Phillips 66's Q3 2025 Earnings Call: Contradictions Emerge in Refining Utilization, Mid-Continent Strategy, and Midstream Growth Plans

Date of Call: October 29, 2025

Financials Results

• EPS: $0.32 reported per share; $2.52 adjusted per share (third quarter). Adjusted and reported include $241M pretax accelerated depreciation and ~ $100M charges related to idling Los Angeles refinery.

Guidance:

• Chemicals: global O&P utilization expected in the mid-90s.
• Refining: worldwide crude utilization expected in the low- to mid-90s.
• Turnaround expense for Q4 expected to be $125M–$145M.
• Corporate & other costs expected to be $340M–$360M.
• Utilization & turnaround guidance reflects 100% ownership of Wood River and Borger and removal of Los Angeles.

Business Commentary:

* Financial Performance and Capital Allocation: - Phillips 66 reported adjusted earnings of $1 billion, or $2.52 per share, for the third quarter, with operating cash flow of $1.2 billion. - The company returned $751 million to shareholders, including $267 million in share repurchases. - This strong performance was supported by strategic asset integrations and cost reduction initiatives.

• Refining Operations and Cost Efficiency:
• Refining achieved 99% utilization, the highest in five years, with a year-to-date clean product yield of 87%.
• Total company adjusted earnings increased by $52 million to $1 billion.

• Improvements were driven by strategic changes in the refining footprint and portfolio optimization, such as the acquisition of a 50% interest in the Wood River and Borger refineries.

• Midstream and Chemicals Growth:

• The Midstream segment is on track to achieve a $4.5 billion run rate by year-end 2027, up from $4 billion in Q3.
• Chemicals reported improved results with higher margins and lower costs, reflecting a unique feedstock advantage and increased utilization rates.

• Growth in Midstream is supported by organic and inorganic expansion, while Chemicals benefits from feedstock flexibility and operational efficiency.

• Renewable Fuels and Market Dynamics:

• Renewable Fuels results improved due to higher margins and inventory impacts.
• The company is focusing on exports to Europe and increased production of sustainable aviation fuel (SAF).
• Market dynamics were supported by favorable crude differentials and policy-driven market changes, such as increased demand for low-carbon fuels.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted record refinery utilization (99%), year-to-date adjusted chemicals EBITDA of $700M, full ownership synergies (Wood River/Borger) and Midstream annualized EBITDA growth plans to $4.5B by 2027; CFO emphasized $1.9B operating cash flow (ex-WC) and a clear plan to reduce net debt to $17B by end-2027.

Q&A:

• Question from Stephen Richardson (Evercore ISI): Can you expand on what 100% ownership of Wood River/Borger (WRB) opens up inside/outside the fence line and organic growth opportunities?
  Response: 100% ownership enables integrated operation of Wood River, Borger and Ponca City as a single system, unlocking low-capital, high-return synergies, greater crude and product flexibility and increased market capture.

• Question from Stephen Richardson (Evercore ISI): When will the WRB benefits materialize — are they capital-efficient and nearer-term?
  Response: Yes — many benefits are capital-efficient and already occurring; WRB expands the pipeline of low-cap, high-return opportunities that are being executed now.

• Question from Theresa Chen (Barclays): Rationale for Western Gateway, importance for Phillips 66, comparison to ONEOK's project, and expected effect on flows/margin capture?
  Response: Western Gateway connects Mid-Continent supply to Phoenix/Colton/California, improving netbacks for Mid-Con refineries and supply reliability; it targets different sources than ONEOK (Mid-Con vs Gulf Coast) and should shift flows toward pipeline-delivered volumes and better margin capture for Phillips' central corridor assets.

• Question from Theresa Chen (Barclays): What CapEx should be anticipated for Western Gateway and how will costs be split with Kinder Morgan?
  Response: Partnership is 50/50 with Kinder Morgan; total CapEx not disclosed pending shipper commitments and route details, and material spend is expected later (2027–2029), so no near-term capital hit.

• Question from Neil Mehta (Goldman Sachs): How do you bridge to $4.5B midstream EBITDA by end-2027 and how sensitive is that to oil prices?
  Response: The incremental ~$500M is largely organic from fee-based volume growth (plant expansions, pipeline capacity) with limited commodity-price sensitivity; identified G&P and fractionation expansions provide line-of-sight growth.

• Question from Neil Mehta (Goldman Sachs): Do you have visibility to the large crude-on-water build actually arriving to U.S./OECD markets and what's driving the disconnect?
  Response: They see a large crude-on-water build but composition is unclear; some barrels may not reach end users (e.g., sanctioned volumes) so impact on U.S./OECD land inventories remains uncertain.

• Question from Justin Jenkins (Raymond James): What's the bridge to the $17B net-debt target by 2027?
  Response: Plan unchanged: generate ~ $8B operating cash annually, return 50% to shareholders, fund $2–2.5B capex, leaving ~$1.5–2B/year available for debt reduction plus Q4 working-capital release (~$1.5B) to reach ~$17B by end-2027.

• Question from Justin Jenkins (Raymond James): Outlook on cracks and crude dips into 2026 and implications for cash generation?
  Response: Expect light-heavy spreads to widen into Q4/Q1 benefiting Phillips (large WCS user); Canadian heavy dynamics and OPEC flows should weaken WCS differentials, which is a tailwind for margins.

• Question from Douglas George Blyth Leggate (Wolfe Research): Is the higher utilization a sustainable new normal and are turnaround cadence/approach changing?
  Response: Higher sustainable utilization stems from a multi-year reliability program, integration with Midstream/Chemicals and filling downstream units — cultural and structural improvements support maintaining elevated utilization over time.

• Question from Douglas George Blyth Leggate (Wolfe Research): Why isn't net-debt reduction part of the cash-return formula to boost equity value?
  Response: Debt reduction is a key capital-allocation priority and recognized as equity-enhancing, but the company communicates returns (dividend/buybacks) separately while actively pursuing debt paydown within the allocation framework.

• Question from Manav Gupta (UBS): Chemicals margins jumped despite a flat industry indicator — was this due to higher ethane blending and when might mid-cycle margins return?
  Response: Yes — CPChem's ethane-heavy feedstock mix and lower turnaround spend drove stronger chain margins versus IHS; while cycle recovery may be protracted, CPChem's cost position and opportunistic runs when peers are down support resilient returns.

• Question from Manav Gupta (UBS): Where is the EPIC/Coastal Bend EBITDA now on a quarterly basis and what after full expansion?
  Response: Since closing EPIC in April, assets are meeting/exceeding expectations; Coastal Bend expansion phases are filling and driving EBITDA — further expansion (late 2026) will increase volumes and earnings as planned.

• Question from Jason Gabelman (TD Cowen): Are East Coast and West Coast refineries still core given Central Corridor concentration?
  Response: Coastal refineries remain strategic where they create value (e.g., Ferndale, Bayway/Humber integration), but the primary focus is intensified integration and optionality in the Mid-Continent Central Corridor.

• Question from Jason Gabelman (TD Cowen): What drove the meaningful improvement in Renewable Fuels quarter-over-quarter and how much was timing?
  Response: Q3 improvement driven principally by self-help (cost reductions, logistics to secure domestic feedstock), new pathways, doubled SAF production and timing of European credits; some timing effects exist but underlying margins and SAF demand are improving.

• Question from Ryan Todd (Piper Sandler): What headwinds affected Q3 refining margin capture and progress toward the 5% margin-capture improvement goal?
  Response: Regional headwinds included weaker octane and jet-to-distillate differentials and lower product spreads, but improvements in reliability, utilization and projects (yield improvements) have materially raised market capture and clean-product yields; jet now trading above diesel is an emerging tailwind.

• Question from Phillip Jungwirth (BMO): How important is Phillips' integration to executing Western Gateway and what's confidence on regulatory/permitting risk?
  Response: Integration across refining, commercial and midstream was central to originating the project; early engagement shows constructive federal/state feedback and management expresses strong confidence in managing permitting risk.

• Question from Phillip Jungwirth (BMO): Will China's anti-involution policies meaningfully drive chemicals capacity rationalization and help market balance?
  Response: Management expects policies to encourage rationalization of less-efficient assets in China (similar to refining 'teapots'), which could support global chemical market balance over time.

Contradiction Point 1

Refining Utilization and Market Capture

It reflects differing expectations regarding the company's ability to maintain high utilization rates and market capture, which are key performance indicators for refining operations.

How do you sustain high refining utilization rates, and is this the new normal? - Douglas George Blyth Leggate(Wolfe Research)

2025Q3: We expect utilization rates to remain high, in the 90s, and we expect to continue, again, strong market capture. - Richard Harbison(COO)

Can you explain the refining achievements, such as 99% market share and 98% crude utilization? - Manav Gupta (UBS)

2025Q2: Our utilization rates were in the 90s at all of our refineries. - Richard Harbison(COO)

Contradiction Point 2

Mid-Continent Central Corridor Strategy

It involves a shift in the strategic focus on the Mid-Continent Central Corridor and the expected benefits of acquisitions in this area.

What are the benefits of acquiring the remaining 50% stake in the Wood River and Borger refineries and the organic growth opportunities it enables? - Stephen Richardson (Evercore ISI Institutional Equities, Research Division)

2025Q3: Our strategy has been to focus on the Mid-Continent Central Corridor. - Mark Lashier(CEO)

Are you still confident in the integrated company's forward strategy after recent challenges? How does Kevin view the $15 billion target in today's environment? - Douglas George Blyth Leggate(Wolfe Research)

2025Q2: Our strategy is to be a strong participant in the Mid-Continent Central Corridor. - Mark Lashier(CEO)

Contradiction Point 3

Refining Margin Capture and Market Conditions

It reflects differing views on the dynamics of refining margins and market conditions, which are crucial for strategic planning and investor expectations.

What are the refining challenges and the outlook for margin capture improvement? - Ryan Todd (Piper Sandler & Co., Research Division)

2025Q3: We are seeing high refinery utilization rates, strong crude oil demand in the U.S., robust product market fundamentals and more disciplined crude oil production levels compared to prior peaks, all of which supports crude differentials and supports product margins. - Richard Harbison(Executive Vice President of Refining)

What is the path to mid-cycle recovery in Refining and the impact of WCS supply tightness? - Neil Mehta (Goldman Sachs)

2025Q1: We are beginning to see some influence of tighter oil differentials, and we've been able to take advantage of tight markets where we can. - Brian Mandell(Executive Vice President, Marketing and Commercial)

Contradiction Point 4

Midstream Monetization and Strategic Focus

It involves a change in the strategic direction and financial implications of potential Midstream monetization, which is crucial for company financial health and investor expectations.

Could you clarify the benefits of acquiring the remaining 50% stake in the Wood River and Borger refineries and the organic growth opportunities this creates? - Stephen Richardson (Evercore ISI Institutional Equities, Research Division)

2025Q3: We are pleased to announce that we have closed the acquisition of the remaining 50% interest in the Wood River and Borger refineries through a cash transaction. - Mark Lashier(Chairman and CEO)

Has Phillips 66 considered Elliott’s proposals to separate the Midstream business and why a different conclusion was reached? - Doug Leggate (Wolfe Research)

2025Q1: We continue to believe that the current structure is the best way forward, and we would expect to begin the process early next year. - Mark Lashier(Chairman and CEO)

Contradiction Point 5

Midstream Growth Strategy

It reflects a shift in strategy regarding the prioritization of organic growth versus acquisitions in the Midstream segment, which could impact investor expectations and capital allocation.

What are the benefits of acquiring the remaining 50% interest in the Wood River and Borger refineries and the organic growth opportunities this creates? - Neil Mehta (Goldman Sachs)

2025Q3: The next increment will be achieved through organic opportunities. - Donald Baldridge(Midstream and Chemicals President)

How do you see Midstream's transformation and its optimal path—organic growth or acquisitions? - Neil Mehta (Goldman Sachs)

2024Q4: We are evolving to fill out our midstream strategy with organic and inorganic solutions. The Pinnacle and EPIC acquisitions are strategic, aligning with existing assets and providing synergies. - Mark Lashier(CEO)