Phillips 66 (PSX) This fall 2022 Earnings Name Transcript

February 1, 2023

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Phillips 66 (PSX -5.78%)
This fall 2022 Earnings Name
Jan 31, 2023, 12:00 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Individuals

Ready Remarks:

Operator

Welcome to the fourth quarter 2022 Phillips 66 earnings convention name. My title is Emily, and I will be your operator for at this time’s name. At the moment, all contributors are in a listen-only mode. Later, we are going to conduct a question-and-answer session.

Please be aware that this convention is being recorded. I’ll now flip the decision over to Jeff Dietert, vp of investor relations. Jeff, chances are you’ll start.

Jeff DietertVice President, Investor Relations

Good morning, and welcome to Phillips 66 fourth quarter earnings convention name. Individuals on at this time’s name will embody Mark Lashier, president and CEO; Kevin Mitchell, CFO; and Brian Mandell, advertising and business; Tim Roberts, midstream and chemical compounds; and Wealthy Harbison, refining. At this time’s presentation materials will be discovered on the investor relations part of the Phillips 66 web site, together with supplemental monetary and working data. Slide 2 incorporates our protected harbor assertion.

We shall be making forward-looking statements throughout at this time’s name. Precise outcomes might differ materially from at this time’s feedback. Components that might trigger precise outcomes to vary are included right here, in addition to in our SEC filings. With that, I am going to flip the decision over to Mark.

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Mark LashierPresident and Chief Working Officer

Thanks, Jeff. Good morning, and thanks for becoming a member of us at this time. Within the fourth quarter, we had adjusted earnings of $1.9 billion or $4 per share. We generated $4.8 billion in working money movement.

For the 12 months, adjusted earnings have been $8.9 billion or $18.79 per share. Our diversified built-in portfolio generated sturdy earnings and money movement in 2022, supported by a good market surroundings and stable operations. Our money movement technology allowed us to strengthen our monetary place by repaying debt and resuming our share repurchase program. We returned $3.3 billion to shareholders by means of share repurchases and dividends.

We proceed to deal with working excellence and advancing our strategic priorities to ship on our imaginative and prescient of offering vitality and enhancing lives as we meet international demand. In midstream, we proceed integrating DCP Midstream to unlock important synergies and progress alternatives throughout our NGL wellhead-to-market worth chain. Moreover, we accomplished Frac 4 on the Sweeny Hub, including 150,000 barrels per day. Our whole Sweeny Hub fractionation capability is 550,000 barrels per day, making it the most important fraction — or the second largest fractionation hub within the U.S.

In chemical compounds, CPChem is pursuing a portfolio of high-return tasks, enhancing its asset base, in addition to optimizing its present operations. This consists of development of a second world-scale unit to supply one hexene in Previous Ocean, Texas, and the enlargement of propylene splitting capability at its Cedar shopping for facility. Each tasks are anticipated to begin up within the second half of 2023. CPChem and QatarEnergy introduced closing funding selections to assemble petrochemical services on the U.S.

Gulf Coast and in Ras Laffan, Qatar. CPChem could have a 51% curiosity within the $8.5 billion built-in polymers facility on the U.S. Gulf Coast. The Golden Triangle Polymers facility will embody a 4.6 billion kilos per 12 months ethane cracker and two high-density polyethylene models with a mixed capability of 4.4 billion kilos per 12 months.

Operations are anticipated to start in 2026. In January, the Ras Laffan petrochemical venture was accredited. CPChem will personal a 30% curiosity within the $6 billion built-in polymers complicated. The plant will embody a 4.6 billion kilos per 12 months ethane cracker and two high-density polyethylene models with a complete capability of three.7 billion kilos per 12 months.

Begin-up is anticipated in late 2026. In refining, we’re changing our San Francisco refinery into one of many world’s largest renewable fuels services. The Rodeo Renewed venture is on observe to start business operations within the first quarter of 2024. Upon completion, Rodeo could have over 50,000 barrels per day of renewable fuels manufacturing capability.

At our Investor Day, we introduced priorities to reward Phillips 66 shareholders now and sooner or later. We’re holding ourselves accountable, and we all know that you’re as nicely. Slide 4 summarizes our progress. We’re delivering returns to shareholders.

Since July 2022, we have returned $2.4 billion to shareholders by means of share repurchases and dividends. We’re on observe to fulfill our goal return of $10 billion to $12 billion by year-end 2024. In January, we reached an settlement to amass the entire publicly held frequent models of DCP Midstream. We anticipate the transaction to shut within the second quarter of 2023, at which level, we could have an 87% financial curiosity in DCP Midstream.

The rise in our financial curiosity from 28%, previous to the third quarter transaction, is anticipated to generate an incremental $1.3 billion of adjusted EBITDA, together with business and working synergies. We’re executing our enterprise transformation. The crew achieved financial savings in extra of $500 million on an annualized foundation on the finish of 2022, setting us up nicely for 2023. This consists of price reductions of over $300 million, largely associated to decreasing headcount by over 1,100 positions throughout the 12 months as we redesigned and streamlined our group.

As well as, our 2023 capital program features a $200 million discount of sustaining capital. We’re reworking to a sustainable decrease price enterprise mannequin and anticipate to ship $1 billion of annualized financial savings by year-end 2023. We’re laser-focused on executing these strategic priorities to ship returns and enhance distributions in a aggressive and sustainable approach. We look ahead to updating you on our progress.

Now I am going to flip the decision over to Kevin to overview the monetary outcomes.

Kevin MitchellGovernment Vice President and Chief Monetary Officer

Thanks, Mark. Beginning with an outline on Slide 5, we summarize our monetary outcomes for the 12 months. Adjusted earnings have been $8.9 billion or $18.79 per share. The $442 million lower within the honest worth of our funding in NOVONIX lowered earnings per share by $0.71.

We generated $10.8 billion of working money movement. Money distributions from fairness associates have been $1.7 billion, together with $574 million from CPChem. We ended 2022 with a internet debt-to-capital ratio of 24%. Our adjusted after-tax return on capital employed for the 12 months was 22%.

Slide 6 exhibits the change in money throughout the 12 months. We began the 12 months with $3.1 billion in money and generated document money movement throughout the 12 months. Money from operations was $10.8 billion. We obtained internet mortgage repayments from fairness associates of $590 million.

Through the 12 months, we paid down $2.4 billion of debt. This consists of $430 million of debt paid down by DCP Midstream since we started consolidating efficient August 18. We funded $2.2 billion of capital spending and returned $3.3 billion to shareholders, together with $1.5 billion of share repurchases. The opposite class consists of the redemption of DCP Midstream’s Collection A most popular models of $500 million.

Our ending money stability elevated by $3 billion to $6.1 billion. Slide 7 summarizes our fourth quarter outcomes. Adjusted earnings have been $1.9 billion or $4 per share. The $11 million lower within the honest worth of our funding in NOVONIX lowered earnings per share by $0.02.

We generated an working money movement of $4.8 billion, together with a working capital good thing about $2.1 billion and money distributions from fairness associates of $261 million. Capital spending for the quarter was $713 million, together with $310 million for progress tasks. We returned $1.2 billion to shareholders by means of $456 million of dividends and $753 million of share repurchases. We ended the quarter with 466 million shares excellent.

Shifting to Slide 8. This slide highlights the change in adjusted outcomes by section from the third quarter to the fourth quarter. Through the interval, adjusted earnings decreased $1.2 billion largely attributable to decrease leads to refining and advertising and specialties. Within the fourth quarter, we made sure adjustments to the composition and reporting of our working section outcomes.

Our slides replicate these adjustments and prior-period outcomes have been recast for comparative functions. The 2022 and 2021 quarterly data has been recast and is included in our supplemental data. Slide 9 exhibits our midstream outcomes. Fourth quarter adjusted pre-tax revenue was $674 million in contrast with $608 million within the earlier quarter.

Transportation contributed to adjusted pre-tax revenue of $237 million, up $8 million from the prior quarter. NGL and different adjusted pre-tax revenue was $448 million in comparison with $412 million within the third quarter. The lower — the rise was primarily attributable to document fractionation volumes, in addition to a full quarter of consolidating DCP Midstream, Sand Hills pipeline and Southern Hills pipeline. The fractionators on the Sweeny Hub averaged a document 565,000 barrels per day, reflecting the start-up of Frac 4 on the finish of the third quarter.

The Freeport LPG export facility loaded a document 271,000 barrels per day within the fourth quarter. Our NOVONIX funding is mark-to-market every quarter. The honest worth of the funding, together with international change impacts, decreased $11 million within the fourth quarter in contrast with a lower of $33 million within the third quarter. Turning to chemical compounds on Slide 10.

Chemical substances at fourth quarter adjusted pre-tax revenue of $52 million, in contrast with $135 million within the earlier quarter. The lower was primarily attributable to decrease margins and volumes partially offset by decreased utility prices and the influence of authorized accruals within the third quarter. World olefins and polyolefins utilization was 83% for the quarter, reflecting deliberate turnaround actions and the influence of the winter storm in December. Turning to refining on Slide 11.

Refining fourth quarter adjusted pre-tax revenue was $1.6 billion, down from $2.9 billion within the third quarter. The lower was primarily attributable to decrease realized margins. Our realized margins decreased by 27% to $19.73 per barrel, whereas the composite 3-2-1 rent-adjusted market crack decreased by 16%. Turnaround prices have been $236 million.

Crude utilization was 91% within the fourth quarter and clear product yield was 86%. Slide 12 covers market seize. We are actually utilizing a composite 3-2-1 in adjusted market crack to be extra per friends and extra corresponding to our realized margin. The three-2-1 rent-adjusted market crack for the fourth quarter was $23.50 per barrel in comparison with $28.18 per barrel within the third quarter.

Realized margin was $19.73 per barrel and resulted in an total market seize of 84%. Market seize within the earlier quarter was 95%. Market seize is impacted by the configuration of our refineries. We’ve got the next distillate yield and decrease gasoline yield than the 3-2-1 market indicator.

Through the fourth quarter, the distillate crack elevated $8 per barrel, and the gasoline crack decreased $10 per barrel. Losses from secondary merchandise of $3.59 per barrel have been $0.09 per barrel greater than the earlier quarter. Our feedstock lack of $0.03 per barrel was $1.45 per barrel improved in comparison with the third quarter attributable to extra favorable crude differentials. The opposite class improved realized margins by $0.46 per barrel.

This class consists of freight prices, clear product realizations, and stock impacts. Fourth quarter was $6.66 per barrel lower than the earlier quarter, primarily attributable to decrease clear product realizations and stock timing. Shifting to advertising and specialties on Slide 13. Adjusted fourth quarter pre-tax revenue was $539 million, in contrast with $828 million within the prior quarter, primarily attributable to decrease home and worldwide advertising margins.

On Slide 14, the company and different section had adjusted pre-tax prices of $280 million, $34 million greater than the prior quarter. The rise was primarily attributable to greater internet curiosity expense, in addition to a switch tax associated to a international entity reorganization and better employee-related bills. Slide 15 exhibits the change in money throughout the fourth quarter. We had one other sturdy quarter of money technology.

We began the quarter with a $3.7 billion money stability. Money from operations was $2.7 billion, excluding working capital. There was a working capital good thing about $2.1 billion, primarily reflecting a discount in stock and a lower in our internet accounts receivable place. We obtained a mortgage reimbursement from an fairness affiliate of $426 million.

Through the quarter, we repaid $500 million of senior notes due April 2023 and funded $713 million of capital spending. We returned $1.2 billion to shareholders by means of dividends and share repurchases. Moreover, the opposite class consists of the redemption of DCP Midstream’s Collection A most popular models of $500 million. Our ending money stability was $6.1 billion.

This concludes my overview of the monetary and working outcomes. Subsequent, I am going to cowl just a few outlook gadgets for the primary quarter and the total 12 months. In chemical compounds, we anticipate the primary quarter international O&P utilization price to be within the mid-90s. In refining, we anticipate the primary quarter worldwide crude utilization price to be within the mid-80s and turnaround bills to be between $240 million and $270 million.

We anticipate first quarter company and different prices to return in between $230 million and $260 million. For 2023, refining turnaround bills are anticipated to be between $550 million and $600 million. We anticipate company and different prices to be within the vary of $1 billion to $1.1 billion for the 12 months. We anticipate full 12 months D&A of about $2 billion.

And at last, we anticipate the efficient revenue tax price to be between 20% and 25%. Now, we are going to open the road for questions.

Questions & Solutions:

Operator

Thanks. We’ll now start the question-and-answer session. As we open the decision for questions, as a courtesy to all contributors, please restrict your self to 1 query and a follow-up. [Operator instructions] Our first query at this time comes from Neil Mehta of Goldman Sachs.

Please go forward, Neil. Your line is open.

Neil MehtaGoldman Sachs — Analyst

Yeah. Good morning, good afternoon, guys. I suppose the primary query I’ve is round refining. And if I attempt to isolate what the market is reacting to at this time, I feel it is the seize price, shocked of us relative to a whole lot of your large-cap friends.

And so, perhaps you may simplify it for us and speak about what you are seeing within the system. Is there something that you simply really feel was extra momentary versus structural? And provides us confidence that that seize price goes to proceed to enhance as we take into consideration the development by means of the 12 months.

Wealthy HarbisonSenior Vice President, Refining

Hey, Neil. Wealthy right here. Yeah, that is a very good query. Once I have a look at that seize price for the fourth quarter, the three easy issues that stand out to me are actually the influence of our turnaround exercise.

That is the primary one. It was centric within the Gulf Coast and the Pacific Northwest. And the Pacific Northwest was an precise complete refinery shutdown that shouldered the third and fourth quarter of the 12 months. So, I have a look at these as temporaries.

There was additionally some product differentials that performed out throughout our system. The Atlantic, the distinction between the European distillate worth, and the New York Harbor worth is mirrored in that market seize. There was a major discount in diesel worth there in Europe, in addition to the turnaround impact within the Pacific Northwest and likewise Northern California product costs have been dislocated from the Los Angeles market as nicely. And the third affect in fourth quarter seize was actually centric across the Keystone shutdown of the pipeline, in addition to the winter storm occasions in there.

In order that’s — once I have a look at these three results, these are nearly all of the influence related to the seize price within the fourth quarter.

Jeff DietertVice President, Investor Relations

I’d simply add, the turnaround exercise occurred in October and early November, which was the very best margin a part of the quarter.

Neil MehtaGoldman Sachs — Analyst

[Inaudible] Thanks for that. And the follow-up to that’s simply as we take into consideration Q1, how do a few of these dynamics doubtlessly reverse particularly given it will be a fairly heavy turnaround quarter, it seems like, with the utilization guides within the mid-80s? Or do we actually see that enchancment materialize doubtlessly extra Q2 by means of the stability of the 12 months?

Mark LashierPresident and Chief Working Officer

Effectively, I am going to begin with the turnaround steering a part of that after which kick it over to Brian, you may speak in regards to the market outlook slightly bit there for the primary quarter. So, our first quarter turnaround, you may inform by our steering there that Kevin offered, our annual steering is within the $550 million to $600 million vary. And our first quarter is a majority of that spend. So, we’re heavy centric first quarter on our turnaround.

And people are primarily associated in simply a few websites. So, I do not — I see that as actually impactful to our Atlantic coastal operations there as the most important a part of that influence on the turnarounds. There may be additionally some Gulf Coast turnaround exercise, as nicely that’s much less impactful. So, though there’s a heavy spend, it is centric actually in a single major facility.

Brian MandellGovernment Vice President, Advertising and marketing and Business

And I’d add in speaking about European to New York distillate costs and Pacific Northwest and Bay costs to L.A., they need to each normalize. We noticed New York is over Europe. That is uncommon. Europe imported a whole lot of Russian distillate previous to the worth hole subsequent week.

And New York, due to the winter storm, did not get all of the barrels that it wants. So, the rationale why New York is over Europe now it is a immediate problem. And in the event you have a look at Colonial Pipeline, it is operating at full charges now. New York will get fed again after which Europe shall be over — or beneath — or over New York slightly going ahead.

And the Pacific Northwest versus and Bay versus L.A., that is a brief problem as nicely. Our pad refineries ran rather well in November, December, we noticed inventories actually construct throughout the markets. And given the oversupply, the markets wanted to cost to incentivize exports and the infrastructure for exports is within the Bay and Pacific Northwest. In order that’s the place the exports got here from.

And in addition, we have to mixture barrels for the exports. So, among the barrels that usually went to L.A. did not go to L.A. at the moment.

In order that elevated the L.A. worth, decreased the Pacific Northwest and Bay worth. However going ahead with heavy Pacific Northwest turnarounds and work within the Bay, we would anticipate inventories to average as we get again to seasonal demand spreads between the north and south will come again into regular areas.

Neil MehtaGoldman Sachs — Analyst

Thanks, guys. Respect it.

Jeff DietertVice President, Investor Relations

Thanks, Neil.

Mark LashierPresident and Chief Working Officer

Thanks, Neil.

Operator

Our subsequent query at this time comes from Doug Leggate with Financial institution of America. Please go forward, Doug.

Doug LeggateFinancial institution of America Merrill Lynch — Analyst

Effectively, thanks, and good morning, everybody.

Mark LashierPresident and Chief Working Officer

Good morning, Doug.

Doug LeggateFinancial institution of America Merrill Lynch — Analyst

I’m wondering in the event you would not thoughts, I will attempt — Hello, good morning. I might wish to construct on Neil’s query, if I could, however ask it slightly otherwise. Is there any approach, Kevin, that you could quantify the misplaced alternative price within the fourth quarter to assist us form of reconcile that seize price query? Is that attainable?

Kevin MitchellGovernment Vice President and Chief Monetary Officer

Yeah. Doug, that is — we have traditionally not completed that by way of what we have put on the market into the market. We have talked in regards to the form of areas the place that has proven up and Wealthy walked you thru that. However it’s a — in any given interval, there’s invariably some component of LPO element.

And positively, what we noticed within the fourth quarter was fairly a bit greater than what I’d take into account. I imply, ideally, you don’t need any of it, however there’s often a point of that. It was considerably greater than that. So not one thing we have traditionally given out.

However I suppose, to offer you some assist, it is most likely — the quantity might be within the order of $100 million to $200 million of LPO within the quarter.

Doug LeggateFinancial institution of America Merrill Lynch — Analyst

OK. I suppose, my — thanks for that. I do know it is a prime difficult one to reply. So my follow-up is basically extra of a form of an outlook query.

And it speaks to your feedback about Northeast. I notice everybody was most likely pushing product as much as the Northeast throughout the winter due to all of the noise round heating oil margins. Nevertheless it happens to us that that was most likely the primary regular winter with out Philadelphia Vitality Options in 2019 when hearth hasn’t come again since. So, we take into consideration what does the Northeast appear like in a standard summer season driving season with out Philadelphia Vitality Options.

And I am simply curious if in case you have — given any thought, given that you simply did push product as much as the Northeast, the way you’re occupied with what the gasoline market might appear like within the summertime within the U.S.

Brian MandellGovernment Vice President, Advertising and marketing and Business

Yeah, I feel we — it is at all times an import marketplace for gasoline usually as much as 800,000 barrels a day. We do anticipate that to proceed being an import market. The imports might come from completely different areas sooner or later, however we’d anticipate that we nonetheless have to import gasoline about that degree.

Doug LeggateFinancial institution of America Merrill Lynch — Analyst

Yeah. I suppose what I am asking is, do you see the chance of an outdoor spike in gasoline the way in which we noticed an outdoor spike in heating oil within the Northeast?

Brian MandellGovernment Vice President, Advertising and marketing and Business

I’d say any market that’s brief wants resupply and the resupply comes from a ways away, has that chance for volatility. The identical factor that occurs on the West Coast, West Coast that we provided is additional away 4 weeks away. After which in — and simply within the Pad 1, however any time resupply is in shut, you may have that chance of volatility.

Jeff DietertVice President, Investor Relations

I feel the opposite factor I might add is you have a look at gasoline, diesel, and jet inventories, they’re all beneath five-year ranges and it seems to us as if we have got an above-average trade refining turnaround interval plan for the spring. So, it seems tight from our vantage level.

Doug LeggateFinancial institution of America Merrill Lynch — Analyst

That was form of what we’re considering. Thanks a lot, guys. I do know it is a difficult one to reply. Respect your perspective.

Jeff DietertVice President, Investor Relations

Thanks, Doug.

Operator

Our subsequent query at this time comes from Roger Learn with Wells Fargo. Please go forward, Roger.

Roger LearnWells Fargo Securities — Analyst

Good morning, everyone. I suppose I am going to proceed with the theme of hammering on seize and expectations of seize. Simply curious why this quarter did change the index that you simply’re utilizing. After which I do know you’ve got defined the gasoline and the diesel side.

So, configuration, I suppose, is sensible. What perhaps went on with secondary merchandise? And is that one thing that we’d see carry-through to ’23 right here?

Kevin MitchellGovernment Vice President and Chief Monetary Officer

So, Roger, once you say index, you are referring to the market crack, the rent-adjusted market crack change?

Roger LearnWells Fargo Securities — Analyst

Yeah, your market indicator, sure.

Kevin MitchellGovernment Vice President and Chief Monetary Officer

Yeah. Actually, it is — we’re establishing for — we have talked about this for some time, and we’re establishing for 2023. And the cleanest technique to make that change is to do it within the fourth quarter, and that allows us to restate and/or recast in our supplemental data, the prior 2021 and 2022 all on that very same foundation. After which the primary outcomes we report for 2023 shall be on that very same foundation.

And so, it is simply the cleanest timing to make a change like that. It is one thing we have thought-about for a short while, however we thought it was the suitable factor to do.

Jeff DietertVice President, Investor Relations

Yeah. After which the secondary merchandise, I am going to kick that off after which flip it over to Brian perhaps for some outlook on it. However third quarter to fourth quarter, in refining, we see these comparatively flat really. There are some places and takes related to that, asphalts and gas oils drop off in worth and quantity, however butane picks up and offsets a whole lot of that.

So, the general influence of our secondary merchandise was comparatively flat quarter over quarter.

Brian MandellGovernment Vice President, Advertising and marketing and Business

I might say we proceed to suppose that high-sulfur gas oil will stay weak, simply with all of the Russian cargoes coming in the marketplace, each high-sulfur gas oil and heavy crude cargoes popping out out there. So, I feel we’ll proceed to see that out there.

Operator

Our subsequent query comes from John Royall of J.P. Morgan. Please go forward, John.

John RoyallJPMorgan Chase and Firm — Analyst

Good morning. Thanks for taking my query. So simply hoping for slightly extra coloration on the DCP synergies that you simply known as out in your press launch, I feel $300 million. I feel you’ve got most likely been fairly anxious to talk about these numbers.

And so any buckets you may communicate to and something on timing and the way that ought to commerce in?

Mark LashierPresident and Chief Working Officer

Yeah. I feel, John, the $300 million actually falls into two classes. Working synergies that we’re actively pursuing upfront now even earlier than the shut of the roll-up of the publicly held models. After which there’s, I feel, much more prolific business synergies that we are able to seize as we mix — or as we roll the enterprise into our personal.

Tim, you may present slightly extra coloration there.

Tim RobertsGovernment Vice President, Midstream

Yeah. At this level, Mark is right. Look, we’re this. It will most likely over a timeframe, we got here out with $300 million.

We predict it is most likely about third with regard to prices. You bought two-thirds on the business facet. We’re anticipating that is going to take us round two years to completely seize this. It is like anything, when you get into it additional and deeper, we’re hoping there’s extra there and preliminary indications are that they are probably are.

And hopefully, I can replace you on one other name later to validate or verify that, however we do see the business facet might be driving that. It simply is sensible. Once you have a look at the built-in worth chain and you place these two entities collectively, we, in impact, now have fuel processing in the important thing areas. We now have fractionation capability at Conway, Mont Belvieu, additionally at Sweeny, and long-haul pipelines coming in out of the DJ and popping out of the Permian.

Once you have a look at these, there are large alternatives to verify the barrel will get to the fitting place. And in our world, the fitting place means the place it creates essentially the most worth. So, as we dig additional on that, like I stated, we’re trying ahead to providing you with extra particulars going ahead.

John RoyallJPMorgan Chase and Firm — Analyst

OK. Thanks. That is useful. After which simply trying on the chemical compounds market, do you anticipate that we have seen a backside there? And the way does China reopening influence the way forward for that market? After which let’s simply say hypothetically, the market would not enhance from right here, is there any threat of CPChem’s means to self-fund the 2 progress tasks?

Mark LashierPresident and Chief Working Officer

Yeah. I feel, John, that you have seen that the ethane — that the polyethylene worth chain margins form of hit backside. These producers that have been actually squeezed pulled again on manufacturing. So, you may see that clearly — we have hit some extent the place there’s nice self-discipline and no person goes to function whereas they’re bleeding money, and we have form of handed by means of that interval.

Margins have modestly ticked up. And you will proceed to see because the capability that is coming on-line in North America will get digested, we’ll be at that backside for a while, however then begin to work our approach out as a result of demand globally continues to extend. And China is actually an upside and there are a selection of indicators that China is coming again. We’re not going to name that they are again.

I feel it might are available suits and begins, however actually, the noise popping out of China is productive directionally.

Operator

Our subsequent query comes from Ryan Todd with Piper Sandler. Please go forward, Ryan.

Ryan ToddPiper Sandler — Analyst

Nice. Thanks. Perhaps beginning out with one on shareholder returns. The buyback was sturdy this quarter.

As we take into consideration 2023 going ahead, you’ve got offered steering on the latest Analyst Day that will recommend one thing on the order of $500 million to $700 million 1 / 4 of buyback in a mid-cycle surroundings. We’re clearly above the mid-cycle surroundings. You have been on the excessive finish of the guided tempo this quarter. How ought to we take into consideration using that extra money? Ought to the backdrop stay very constructive? And the way aggressive would possibly you look to be on shareholder returns versus constructing more money on the stability sheet?

Kevin MitchellGovernment Vice President and Chief Monetary Officer

Yeah, Ryan, it is Kevin. So, you are proper, we did the excessive finish of the vary within the fourth quarter, and I feel it is affordable to imagine that we’d proceed someplace spherical about that degree. We’re additionally — we’re sitting on a good wholesome money finish of the 12 months simply over $6 billion. And simply to offer some context to the general stability sheet situation relative to the place we have been earlier than the pandemic.

Over the pandemic, we added $4 billion and I am ignoring the influence of BCP debt consolidation right here. We added $4 billion over the pandemic. We subsequently paid off $3.5 billion of that however we have improved our money place by $4.5 million because the finish of 2019. So, net-net, we have enhanced the stability sheet by $4 billion from the place we have been going into the pandemic.

And so that offers us a whole lot of flexibility. However we have additionally bought the DCP roll-up to deal with, which we anticipate to be someday within the second quarter. In order that’s a $3.8 billion transaction. And whereas we cannot use all money for that, we wish to make it possible for we retain loads of flexibility as we go into that and shut on that rollout.

However I do suppose what all of it speaks to we proceed to see these above mid-cycle circumstances, we could have some good flexibility to — I’d let you know actually do a little bit of all of it. We’ll wish to repay some incremental debt, particularly as we take into consideration the influence of the DCP roll-up, however we must also be positioned to take a look at the money returns to shareholders, each within the context of the dividend. We might anticipate to extend the dividend. This 12 months, we stay dedicated to a safe, aggressive rising dividend.

And we’ll have a look at the buyback tempo. We’re clearly at a really wholesome degree at this time, however there’s potential flexibility on that. And so, it is one thing that we’ll prioritize and maintain very targeted on. However within the close to time period, we’re most likely fairly comfy with the place we’re given that we have got the DCP transaction on the market forward of us.

Ryan ToddPiper Sandler — Analyst

Thanks, Kevin. After which perhaps shifting gears some place else. I’m wondering in the event you might focus on slightly bit about what you are seeing and what you anticipate going ahead in European refining. There’s some massive transferring items in latest months, the pure fuel unfold between Europe and the U.S.

has declined considerably and you have an upcoming Russian product ban going into impact. What are you seeing out there proper now? And any ideas on expectations within the coming months?

Brian MandellGovernment Vice President, Advertising and marketing and Business

I feel with pure fuel coming off some. We’re not — I imply Wealthy can speak in regards to the pure fuel points on the plant.

Wealthy HarbisonSenior Vice President, Refining

So pure fuel for us, actually has some influence on our operations, primarily for the acquisition of electrical energy, however we see that actually not as an obstacle to our friends both. So, the aggressive nature of refining will proceed to be there with some price impacts related to greater pure fuel and that is the numbers we put out up to now which can be nonetheless in play at this time as nicely. The problem for that would be the continued influence of the Russian provide eventualities after which the resupply that can set the actually the minimal worth for these marketplaces, and we’ll see that shapes up right here because the market strikes ahead.

Mark LashierPresident and Chief Working Officer

I might wish to circle again. I do not suppose I coated one of many questions that John requested round chems and that is the chance — the market threat of CPChem producing sufficient money to self-fund these two tasks. Each of these tasks, they personal 30% of the Ras Laffan venture, 51% of the U.S.-based venture, each shall be off-balance sheet venture finance, mitigating their money outflows, considerably mitigating our publicity there. So, you may by no means predict that there isn’t any threat, however I feel it is extremely mitigated due to the debt structuring they are going to undertake to assist these tasks.

Operator

The following query comes from Paul Cheng with Scotiabank. Paul, please go forward. Your line is open.

Paul ChengScotiabank — Analyst

Hello, guys. Good morning.

Mark LashierPresident and Chief Working Officer

Good morning.

Paul ChengScotiabank — Analyst

Perhaps for Kevin, are you able to return into the CPC with the 2 main cracker goes to be beneath development? How is the CPC distributions obvious for the following a number of years we must always assume? So, we assume that it will be fairly minimal and that they may construct up their very own financing and likewise some money given that there is a heavy spending forward? Or do you suppose that the choice is that they may simply use extra of that capability and proceed to pay out?

Mark LashierPresident and Chief Working Officer

Once more, in the event you have a look at these tasks and in the event you have a look at the assumptions on venture financing, I feel we had talked about earlier, perhaps even at Investor Day, that our publicity to foregone dividends is basically most likely about 10% of the mixture capital spend in the event you have a look at these two tasks mixed. And that is unfold out over 4 years. So, it is not a serious influence on our means to generate money total. Kevin, do you wish to [Inaudible] on that?

Kevin MitchellGovernment Vice President and Chief Monetary Officer

Yeah. So simply to broaden on that slightly bit. When Mark talks about off-balance sheet financing, he’s particularly referring to project-level financing. So, financing these tasks on the Ras Laffan Petrochemical venture degree and on the Golden Triangle Polymers venture degree.

In order that’s not on CPChem’s stability sheet, and we’re not anticipating that CPChem must go to its personal stability sheet to fund its fairness contributions into these joint ventures to fund these tasks. And in reality, we’ll nonetheless be capable of do this and proceed making distributions to the house owners. Clearly, there’s a dependency on what the general market surroundings seems like. However based mostly on what we’re seeing, we nonetheless anticipate to be receiving distributions from CPChem by means of this era.

Clearly, there’s an influence. Any discretionary spend by CPChem right into a capital funding is money that is not obtainable for distribution out, however it’s all fairly manageable inside the total expectation of the place their money flows shall be.

Paul ChengScotiabank — Analyst

Thanks. And, Kevin, do you may have any tough estimate whether or not you anticipate CPC to sensory [Inaudible] to earn 100% or 50% or 75% or any estimate that you’ve?

Kevin MitchellGovernment Vice President and Chief Monetary Officer

Yeah. Effectively, you’d anticipate it to be lower than 100% as a result of they do have the capital tasks underway. So, there’s the 2 massive ones that we have been speaking about, after which there is a slate of smaller tasks, a number of of which is able to really end this 12 months. So, it will be lower than 100%.

We have by no means given particular steering on what we anticipate the distributions to be. And our historical past has really been fairly sturdy with regard to money getting back from CPChem.

Operator

Our subsequent query comes from Jason Gabelman with Cowen. Please go forward, Jason. Your line is open.

Jason GabelmanCowen and Firm — Analyst

Hey, good afternoon. I needed to first ask on M&A in midstream. And I do know once you rolled up PSXP, a part of the rationale was to have extra flexibility throughout the entire portfolio, and you have, clearly, introduced in DCP. So, I’m wondering on the opposite facet, is there any want to reoptimize among the midstream belongings that you’ve within the portfolio that will not be core at this level? After which my second query is simply on the advertising enterprise, which has continued to carry out fairly nicely.

I used to be questioning if there have been any dynamics in your markets that proceed to assist margins. And is there an outlook that the margins can perhaps be above mid-cycle in that enterprise for 2023? Thanks.

Tim RobertsGovernment Vice President, Midstream

Yeah. Jason, that is Tim Roberts. I am going to deal with that entrance finish, then hand it off to Brian. I feel it is vital, you are proper.

We did speak about simplifying our total construction. And you’ve got PSXP completed within the technique of finishing DCP. We do suppose we’ll be in a a lot cleaner place with regard to possession ranges and simply had a cleaner slate to work from. We do acknowledge as nicely that this market is evolving.

There may be some consolidation happening within the trade, producers are consolidating. You will see among the midstream infrastructure guys doing that, too. So, we’ll take note of that. And what’s taking place on the market, if there’s alternatives, however I feel it is most likely going to be actual clear as we have got a process at hand.

Our process at hand proper now’s to get DCP built-in and built-in nicely. We wish to achieve success at it. It will take us, we imagine someplace towards the top of the 12 months. It could leak into 2024, however our expectation is get it completed by the top of this 12 months and ship synergies.

You drove most alongside these and that is fairly impactful with regard to worth of the corporate. So, we wish to do this, however do relaxation assured, not that we’re out on any spending spree, we at all times have an eye fixed open, what is going on on on the market, and what can create worth for our shareholders. And if there’s one thing that is actually compelling, we’ll speak about it and see if it is sensible. However proper now, let’s get this factor built-in efficiently.

Brian MandellGovernment Vice President, Advertising and marketing and Business

On the advertising enterprise, I might say that we are going to proceed to carry out nicely, maybe not in addition to 2022. That was a document 12 months. However with elevated volatility out there, that typically drives higher enterprise. We additionally had a three way partnership retail document 12 months final 12 months, and we proceed to develop our retail three way partnership within the U.S., and that continues to carry out.

Additionally, there are points within the European market which have helped us, even issues like increasing our bank card enterprise has been useful to rising our enterprise. So, I feel we’ll proceed to develop the enterprise. You will see the earnings sturdy, however maybe not fairly as sturdy as 2022.

Jason GabelmanCowen and Firm — Analyst

Thanks for the reply.

Operator

The following query comes from Matthew Blair of Tudor, Pickering, Holt. Please go forward.

Matthew BlairTudor, Pickering, Holt and Firm — Analyst

Hey, good morning. Thanks for taking my query. I needed to ask about these WCS reductions, in order that they’re fairly favorable. May you speak about what’s driving that? And can you be capable of capitalize on these large WCS reductions in Q1 within the Central Hall? After which lastly, how do you suppose the Trans Mountain enlargement would possibly have an effect on these reductions? Thanks.

Brian MandellGovernment Vice President, Advertising and marketing and Business

Effectively, we’ll begin with WCS differentials. There have been a variety of issues that we’re form of pushing and pulling on provide and demand. Inventories, north of the board in Canada, have been very excessive, and also you had Keystone off the marketplace for 22 days, which was 10 million barrels off the market. North of the border, you had about 4 million barrels of manufacturing off the market in December, one other 0.5 million barrels off the market in January.

And then you definitely had the winter storm the place refiners shut down. There was 27 million barrels of crude backed out, not all that is heavy crude, however refiners weren’t pulling as a lot of the WCS. So, all of that, in the event you form of add all that up, it meant that WCS dips have been weaker than they’ve been. TMX offered an replace in early January that they stated that their 75% of the pipe is now within the floor.

They have not modified their in-service date for the fourth quarter of this 12 months. Our inside expectations are that start-up will slip into 2024 and full charges will not be achieved instantly. We do not suppose you want one other pipeline to exit the product that is in Canada. So, we do not see it doing a lot.

The primary name for these barrels will at all times be Pad 2 and Pad 3 earlier than they go to China or wherever abroad, in order that they’ll have to cost to get into these markets.

Matthew BlairTudor, Pickering, Holt and Firm — Analyst

Nice. Thanks.

Mark LashierPresident and Chief Working Officer

Thanks, Matt.

Operator

Subsequent, we have now a follow-up query from Paul Cheng from Scotiabank. Please go forward.

Paul ChengScotiabank — Analyst

Hey, guys. Simply actual fast. Due to the Keystone downtime, are you able to share that how a lot is the WCS that you simply run within the fourth quarter? After which, what do you anticipate you are going to one 12 months within the first quarter? And in addition, I imagine with — after the turnaround really has been operating at a fairly depressed approach. I feel at one level, about 60%, 65%.

And the place are we within the Wooden River? Thanks.

Brian MandellGovernment Vice President, Advertising and marketing and Business

So, we typically do not, for business causes, speak about what we run into refineries and the way a lot we run. However in fact, Wooden River had some hiccups. In This fall, we ran much less WCS in our system than usually. We’re the most important importer of Canadian crude to the U.S.

We anticipate, as Wooden River comes again up, we’ll run extra. Wealthy, perhaps you may speak about the place we’re in Wooden River.

Wealthy HarbisonSenior Vice President, Refining

Yeah. So, Wooden River, there was an unplanned occasion, incident that occurred at Wooden River, and let me begin by saying our ideas exit for the affected workers, contractors, and their households that have been related to that occasion. However there was an incident there. We’re working diligently proper now to extend the utilization that was affected by this, and we anticipate that utilization to proceed to extend by means of the primary quarter and returned to regular operations early second quarter is our present outlook on that, Paul.

Paul ChengScotiabank — Analyst

OK. Are you able to inform us what is the present runway of Wooden River?

Tim RobertsGovernment Vice President, Midstream

Will we usually give steering by plant?

Brian MandellGovernment Vice President, Advertising and marketing and Business

Not that particular.

Mark LashierPresident and Chief Working Officer

Yeah. Sadly, Paul, we do not give that kind of steering by plant as to what our present run charges are.

Operator

We’ve got now reached the top of at this time’s name. I’ll now flip the decision again over to Jeff.

Jeff DietertVice President, Investor Relations

Thanks, Emily. Thank all of you in your curiosity in Phillips 66. When you have questions after at this time’s name, please name me or Owen Simpson. Thanks in your time.

Operator

[Operator signoff]

Period: 0 minutes

Name contributors:

Jeff DietertVice President, Investor Relations

Mark LashierPresident and Chief Working Officer

Kevin MitchellGovernment Vice President and Chief Monetary Officer

Neil MehtaGoldman Sachs — Analyst

Wealthy HarbisonSenior Vice President, Refining

Brian MandellGovernment Vice President, Advertising and marketing and Business

Doug LeggateFinancial institution of America Merrill Lynch — Analyst

Roger LearnWells Fargo Securities — Analyst

John RoyallJPMorgan Chase and Firm — Analyst

Tim RobertsGovernment Vice President, Midstream

Ryan ToddPiper Sandler — Analyst

Paul ChengScotiabank — Analyst

Jason GabelmanCowen and Firm — Analyst

Matthew BlairTudor, Pickering, Holt and Firm — Analyst

Extra PSX evaluation

All earnings name transcripts

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