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 that this conference is being recorded. I will now turn the call over to Kevin Mitchell, Vice President, 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. It 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, on the Gulf Coast, we did not perform to the level of our expectations. We didn’t execute the lines refinery turnaround as planned and extended downtime prevented us from capturing the full value of improved margins on the U.S. Gulf Coast. On a positive note, our workers at Alliance achieved the safety milestone of 15 million man hours without a lost-time injury. 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 a third done. Both projects are on schedule and on budget with startups expected in the second half of 2015 and 2016 respectively. We continue to aggressively grow Phillips 66 Partners. In March, we completed a dropdown of our third interest in the Sand Hills and Southern Hills NGL pipelines, as well as our 19.5% interest in Explorer refined products pipeline system. These assets provide portfolio disbursification [ph] 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% compounding distribution growth rate through 2018. In chemicals, CPChem’s normal alpha olefins expansion project at its Cedar Bayou facility is on schedule for completion in mid-2015. Also, construction continues on a world-scale U.S. Gulf Coast petrochemicals project which is now about 40% complete with the startup 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 nation’s largest natural gas gatherers and processors, over 10% of domestic natural gas flows through DCP Midstream assets. It’s a must run business. To derive short term liquidity needs, DCP Midstream achieved current [ph] relief on its bank revolver until year end 2015. DCP has also implemented steps to reduce corporate costs in its capital budget. Spectra Energy and Phillips 66 continue to progress the 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’re 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 writeoff 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 in Port Arthur, partially offset by turnaround activities in Cedar Bayou and the CPChem joint venture facility in Qatar. Results for both O&P and SA&S were impacted by lower margins. The 2015 annualized year-to-date adjusted return on capital employed for our chemicals 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 U.S. 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 Coasts. 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 cost on secondary products, partially offset by lower volumes. Regionally, the Atlantic Basin had lower earnings mainly due to plant maintenance at the Bayway refinery and foreign exchange losses of about $30 million due to a strengthening U.S. dollar. The Gulf Coast was up from last quarter, reflecting higher crack spreads and improved secondary product margins in the region. Reduced volumes from a downtime 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 plant 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 321 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 feedstock advantage more than offset secondary product losses which were significantly lower in this crude price environment. The other category mainly includes cost associated with rents, 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 for M&S in the first quarter of $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 low margins were partially offset by increased volumes. Moving on to corporate and other. This segment had after tax cost 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 $800 million of senior notes that matured in March. Excluding Partners, we ended the quarter with an adjusted debt balance of $7.8 billion, an 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 U.S. 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 in 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 pre-tax turnaround expense to be about $150 million. In corporate and other, we expect this segment’s 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.

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] We have a question from Evan Calio from Morgan Stanley. The line is open.

Hey, 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 I’m 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.

So, Evan, just kind of reiterate what we’ve 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 I think that 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 the fourth quarter and in the first quarter of 2015 witnessed a heavy Gulf Coast turnaround. So I mean, are you largely complete for the year? And any color - exiting that heavy turnaround period we should expect any kind of capture uplift or otherwise enhancement?

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

And any capture uplift exiting on the back of that? Is it 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 some debottlenecks to push more lightweight [ph] crude. 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 lightweight [ph] 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.

Next we have Jeff Dietert with Simmons on the line. Your line is open.

Good afternoon.

Hey, Jeff.

Hey. I was hoping you could talk a little bit about Gulf Coast crudes. We’re seeing LLS has been trading close to parity with Brent and Houston pricing has been depressed relative to St. James and now Cushing is weak and perhaps pushing more barrels south on market MarketLink and Seaway. Could you talk about how that market’s evolving and how it’s influencing your Gulf Coast feedstock procurement?

Hey, Jeff, it’s Tim. Yes, I think that structurally LLS Louisiana remains tight logistically. And so I think that when you think about logistics out of, say, Texas and Louisiana pipe or ship, we’ve got a lot of constraint there. So I think that supports that differential couple of dollars. And then ultimately, there is the import option. And so I think that that presents kind of a cap on the LLS in terms of [ph] working separate. But that said, you would - if you can’t get those lighter curds in Louisiana for competition, it will so that that issue will continue to keep Texas discounted and Cushing discounted relative to Cushing. And ultimately, we’re working the solutions to look at how do we 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 looked at the breakover in inventory this month. And our view was that at some point, if the crude production of 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 more connection out of West Texas to grip [ph] into 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 the Midcon into the system.

And secondly, could you provide opportunity cost associated with first corridor maintenance?

It was about 8% of production was maintenance, about 6% was unplanned downtime and about 2% was planned downtime. So I mean normally what we do is we would take that and multiply it by the margins as they lay. So for instance, we think our end plan [ph] downtime is in the neighborhood of about $80 million across the system

All right. Thanks for your comments.

Next we have Doug Leggate with Bank of America Merrill Lynch. Your line is open.

Thanks, guys. I’m not going to push the DCP issue too much but I just wondered if you would respond to one issue. There’s been some, I guess, speculation that PSX might be prepared to inject capital 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?

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

All right. I thought I’d try, sorry about that. Just to have a quick run [ph] because I figured that may be a quick answer. Could exports, Greg, not your opinion so much on good exports, but your opinion on what it could mean for the MLP in terms of opportunities if indeed we did see a relaxing of that rule. Are you exploring any opportunities on those lines at this point? And I’ve got one final follow-up, please.

I think in terms of optionality, that’s one of the things we liked about Beaumont that it certainly gave us a footprint and one that we can certainly expand in terms of optionality around crude exports with MLP. So I think that that’s a potential we certainly think about. I still don’t see short term lifting of the ban on crude exports. We’ll see. I mean, 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’d like to see a broader conversation around energy in our country to include being able to build pipelines and a conversation around Jones Act ships so that we can effectively not be outcompeted by moving crude around from the Gulf Coast to East Coast refineries. But at the end of the day, I think we have some optionality in our portfolio that would play well under the act if that happens.

Thanks, Greg. My last one is a little cheeky, really. It’s a bit more conceptual but I guess I’m kind of asking you to do our job for us to some extent. When we were 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 species [ph] on a pre-tax or a post-tax basis? Do you think the market should be pre-tax or post-tax? I’m just trying to kind of resolve an issue we’re trying to get to the bottom of here.

So we’re doing some of the parts, guys, here, so we always think in terms of some of the parts as we’re doing analysis around the asset, around the portfolio. I think 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 - I mean, we had a conversation around pre-tax. I think the multiples are kind of on a pre-tax basis as people look at it. But does that change overtime? I just don’t know the answer to that. I don’t know, Tim or Greg, do you have a view on that?

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

I guess where I’m getting at, Tim, is when we think about how that should translate to the PSX share price on a pre-tax or post-tax basis.

I think we think about it in terms of the EB. And EBITDA multiple and as you value those streams and that translates into that EB and that’s how we think about some of the parts basis. So it really is on a pre-tax basis when we think about that uplift, yes.

Doug, this is Greg Maxwell. We did have that discussion while we were on the road. And I will say it’s an interesting discussion. We’re continuing to look at it. So obviously we’d like to have some ongoing dialog with you as we work through this.

Perfect. I appreciate that. Thanks a lot.

Ryan Todd from Deutsche Bank is on the line. Please go ahead.

Great, thanks a lot. Good afternoon, gentlemen. Maybe if I could start with maybe a two-part question on CapEx and cash return to shareholders. If we look at - 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 maybe as a follow-up with that and looking at the amount of buyback in the quarter, you’ve targeted a 60-40 split between capital spend and cash return to shareholders over a multiyear 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. And I think we’ve consistently said we view that this is the heavy lift year for us, peak year. We’re still working through ’16 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 ’16 in terms of capital. And the 60-40 allocation, we remain committed to. And that’s an average of the essentially the ’14, ’15, ’16 timeframe 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. On the other hand, if you think about $4.6 billion of capital expense, you think about $1.1 billion or so dividend expenses here, 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 as part of the funding vehicle, then you can kind of back into - share repurchase can be in the range of $1 billion to $2 billion this year.

Great. Maybe if I could just do one quick follow-up on the chems business, fees in the first quarter clearly are going to be better this year than I think what the fees were as we approach the latter part of last year. But can you give us an outlook at this point in terms of kind of a chemicals outlook for the rest of the year in particular as crude prices are going to be ticking up a little bit?

Sure. Yes. I’ll let Tim take a stab at that.

Yes, sure. I think that in the first quarter, we saw the readjustment, the lower energy complex and the margins have come in. Particularly in the olefins chain, if they’ve stabilized, you think about the pricing in terms of the feedstocks 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, U.S. 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 a pretty 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. Please go ahead.

Hey, guys.

Hey, Paul.

Hopefully [ph], just have a quick question. 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 you moved towards the three pinning [ph] tie up mark. Is it to be assumed that next year you will get all the way to three or that it will take a couple of years before you get down there?

Well, I think yes, I think we’re looking at somewhere between $3 billion and $4 billion for 2016, Paul. Obviously, we need to get that through that board and get that approved. And we’re still thinking about it. But it’s definitely going to be down from the $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 a more sustainable basis you guys would 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 a, what I would say, is an aggressive growth profile at PSXP. So as you think about on consolidated basis, most of that capital spend start moving to PSXP. As it gets scale, certainly, it can stand on its own feet. It can coinvest in a lot of these projects, ultimately invest in these projects. And so you may see consolidated capital up in that level. But that PSX in the level of PSX, we expect that to go down more to a maintenance level type activity.

Got it. Secondly, I think in the past, that management view West Coast or California is not necessary a core part of the portfolio long-term. With the market condition that we have seen in the last several months, just curious is there any change in your view about California market? What is their position or growth in your portfolio long-term?

Well, we might see the West Coast this quarter. But, fundamentally, our long-term view of West Coast hasn’t changed. We think it’s really a challenged place to do business. And we think we have kind of - we have good assets, but we think they’re average you have crossed that portfolio. And so we’ll continue to work the thick strategy around the West Coast as we look at more optionality around getting the advantage crude into those assets so kind of 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 with the concentration going to be by region.

We typically won’t give guidance there.

Okay. Not even by region, saying that is maturity in the West Coast [ph] maturity in Gulf Coast, so anything right there?

No.

Okay.

We probably just don’t want to disadvantage our commercial folks.

Sure. I understand. And two final questions on the - I’m trying to hope [ph] that you can give us updates in some of your market insights. In Europe, I think that [indiscernible] surprised by how strong the margin has been. Initially, we thought they’re punching away tide [ph] and subsequently of course, with oil price stabilized that they remain rather strong, I want to see whether you have any insight whether that - is it because the demand maybe perhaps much better or the capacity over there may not be as much as people thought. And second that in your wholesale network, any insight you can forward 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 I want to see what is your market system you’re telling us.

Paul, it’s Tim. On Europe, I think it is a combination of some turnarounds as I held - looked to the season right now. Clearly, with grant moving down, they were able to capture some margins well. And then we’re seeing stronger demand out of 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 I don’t know how long that goes on. But that was certainly the dynamic that we see in place in the first quarter and continuing right now. On our system on gasoline demand, you’d like to have a number of [indiscernible] 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 of points on demand seems like where it is. Whether that’s sustainable, I think we need more time. But certainly, it’s been something that supported the gasoline side. Diesel demand is off from somewhat to flat because of really seasonal planting and perhaps some impacting energy. But still pretty strong market on the diesel side as well. But gasoline is probably been the surprise in the demand side.

Yes. Okay. Thank you.

Neil Mehta with Goldman Sachs in on the line with a question. Your line is open.

Hey, good afternoon, guys.

Good afternoon.

So there’s a lot of talk about a crude blood [ph] translating to a product blood in the refining markets but then increasing utilization in response to strong margins and spreads we’re seeing out there. Just curious what you’re guys thoughts are on that risk and how you see that as a participant in the market.

So product inventories are on, as you know, at the high side of five-year range. We haven’t seen that develop and everything continues to push the run side. You’re entering a strong 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 then 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 at an issue.

And the other big macro debate that we’re 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 accrued storage in Cushing and then in pad 2 and 3 generally, and is there enough takeaway that you’re not concerned about a broader crude problem.

Yes. I think that when we look at it, we still think we’re 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 that’s part of that. We look at the Gulf Coast, we’ve 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 on the EMP 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 ways off. But certainly, you have seen that move and you’re watching the pad 3 inventory of crude grow. So I think that there is between imports and inputs from the [indiscernible] in particular and Cushing you’re seeing that move.

And last question is just around capital allocation. Buy back and 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 ’15 and ’16. Obviously a lot of financial commitments in 2015. But anything you could do to help us benchmark where that dividend growth should be anchored to.

Yes. So we stand by the guidance of double-digit dividend growth in ’15 and ’16 [indiscernible] purchases. As long as the [indiscernible] intrinsic value, we’re going to be buyers of the shares and 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 that would 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 Wheel on the line with questions. Your line is open.

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 in the ’16. Do you think it’s fair to believe that $1 billion to $2 billion of repurchase run rate kind of continues into ’16 assuming no material changes in macro dynamics?

Yes. I think that’s probably not bad. We purchased about $2.2 billion in ’13 and about $2.2 billion in ’14. And so I think it’s 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 pass the spending cycle. Do you kind of envision ongoing growth projects beyond the 2017 timeframe or should we think about moving to a cash harvest phase?

Go ahead.

Yes, Blake, it’s Tim. I think that we anticipate - with like 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, sometime past 2020, somewhere in the world with North America and Middle East remain 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 return back to the owners as well. And the leverage issue is just something that owners would consider. With this big crude, you want to keep the balance sheet very strong there. It’s great shape today. But it is something that we can always think about. But fundamentally, that’s a strong business in terms of cash generation and ability to fund this growth.

Okay. And the last follow on, just with 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 cost come in a bit lower than anticipated?

We’ll see. We’ve got a way to go on that project. On some of our projects that are nearer to completion, for instance, the frac-1 and I think we have a good charter bringing that in under budget. We’ll see as we finish execution on that project. So I would say that the odds are in our favor of executing well on this environment. And taking some pressure off is a good thing in terms of project execution.

Absolutely. Okay, thank you.

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

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 opportunities that [indiscernible] think that you guys just might be in a sweet spot? And if you do, how would you need to manage the capital allocation and then [indiscernible] 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 our debts [ph] are put in MLP. What we’ve also said is MLP gets the 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 interim period, where we’re building on behalf of the MLP. But that changes with time I think if 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. We’re clearly focused on executing that well.

Great. Thanks a lot.

Yes.

You have Edward Westlake with Credit Suisse on the line. Your line is open.

Thank you. And a good segue, so - sorry, I think it’s a $3 billion or $4 billion, sorry, 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 shales. So maybe talk a little bit specifically about interest in frac-2 and then perhaps some opportunities if there are any too to accelerate in the MLP again as oil price pick up.

Yes. So we felt really comfortable with the slide of projects we have with frac-1, LPG export facility. Felt good on both sides of those contract-wise, in terms of executing on those projects. In our original plans before we saw the follow up in crude prices. We probably would have taken frac-2 to FID [ph] late this year and the condensate splitter. We pushed those at least a year at this point. I think we’ll see what Oakland impact of the reduced capital spend is on the EMP 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 going to stay $50 either. And as crude prices come back and you can pick your level of what they go to in ’16 and ’17, then I think these projects are going to be necessary to get these liquids to the market center and you’ll see the investment go forward. And Tim, if you want to comment on anything.

Yes. I think as we’re seeing that is we’re seeing some opportunities to run the existing framework that weren’t in that plan. So some smaller project execution, the Bayou bridge, east out of bowman [ph] is a possibility. So we continue to develop other opportunities maybe to move from the market centers into the demand centers. So I think that’s another dimension. So we still feel that there’s good infrastructure growth and that certainly needs to be filled the next several years.

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

No. There is expansion capability in those new NGL pipes built out of Permian, on Sand Hills, as well as the Mid Con. So as the volumes can ramp up, we can do a fairly low cost [indiscernible] to get ramped up in the pipeline. And of course, that creates opportunity to the G&P side for DCT.

Right. Okay. And then on DAPL and ETCOP set up roaming around and then down to Vermont and across to Louisiana, have you kind of like got a tariff yet in terms of what that might cost to Bakken crude down into Louisiana refineries via that route?

We haven’t published that. So we really can’t speak directly. Our belief is it’s going to be the lowest cost from one of the lowest cap options to get crude from the Bakken into the Gulf Coast.

Right. Okay. Thanks very much.

Paul Sankey with Wolfe Research is on the line. Your line is open. Mr. Sankey, please check that you’re not on mute. Okay. Next, we have Phil Gresham with JP Morgan. Please go ahead.

Hi there. Most of the questions have been asked. But I guess just in terms of the [indiscernible] 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 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 is about $4.35 billion plus then you have to add in about $600 million for DPL on that cap I think. So it’s closer to $5 billion.

Yes. This is Tim. So we get guidance analyst day of around $7 billion on midstream. I think that number is still pretty good. So I think the EBITDA associated with that, you take the existing EBITDA and you put the MLP, we talked about PSXP being over $1 billion. That still exist with that pool of over $1 billion of droppable EBITDA should we desire to do that. A lot of that cap are those in those development various stages in development. And then there’s a backlog of projects. So we’re still on target. The absolute timing of that number may move out a year or so based on that. But fundamentally, that still has a great backlog of droppable EBITDA on the projects we have under development.

Okay. And then just a follow up on potentially I think back to the CPChem balance sheet, given that it’s self-funding proposition already, if you went down that path, is that something where you would consider incremental, just dividend in your incremental cash back to PSX or is that a bridge you haven’t really have crossed at this point?

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

Yes. I would just 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.

Yes. Okay. Thank you.

Brad Heffern with RBC is on the line. Please go ahead.

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

This is Tim. I guess we continue to look at the process piece and say, with this slowdown, liquids production that we anticipate the EMPs have reduced their spend, we think that pushes 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 yield 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 exploring [ph] it to do where 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 any more attractive M&A opportunities on the market given the downturn in commodity prices and how do you think about midstream acquisitions, potentially PSXP versus dropdown?

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

Okay. Thank you.

We have Faisal Khan from Citigroup on the line. Please go ahead.

Yes, good afternoon. Just one sort of theoretical question on DCT midstream. Were there any sort of tax impact to you, guys, if you were to spin if the joint venture partners decide to spin off entity to their current shareholders? So meaning that PSX and as the [ph] shareholders begin to provide the share DCT to be spun off. I mean I know you guys have both negative tax basis. So I’m just trying to understand if that would solve the tax basis issues over the long run?

Now, Faisal, 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 impact. So it 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, okay. Understood. And then just on the free port 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 the first exports?

Fai, this is Tim. So we’re progressing. We’re about 35%, 40% complete, gone well during the field constructing. And so we’re actually doing dock modifications, building tanks, putting in the compressors or 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 on the Atlantic side, you guys talked about a daily 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 dollar including fuel and cost around oil. So I just want to understand where the FX impact comes from.

Faisal, this is Greg Maxwell again. One thing to 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 FX a big impact or was it relatively small and it was Bayway just the 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. I can understand like most of the refineries in Europe had a pretty stellar quarter. So I’m just trying to understand the results on the Atlantic side. And I understand Bayway was a bit of a headwind there.

Faisal, this is Kevin. It’s a function of revaluing the crude payable that we have in the U.K. so we have U.K. functional currency and the revaluation of that dollar denominated payable with a strengthening dollar environment, creates a loss.

Okay, okay. Understood. Thanks.

Faisal, one last comment from me. Just so we don’t launch another ship today, I would say spinning DCT is way down the list of the same 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 - and I understand it’s not a near-term sort of outcome, but it seems like there’s not always alignment at exact point in time between the joint venture partners. And while a long-term sort of alignment seems there, it seems like sometimes in the short run, there seems to be a misalignment. So I’m just trying to understand if the way to solve that is to spin in our loss. But I’m not sure.

Yes. That’s not the current plan. So I think [indiscernible] and ourselves are aligned around the [indiscernible] we’re progressing our restructuring of 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 DCT emerging from today as strong company that can meet its commitments and obligations. And we’ll be the preferred supplier in the areas where it does business.

Okay. I appreciate those comments. Thanks.

You bet. 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 the transcript of the call posted on our website shortly. And if you have any additional questions, please feel free to contact me or Rosy. Thanks very much.