compared to last quarter, whereas the Gulf Coast and the Western Pacific regions were impaired on feedstock advantage, as well as by the build of inventory during the quarter. Refining and Other was improved this quarter due to successfully capturing additional location arbitrage and product blending opportunities. This improvement also reflects gains associated with the timing of crude purchases. Let's move to the next slide on market cap share; our worldwide realized margin was $10.89 per barrel, compared to $9.66 per barrel last quarter, with our market cap share improving from 61% to 73%. Relative to the market crack of $14.85 per barrel, configuration, which represents our clean product yield and also our secondary products, were a negative impact on our realized margins. Partly offsetting this was the capture of the crude advantage opportunities and feedstock, as well as product differentials, which represents the largest driver in the other bar. Compared to the second quarter, the largest movements were in the secondary products and the other categories, as secondary product margins and product differentials improved. Moving next to slide 13; this slide shows the comparison of advantaged crude runs at our U.S. refineries by quarter on the left and by year on the right. During the quarter, 95% of our U.S. crude slate was advantaged, and this compares with 93% last quarter. This represents a record quarter for us. The improvement was tied to increased crude runs at our Alliance Refinery, after their second quarter turnaround, and was also due to certain crudes becoming advantaged, relative to Brent. Moving on to Marketing and Specialties, or M&S; M&S had a great quarter, driven mainly by higher margins and marketing, and in specialties, we closed on the Spectrum acquisition in our lubricants business. The annualized adjusted year-to-date return on capital employed for M&S was 27% on an average capital employed at $2.8 billion. Capital employed in M&S increased this quarter, mainly due to the Spectrum acquisition which was completed in July. Slide 15 provides some additional detail on our M&S segment. Earnings from M&S in the third quarter were $259 million, representing a $97 million increase. The improvement in Marketing's earnings primarily reflects higher global marketing margins, due to the steady decrease in product costs during the quarter. We exported 129,000 barrels per day this quarter, down from last quarter's exports of 181,000 barrels per day. This was primarily driven by domestic markets being more favorable for product placement. Specialties' earnings were in line with the second quarter, as increases in earnings from the Spectrum acquisition offset reduction in our XL [indiscernible] JV business, due to turnaround activity. Moving on to Corporate and Other; this segment includes net interest expense, it includes corporate overhead costs, and it also includes technology and other costs and accruals that are not allocated to our operating segments. Corporate and Other after-tax costs were $91 million for the third quarter, and this compares with $121 million last quarter. The decrease was largely due to the effective tax rate, as well as timing of contributions and lower environmental costs. And this brings us to the third quarter cash flow; starting on the left, excluding working capital, cash from operations was $1.3 billion. Working capital changes were a negative impact of $828 million, largely due to builds and inventories. We expect this inventory build to reverse in the fourth quarter. We spent $700 million in capital for the Beaumont terminal and the Spectrum acquisitions. We also funded $800 million of capital expenditures and investments, mainly associated with NGL projects, and we made shareholder distributions of nearly $800 million this quarter, in the form of dividends and share repurchases; and we ended the quarter with a cash balance of $3.1 billion, this is down $1.9 billion from the beginning of the quarter. This concludes my discussion on the financial and operational results, next I will cover a few outlook items. In Chemicals, CPChem continues to ramp-up its 250,000 metric ton per year 1-hexene facility at Cedar Bayou, which began operations in the second quarter. The global O&P utilization rate in the fourth quarter is expected to be in the low 80s, as we anticipate CPChem's Port Arthur facility to begin the process of restarting its olefins units in November, with some portions of the plant remaining down until year end. For the fourth quarter in refining, we expect the worldwide crude utilization rate to be in the mid-90s and pre-tax turnaround expense to be about $130 million. In Corporate and Other, we expect the segment's after-tax cost to run around $110 million for the fourth quarter, and the overall effective income tax rate for the coming quarter is expected to be in the mid-30s. With that, we will now open the line for questions.

(Operator Instructions). And our first question is from Evan Calio of Morgan Stanley. Please go ahead.

Thank you. Good morning guys.

Good morning.

First question, and maybe to a few questions around the same topic. I am trying to zero-in on the potential gains embedded in your organic Midstream program kind of built to drop. So firstly, on the dropdown last week, $340 million, what was the cost to build the rail terminals?

I don't think we put out a number in terms of the rail terminals. I would say that probably typical Midstream type multiples is kind of the returns that we would expect out of those.

So kind of seven times -- billing it seven, and then you sold it around 10, I thought?

Yes sir.

And so, if I extend that thought into your $2.3 billion of your EBITDA, that's probably [indiscernible], as you mentioned, growing maybe 2.5 after yesterday's JV, built to drop [ph]. I mean is there -- I mean, can you quantify -- should we expect similar relationship to that EBITDA, or maybe more explicitly, how much of that infrastructure exists today versus what is -- what you are spending on to add? Does that make sense?

I think its kind of 500 is what exists today in terms of the EBITDA, and the balance is growth, Evan. And I would say, those are fairly typical tight Midstream projects and returns. There are some that are better than others in that. The other thing you think about too is, we get the MLP to scale, it can co-invest and they can do some of these projects on it also. So I don't know that I would necessarily think that all $2.3 billion of that ultimately would be built at PSX and initially drop into the MLPs. There will be some combination to that going forward in the future. But our challenge today is really get the MLP to scale, have a balance sheet, so that they can access the debt and equity markets.

No. I just think its less appreciated if you did that 1.7 times of a three-turn difference, $5.4 billion recurring gain on that portfolio, assuming it was all at the Phillips level. Let me switch gears on the second question to Chemicals, and just trying to get some color on the margin compression on the ethylene side. I mean, the Brent prices determine polyethylene price, and maybe you could help determine the impact of the oil move on your ethylene chain margins, and longer term if oil prices remain lower, do you think that risks investment for additional Gulf Coast ethylene capacity expansions in the U.S.?

Evan, this is Tim. So roughly, I would say for every $10 in TI on just a cost basis versus ethylene today, you could kind of think about price in a pound compression on the margin and the cost side. Market factors impact that as well. But long term, that's kind of the structural difference. So its quite large today. We have anticipated that that would come in with ethane rising a bit more than crude. I think structurally, we still feel that the gas to crude ratio kind of stays in the ballpark. So I think it has some compression, but I think we plan for some of that, and we still fundamentally believe that crude will be relatively expensive to a gas-based feedstock.

Is there anything on the macro that you look for, whether it'd be some stabilization on the ethylene, cents per pound advantage before you would proceed to FID a second cracker? I mean, how do you think about the rest of the macro and making additional investment there?

Yeah, I mean, I think crude's going to fall substantially to takeaway that advantage. So you would look across that value chain, but today where it is, they are still -- I think, incented to do that. Probably, I think more about it just in terms of favorability of the feedstock, but we have always had a strategy at CPChem around ethane-based cracking and that's been a very good place to be, so we looked in the Middle East, looked in North America; and I think fundamentally, we would say that crude would have to go quite a bit lower before we'd see that advantage dissipating. But that is a factor that we will think about in terms of additional investments, wherever they are.

Great. Appreciate it guys. Thank you.

Thank you. Our next question is from Jeff Dietert of Simmons. Please go ahead.

Good morning.

Good morning Jeff.

Following along on the Chemical sector, you provided some update on the Port Arthur partial restart in November, full restart by the end of the year, if I heard it correctly. I was wondering, if you could talk about the opportunity lost and the facility being down in the third quarter, what would chemical earnings had looked like, if it had been operating in the margin environment that was available?

Jeff, I think when we look at it, I like to think about it that we probably got about a five month outage when we think about Port Arthur. So that's roughly in the range of say 750 million, 800 million pounds of lost production, and then you can put the margin on that. I think the third quarter was mitigated somewhat by coming out of inventory, so that will continue to be an impact over the next two quarters. But in macro, we just think about it in terms of the lost pounds, and that's kind of how I'd think about that opportunity, that you can put the margin assumption on there that you'd like, but that's the best way to kind of put that estimate.

Got you. And as far as 2014 capital budget, no changes to the $3.9 billion presented last quarter. I think the new projects are more 15 plus type investments, is that fair?

That's fair. Our guidance is still around $3.9 billion for 2014.

All right. Thanks for your comments.

You bet. Appreciate it.

Thank you. Our next question is from Phil Gresh of JP Morgan. Please go ahead.

Hey good morning.

Good morning.

First question, you talked about the working capital build in the quarter. I was wondering if you could talk about the impact that that had on the profit line, particularly for refining in the Gulf Coast, I think you called that out. Any quantification you could give there?

Phil, its Greg Maxwell. I think as we look at it, we've got the large system and we trade around that, and so we end up having both crude and product impacting our inventory builds, that was the case in the third quarter. As far as regionally, we would expect that to reverse itself largely in the fourth quarter from an inventory working capital perspective. But other than that, we don't have any real guidance down to the particular regions.

Okay. But you would say it was a particularly large drag on the Gulf Coast profits in the quarter?

That's correct. We saw a negative -- or a positive in the second quarter and then a bit of a negative in the third quarter. So it is sort of a double dip, when you compare quarter-versus-quarter.

Got it. Okay. With respect to the balance sheet and the usage of cash, obviously you have a lot of growth investments you are focused on, and you have also talked about doing significant buybacks, which I would assume means continuing along the current run rate of what you did in that third quarter. So I guess what I am just wondering is, if you put all those things together and you look ahead, say two years from now, where do you want your leverage to be, on the balance sheet?

Well I think we have consistently said we are going to target a 20% to 30% debt-to-cap and we certainly wanted to float in there, if necessary. I think we have purposely structure the company to be successful; continue its growth investments, continue strong shareholder distributions in a volatile commodity environment. So we don't see any change to our strategy.

Okay. Last question, just with respect to all the midstream projects; obviously, you increased the target again in September and now you have layered in this other JV. Is there any -- realistically, is there any financial or operational path in terms of how you're thinking about the opportunities ahead, given what's already in the pipeline right now?

No. I think that -- I would say we are on track. Our strategy is a transformational change into a Midstream logistics company, with great refinances and great chemical assets, and I think we are on path. We have laid out more than $2.3 billion worth of EBITDA growth between now and 2018 in our Midstream segment. I think we are -- I would say we are pleased with the project portfolio we have. We are executing well, in terms of delivering on those commitments.

Okay. All right. Thanks.

Thank you. Our next question is from Roger Read of Wells Fargo. Please go ahead.

Good morning.

Good morning.

Two things. I guess, first off, the Bakken pipeline announcements; could you give us an idea of what sort of commitment on shipping those have? I mean is it 100%, is it 80%, just kind of what backs up the volumes there?

We are in the middle of an extended open season on that, and so -- we really don't disclose the commercial details, but I think the capacity we have talked about is at 450,000 barrels a day.

Okay. So we will go with that for right now?

Yeah. I think that you've got to let that process work itself out. And we would -- obviously, with the extended open season, I think the prospects are that that may increase.

Okay. Second question, kind of switching gears here to the refining side. Comments on the call, and if I am looking the numbers correctly. Exports were 129,000 barrels I think, and then down from 181, if I wrote that correctly in Q2, and the comment was along the lines of better domestic demand. Could you give us an idea today, as you look at the market and you're thinking about sort of domestic pricing versus international product pricing that would drive the desire to export more? And the changes we have certainly seen in between various crude differentials along the Gulf Coast and elsewhere, kind of where we stand on that export volume today?

Why don't I take a start, and then Tim can fill in the details. First of all, the export markets were there, they were available to us. We just made a decision to play some -- in a higher valued market domestically. I think the barrels we did export were somewhere between $1 and $2 a barrel better, than the alternative placement that we had available to us in the investment market. But in general, you are going to see us flex up and flex down to follow the market opportunity. You want to add on that?

I think structurally, pretty good demand, if we look at gasoline demand and distillate demand in the U.S., so that was the opportunity. But longer term, we still know that exports have got to happen, as we continue to run and incented to run. And so I think that we will continue to flex, as Greg said, but you should continue to expect exports to be a significant part of the U.S. refined business.

Okay. One follow-up on that if I could, any change into where your exported barrels have been going? I mean, Europe, Latin America, West Africa, any changes and sort of jump in capacity volumes?

On a U.S. perspective, no, and so I think those are still markets that are there, and those are logical markets to access from the U.S.

Okay. Thank you.

You bet.

Thank you. Our next question is from Doug Terreson of ISI. Please go ahead.

Good morning everybody.

Hey Doug.

Greg, since the spin-off a few years ago, your team has been pretty focused on delivering growth, but in a capital discipline way; and because your returns continue to be pretty strong and lead [ph] the peer group in many of the businesses, you obviously demonstrated proficiency on value creation, but also on this transformational growth that you talked about a few minutes ago. So my question is whether or not we can get a progress report on the core components of the return enhancement plan and refining specifically, and then also, any of that strategic dollars [ph] that you might have on the West Coast and European parts of the refining portfolio?

Sure. I think that I would say we are on track with the return enhancement plan that we laid out, since like two years ago and updated this year. As you know, the biggest component of that is really accessing advantaged crudes and we are driving to 95% advantaged crude capture. But that's not the whole story, once you get advantaged crude, you look at the next best advantaged crude, you displace that barrel too. So I think around the infrastructure that we are investing and it does have the ability to help us liberate higher returns around our integrated refined assets. So we will continue down that path, and we will get to 100% advantaged crude next year or so, as we continue to move these projects forward around infrastructure. You think about the portfolio, I think we said this year we will close on Bantry Bay and so we are on track to do that. Whitegate, really a failed process. No interest in someone buying the Whitegate refinery, so that asset is essentially off the market for now. We have an ongoing process in Melaka, and I think our expectation has certainly ended this year, first quarter next year, we will complete that process.

Okay. Great. Thanks a lot.

Thanks Doug.

You're welcome.

Thank you. Our next question is from Ed Westlake of Credit Suisse. Please go ahead.

Good morning. A simple one to start with. The condensate pipeline, and the [indiscernible] in that $2.3 billion midstream forecast?

Yes.

Okay. And then, $340 million drop, that's great. I guess, you've got an EV of $45 million and $2.3 billion of MLP investments is going to grow. I mean, I was just joking with my team, that I'd need to live to 100 to see the entire asset base transfer down to PSXP. SO I guess, just the questions really are, what are the constraints on you guys going faster, and I do obviously hope to live to 100?

Well the first thing I was going to say, we hope you do live to 100, but you got to give us credit for the 740 we have done; so we have done $1.1 billion this year, as you think about the drop and the MLP and I would say, we have consistently said, our view is that -- we will probably keep our foot on the accelerator, [indiscernible] in terms of the Master Limited Partnership. It’s the valuable part of our growth program, in terms of funding this Midstream growth. And so I think that clearly, we have stated intentions that clearly, the long term will be -- top quartile in terms of distribution growth will certainly parse [ph] 2015. But over the years, we are going to be quite a bit above that.

Right. I mean, you have seen obviously what's going on in the space, where people have used consolidation to perhaps create a larger MLP? Obviously, there is GP accretion from that, and then potentially that might be a base to then drop further assets in perhaps a faster pace. I mean, is that something the woodwork in your vision?

We have got a great backlog of projects Ed, as they come on. I think it has increased that backlog of droppable EBITDA. So we are going to -- to Greg's point, you're going to grow your MLP and commensurate with that Midstream growth; and its always a possibility that we could look at some type of opportunity to expand that. So I think that's just part of our strategic view that we see a lot of value creation in that segment and the MLP is just a really key piece to make that happen.

And then two smaller questions; I appreciate your open season, but any idea on what sort of tariff it would take to take Bakken barrels down to Beaumont?

That has not been -- the FERC tariffs have not been filed. So once that's complete, that will be available. But we believe, I will say this -- that this will be the most economic pipe solution from the Bakken to the Gulf Coast.

Yeah. Reconverted gas pipe I think probably is, definitely. And then on the throwaway comment that you made on refining in the Gulf, you said there were some feedstock restrictions, can you walk us through what those might have been in the second quarter -- sorry third quarter?

Yeah so second versus third, we had -- Alliance came back on after turnaround, so you had more exposure to light and medium grades with that. And then there was less availability of [indiscernible] the crude, and that was backfilled with more light medium. So we had a mix effect, that gave more exposure to light medium versus heavy in the third quarter.

Thank you.

Thank you. Our next question is from Paul Sankey of Wolfe Research. Please go ahead.

Hi guys. To the extent -- you have been asked a lot of questions around this, but obviously -- arguably we have move to a new price environment here. Firstly, I was a bit surprised that your earnings weren't boosted more, you tried to break that out, but in the core products area, would we expect the lag to come through in Q4 from price downturn? And could you try and sort of [ph] how much of that would be sustainable, if its all possible if we stayed at this kind of price level? Secondly, from the current price level, would you expect there to be an inventory or accounting of inventory impact? And then I am going to follow-up, which is a kind of a bigger question. Thanks.

Paul, on the secondary products, I mean clearly as the cost of feedstock has come down, the margin on those products has gone up, and so that's kind of the direct correlation versus some price movement maybe on those -- maybe on the LPG in the cokes and those kind of things. But its really around that feedstock value, brings up the value of that secondary product. And so I think that, that really depends on the absolute level of crude. Maybe in a broader statement, with crude prices coming down, you've got probably on the direct margin, the chemicals business has -- probably could have I should say, the most exposure, as that margin comes in versus naphtha cracking. But generally with the margin business, there are just a lot of moving parts to what that really inputs during feedstocks and products.

I guess what I am driving is that you had a negative in secondary products you show on slide 12, and part of the question is -- I know that you're trying to improve that capture in general, but obviously the volatility of the market makes it difficult. But I would have thought that that number might be better, because we sort of down move, although the majority obviously came later? That's a general idea I am pushing at?

I think its probably $5 a barrel better quarter-over-quarter and I think assuming that crude stays where its at, that probably carries forward into the fourth quarter. But we always seem to have better capture in the fourth quarter anyway historically. So we will just have to see where it goes.

And Paul, on your crude inventory question, I think you are as spot on as prices go down, you do see some flowed impact between net accounts receivable and accounts payable. We haven't publicly quantified that for anyone, but you will see some impact.

Okay. I will follow-up on that. And then the bigger question I had was that you have obviously invested a lot and succeeded in getting a much more, what you call advantaged crude slate. I was wondering how sticky that would be, if we saw a situation, where for example, global crude prices were at or below U.S. prices? I assume that your infrastructure investment would lave you still wanting to use the domestic option? Can you give us -- I mean, I don't know if I am barking on the wrong tree there, but the idea is you kind of incentivize by your infrastructure to use the domestic crudes almost to a much tighter price maybe than other people might think? Let us say if we --

Paul, I think on the infrastructure, clearly the location of the refining asset has a snipping impact on the crude slate. So clearly the Midcon, some of the billings, pretty focused on the inland crudes. I think it really hinges on the optionality around say the Gulf Coast. Our infrastructure though, we think about it like this, that we have access to that, and we will go to the best value on the refining slate, and then we have got opportunities with our logistics to move those crudes into whatever market makes sense. So there is kind of a double-edged drive on the logistics as increased third party capability, as well as supplying our own system, and I think that's the balance that we are looking for.

Yeah I guess I am just trying to get a sense; for example, if we inverted Brent prices when under -- let's say LLS, to the extent that you would -- how far that would have to go before you would want to move back to using imported crudes, when you've done so much work to do the opposite?

Well I think we keep that option on the table, and our comment -- my comment would be that, I would expect that mainland U.S. prices would probably adjust to be competitive. But we work around that short term optimization in our system today, and so we will flex as that differential moves, and we got the best value in our refining system.

Yeah, I guess I am just thinking out loud. The final question, do you have any observations on distillate markets right now? I know you have a relatively long distillate, anything that you could add? Thanks a lot.

The distillate market still looks strong. So I think, kind of moving into the season, we are going to like that exposure on distillate side.

Thank you guys.

Thanks Paul.

Thank you. Our next question is from Blake Fernandez of Howard Weil. Please go ahead.

Guys, good morning. I was hoping to go back to the product exports. I know you said you exported 129,000 barrels a day, you are progressively building out your capacity. I am trying to get an update of where you stand right now in capacity, and also if you don't mind, some commentary around some of the new global capacity coming online that's export oriented, I am just curious if you have any thoughts on how the U.S. is going to be competitive with some of those new facilities in targeting, let's just say, the European market?

I think we are close to 1 million barrels a day, with Beaumont plus the 420,000 that we have in the PSX refining system. Our view is we will continue to expand that. I think that the U.S. refiners, given the energy price advantage and some crude advantage are going to be well positioned to compete in export markets globally. But certainly in most, that are most geographically close to us, like Latin America, South America, West Africa, to a certain degree, Europe. But there is no question, you have got some big refineries coming up in the Middle East, that are targeting Europe and Asia, and they are very-very competitive assets, that I think [indiscernible].

Okay. Just a quick one on Bayway; with the rail rack coming online, if I am not mistaken, historically, you have done a bit of barging Gulf Coast crude over to the East Coast. Does the rail rack basically displace that, or will you continue to do both?

You know, we continue to do both. We have actually run the Jones Act ship up around the Bayway also, and so I think you will see us continue to do both.

Okay. And then the final one for me, I know you addressed Jeff's CapEx question on 2014, any thoughts around? I mean, there is a lot of moving pieces, so as we kind of progress into 2015 for the time being, do you think its fair to think flattish type of CapEx into next year?

Well we had given guidance earlier this year on 2015, and so we will go to our Board in December and ask for approval for our 2015 budget. But certainly, I think that you should view that DAPL and ETCOP investments is incremental to what we have already said.

Right. Okay. All right, thanks a lot.

Thank you. Our next question is from Paul Cheng of Barclays. Please go ahead.

Hey guys. Good morning.

Hey. Good morning.

A number of quick questions. Greg, earlier though, maybe your team talking about some destock limitation on Maya. Do you know if this is specifically for Phillips 66 is actually hitting for the whole industry? And can you quantify for us in some way that, [indiscernible] for you and have you seen that situation reverse?

Paul, our view is that its availability of production on the Latin American crude side; I can't speak to others, but certainly we have seen that, and in the interim, we are readjusting the supply chain. Clearly Canadian crude, heavy crude to the Gulf Coast can be a piece of that, that's starting to move with more rail infrastructure up there. So I think new supply options are developing as that changes, but that's our view is that, it has really been a reduced availability, that certainly we have seen.

Tim, can you quantify -- helping us to quantify, how can [indiscernible] negative hit on you in the third quarter?

I have not done specific around that, so I could get back to you on that with the sensitivity.

Okay. That would be great.

We typically won't go to our refinery level that far.

Yeah. We might go to a regional level for you.

Okay, that's good enough. On the energy transfer, the total investment for the two JV is $4.8 billion to $5 billion. Is there -- is that incremental or that this is including some of the money already being spent?

So that's the total value, and we will have a share of that total capital commitment. And its still, so you are in open season, you haven't done a lot of -- there have been some engineering work, and those kinds of things, so you are very early in the formation of the project on that.

Tim, from what I understand that, those two projects actually already have some existing pipe in the ground, is there upfront payment you guys have to pay in this year, related to that project?

So its really around the contribution of the assets and everything, so that is -- the spending really occurs in 2015 and 2016, as kind of the split between those two years as we go forward Paul.

Right. But how about -- how to fund the investment? How to fund your share -- that contribution?

Fairly small spending this year. Really, the bulk of that spending on that total occurs in that 2015 and 2016 time period.

And -- sorry.

No, go ahead.

On GP, can you tell us what is your GP cash flow, annualized run rate right now?

Paul, this is Greg. If you look at the percent of the distributable cash flow that's received by the GP for this quarter's announced distribution, that would be 8%.

Great. It seems that -- if you can help me, since I don't have the PSXP [indiscernible] in the 10-Q. Do you have -- what is maintenance of dollar, that number?

I don't have that right in front of me. I will get that for you.

And also maybe a request, if possible in the future, I think it would be very helpful for your shareholder, given we are talking about logistic is going to be a big piece of the value creation for the company. If you can [indiscernible], what is your actual GP cash flow, so that we don't have to focus every different document, in order to find it?

That's a great suggestion Paul, and we are going to do that. We talked about that this morning in fact.

We plan on putting that in the supplemental information Paul.

I think that would be helpful. And also along those lines, because we don't know every quarter, whether its going to have a change in your LP unit ownership. So if you can also list how many LP unit and what is the total LP unit? Those are all available, I am sure in the PSXP, but just help your [indiscernible] shareholder don't have to go through a set of different documents. Final question along those line, based on the balance sheet of the LP, what is the current maximum ability for them to do M&A, whether its through the internal job done or external M&A. How big is the balance sheet that they can do? Is that $1 billion, $1.2 billion a year, I mean any rough guidance that you can provide?

With regard to total acquisition at the PSXP level?

That's correct. I mean, how much that they can -- I mean, this year that you're doing $1.1 billion of the asset job done. Is that the maximum in terms of the financial balance sheet capability, or that you think that capability is actually bigger than that?

Paul, I guess I look at, there is equity debt component and we targeted three times EBITDA on debt, and I think you look at the MLP access on the equity side, you start to see that $1 billion. So somewhere between $1 billion and $1.2 billion is kind of roughly in the range of what we think about could be managed from a purchased standpoint.

So without issuing equity into LP, therefore it will be about $1 billion, $1.2 billion from a debt standpoint?

No I think you've got -- as you go forward, with that you have got to have the equity offering or the debt to purchase the asset. So I think equity offerings are a natural way to grow that capability. It doesn't get into acquisition or a share exchange regarding that, that's a different issue. But just in terms of accessing the market and where the cash comes from, it really has to be held back from a distribution or asset come from access to debt and equity.

Right. Perfect. Thank you.

Paul, I looked up, you were wanting distributable cash flow for the third quarter?

That's correct.

$33.4 million.

$33.4 million. That is the total distributable and 8% is through the GP or that is the GP?

No. That's total distributable, and so the 8% would apply to that.

I see. Perfect. Thank you.

Thanks Paul.

Thank you. Our next question is from Doug Leggate of Bank of America. Please go ahead.

Thank you. Good morning everybody.

Good morning.

I guess, one of the things that has come to you periodically has been how we are -- I guess, how is the Street trying sort of value [ph] on your Chemicals business and the Structure business right now. And I hope you have been trying to look out, is the free cash flow outlook. So I am wondering if you could help us, how you see the self-funding chemicals growth evolving to a free cash position, and where you are in the decision process for the second tracker, which obviously would defer that free cash movement and [indiscernible]. That's my first one, and I have a follow-up please.

So basically, as we have looked out, we are in the middle of a major project right now. Our view has been that the project will be funded with the Chemicals business, there will be distributions for tax payments. And next year is kind of the peak spending year, so I think a little bit there. And I think going forward, its really a question about, do they have the right return projects and the market fundamentals, and to the extent that they can self-fund and grow, we'd really like to encourage that. So I think our expectation is that, that they will continue to grow. But to a degree to which they do that, really depends on the view of the returns on the project and how much. But we do expect that to be a self-funding venture, with the payments back to the owners, at minimum tax distribution and discretion beyond that.

So it seems like today.

Doug, I think our current view would be that 2015 to begin and certainly self-funding and putting distributions back to Chevron and ourselves.

Can you update us on where you are in the second project, in terms of FID?

Well I think we are -- CPChem is certainly looking at all the options and looking specifically in the U.S. at a couple of things. And so it really is still very early, looking more, at I would say conceptual market feasibility of returns that we expect and so just taking a hard look at that, but not really engaged in a lot of enduring work at this point. So its really decision point that they have got to bring forward to the owners for some approval and discussion. So its out there in ways, in terms when we would take any kind of investment decision, or if we would go forward. I think just generically though, as we consider the opportunity universe in the Chemicals business, we still think that the U.S. Gulf Coast is probably the best place to invest. And I think that, and at least from our perspective, we wouldn't hesitate to go forward with the second cracker. I think the real challenge is where you're going to put it and what are you going to feed it, and that's kind of what we are working through right now.

Thank you. And my follow-up if I may, all the way back to the MLP again. I guess, one of the things a lot of people talked about, drop downs and drop it down faster and all this kind of stuff, but there is no real discussion around time, value and money, tax basis, more importantly the impact on the refining business. So I guess, what I am really trying to understand is, what do you think is a reasonable pace that the MLP could actually handle by the way of annual sort of ratable acquisitions or growth if you like? And I guess in the same kind of vein, do you ever think that -- I guess its 10% of the $2.5 billion post this deal is refining -- within the refinery gate. Is there a scenario where you envisage moving the refinery EBITDA into the MLP, given the implications or the volatility of the refining business? And I will leave it there. Thanks.

So we think the market capacity, given the size of this MLP, is probably somewhere between $1 billion to $2 billion of what we could do annually. And so, we could just leave at that. We really haven't given forward forecast of what our drops are going to be, other than around just quantify top quartile type of growth and distributions. I still look at the refining business, the volatility of the refining business, and I would say, we probably would not put that into an MLP at this point in time. Just given the different yields and access to capital and cost of capital and using that Midstream business then to kind of tie up and integrate with our refining assets and improve our refining assets long term.

That's really helpful; but I guess the answer I was looking for, because a lot of your -- some of your competitors are, I guess a slightly different view of that. Thanks very much for the answers guys, I appreciate it.

Thanks.

Thank you. And our next question is from Brad Olsen of Tudor Pickering. Please go ahead.

Hey. Good morning guys.

Hey Brad.

I wanted to walk for a minute if I could, through the Midstream EBITDA number. I know the $2.3 billion EBITDA that's now in the presentation, its certainly a robust number and assuming $2 billion a year of drops at a 10 times multiple, it gives you a close to a decade of runway. Does that include the recent Bakken pipeline deal you have announced, and if it doesn't, I am just trying to think about the $700 million that was announced back in 2012, plus the $500 million or so from the Sweeny complex? And then kind of trying to get from there, the additional $1 billion, if I am not using the Bakken pipelines? And I understand, there is a lot of small stuff in there. But just kind of one or two big chunky projects that, especially in the -- I believe the NGL segment, which will increase much greater than just the Sweeny frac complex alone?

As you think about, first answer, the Bakken pipe is not in those numbers. And so clearly, that would be incremental to that, and you should expect typical tight Midstream returns outside of the Bakken pipe. What are in the numbers, essentially the frac-1 frac-2, the LPG export, and we have said $700 million or $900 million of EBITDA in there. One of the things that the organization has done really well in the last year, is to queue up a really strong portfolio of growth opportunities for us to invest in. Around our footprint if you will, and we are executing well, in terms of getting these projects started, getting them up, getting them running. And so I feel really comfortable with our portfolio, our capability to fund it, and we like the opportunities that we see.

Beaumont is in there as well.

Yeah. Beaumont is in there as well. Good thinking.

That's really helpful. And just a jump back to the Bakken in that, or the Bakken pipelines, the crude pipeline investment if I could. It looks like a really attractive deal obviously, you kind of pointed out that they are your typical kind of seven times midstream returns, while also being kind of a long term regulated cash flow stream. So when I think about that, you have obviously made it a point to say that strategically, Midstream is kind of driving the bus on a go forward basis, and refining is probably less of a focus in terms of growing the business. And so, kind of piggybacking on Paul's question; when you think about kind of -- which part of the equation is the dog and which part of the equation is the tail, to use a clumsy analogy? On the Bakken deal, is this a deal that you would have done, in absence of your Gulf Coast refinery footprint, or is it something that you view as adding significant value, even if you hadn't participated in equity in the pipeline, would it have been something you had looked at from a refining point of view? To what extent would this pipeline project maybe have played out differently if you were or were not looking for crude for those Gulf Coast refineries?

So I think -- when I look at it, its not predicated on supply into our system necessarily. It’s a great option, and that's a value that we bring to our refining system. We like the fact it’s a long haul crude pipe from the basin, that ties directly to our Beaumont terminal and so we got options across that Gulf Coast system, you got Midwest delivery. So we like that, it can tie into our supply, and it’s a factor as we think about that, but its not -- the key driver was not supply, but it was really around the Midstream opportunity. So we think it’s a great asset, its going to continue to enhance our position in the Bakken or our position in the Gulf Coast. Great linkage.

Thanks for that color. And when I think, if supply -- supply is maybe not the main driver, but I assume that you guys are a significant shipper on the pipeline, and does it enhance your position? I guess you mentioned earlier in the call that this is the lowest cost option out of the Bakken, and as we see other pipeline facing delays out of the Bakken, that option probably gets more valuable over time. But as I think about how much volume you guys are going to be directly involved in kind of marketing of this pipe, is there a good number or are you an anchor shipper, or is this more of just an equity investment without a volumetric commitment?

So we are in the middle of an open season, and we will take a commitment, but that's all we are going to say on that.

Okay, great. And just one more kind of housekeeping question. Greg, you talked about the hexane facility kind of still in ramp-up mode. As we think about where that facility or when that facility reaches full economic contribution, does the incident at Port Arthur prevent the hexane facility for any reason, from being able to sell full volumes or is the run rate unaffected by that, and if you wouldn't mind providing a little bit more specificity on the timing and maybe just a rough kind of EBITDA number on that facility as it does hit a 100% or close to 100% utilization?

I don't think that Port Arthur is going to impact the run rate on hexane-1. As it ramps up into 2015, Port Arthur is going to be back up and running. So I don't think Port Arthur is going to enter into an equation in terms of run rate. In terms of fully ramping the facility, I don't know, it will probably ramp over in 2015 and 2016, would by guess.

Yeah. I mean I think in response to demand. So we have been very happy with the startup, been very happy with the customer reception on the product side. So it has gone very well, but you do have just the normal ramp up in terms of demand and how that works.

Got it. That's all for me. Thanks a lot guys.

Thanks.

Thank you. And we have reached the allotted time for questions. I will now turn the call back over to Kevin Mitchell.

Thank you very much for participating on the call this morning. We do appreciate your interest in the company. You will be able to find the transcript of the call posted on our website shortly; and if you have any questions, please contact us. Thanks again.

Thank you. And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.