00:00You take a look at WTI dropping below $55 a barrel for the first time since 2021 today.
00:07What does that mean for your business specifically in refining?
00:11Well, I think that for refining, really we want to see consistent crude prices.
00:15But in the short term, as crude price drops off, we do see margins expand in refining.
00:20And currently, refining capacity is somewhat constrained globally.
00:24And so generally, we're able to withstand that and maintain or perhaps even expand margins.
00:30Now, margins had been contracting seasonally.
00:33And so you have a conflation of all those things coming together.
00:36But the two big things out there, you had reports that unemployment is up slightly more than expected, which was a downward pressure on crude.
00:46And then you also have the potential of peace breaking out between Ukraine and Russia, which I think would be a fabulous development.
00:51But near term, that's going to put pressure on crude prices.
00:55Well, I want to talk about that a little bit.
00:57You used a great term earlier that when it comes to the geopolitical premium that's in the oil market, it's a sell the rumor, buy the fact sort of situation.
01:07And as we look into 2026 with, of course, geopolitics top of mind, what does that mean for the broader refining outlook and specifically for diesel as well?
01:16Yeah, we continue to see tightness in the global refining capacity.
01:20Even some of the newer assets that are online in Nigeria, Mexico, they're running at, say, 40, 45 percent or less.
01:28You see refineries being rationalized.
01:31We ceased operations at our L.A. refineries.
01:33Some of our competitors are talking about rationalization as well.
01:37And so globally, refining capacity is tight.
01:39And so that's a structural thing that no matter what the crude price is, we should be able to see constructive margins going forward in refining.
01:46Well, can you talk a little bit about the capacity for actual shipping and transportation of that energy?
01:52I think we are supposed to get some sort of a green light potentially out of the U.S. government with regards to the Western Gateway pipeline.
01:59Are you anticipating, A, that that will be approved?
02:01And, two, are you still committed to building out?
02:03We're in the middle of open season.
02:05That's a process where we see what shippers are interested in moving refined products on that.
02:10And that Western Gateway pipeline will move gasoline, diesel, jet fuel from the mid-continent, very competitive refineries, out to Phoenix, California, and Las Vegas.
02:21And it will provide much-needed relief for California as refineries are coming offline there.
02:27And we think that there's strong support at the federal government, there's strong support in California, as well as adjacent states, to have that additional supply coming in.
02:36And we've got a strong position in the mid-continent.
02:39We're certainly going to participate as a shipper on that pipeline.
02:42And we've had good response.
02:43But that open season doesn't close until the 19th.
02:46And then we'll see what things look like from there and decide how big the pipeline needs to be and if the economics are there for us to proceed.
02:53But we're pretty confident at this point.
02:55Well, speaking of California, let's talk about your Rodeo Renewables Plan.
02:59The rollout of renewable diesel and sustainable aviation fuel, it's been a little bit rocky.
03:06And I wonder, you know, at what point will Phillips 66 make the decision to shut the plan or perhaps convert it back to fossil fuels?
03:14It would be a challenge to convert it back to fossil fuels.
03:17But we're committed to doing everything within our control to make that facility viable.
03:21The facility operates even better than planned, better than expected.
03:25But the real drivers around the regulatory environment, the subsidies, in effect, that support it.
03:31It is one of the largest renewable diesel facilities on the planet.
03:35It generates about 15 percent of the renewable RINs in the market.
03:42So it's a big participant in generating RINs.
03:45It produces a large volume, about 600 million gallons a year of diesel fuel.
03:52It also is a big consumer of soybean oil.
03:54So it's good for the American farmers for this asset to be running.
03:57We're doing everything in our control to make sure that it's not just viable, that it's profitable over the long term.
04:02We've taken about $100 million of costs out of the facility.
04:06We've invested in logistics infrastructure to move more domestic feedstocks into the facility.
04:11And we're finding markets overseas that are very attractive for the renewable diesel as well as sustainable aviation fuel that we produce in the facility.
04:20So you've had constructive conversations with the governor of California, Gavin Newsom, on this issue?
04:25Yes.
04:25And you're confident that you'll sort of find a way to meet in the middle on this?
04:29They understand the challenges around Rodeo.
04:32They understand the things that they can do with their LCFS program.
04:36And we believe that they'll be constructive.
04:39And we've also had discussions at the federal level around RINs, the application to RIN values for imported feedstocks.
04:47All of these things are impactful to the economics of the Rodeo renewables complex.
04:51I am curious about the discussions that you've been having with investors, particularly activist investors and the campaign that Elliott Management has led.
04:59Where do you stand right now in that relationship?
05:02And do you anticipate that they are coming back to the table with a little bit?
05:06We have frequent conversations with representatives from Elliott Management.
05:09Our investor relations interact with their analysts on, I think, a weekly basis.
05:13So we're quite close conversations, just like we are with all of our shareholders.
05:18And those discussions have been constructive.
05:20We're both very aligned on creating value out of our assets and returning value to our shareholders.
05:26Just on that point, you have two new board members from Elliott.
05:30Is there anything specific that has been pushed for in recent board meetings?
05:34You know, we have a process when new board members join our board that we onboard them.
05:40They have access to all the information that they didn't have access to publicly.
05:45They have access to our people down in the organization to see how things really are running, how we're creating value.
05:51And this time was no different.
05:52We had three new board members.
05:54Two of them were nominated by Elliott.
05:56And it's been a very positive process.
05:57They've been through several board meetings.
05:59One of these board meetings involved a deep dive around our strategy.
06:03And they had their opportunity to engage, and they engaged fully around the discussions around our go-forward strategy.
06:09So our board is aligned, and they're all pulling for the best interests of Phillips 66's shareholders.
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