Welcome to the second quarter 2026 Phillips 66 earnings conference call. My name is Hillary 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 Sean Maher, Vice President, Investor Relations and Chief Economist. Sean, you may begin. Hello, everyone. Good morning, and thank you for joining Phillips 66 second quarter 2026 earnings conference call. Participants on today's call will include Mark Lashier, Chairman and CEO, Kevin Mitchell, CFO, Don Baldridge, Midstream and Chemicals, Rich Harbison, Refining, and Brian Mandell, Marketing, Commercial, and Renewable Fuels. Today's presentation can be found on the investor relations section of the Phillips 66 website, along with supplemental financial and operating information. Slide two contains our safe harbor statement. We will be making forward-looking statements during today's call. Actual results may differ materially from today's comments. Factors that could cause actual results to differ are included here, as well as in our SEC filings. With that, I'll turn the call over to Mark. Thank you, Sean. This quarter's operating results reflect the dedication and work that our teams have delivered throughout the company's transformation over these past several years. Our system is operating well. Our assets are well-positioned, and the market environment is constructive. While there's more work to do, we believe our organization's earning power is becoming clearer as we continue to drive execution and return capital to shareholders. Safety, reliability, and operational excellence remain at the center of everything we do. We recently earned industry recognition for exemplary safety performance in midstream, refining, and chemicals. Due to our steadfast focus on reliability, our integrated businesses are available to supply U.S. and global energy needs. At Phillips 66, operational excellence is foundational. We remain focused on disciplined execution and continuous improvement. Our midstream business continues to execute on its growth plan as expected. Over the past two years, we've increased fractionation capacity to over 1 million bbl per day and achieved greater than 100% average frac utilization. During the quarter, we also achieved record LPG export volumes. Our complete wellhead-to-market system allows us to move products across our integrated value chain and offers customers valuable optionality and global access. In Refining, our deliberate focus on operational improvement continues to deliver results. We have enhanced the portfolio, increased clean product yield, improved our cost structure, led the industry in utilization, and increased our nameplate capacity. Supported by a strong contribution from our commercial organization, we captured 98% of our market indicator in the second quarter. In renewables, we have scale, flexibility, and strong operations at one of the largest renewable diesel facilities in the world. As the uncertainty over renewable credit regulations unfolded in 2025, we engaged constructively with state and federal regulators and continue to do so. We also focused on taking costs out of the system and improving reliability and flexibility. To that end, we ran above nameplate capacity during the quarter. In chemicals, our industry-leading position is clear. These are advantaged assets positioned at the low end of the feedstock cost curve. Across all of our businesses, we continue to raise the bar. Make no mistake, we must compete every day. Our teams continue to find new ways to maximize value through improving operations, increasing yields, expanding margins, and lowering costs. Moving to slide four. We process low-cost hydrocarbons from the U.S., Canada, and Latin America and turn them into higher value, usable products for customers. As global supply and demand dynamics become more complex, our integrated model positions us for long-term value creation. We are investing for the next decade, not just the next quarter. The midstream and marketing and specialties businesses deliver reliable cash flows while refining, chemicals, and renewables generate attractive incremental returns with commodity upside. We've built an integrated North America infrastructure system. We'll continue to focus on being the best in every segment of our portfolio, all while maximizing shareholder returns. That's what makes Phillips 66 unique. We have a resilient business model, advantaged assets, strong commercial capabilities, and significant earnings potential. Now I'll turn the call over to Kevin as we move to slide five. Thank you, Mark. Last year, we committed to reduce total debt to $17 billion by year-end 2027, to return greater than 50% of net operating cash flow, excluding working capital, to shareholders. Our focus on these priorities has not wavered, and we expect to deliver on our debt commitment ahead of schedule. In the second quarter, we made significant progress on strengthening the balance sheet. We ended the quarter with total debt of $20.6 billion and net debt of $16.5 billion. This positions us better than where we started the year and using current consensus estimates, we expect net debt to be less than $16 billion by the end of this year. We expect to achieve our debt target while also returning greater than 50% of net operating cash flow to shareholders through dividends and share repurchases. This is a core strategic priority, and we expect to increase share repurchases in the second half of this year. Our disciplined capital allocation framework allows us to enhance our shareholder value proposition. We remain committed to a secure, competitive, and growing dividend, to creating value for our stakeholders through disciplined capital investment, dividends, share repurchases, and debt reduction. On Slide six, second quarter reported and adjusted earnings were $3.8 billion. Reported and adjusted earnings per share were $9.55 and $9.41 respectively. The company's second quarter financial results were impacted by mark-to-market gains of approximately 50% of the first quarter mark-to-market losses. Operating cash flow excluding working capital was $4.3 billion. Capital spending for the quarter was $726 million. We returned $887 million to shareholders, including $379 million of share repurchases and $508 million of dividend payments. I will now cover the segment results on slide seven. Total company adjusted earnings were $3.8 billion. Midstream results increased mainly due to higher margins as well as higher volumes, largely driven by the absence of last quarter's Winter Storm Fern impacts. In Chemicals, results increased mainly due to higher polyethylene margins driven by higher sales prices. Refining results increased mainly due to higher realized margins driven by an increase in market crack spreads. Marketing and Specialties results increased mainly due to higher global marketing margins. In Renewable Fuels, results increased mainly due to higher regulatory credits from higher pricing and renewable fuels production. Also included in the results are approximately $450 million of favorable mark-to-market impacts in the Refining, Marketing and Specialties, and Renewable Fuels segments. In Corporate and Other, the pre-tax loss decreased primarily due to lower net interest expense and employee-related costs. Slide eight shows cash flow for the quarter. We started the quarter with a $5.2 billion cash balance. Cash from operations excluding working capital was $4.3 billion. There was a $2.9 billion working capital benefit due to a reduction in inventory as well as the timing of tax payments. Total debt reduced significantly during the quarter as we paid off all outstanding commercial paper and repaid $1 billion of the March 2027 term loan. The remaining $1.25 billion balance on the term loan was paid off in July. We ended the quarter with $4.1 billion in cash and $6.4 billion in committed capacity, giving us total committed liquidity of $10.5 billion. Looking ahead to the third quarter on Slide nine. 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 be in the mid-90s. Turnaround expense is expected to be between $100 million and $120 million. We anticipate Corporate and Other costs to be between $325 million and $350 million. Moving to Slide 10, Mark will now provide some final thoughts. We will then open the line for questions. Volatility in the first half of the year created both challenges and opportunities. Our team was prepared, agile, and focused on execution. This enabled us to navigate the market and capture value through strong Refining performance, disciplined Midstream growth, and flexible, opportunistic commercial execution across our portfolio. Looking ahead, the macro environment remains constructive. We're focused on continuous operating improvement, and our people are helping drive that progress as they leverage the advantages of our asset footprint. In any market, including this one, we will continue to maintain capital discipline and stay focused on the balance sheet while pursuing meaningful opportunities to drive long-term value. Our integrated model, together with our employees, provides resilience and opportunity, positioning us to manage through volatility and capture the benefits of a strengthening macro environment for shareholders. Thank you, Mark. We will now begin the question and answer session. As we open the call for questions, as a courtesy to all participants, please limit yourself to one question and a follow-up. If you have a question, please press star one then on your touch tone phone. If you wish to be removed from the queue, please press star one again. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch tone phone. Please stand by while we compile the Q&A roster. Your first question comes from the line of Steve Richardson from Evercore. We are just opening your line. Please go ahead. Hi. Thank you. Mark, I was wondering if we could talk a little bit about the environment and what you're seeing. The last time refining profitability was at this level for you in the industry was 2022. I wonder if you could talk a little bit about what you're seeing versus that time, what the path normalization looks like, if that's even possible to envision at this point. How is Phillips 66 differentially positioned versus that time would also be helpful. Yeah, Steve, that's a great question. When you think back to 2022 versus today, there are really a couple of major differences. You think about 2022, there was a demand surge coming out of COVID right about the time when the entire refining complex was getting its act back together, recovering from COVID. We were reluctant to take shutdowns. We were reluctant to do all the maintenance we needed to do during COVID for fear of an outbreak, we had to catch up. Those two things collided in 2022. It's different than today because the resolution of those two things happened more quickly. Everyone got their maintenance completed, actually took advantage of the run-up in margins to make the investments they needed to be more robust, the demand normalized a bit. Now when you look at what's going on, it's more of a supply shock than a demand shock. You've had significant refining capacity offline, stocks are low. We see it taking a lot longer for that situation to normalize than what we saw in 2022. The second piece of the story is Phillips 66. We're a very different company than we were in 2022. A big part of it, during the business transformation, our culture evolved pretty dramatically. We're a leaner company. We're more agile, more focused on continuous improvement and competition. We're embracing AI out at the frontline level. We're doing a lot of things that are AI enabled, so it's really enhanced how we respond to the market and how we do things. Refining has dramatically improved its performance. We've streamlined the portfolio. We've added capacity by rolling up WRB. Rich and his folks have cut over $1, headed towards $1.50 per bbl of cost of the refining end. The meantime, while we're cutting costs, we've been improving yields and improving utilizations. Underlying that, the midstream portfolio has now a well head-to-market strategy fully in place, it's been growing. We've got a lot of strengths there and a great foundation. The company is focused on driving and leaning into that integration value, focused on general interest, not just our functional earnings. I would say that Phillips is positioned better than ever to successfully execute in this, in any environment. The headline should be that at this point in time, this is a case where preparation meets opportunity and we're delivering. That's great. Thanks for that and the color. I'd love to follow up just a little bit more, if we could, on commercial. Could you give us a sense of incrementally, at least in the quarter and in year to date, how the commercial teams are attacking this environment in terms of refining anything incrementally on freight, transport, crude sourcing, the entire value chain would be helpful from a commercial perspective? Thanks, Steve. This is Brian. Appreciate the question on commercial. Maybe I'll start by saying I'm incredibly proud of the commercial team, particularly through this period of historical volatility. The team has done an excellent job. For Phillips 66, commercial is kind of a key source of optimization value because it connects our physical assets to market dislocations and opportunities around the world. As you know, we have six global offices. The organization optimizes feedstocks, moves products into the highest value markets, also captures value from optionality, from arbitrage, captures value from market structure opportunities as well. Our model at Phillips is an asset-backed model, which means we use our physical footprint, we use our logistics capabilities and integration and our market access to capture value when markets dislocate. Maybe just give you some examples. In today's market, we can substitute lower cost domestic grades for more expensive international grades in our U.S. refining system, then sell those more expensive international grades at a profit. As you talked about on freight, our time charter freight position has given us a lot of optionality in tight logistics markets. We've expanded our fleet fourfold in the past two years, now it supports roughly 40% of our asset-backed demand while also generating a new third-party business. Jones Act is another example of how commercial creates value. We've been granted about 20% of the Jones Act waivers issued since the current waiver took effect in March. Combined with our freight position, these waivers have improved our ability to optimize feedstock and product flows from our refining business, marketing business, and midstream businesses. Finally, as a result of our time charter fleet growth and increased Panama Canal transits, we now hold a favorable canal ranking. You haven't heard a lot of people talk about this. We're 26 out of 556, which allows us to schedule transits well in advance, avoid high auction fees, and reduce waiting times and improve on-time reliability. Ultimately, I'd sum up by saying commercial is focused on creating value across our integrated businesses by capturing the embedded optionality within and across the system. Thanks so much. Thank you for your question. Your next question comes from the line of Doug Leggate from Wolfe Research. Please go ahead. I know it's a mouthful. Good morning, everybody. Thanks for taking my questions. These are probably for Kevin. I apologize in advance. Kevin, the step down in your net debt this quarter takes your net debt at least below your $17 billion total debt target. Now you've got line of sight to the end of the year. Previously, you justified this on a multiple of, call it stable EBITDA. I think, whether you agree with elevated margins or not, elevated free cash flow currently, it seems to us that you've got an opportunity to reset that net debt target or that debt target substantially lower. That's my question. Where do we go after the end of 2027, and maybe even before then? My follow-up very quickly is to Mark. You've had this 50% or more than 50% of operating cash flow target return to shareholders for a while. There's two pieces to that, Mark. There's the buyback, always at risk of being pro-cyclical, and there's the dividend. How do you think about this debate of whatever mid-cycle and whatever Phillips 66 on free cash flow potential might be going forward, what's the right dividend strategy for Phillips as you fulfill, for example, your midstream growth and so on? I'll leave it there. Thank you so much. Yeah, Doug. You're exactly right in terms of where we were on debt target. I will reiterate, the $17 billion debt target that we had was a good target. We had sound logic for how we developed that, and it was a sub 3x multiple on the midstream and M&S EBITDA that can comfortably support that debt level. I do agree with you that in a period of strong cash generation, like we're in right now, we have the opportunity to go lower than that. $16.5 billion at the end of the second quarter, I expect that to go down between now and the end of the year. On a net debt level, I think of a next sort of target as something around about $13.5 billion, which would equate to a $15 billion or thereabout balance sheet debt number. I don't want to reset the target in absolute debt level terms just because we're also restricted by the, or impacted by the maturity schedule of the debt we have out there. What I'm not going to do is make uneconomic decisions to retire debt early. We'll manage that as best we can. From a net debt standpoint, I think in terms of this sort of $13.5 billion-$14 billion as an appropriate next target that is certainly achievable based on the kind of environment that we're looking at right now. Yeah, Doug, your second question. I take you back to 2022. We made some pretty aggressive commitments to deliver returns to shareholders. We set our 50% target, but we also committed to dramatically improve refining performance, to roll up DCP and create a wellhead-to-market presence, and to improve refining, grow refining, grow midstream. All of those things required us to use the balance sheet as a tool along with asset sales. If you look at what we did quite effectively over that timeframe, it really positioned us to excel today when the macro is favorable. The payoff is that we're going to be able to lean into both share repurchases and debt reduction, and the share repurchases will allow us to keep pace with our dividend increases even more dramatically. We'll be taking a close look at that and having conversations with our board how best to go forward there. Does anyone would think you were an oil major, Mark? Thanks so much. Appreciate it. Thank you, Doug. Your next question comes from the line of Manav Gupta from UBS. Your line is now open. Good morning. Congrats on a strong quarter. I was wondering if I could do some quick math with you. Your guidance for year-end run rate midstream EBITDA is about $4.5 billion for 2027 year-end. If you take out the tax and interest expenses, it is about $3.3 billion in free cash that business generates. That number strikes us because that is exactly your dividend burden plus your sustaining CapEx. What I am trying to understand is once you are at this $4.5 billion run rate EBITDA, can your midstream fully support your sustaining CapEx for the full company and the dividend burden? What I am trying to get to is, if that grows at mid-single digits, the midstream business from these projects that you are announcing, would that mean that midstream could then support a 4%-5% dividend growth just on its own? If you could talk about some of those dynamics. Manav, first of all, you are quite good at math, and we appreciate you doing that for everyone. You are absolutely right. That is why we like the midstream business. We think of the midstream business as the foundation under our fortress of the rest of our portfolio. That midstream, along with marketing and specialties, provides that consistent cash generation to cover the sustaining capital and the dividends, and today, a significant portion of our interest expense, and we see that only getting better. Absolutely, as you look forward, that will contribute to our ability to drive that competitive growing and sustainable dividend. Perfect. My quick follow-up here is, your partner was indicating that you are very close to the FID of Western Gateway. Wanted to understand the benefits of that project, if you could reiterate, and should we expect FID sooner than later? It does add in a big way to your midstream backlog when it does FID. Hi, Manav, this is Don. Appreciate the Western Gateway question. We do expect that we would be able to FID the Western Gateway project here in one month or so. We are finalizing the definitive documents and finishing up the details around scope and ensuring we have a solid project execution plan. With a summer FID, what we would expect is to be able to deliver reliable, secure fuel from the mid-continent to the Western U.S. by the latter part of 2029. We think that's a tremendous benefit to the market in the Western U.S., where the need for a reliable, secure supply coming from the mid-continent of the U.S. will be a benefit. It's a great addition to the market. It will help the mid-continent set up as well. I think as we've talked about, it's the right project at the right time. It will generate the right returns for Phillips 66. Very excited to advance the project and looking forward to its completion. Thank you so much. Your next question comes from the line of Justin Jenkins from Raymond James. Your line is now open. Great. Thanks. I'd like to start maybe on the line of Steve's first question on Refining. Obviously, the macro's been incredibly favorable, but you've seen pretty solid capture rate momentum for a few quarters now. Mark, you touched on some of the internal drivers of that in your first answer, but how much more running room do we have with both self-help and maybe some quick-hit projects in refining to drive even more momentum here? Yeah, Rich has a long list of self-help and quick hits. We're looking for high return, quick payout projects. He can run through that with you. Hey, Justin. Thanks for the question. We've obviously been on a journey here for a couple of years on this particular subject. That's really around growing our ability to capture the marketplace and be flexible in the marketplace. Also controlling what we can control. That's the other part of this. We've been keenly focused on molecule management inside of the fence. Maybe after this, I'll turn it over to Brian a little bit. He can talk about outside of the fence parts that we're doing to stabilize and lock in a high market capture rate for the assets. Inside the fence, we've done a series of actions. One is we've taken the time to evaluate every key process unit we have and look for opportunities to better manage the molecules inside of those. That process has been completed. It was a very detailed exercise. It has come up with a number of good opportunities that we have implemented or will be continuing to implement, which will improve the molecule management across the system. The other thing we've done as well is we've increased or restructured our organization. The purpose of the restructure was really to focus key parts of the organization on key success points inside the operation of the plant. Avoid distractions. Really just focus that organization on achieving world-class operations. Of course, as you indicated, we've done a number of small capital projects as well. These projects have very high returns on a very low capital base. Maybe just a couple of those I'll rattle off here. There's many of them, so I won't be able to touch on all of them. One project we've got active right now, and it's due to start up next year, is a Low Sulphur Gasoline Project at the Humber facility. That's very timely, actually, for us, as we've also picked up the Praxair assets there, which provide great logistics for us, enhanced logistics to reach the inner markets of the U.K. and the London market. The timing of those two, the asset purchase as well as the project, is very good. We see some opportunities at the Ferndale facility as well. There's a project to increase jet production. It's a two-phase project. We'll actually get the first phase done this year. The second phase we'll finish up next year. Once that second phase is finished up, that will actually produce about 12,000 bbl a day of jet fuel out of the Ferndale facility. Ferndale is also producing carb gasoline as well. It's become a nice point for us to pick up supply to bring into the California market from the West Coast, supported by a number of activities that Brian's doing. Maybe that's a good bridge over to Brian here, and you can talk about outside of the fence, what we're doing to harden the capture rate. Sure. Hey, Justin. Maybe you've given me a chance to talk about our value chain optimization team because that's a core team that kind of looks at opportunities to drive market capture. They maximize profitability across regions, across segments, and across our integrated value chains, as opposed to just looking at the individual assets. We were an early adopter of the VCO model, and we continue to strengthen the team. They use data-driven decision-making, clear accountability, and look for execution to drive this kind of market capture. I'll just give you some examples of kind of what the team has been working on and some of the things they've been doing. A relentless focus on lowering feedstock costs to improve market capture, including building a leading position in advantage crude, such as Canadian crude, PMI fuel oil, and now becoming the third largest buyer of Venezuelan crude worldwide. They've utilized our marine time charter fleet in conjunction with the Jones Act waiver to substitute foreign crudes with WTI-based crudes at our Bayway Refinery, and that helped mitigate the impact of Middle East conflict. While continuing to maintain strong crude utilization, VCO also has strengthened integration across intermediate feedstock activity and refinery execution, enabling us a higher confidence decisions that optimize intermediate purchases and drove record high secondary unit utilization in 2Q. Finally, the team increased, along with our refinery brethren, increased the distillate production by approximately 35,000 bbl a day in Q2. All these examples demonstrate VCO's ability to translate market opportunities into commercial, operational, and financial results. Awesome. Appreciate that very detailed answer. I'll leave it there and pass it on. Thanks. Your next question comes from the line of Arun Jayaram from JP Morgan Securities LLC. Your line is now open. Thank you for taking my question. I wanted to see if we could get a little bit of an update on your 2027 strategic priorities. You guys highlighted thoughts on shareholder returns and the balance sheet, but I wanted to see if you could maybe update us on your goal to reduce your operating costs by $500 million, as well as the billion-dollar growth in mid-cycle midstream and chemicals earnings power. Hey, this is Rich. I'll start with the refining part of the 2027 goal. That goal in refining is to target an annualized $5.50 a barrel operating cost, ex-turnarounds. As you can see in the second quarter here, we came in at $5.57. Pretty close, within striking range of the $5.50 number. The annualized number is really what we're targeting, and our goal is to achieve next year. With that, what are we doing to achieve that and hit that annual goal? This will incorporate the volume impacts associated with turnarounds and all the seasonal changes, and still achieve the $5.50, assuming a $3 MMBtu of Henry Hub price. The organization's working on over 200 initiatives targeting operating expense reduction. These are really focused in a couple of areas. One is energy efficiency. I'm often asked, "Well, give me an example of that." The two examples that come to mind here that I recently saw were at our Bayway facility. We operate very large boilers there, especially associated with the FCC. They've come up with a unique process to clean the tubes and make the boiler much more efficient through the run while it's online. The second one is a heat recovery project, a nice project for Ferndale Refinery. Each of those two projects reduce operating expense by over $1 million a year independent of each other. Right? These are fantastic projects that the organization's been coming up with and working and executing. We're also trying to simplify our work processes out there and eliminate waste and other things that we got. One of the key projects there that comes to mind is an asset consumption project at the Wood River Refinery. That, like those previous two I mentioned, also reduces well over $1 million from operating expense. We have 200 of these projects we're working throughout the system to drive costs out. The other thing I'll mention, and this is I think helpful, is we're an organization that is full of data. The AI revolution here has really opened up our ability to analyze this data and look for trends. We're actively engaged in doing that as well. That's also bringing a lot of opportunities to light that I don't know that we otherwise would have seen because of the fog of too much data almost. Of course, on the other side of that equation, you got to run well. Having your equipment running reliably and ensure it's ready to run, we're keenly focused on that as well. Brian's group is working hard to support filling up the downstream units that have available capacity to them and really working towards that, increasing the total process input for the site. What I see in summary is that $5.50 is well within range. I fully expect us to achieve that goal next year. Those cost improvements that we are driving for our stock owners. These are structural. They're not going to work their way back into the system. There's structural changes that we're doing, and we're not done yet with this. All right. This is Don Baldridge. I'll take the billion-dollar growth in midstream and chemicals that you asked. Really, we split that into two parts, 50/50, if you will. The first is the $500 million growth in midstream. That's really that $4.5 billion run rate target by the end of 2027. The two things I'd highlight there is first, the execution on our large expansion projects. Then second is the successful optimization efforts that we're having around the footprint. First, the large expansion projects that we've announced already, like the Iron Mesa gas plant and our Coastal Bend NGL Pipeline Expansion, they remain on time and on budget and will be meaningful contributors in 2027 and allow us to meaningfully grow our earnings. I'd also highlight the second one, which is just the execution on the smaller optimization opportunities around our footprint, where we are continuing to see how we can grow our capacity in a very capital-efficient way. You saw that in this quarter with our growth of record NGL fractionation, record NGL exports. Our operations teams continue to find ways to grow the capacity very capital efficiently. The commercial team readily fills it. That's the strong team execution that's happening around midstream that gives me a lot of confidence in not only hitting our 2027 earnings growth target, but also just the growth rate beyond that. Within the chemicals, that's really our CPChem business. That's even a simpler story. We've got two large world-scale crackers that will meaningfully come online and contribute in 2027. That's the predominant growth for that $500 million on the chemical side. Great. My follow-up, I was wondering how we should think about obviously really good results in refining, how do this quarter's refining, even midstream strength, how does that influence how you think about the mid-cycle earnings power or each of those segments? I would say at a high level that given what's going on in the world, that there's some resilience in refining. The macro looks strong. Even if peace broke out tomorrow, we saw strengthening fundamentals before the Iran conflict kicked in, we think that it'll even be stronger coming out of that conflict. Whatever your view of mid-cycle was, we think it'll be stronger going forward, and we think that it'll be persistent going forward. We think it's very constructive and has some legs under refining. Midstream has been very consistent, and I think that that's the beauty of the midstream business, like I said earlier, is that it's that solid rock foundation under the rest of our businesses, and the growth there will be our organic growth in delivering on those projects and enhancing that. Thank you. Your next question comes from the line of Theresa Chen from Barclays. Your line is now open. Hi. Thank you for taking my questions. Appreciate some of the comments related to long-term structural drivers for the refining macro. Wanted to ask near term, as we move through the remainder of summer driving season into the fall, which factors do you view as the most important upside or downside risk to crack spreads over the next quarter? Is it demand elasticity? Is it Chinese exports? Maybe putting a finer point on the capture discussion, what are your expectations at this point for third quarter capture? Hey, Theresa. It's Brian. Maybe I'll start with just a list of things that give us a lot of confidence, list of tailwinds for kind of higher cracks going into Q3 and carrying on through the rest of next year. Refining fundamentals, as Mark talked about, are very tight and getting tighter with the issues in Russia and the Mideast. We have 7 million bbl a day of refineries down in Asia and the Mideast and another 1.4 million bbl down in Russia. The refineries, depending on the damage and ability to get spare parts, are going to take a good long time to get back online. We have low product inventories in the U.S. and around the world. Chinese exports of products have been low, half of what they have been over the last two years, and the Chinese have shown discipline over the last number of years. We'll see the need to refill SPRs over time, and there will likely be new SPRs that develop to protect against these type of geopolitical problems. We're also forecasting high turnarounds in 2027 and 2028, likely more unplanned turnarounds in the near term as refiners push work out to take advantage of the higher margins. You have the typical inflationary pressures on operating expenses and CapEx. We have high RIN prices. We have elevated freight rates. The margin of refining barrels in Europe, where structural costs are higher, carbon's higher, electricity's higher, labor's higher, all much higher than the U.S. With the opening of the Strait, we also see crude supply will exceed product supply, and that drives stronger margins, too. The final point t hat we've been talking about for a while is net refinery additions are lower over the coming years, and importantly, lower than expected demand increases. This really sets us up for stronger margins through Q3 and the rest of perhaps next year. Super helpful. Thank you, Brian. With one of the large Canadian infrastructure operators proposing a project that would shift incremental WCS volumes from the MidCon to the Gulf Coast, potentially tightening heavy crude differentials in the MidCon while improving availability in the Gulf Coast, how would you expect that to affect capture rates and refining profitability across your system? More broadly, how do you see WCS egress evolving over time, and what do you view as the most likely pathways for incremental barrels to reach market? Well, our general view on WCS is that differentials are going to wider structurally over time, driven primarily by growing heavy crude supply out of Canada and Venezuela. Canadian production, which has been off line from weather and turnarounds, was back online mostly by the end of last month, and we're heading into winter blending season. Also, Venezuelan imports into the U.S. are already up 300% since January, which should add downward pressure on heavy crude pricing over time. Then we expect the strong pull of U.S. barrels and higher freight rates and lightering costs to contribute to a wider WTI, WCS differential as the inland heavy crude lags the export-driven strength of WTI and competes with Venezuelan barrels. I think once there's clarity on the movements from the Strait, we'll see increased supply of barrels moving into the market. Those will be primarily medium sours, but they'll also support wider heavy differentials. Just as a reminder to all of you on the phone, every dollar the WTI, WCS spread widens is an incremental $140 million impact to our annual EBITDA. Theresa, this is Kevin. Thank you. In your question, you had asked about capture in the third quarter, and Brian went through a lot of factors that we see in terms of how this market's going to play out. Just specifically as we think about capture rates, we've historically guided to about 95%, and we don't see any reason why that would be any different this year in terms of where we are and in terms of what we see currently with regard to third quarter. Got it. Thank you. Your next question comes from the line of Neil Mehta from Goldman Sachs. Your line is now open. Yeah. Good morning, Mark, Kevin, team. Just wanted your perspective first on renewable diesel. Even if I was to normalize for margins closer to that $1.50 mid cycle, you'd probably be above the $700 million that you guided to a while ago. Just love your perspective on that business, and is there a new run rate of profitability at this level of utilization? Any perspectives on how we should be thinking about the modeling of it going forward? Yeah, Neil, great question. I think that first it starts with the existential crisis that asset had a year ago when there was uncertainty around what the RBO would be, what any of the incentives to run that place would be. The team there took it quite seriously. They readjusted their logistics opportunities. They cut costs dramatically, streamlined, and they are operating extraordinarily well. That really sets the base for what is possible. Brian can talk about the fundamentals going forward, but when you look at the distillate macro, just that in its own right provides another good solid layer underlying the value of that asset. Brian, you can talk about the other. Yeah. I certainly agree with Mark. We had strong earnings in Q2 driven by credits and strong diesel margins, largely a function of the Iran war. Renewable diesel prices and RINs roughly doubled versus 2025 due to the Iranian situation. There's ongoing regulatory policy risk, including the concern that foreign feedstock RIN generation will be cut in half after the end of next year. We also had a one-time help in Q2 of $100 million, primarily due to tariff refunds. As Mark mentioned, Rodeo ran above nameplate capacity with record utilization of 106%. Our renewable segment isn't just Rodeo. Outside of the Rodeo Complex and within the segment, we had good performance from our U.K. and our Asian businesses in the quarter. In the segment also, we had a mark-to-market pre-tax gain of $47 million carried over from Q1. We continue to engage with state and federal administrations to ensure the long-term viability of that facility. Just one point of clarity for modelers, we've updated our renewable diesel indicator beginning this month to reflect the new 2026 45Z guidelines released in June to include $0.40 per gallon of PTC benefit in the indicator. That's great. From one hard market to another, I just wanted your perspective on China. It is probably something that we have a really tough time getting visibility into as an investment community. We know runs are down a lot from the beginning of the year in China, and there's some talk of the quotas growing back. Just your perspective on that in the context of your bullish refining view, does this represent a risk? Yeah. I think, as you said, it is tough to get information about China. We have seen their refineries, about 2.5 million bbl a day of refinery runs offline. They're buying about 4 million bbl of less crude than they had been, 12 million bbl of imported crude to about 8 million bbl. Their exported products are now about 400,000 bbl a day from 800,000 bbl a day. It is possible that they could increase the exports of products. They haven't been doing that in the number of years past. They've been pretty disciplined. It's hard to tell what they'll do going forward. I think our guess will be just like yours. Do they want to help manage the worldwide product shortage or not? I would add to that, you have to recall that China's coming off of a materially lower crude pricing basis than the rest of the world, because they were buying huge quantities of deeply discounted Venezuelan crude, Iranian crude, Russian crude, anything they could get their hands on. That's gone now. That changes their perspective on their ability to supply products to the rest of the world, both, I think, in a refining basis as well as petrochemicals. Our petrochemical folks are seeing them already respond to higher cost basis in petrochemicals and raising the prices of polyethylene, for instance. They are very price sensitive, and they will respond to price signals, and I think that their price basis is much, much higher in crude than the impact the rest of the world's seen post-war. That makes a lot of sense. Thanks, Mark. Your next question comes from the line of Matthew Blair from TPH. Your line is now open. Thanks. Good morning. I was hoping you could talk about the appealing refining environment in the Atlantic Basin. If I look at your July indicators, Atlantic Basin was up the most quarter-over-quarter. Of course, you have more exposure than a lot of your peers to the region. Is Russia downtime the main driver here? Any other factors that you'd call out? Is this something that you'll be able to capture in Q3? I'll start with the answer to that, Matt, then turn it over to Brian. This is Rich here. When we looked at the Atlantic Basin, Q1 capture rate was pretty high at 182%, then the Q2 was on the other end of that spectrum at 79%. I really think the way you have to look at this with all the noise in the system over those two quarters is you got to look at it on a first-half basis. The first half capture rate was 112% on average. It's a decent capture rate. I think the assets are performing well, and that also includes the effects of a Humber turnaround during that timeframe. When we look at that first half annual average of 112%, we did go back and look at it from 2023 to 2025, and we averaged about 96% in this. I would say the assets are running well. They've been operating reliably. It's been pretty impressive to increase that capture rate with the strong backwardation in the marketplace. Maybe that's a good bridge over to you, Brian, on the markets side. I think one of the things I'd say in Q3 is that backwardation has started to come off some, and certainly from Q2, the historic crude differentials we saw in Q2 have come off as well. A lot of the crude that we buy for Bayway is Brent-based, so that will help in Q3. As I mentioned, we were also moving barrels through the Jones Act of crude, U.S. crude around to Bayway too, and that helps also. We'll continue to do that as well. Sounds good. Then the $450 million mark-to-market impact in Q2. I think you might have said that renewable fuels was $47 million boost. Do you have the same breakout for refining in M&S? Yeah. Matt, it's Kevin. That $450, I'll give you the breakdown by segment. Refining was about $240 of that. Just, I think as everyone knows, but just to emphasize, that is built into the indicator, not a variance from a capture standpoint. $240 refining. Marketing and specialty is about $160, and then renewables is just shy of $50. You put those together, you get that $450 total. Great. Thank you. Your next question comes from the line of Joe Laetsch from Morgan Stanley. Your line is now open. Hey, good morning, team, and thanks for taking my questions. I wanted to follow up on the chemical side. Could you just talk about what you're seeing in the market currently? It looked like margins have come in a bit from the peak earlier this year. Could you just talk to how you're thinking about the macro setup? It also looked like utilization rates during 2Q came in above guidance as well. Thank you. Yes. Thanks, Joe. Yeah. Certainly, chemical saw a surge during the height of the crisis around the Straits of Hormuz. They've come back down a bit with peace breaking out and that being factored in a bit. There's still considerable oversupply in the market that will come back into play once things normalize around the straits. We think that will take some time. Even when that happens, we see a higher floor kicking in because, as I mentioned earlier, China has lost its access to deeply discounted crude, so they're going to have to reset where they are from that perspective. We see that impact of about $0.07 per pound over where we saw the bottom of the cycle in 2025 at about $0.07 per pound. Put that in perspective, at the bottom of the cycle, our portion of CPChem's EBITDA was about $845 million at that $0.07 per pound. They still have relatively robust performance, you'll see considerable upside even just resetting at that higher floor going forward. We see things relatively more stable, though they'll be below mid-cycle. They shot above mid-cycle temporarily. They'll be coming back down to something around $0.14-$0.15 a pound. Thanks, Mark. I wanted to ask just on M&S. This is one of the segments that came in a bit above our expectations during the quarter. I think a falling crude environment and a strong summer driving season probably helped with volumes are up a little bit year-over-year. Could you just unpack some of the drivers in 2Q and talk about the outlook for the back half of the year as well? Thank you. M&S? Yeah. Hey, this is Brian. Give you a chat on M&S. One of the things that helped us was just margins in the business were very strong. I think M&S is going to be also a function of spot prices, whether spot prices are moving up or moving down. That also affects our business. We had some favorable regulatory credits in the quarter. Our lubricants business, which we don't talk about all that much, benefited from stronger base oil spreads with roughly about a third of the global Group III base oil production offline. I just think going forward, the tailwinds are going to include a favorable market, particularly with the ongoing Iranian war and the RIN prices. We also see some regulatory upside in Q3 as well. Tailwinds, again, are the rising spot prices. Great. Thanks, Brian. Your next question comes from the line of Jason Gabelman from TD Cowen. Your line is now open. Yeah. Hey, thanks for taking my question. The NGL segment within midstream has been pretty volatile the past few quarters. Just wanted a level set where we are right now if 2Q represented a normalized environment for that segment, just given the moving parts with commodities moving higher, projects coming online. Any color would be helpful. Thanks. Thanks, Jason. This is Don. Yeah. I think we're still hovering around in the midstream segment around that billion-dollar a quarter mark with some ups and downs, depending on commodity prices and depending on just some volume variances. Largely, we're solid in that run rate. Certainly, first quarter, we were impacted from Winter Storm Fern that impacted volumes. We also saw impacts of shut-ins when we had really low negative prices in the Permian. That is largely passed through. We've got new pipelines that have come online. We're seeing positive prices in Waha. As a point of reference, our June Permian volumes on our gathering processing were a record high. I think that's a testament to producers turning on more volumes and having comfort of continuing to drill and grow now that there's good egress out of the Waha. We're on track to hit that $4.5 billion by 2027. What gives me confidence of that is we've got these large capacity projects that are going to come online in 2027, and we already have a lot of that volume that we're processing with third parties or moving on third-party pipelines. When Iron Mesa turns on, I expect us to be able to readily fill that capacity within the first part of 2027. Those NGLs would obviously flow into our Coastal Bend pipeline expansion that comes online end of this year and fills that capacity up. On track with hitting the targets and continue to see the growth trajectory from where we are today. Great. My follow-up is just on the marketing segment. I think in the past when Rhine River levels have been low, the international marketing business has done extremely well. There have been some changes in the portfolio. Wondering if you still retain that upside exposure given Rhine River levels are currently low. Thanks. Germany is no longer short diesel, the Rhine impact is much smaller going forward. You won't see that like we've seen it in the past. All right. Thanks for the answers. Your final question comes from the line of Phillip Jungwirth from BMO. Your line is now open. Great. Thanks for taking the question. I was hoping you could talk about the midstream portfolio and just current thoughts around optimizing here, whether it's divesting non-core assets or bolt-ons across core areas. Generally, do you see value in midstream M&A, or do you feel like with the organic projects you have, like Zeus, Coastal Bend Frac, which were announced interquarter, plus Western Gateway, are sufficient enough to drive competitive EBITDA growth beyond the $4.5 billion annualized run rate by year-end 2027? Thanks, Phillip. This is Don. We are excited about the organic growth projects. We do think they are the best returns. The opportunity set that we have around the portfolio is dominated by the organic growth. We're seeing the customer response from a producer standpoint with volumes that are filling our system and enabling us to add capacity and grow that business. It's a high bar when we think about M&A or bolt-ons. They have to be something that is highly strategic. It has to be of a bolt-on size that would be something that we could readily scale. Pinnacle was a great example. EPIC was a great example, where we could do something that would make our system more competitive, as well as be able to scale it up quickly. Right now, our focus is executing on the organic growth plan that we have in front of us. That's where we think that the best opportunities are. In terms of the overall portfolio, we've always said that, hey, there's certainly some non-operated midstream assets that aren't necessarily core, but they're nice assets. If they're worth more to others than to us, we'd certainly consider that. We don't have any predetermined divestiture targets. We're always looking at ways to make the portfolio more competitive, more durable, and drive the earnings profile that we like in midstream. Great. Mark, you sounded excited about this in the script. Just wondering different ways Phillips is implementing new technologies or AI across the refining business, just as it relates to optimizing commercial operations, executing or predicting turnarounds, or lowering operating costs. If it is more broad-based across the other businesses, would also love to hear about that also. Yeah, Phillip, it is broad-based. We've implemented an AI program that really is normalizing the use of AI inside the company. We have people focused on use cases and then extrapolating those use cases across the organization. I think that it's pretty exciting to see what's going on out on the front lines with engineers out on the front lines using AI to, as Rich alluded to, capturing the data and extracting the data and getting solutions out deployed faster than we've ever thought about being able to do before. It enhances the performance of the assets in almost real time. To see their intellectual capacity just augmented by their use of AI to drive performance that they would normally drive over time, but it may take months or years to get to the same place they're getting to in days and weeks. That is being spread across every part of the organization. We've been at it for a long time with machine learning to enhance maintenance, to enhance our ability to shorten our turnarounds and increase the duration between turnarounds. We're just building on that with really this human-centered approach to AI deployment. Thank you. This concludes the question and answer session. I will now turn the call back to Sean Maher for closing remarks. Thank you for your interest in Phillips 66. If you have any questions or feedback after today's call, please reach out to Kirk or myself. Thank you. Have a great day. This concludes today's call. Thank you for attending. You may now disconnect.