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Phillips 66 (NYSE:PSX)

Q3 2013 Earnings Conference Call

October 30, 2013 11:00 AM ET

Executives

C. Clayton Reasor – Senior Vice President-Investor Relations, Strategy and Corporate Affairs

Greg C. Garland – Chairman and Chief Executive Officer

Greg G. Maxwell – Executive Vice President, Finance and Chief Financial Officer

Timothy G. Taylor – Executive Vice President-Commercial, Marketing, Transportation and Business Development

Paula Johnson – Executive Vice President, Legal, General Counsel and Corporate Secretary

Analysts

Doug T. Terreson – International Strategy & Investment Group LLC

Evan Calio – Morgan Stanley & Co. LLC

Edward G. Westlake – Credit Suisse Securities LLC

Doug Leggate – Bank of America Merrill Lynch

Jeff A. Dietert – Simmons & Co. International

Paul Cheng – Barclays Capital, Inc.

Paul B. Sankey – Deutsche Bank Securities, Inc.

Bradley Olsen – Tudor Pickering Holt & Co. Securities, Inc.

Roger Read – Wells Fargo Securities LLC

Faisel Khan – Citigroup Global Markets Inc.

Operator

Welcome to the Third Quarter 2013 Phillips 66 Earnings Conference Call. My name is Christine, 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 Clayton Reasor, Senior Vice President Investor Relations, Strategy and Corporate Affairs. You may begin.

C. Clayton Reasor

Thank you. Good morning and welcome to the Phillips 66 third quarter earnings conference call. With me this morning are Chairman and CEO, Greg Garland; CFO, Greg Maxwell; and EVP, Tim Taylor. This morning’s presentation material can be found on the Investor Relations section of the Phillips 66 website, along with supplemental financial and operating information.

Slide 2 contains our Safe Harbor statement. It's a reminder that we'll be making forward-looking comments during the presentation and our question-and-answer session. Actual results may differ materially from today's comments and factors that could cause actual results to differ are included here on the second page of the presentation as well as in our filings with the SEC.

So with that said, I’ll turn the call over to Greg Garland for some opening remarks. Greg?

Greg C. Garland

Thanks Clayton. Good morning everyone. Thanks for joining us today. During the third quarter, the refining market environment became more challenging than what we experienced over the past two years. Market crack declined over 20% compared to the last quarter and from an earnings perspective, our refining business broke even this quarter.

On a positive note, we ran better and this improved reliability allowed our chemical and midstream businesses to contribute the majority of our earnings this quarter. Also our Marketing and Specialties businesses had another solid quarter generating over $200 million in earnings. We generated $1.9 billion in operating cash flow and was $900 million if you exclude the impact of working capital. We also received over $1 billion in proceeds from asset sales. The ability to generate cash when refining market conditions are poor gives us the confidence that we continue to grow and sustain shareholder distributions.

Since August of last year, we’ve repurchased over 34 million shares completing our initial $2 billion program. In October, we began repurchasing shares under our additional $1 billion program. Also we’ve almost doubled over dividend. Earlier this month, we announced our latest dividend increase raising it 25% to $0.39 per share.

We’ve also used our strong operating cash flows to strengthen our balance sheet. In total we’ve reduced debt by $2 billion since the spin from ConocoPhillips about year and a half ago. Our capital structure, our strategic positioning enables us to increase capital spending and distributions in spite of our exposure to highly volatile crack spreads and crude diffs.

Our financial flexibility is an important differentiator. We have the balance sheet. We have the capacity to increase our leverage as needed throughout the market cycles. Given our exposure to refining margins, we think our debt levels are appropriate for now and we don't plan any further reduction of debt. We believe that an important use of our cash is funding the expansion of our higher valued businesses. Our platform for growth is unmatched by any other company in the refining space. We are committed to growing our Midstream and Chemicals businesses and on a more selective basis our Marketing and Specialties businesses.

In Midstream, we intend to use our MLP to grow and create value. Until our MLP is large enough to fund projects of the scale and scope we envision, we expect that first we’ll incubate the project at Phillips 66 and eventually drop them in to Phillips 66 Partners. Potential candidates for this approach would include the 100,000 barrel-per-day NGL fractionator at our Sweeny complex along with the associated infrastructure.

In addition, we are developing an LPG export terminal project at Freeport, Texas. The LPG export facility is expected to enable us to take advantage of the Company's existing midstream transportation and towards infrastructure. Combining these two projects represented two discrete $1 billion investment over the next 2 to 3 years. Ultimately once we're up and running at full capacity we expect these projects to generate on the order of $400 million to $500 million of EBITDA annually.

Startup of the frac is expected in 2015 with the export facility following closely to 2016. We’ve seen increasing number of opportunities to participate in the NGL market and we will use our midstream business to supply petrochemical, heating and transportation markets globally. The combination of refining free cash flow and our MLP provides us with a unique position and options to accelerate our growth in the midstream space.

Our joint venture DCP Midstream also has growth projects in place. Over the last couple of years it is expected to spend $2 billion to $4 billion in capital and we would expect the DCP Midstream will use its MLP as a funding vehicle for most of these projects.

Our Chemicals business is focused on growing in the feedstock advantaged U.S. Gulf Coast. This region is second only to the Middle East for low-cost feedstock availability. Earlier this month CPChem announced FID for its world-scale Gulf Coast ethane cracker and two new polyethylene facilities.

CPChem now has the necessary approvals to begin construction. In addition to the petrochemicals projects CPChem is also completing one hexane unit which is expected to be operational in the first half of 2014 as well at the Sweeny ethylene expansion in 2014. All in CPChem at a 100% basis is expected to spend between $6 million and $8 billion on self-funded capital between now and 2017. They expect to add about $1.5 billion of EBITDA in 2017 once all these growth projects are online.

In Marketing and Specialties, we will grow selectively. Over the next five years we plan to add about 200 retail sites in Europe and expect these high efficiency assets to generate returns in excess of 25%. With regard to refining for us it is about enhancing returns through operating excellence and optimization across our system.

The largest lever to improve return on capital employed is getting advantaged feedstocks at the front of our facilities. We continue to look for opportunities at present our largest one is to get advantaged crudes to our East Coast and West Coast refineries.

In addition, as U.S. demand for refined products declined we believe that increasing export capabilities is going to be important to keep our refineries running at high utilization rates. We have seven coastal refineries in the U.S., we currently have 340,000 barrels a day of export capability, and we plan on growing this to 500,000 barrels a day over the next several years.

Our exports increased again this past quarter. Given the third quarter, we exported 190,000 barrels a day, that’s the fourth consecutive quarterly increase in exports for us.

As we start thinking about 2014, we would expect that our 2014 capital spending to be in the range of $2.5 billion to $3 billion. If you include our non-consolidation portion of capital from DCP, CPChem, and WRB, we expect that the total capital program to be in the order of $4 billion to $5 billion. Half of that’s going to be in Midstream, a quarter of that will be in Chemical and the balance will be primarily in Refining, Marketing and Specialties.

We will give you more comprehensive review of our capital program in December following our Board approval. I can’t think of a more exciting time to be in this business. Refining as well it is, it’s always going to be a very volatile business. What’s changed is the American energy landscape, the technology driven access to tight oils and natural gas to NGLs. And as an integrated downstream energy manufacturing logistics company, we believe that we are uniquely positioned to participate in the American energy revolution that’s going on today.

So with that as opening comments, I am going to turn over to Greg to go through the quarter results. Greg?

Greg G. Maxwell

Thanks, Greg. Good morning everyone. Before getting started I want to take a moment to point out a couple of items in today’s presentation. First, the presentation today will focus on a sequential quarter basis, rather than a year-over-year basis. Given the differences in the refining markets between 2012 and 2013, a comparison of this quarter’s results with those of the previous quarter provides more insight into the drivers of our earnings variances. However we continue to supply year-over-year comparisons and these can be found in the Appendix on our website.

Second, as disclosed in May, we entered into an agreement to sell the Immingham Combined Heat and Power Plant or ICHP. During the third quarter, we completed that sale, however I should note that we have signed a confidentiality agreement with the buyer of ICHP and as such we are not allowed to provide any additional information on this transaction and we will not be able to address any questions that have not already been addressed or disclosed in our previous SEC filings.

So starting now with Slide 4, third quarter earnings were $535 million or $0.87 per share. There were no adjustments to our reported earnings for the third quarter. Excluding changes in working capital, cash from operations for the quarter was $873 million. We paid a $189 million in dividends, we repurchased $674 million or 11.6 million shares of our common stock during the quarter and we also repaid the remaining $500 million outstanding under our term loan. On an adjusted basis, our annualized year-to-date return on capital employed was 14%.

Slide 5 provides a comparison of our third quarter adjusted earnings with the second quarter on a segment basis. As you can see compared to last quarter, earnings decreased primarily due to lower refining margins or refining earnings partially offsetting this increase are increases in earnings from our chemicals and midstream businesses. I’ll cover each of these segments in more detail later on.

Moving on to our third quarter cash flow. Cash from operations excluding working capital was nearly $900 million and this was sufficient to fund our dividends as well as our capital program. In addition, we generated cash from working capital as well as asset sales and then we also had the proceed from the IPO of our MLP. The positive changes in working capital were largely due to the impacts of higher prices driving an increase in accounts payable along with changes in inventories.

For the fourth quarter, we currently expect a $500 million to $600 million use of working capital and this will primarily be tied to a reduction in taxes payable. We continue to buyback shares under our share repurchase program while continuing our efforts to strengthen our balance sheet.

During the quarter we repurchased nearly $700 million in shares and we repaid the remaining $500 million outstanding under our three year term loan. We ended the quarter with $5.9 billion in cash and cash equivalents and this includes the consolidation of about $420 million of cash held by PSXP.

Looking forward, we expect capital spending in the fourth quarter to be heavier than the previous quarters of 2013 as we progressed towards completion of a $1.9 billion capital target. In addition as previously mentioned we expect an overall use of working capital in the fourth quarter and we also expect to continue our share repurchase program along with our dividend payments. Together we expect these items reduce our year end cash balance compared to this quarter.

As far capital structure depicted on the next slide. At the end of the third quarter we had equity of $22 billion. On the debt slide as previously mentioned we paid down the remaining $500 million outstanding under our term loan. However during the quarter we also entered into approximately $200 million in capital leases resulting in an overall ending debt balances of $6.2 billion. Our debt to capital ratio was 22% which is at the lower end of our targeted range.

Next we’ll cover each of our segments in more detail, starting with Midstream on Slide 8. The Midstream segment includes three business lines. It includes transportation, it includes our equity investment in DCP Midstream and it also includes NGL Operations and Other. This segment posted strong earnings this quarter with earnings up more than 60% compared to last quarter. The annualized year-to-date adjusted return on capital employed for Midstream was 15% and this is based on an average capital employed of $3.2 billion.

Slide 9 shows Midstream’s earnings of $148 million, representing an increase of $58 million from the prior quarter. Transportation was up $4 million, mainly driven by higher volumes, which includes increases from refinery utilization as well as new rates. Earnings from DCO Midstream increased by $57 million this quarter and this was primarily due to the impacts of hedges associated with asset dropdowns to DCP Midstream Partners, equity gains resulting from DPM’s unit issuances to the public and also higher margins and volumes. So no significant earnings variances for NGL Operations and Other compared with the second quarter.

On the next slide we’ll move on to a discussion on our Chemical segment. Sequentially our Chemical segment results improved 45% and this was primarily due to less downtime in the United States. Global capacity utilization for olefins and polyolefins was 87% for the quarter and was over 90% in the U.S. The annualized year-to-date return on capital employed from our Chemical segment was 26% and this was based on an average capital employed of $3.7 billion.

As shown on Slide 11, third quarter earnings for chemicals increased by $81 million compared to last quarter. CPChem continues to focus on operating excellence and they reduced their downtime in olefins and polyolefins compared with last quarter. This was a large contributor to the increase in their earnings as CPChem was able to capitalize on the strong petrochemicals margin environment.

Specialties, Aromatics and Styrenics’ earnings were flat compared with the prior quarter as higher volumes and lower cost were offset by lower benzene and specialty chemicals margins. The decrease of $6 million in Corporate and Other is primarily due to higher effective tax rate in the current quarter, largely as a result of the mix in foreign and domestic taxable income.

As we move next to refining, our realized margin was $6.14 per barrel with a global crude utilization rate of 95% and a clean product yield of 84%.

Our advantage crude sale in the U.S. was 66% this quarter and that’s down from 68% last quarter. This decrease is mainly tied to Bakken and albeit in the economically advantaged during the third quarter and the scheduled turnaround at our Ponca City Refinery. The annualized year-to-date adjusted return on capital employed for the refining segment was 13% with an average capital employed for the segment of $14.1 billion.

Slide 13 provides more detail on earnings in our refining segment. Our refining segment reported a loss of $2 million this quarter. This is down $483 million from the prior quarter primarily due to lower margins particularly in the Central Corridor, Western Pacific and other refining. While the Central Corridor and Western Pacific regions where down due to decreased market cracks and other refining results were lower this quarter largely driven by lower earnings from utilizing the excess capacity on pipelines that import Canadian crude.

Compared with the second quarter, the Canadian to mid [indiscernible] narrowed $4 to $6 per barrel resulting in a significantly lower gains in the third quarter. In addition, third quarter was further reduced by foreign exchange related impacts. Let's now take a look at our market capture shown on slide 14.

Our worldwide realized margin this quarter was $6.14 per barrel with a market capture of 46%. This compares to $9.88 a barrel and 56% capture in the second quarter. Capture was down this quarter compared to the last primarily due to secondary product prices remaining relatively flat while feedstock prices rose.

Also the previously mentioned lower earnings related to utilizing excess pipeline capacity further impacted our overall capture. As discussed on previous calls we continue to incur rents cost in our refining segment, these costs are reflected in the other bar along with inventory and product differential impacts.

Moving on to slide 15, slide 15 shows the comparison of advantage crude runs at our refineries as well as clean product yields for 2011, 2012 and year-to-date 2013. In the U.S. our advantage crude slate was increased from 62% in 2012 to 67% in 2013. The decrease in other heavy crude from 27% to 24% is attributed mainly to the downtime at our Lake Charles and Sweeney refineries this year.

As shown on the graph on the right, we continue to focus on improving our clean product yields, achieving an overall 84% yield across our refining system this year. The decline in distillate yields in 2013 compared with 2012 is primarily the result of the mix of refineries that were down this year compared to last. This includes scheduled turnarounds, which are typically on a five-year cycle.

This next slide covers our Marketing and Specialties segment or M&S. Worldwide marketing margins were $4.4 per gallon in the third quarter and while our Refining segment experienced higher RINs cost in the quarter, M&S benefited from higher RINs values created by its renewable fuel winning activities. The annualized year-to-date adjusted return for M&S was 36% and this was based on an average capital employed of $2.8 billion.

Slide 17 provide some additional detail about our M&S segment. Earnings for M&S in the third quarter of 2013 were $240 million. This is a $69 million decrease from adjusted earnings in the second quarter. Marketing and others earnings decreased $60 million, mostly driven by lower product margins. Partially offsetting this were higher margins on renewable fuel blending. Specialties’ decrease over the prior quarter was mainly related to our exit of the composite graphite and E-Gas Licensing businesses. This was partially offset by higher volumes.

Moving on to Corporate and Other, this segment includes net interest expense, corporate overhead costs, technology and other costs not allocated to our operating segments. Corporate and Other costs were $113 million after-tax for the third quarter compared with $126 million for the previous quarter. The improvement of $30 million was mainly driven by lower environmental expenses, which were included in the Other category.

This concludes my discussion of the financial and operational results for the quarter. Next, I’ll cover a few outlook items. For Chemicals, for the fourth quarter we expect the global O&P utilization rate to be in the low to mid-90s. In Refining, we expect the fourth quarter global utilization rates to be in the low 90s. And looking at turnarounds, our pre-tax turnaround expense is expected to be between $150 million to $170 million in the fourth quarter. And then in Corporate and Other, we continue to expect our cost to be in the $105 million to $110 million range on an after tax basis. And then finally we expect the Company’s total effective tax rate to be in the mid-30s.

With that, we will now open the line for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question is from Doug Terreson of ISI Group. Please go ahead.

Doug T. Terreson – International Strategy & Investment Group LLC

Good morning everybody.

Greg C. Garland

Good morning.

Doug T. Terreson – International Strategy & Investment Group LLC

I have a couple of questions on refining; first, the Company has significantly increased the use of advantage crudes during the past couple of years with significant benefits. Well it maybe hard to know, I want to see whether Greg, can talk a little bit about how much running room that the Company might have in this area in coming years.

And then second, the unfavorable delta for secondary products seemed to increase in each of the major regions especially on the Gulf Coast and Central Corridor and I think Greg attributed this to rising feedstock cost. And so I just want to see if there is any additional color on that decline and also would note anything specific to those regions that cause them to be effective more than the others?

Greg C. Garland

So I’ll take a stab and then Tim, and Greg can kind of help answer the questions. So you think about the running room, we eventually get to 100% of advantage crude across the refineries. That’s some combination of getting more crude east and west because that’s where we still have the opportunities when you think about Bayway, and you think about the West Coast refineries.

Rail is the key piece of that. We are adding capabilities, we’re taking more cars by the end of this year, we think will have all the 2,000 cars in place that we’ve purchased. We are thinking about buying some more railcars. We certainly have a large project underway at Bayway to be able to unload at Bayway 75 a day. And so, we are trying to get Bayway position where we can get it on a pretty steady guide of Bakken and then we have the Jones Act vessels run Eagle Ford around to Bayway.

So, we are working that. The thing I would say is we’ve said this for a while, as we do think that crudes like LLS become an advantage crude for us on the Gulf Coast. And so by the day we would want to add in the 500,000 barrels a day of Brent based crudes they were running ultimately it becomes an advantage crude and I do think between what our sales and others are doing on the West Coast, we are going to pressure ANS prices and so ANS whether it be in a Brent based type crude it becomes an advantage crude.

So that partly is what the actions we’re taking, what the actions others are taking that put pressure on some of these crudes. And so I think we do get the 100% of advantaged crudes over the next couple of years.

Doug T. Terreson – International Strategy & Investment Group LLC

Secondary product?

Greg C. Garland

Yes, secondary product, so crude prices went up 8% to 12%. So WTI was up 12%, Brent is up 8% this quarter over the last quarter and our prices stayed flat for a while with the secondary products and so that’s when we saw with the compression.

Timothy G. Taylor

Primarily coke and NGL prices, Doug, did not keep up pace with the crude price.

Doug T. Terreson – International Strategy & Investment Group LLC

Okay. Thanks a lot guys.

Greg C. Garland

You bet.

Operator

Thank you. Our next question is from Evan Calio of Morgan Stanley. Please go ahead.

Evan Calio – Morgan Stanley & Co. LLC

Hey, good morning guys.

Greg C. Garland

Hi, Evan.

Evan Calio – Morgan Stanley & Co. LLC

Congrats on the FID, reaching FID. You’re getting approval by the Board in reaching FID in your ethane cracker in the Gulf Coast. Is there any discussion at this stage of what the CapEx, what the cost might be and how do you see the funding mechanism, and then also you talked about potentially sequencing a second cracker, I mean how does that fall into the timeline going forward?

Timothy G. Taylor

Yes, Evan, this is Tim Taylor. So in terms of the capital cost of the cracker and derivates complex in the Gulf Coast, we’ve said that were approximately $6 billion on that. So in terms of a second cracker project in the Gulf Coast, at CPChem they continue to look around the globe where to build a cost competitive advantage feedstock cracker. That’s key business for them and frankly the U.S. continues to look good. It maybe a little bit different in terms of feedstock slate to provide some flexibility, but as you look around the world, the North America – the energy market with NGLs continues to be a place where you could say that a second wave of cracker expansions of those supply continue to develop that makes sense.

So I think that that’s certainly there. The timeline for that, if you haven’t started that, it’s six years to seven years from the time that you begin conceptual thinking to actually getting in the ground. So you are pushing out probably toward the end of this decade, the very early part of next decade before you’d expect to see probably at this point another significant amount of cracker expansions in the U.S. Gulf Coast.

Evan Calio – Morgan Stanley & Co. LLC

Got it. My second question, on chemicals, you guys had a great quarter in chemicals. Could you give us a color how the Saudi cracker is performing versus your expectation drift and while U.S. ethylene chain margins have sustained over $0.40 a pound due to lower ethane prices, what kind of chain margins are you seeing or realizing at the Saudi cracker and how would they compare globally?

Greg C. Garland

So when you look at the Middle East versus North America on an ethane basis, it’s generally in the same ballpark slightly advantaged from that standpoint to the Middle East crackers typically.

So I’d say margins are good. The real challenge in the Middle East continues to be from the Saudi crackers specifically. We continue to experience some unplanned downtime related to shaking out and getting some technical issues resolved on that. So if margins are strong, demand is good globally for those products and so really it comes down to the operating rate and that’s been coming up, but we’re still not where we want to be.

Evan Calio – Morgan Stanley & Co. LLC

Okay. Good. And then lastly if I could, just any update on potential refining divestitures and you continue also just remind me of what kind of working capital release you’d realize if they were sold?

Greg C. Garland

So we continue to always abide with our portfolio and we’ve guided there. We said publicly that we’re looking at selling possibly our Whitegate refinery in Ireland and our interest in the Melaka refinery in Malaysia, and so those efforts continue. We’re in the process of evaluating specifically the opportunities around Whitegate. So I think those have been the pieces of portfolio for us that long-term are really where the strategic interest is.

Evan Calio – Morgan Stanley & Co. LLC

Any update on what the working capital release of Whitegate?

Greg G. Maxwell

Working capital release would be significant. So that’s a piece of what we look at in terms of the valuation.

Evan Calio – Morgan Stanley & Co. LLC

Okay, I appreciate you guys.

Operator

Thank you. Our next question is from Ed Westlake of Credit Suisse. Please go ahead.

Edward G. Westlake – Credit Suisse Securities LLC

Yes. Good morning. I just have a small follow-up. First on the supplementary products, I mean just on the yields of that sort of 15% that’s not clean products, I mean just a rough run-through of what the main products are. And then, on NGL price we can obviously track that, but coke pricing, is that sort of market based or is there a contract and do things re-price over time given that the spike in crude just to help us model the outlook.

Greg G. Maxwell

So it’s primarily LPG that comes out on the other products that comes out on the refining processes, but coke is clearly the byproduct so to speak of the coking operations. LPG prices are linked, as you know you can get a public marker on those, going back to NGL and the supply demand on the LPG market.

Coke, we have a couple of segments there. We have a specialty coke business, which is a high-valued business and that’s going on a very different basis than we also make other anode coke as well as fuel-grade coke, and clearly some of the fuel-grade coke is related to coal prices. So I think you get some idea of what happened in the coal market as natural gas continue to penetrate North America in that. So, coke prices tend not to move directly with the crude in the short-term. It’s just a variety of contract structures with that.

Edward G. Westlake – Credit Suisse Securities LLC

Great. And then some extra color, maybe I’ve just noticed it from the first time on your BX4 facility and the incremental EBITDA for chemicals, which is very helpful, thanks very much. But a broader question on logistics, I mean obviously you got PSXP, you’ve got your share of the Sand, Southern Hills. You’ve got $430 million of EBITDA coming when this Gulf Coast project comes on stream. Another big chunk I guess was going to be from sort of shifting the logistics in refining and marketing sort of more market based tariffs. Can you talk through how that is progressing and maybe any other logistics growth drivers that I’m sorry I haven’t mentioned in my question?

Greg C. Garland

We’ve got just a tremendous set of opportunities in that Midstream space, the large one as you mentioned were the frac opportunity and the LPG which were continuing to develop on the engineering stage, and committing substantial engineering dollars and long lead equipment items on that as we progress that toward FID which we would hope to be early next year.

So beyond that there is just a number of pipeline connections and smaller things that we’re looking at smaller projects that build on our base around both NGL and the refining part of our network. So smaller projects that can be executed a little more quickly, but the big driver in the midstream is that frac and export terminal. And so we just continue to see a whole opportunity to develop that logistics infrastructure around the NGL export gas base kind of opportunity, and being around for advantage crude into the front end of our refineries that Greg talked about as well as some opportunities on the refined product side.

And so I think I look at that and I just see substantial opportunity. As far as market based tariffs go, we’re continuing to progress that and we’re making those adjustments and you can see that show up this quarter in terms of the improvement that we’ve made. So I think we are pretty much through in our existing system with that as we progress that from a cost base system into a market base. So I think going forward the real growth in the midstream comes from our own internal expansion at Phillips 66 and then of course our interest in the DCP Midstream venture that we have with Spectra.

Edward G. Westlake – Credit Suisse Securities LLC

So just to be clear that the step up I guess in midstream 2Q to 3Q, a lot of that means that repricing is now done and that’s a good base from which to add only capital driven growth projects?

Greg C. Garland

Yes, we still continue to work through all those but largely that’s getting in place and so the real step up in terms of the potential comes from new pipeline connections, new opportunities and then these major capital projects we talked about.

Greg G. Maxwell

Great, and then maybe assets that are currently inside the refining expense whether it's rail unloading facilities or docks or items that are not in transportation today, that we may carve out of refining and put into the transportation in midstream segment.

Edward G. Westlake – Credit Suisse Securities LLC

Okay, great thanks very much.

Operator

Thank you. Our next question is from Doug Leggate of Bank of America Merrill Lynch. Please go ahead.

Doug Leggate – Bank of America Merrill Lynch

Well, thanks, good morning everybody. The capital guidance for maintenance, your guidance here I guess my question was really about what seems some of your peers get involved with to take advantage of some of the weak parts of the burrow on NGL, and then we are building out inflection point and so on. You guys have been fairly verse to putting new capital into refining. I'm just curious if there was any change of thinking there given how weak or so on a forward basis. And I have a follow-up to this?

Timothy G. Taylor

Okay. Thanks good morning. We're going to continue to ensuring capital and going in refining. I tell the guys that bring me all of the 40% return of projects you’ve got and we’ll fund those. We’ll fund the advantage crude, we are going to fund the infrastructure around exports and refining, but frankly we just have better opportunities in our higher value businesses around Midstream and Chemicals and we take refining free cash and sell it to those higher value businesses. I think you will see us be very consistent around that.

Doug Leggate – Bank of America Merrill Lynch

Okay. And my follow-up really relates to the West Coast, I guess you went through a period were West Coast got a little bit better there for a while, but periodically with regards to sales and others, talk about the challenges of operating in the market. So when you think about the broader portfolio migrating as you move forward, how is the West Coast standing up against the rest of the assets right now and I will leave you there? Thanks.

Greg G. Maxwell

We look at the West Coast and we see average assets in our portfolio. The net income positive or cash positive, single-digit return type for the most part you look over to [indiscernible] selling those guys, single point in time forecast are really dangerous in this business. So you want to be careful with that. But as we look at those assets that I would say that we're going to consider all options to increase value of those assets. And clearly for us getting an advantage crude in the front of those refineries is a big piece of the value equation.

Now I think the jury is still out on what happens with the Monterey in California. And if something happened there that would change our view and I think we would be open to joint venturing those assets, IPO-ing those assets, think about alternative structures for those assets. But first we’re going to put advantaged crude to the front of those and improve the performance of that. I’d say that we don’t feel pressure that we have to do something quickly on those assets. We can take our time and evaluate those assets.

Doug Leggate – Bank of America Merrill Lynch

If I can move to on a follow-on just on that issue, yesterday you had rather talked about how a potential environmental study could be there, we move to take advantaged crude to the West Coast. I’m just curious if you could frame for us how you see any timeline from a well’s [ph] perspective just how quickly you could effectively achieve that?

Greg C. Garland

Well, we’re certainly working on our own projects and we’re working with others. I would say that they are progressing. I think we have a high-level of confidence that we’re going to be able to address those issues and get those projects completed and underway.

Greg G. Maxwell

I would also say we are looking at multiple ways of getting crude into California, whether it’s unit train unloading or barge into both with AO and LA have water balloon capabilities. So we tried to attack it from a couple of different directions.

Doug Leggate – Bank of America Merrill Lynch

All right, thanks guys. I’ll let someone else jump. Thank you.

Greg C. Garland

Thanks.

Operator

Thank you. Our next question is from Jeff Dietert from Simmons. Please go ahead.

Jeff A. Dietert – Simmons & Co. International

Good morning.

Greg C. Garland

Hi, Jeff.

Jeff A. Dietert – Simmons & Co. International

You mentioned this morning that you’ve taken 1,270 of your 2,000 railcars and you’re expecting the remainder by the end of the year. Could you talk about the most optimal use of those railcars in the current environment? Is it mainly for going to Bayway or how are you planning on utilizing those cars?

Greg C. Garland

I think primarily we still see the railcars clearing northern production to the East and the West Coast. So our current thinking is that those railcars will be primarily in service to both Ferndale and into Bayway and as we developed the California options, I think some opportunities there as well. But really it’s more around using the railcars to access either Canadian and/or Bakken crude to move those into the coastal systems, primarily the East and the West.

Jeff A. Dietert – Simmons & Co. International

Thank you. And secondly, with LLS large Maya discounts as steep as they are in the Gulf Coast, are they being – you are trying to do to lock-in some of those benefits either in the Gulf Coast or perhaps shipping via barge to Bayway. How are you looking to take advantage of these discounts?

Greg G. Maxwell

Yes, I think that when we look to the broader system we continue to increase our use of Eagle Ford and crudes in our system, and so the marine opportunities exist for us to bring those crudes into Louisiana as well as around the Bayway as Greg referenced earlier. So I think it’s just increased the opportunity really around the marine movements to use those crudes in the Gulf Coast now up to East Coast finally.

Greg C. Garland

Philosophically as far as locking in margins or we typically don’t do that given the optionality of our system. We think that people own us for that exposure. It’s hard to know whether LLS widens or narrows from where it is today given all the factors that are on the market. So we typically don’t hedge crude diffs or market cracks.

Jeff A. Dietert – Simmons & Co. International

Thank you very much.

Operator

Thank you. Our next question is from Paul Cheng of Barclays. Please go ahead.

Paul Cheng – Barclays Capital, Inc.

Hey, guys, good morning.

Greg C. Garland

Hey, Paul.

Paul Cheng – Barclays Capital, Inc.

A number of quick questions. For 2014 the credit say $2.5 billion to $3 billion. Given the project that is currently on your paper, is that a reasonable range for the next three or four years?

Greg C. Garland

Yes.

Paul Cheng – Barclays Capital, Inc.

Or that is going to come down from there?

Greg C. Garland

Yes, I think it’s probably a reasonable range for the infrastructure that we see in front of us that we want to do. Essentially you’re going to incubate projects at the PSX level that ultimately probably get destined for PSXP until we can grow the scale in MLP to the point that they can either co-invest or can execute projects on its own, but, yes I would say. So I mean the frac and export facility, we think it’s $2 billion to $3 billion over the next two-three years.

You can get another $1 billion a year of capital spend on kind of what we’re doing now at $2 billion level. I mean that’s how we got to the guidance and we’re still working on that and we still need go to an approval process with our Board that at least we’re kind of exposing our thinking here, Paul.

Paul Cheng – Barclays Capital, Inc.

Okay. That’s good. Greg, will you be wanting that you tell us that – share with us what is the RIN benefit in your marketing in the quarter?

Greg C. Garland

Same answer as last time, Paul, but thank you for asking.

Paul Cheng – Barclays Capital, Inc.

All right. Try another one. Can you tell us that what is in the third quarter, volume of oil from well to your refinery in the East, the West and the Gulf?

Greg C. Garland

I’m sorry. The volume of oil…

Paul Cheng – Barclays Capital, Inc.

That was gained a rail to the East Coast, the West Coast or the Gulf Coast?

Greg C. Garland

Do we know – I know our rail capacity in third quarter is probably lower because of the Bakken…

Greg G. Maxwell

We ship less. We made less rail shipments to Bakken to Bayway in response to the closing there. That’s opening back up and so we’re ramping back up. Today, rail movements for us in total are probably a little less than 100,000 barrels. So clearly we are ramping up our capacity. So it’s kind of roughly in that ballpark of what we got.

Timothy G. Taylor

Yes, I think at one point we were railing around the 100,000 a day in the Bayway and we cut that to 30,000 barrels a day, I think in August through September. So obviously, 70,000 barrels a day of rail capacity. We took off and just put those cars on the siting and started importing West African or North Sea crudes.

Paul Cheng – Barclays Capital, Inc.

[indiscernible] should we assume that the fourth quarter average is going to be at least 50,000 barrel per day to 75,000 barrel per day higher in terms of the rail going, given how the substance or just the discount rates now.

Greg C. Garland

When we look at the differentials that’s going to drive…

Greg G. Maxwell

Yes, we’re returning to much more like we were in the second quarter.

Greg C. Garland

Expect those wells will start turning.

Greg G. Maxwell

Right.

Paul Cheng – Barclays Capital, Inc.

Okay. So is there any rough idea that how much is the increase we maybe talking? We’re talking about incrementally from the third quarter say 50,000 barrel per day or incrementally 100,000 barrel per day, any kind of rough number you can share?

Greg G. Maxwell

Yes. You’ve got both more cars and you’ve got wider diffs. But I think we’re always a little reluctant to talk about how much more we’re buying from any specific fields. We don’t think it necessarily helps us our commercial guys that are out there buying the crude. I think we’re comfortable in saying it’s going to be higher in the fourth quarter than the third quarter, but I don’t think we want to quantify how much of an increase that will be. I don’t see what you feel.

Paula Johnson

It’s Paula. It’s not a huge debt change, but it’s getting back more in line like I said in the second quarter.

Paul Cheng – Barclays Capital, Inc.

Can you remind me what was the second quarter warning?

Paula Johnson

I think when you look at those charts you get some idea of the light tight oil and it’s going back and we’re trying to grow that, but that’s what we’re talking about there. We don’t utilize that logistics capacity more fully to do that than we did. So that’s kind of where I’d like to refer you to is kind of take a look at that.

Paul Cheng – Barclays Capital, Inc.

Tim, when you buy the Bakken or the WCS you buy one month out right. So you essentially that by now we pretty much that know 2.5 month of the discount that you’re going to receive in the fourth quarter. Is that how you guys do it?

Greg G. Maxwell

Yes, we buy out. So our commercial group looks at the market fundamentals and makes that call and so I think we are clearly on the opportunity listed here in the fourth quarter pretty early. So we’re able to – I think they were ahead of that plan from our perspective on that.

Paul Cheng – Barclays Capital, Inc.

A final one, just hell of curiosity, I mean in October looked like with the lower re-price and also that their wholesale margin seems to be improving. Should we assume that from a re-finding margin capture rate standpoint third quarter, you hit the low point and fourth quarter should be substantially better than that.

Greg G. Maxwell

We’re reluctant to give guidance on capture rates, I think given where the prices are today, you would come to that conclusion but it’s hard for us to make a call on what fourth quarter capture.

Paul Cheng – Barclays Capital, Inc.

Diffs in October so far you’ve seen, is it much better than the third quarter?

Greg G. Maxwell

So diffs are definitely better but I would say the market cracks are down month to date. So it’s a tough one to sort your way through on that one Paul. So we are not giving guidance, I would just say you look at the month of October, what’s out there in terms of the market cracks they’re down versus third quarter, but diffs are much better.

Paul Cheng – Barclays Capital, Inc.

Okay, very good. Thank you.

Greg C. Garland

Thank you.

Operator

Thank you. Our next question is from Paul Sankey of Deutsche Bank. Please go ahead.

Paul B. Sankey – Deutsche Bank Securities, Inc.

Hi, good morning everyone.

Greg C. Garland

Good morning.

Greg G. Maxwell

Good morning.

Paul B. Sankey – Deutsche Bank Securities, Inc.

This seems plenty of pieces about your long-term strategy and individual components I guess I should say with the FID in the ethylene cracker and talking about rationalizing and refining. Can you give us an overarching target for 2017 in terms of whether you have a number or an idea of the balance of the business in terms of capital employed or how we should expect you to be managing this variety of strategic initiatives that you’ve talked about? Thanks.

Greg C. Garland

Yes, so in our presentations that we’ve been giving to investors that you seem clearly with the pie charts if you remember we want to see refining under 50% of our income, capital employed is a little difficult to measure because of the JVs and the way you count for joint ventures. But clearly when we think about income, we want to see a 30% to 40% refining, and we’ll see Marketing and Specialties, Midstream, Chemicals and the other 60% to 70% of our earnings call. And what we are trying to do is rather than the five year plan, how we get there in three years.

Paul B. Sankey – Deutsche Bank Securities, Inc.

Right, okay, that’s good, I just we’ve had various questions that you’re kind of addressing us. I just wanted to remain everyone of the overarching strategy. Also I wanted to ask a high level question before I ask a really nerdy one, which is on working capital is there a shift with the U.S. unconventional revolution that we should think about. The items that you gave, you have a big working capital number in this past quarter $1 billion shift, but it seems that the reasons for that were fairly mundane, I think you mentioned inventory and other fairly usual items.

I wanted if there is a biggest theme here in terms of the greater use of rail maybe the greater use of pipes and so on that might be a the theme if you like in terms of how working capital is going to shift of that obviously by potential disposals and that theme in terms of working capital? Thanks.

Greg G. Maxwell

Yes, Paul. This is Greg Maxwell. As part of our fundamental shift, I don’t see a big trend out there as far as the way our business is running. We did as we mentioned in our notes and as you saw in the chart, we did have about $1 billion source in working capital in the third quarter. So I mentioned in my notes, we think that that will turn a bit in the fourth quarter, $500 million to $600 million primarily as related to some tax payments, but if you look at the components of what drove that $1 billion, it was pretty much across all the elements of working capital.

For example, we had to draw in inventories in the third quarter, but more than offsetting that was an increase in our accounts payable and a lot of that was result of the – as we saw the crude prices going up that increased our payables slightly in the third quarter. So overall, I don’t see a real fundamental shift with regard to the levels of our working capital as we change our business processes.

Paul B. Sankey – Deutsche Bank Securities, Inc.

Yes, I got it. I mean, I guess that’s interesting. I think one theme is the idea that trains require less working capital than pipes?

Timothy G. Taylor

That is true.

Paul B. Sankey – Deutsche Bank Securities, Inc.

So you’d be more incentive to develop more train transport than pipe transport as a general rule?

Greg C. Garland

So a fairly small percentage, if you look at that compared to what we have in the pipes. So you are right as far as directionally which way it go, but I don’t think it’s a huge needle mover.

Paul B. Sankey – Deutsche Bank Securities, Inc.

Okay, that’s interesting.

Greg G. Maxwell

I will just say, you think about the 2,000 railcars, we can move 120 a day, we have a global deal, we can move 75 a day. So with the existing assets and infrastructure we have, we can maybe move 200 a day, 250 a day and then you think about all, we are moving 3 million barrels a day in our whole system.

Paul B. Sankey – Deutsche Bank Securities, Inc.

Right.

Greg G. Maxwell

Yes, and then of course it’s the whole MLP theme as well to think to about I guess in terms of.

Paul B. Sankey – Deutsche Bank Securities, Inc.

Yes, anyway, thanks a lot.

Greg G. Maxwell

Yes.

Greg C. Garland

Okay, Paul.

Timothy G. Taylor

Thanks Paul.

Operator

Thank you. Our next question is from Bradley Olsen of Tudor Pickering. Please go ahead.

Bradley Olsen – Tudor Pickering Holt & Co. Securities, Inc.

Hey good morning guys.

Greg C. Garland

Good morning.

Greg G. Maxwell

Hi, Brad.

Bradley Olsen – Tudor Pickering Holt & Co. Securities, Inc.

You guys have done a great job articulating a consistent strategy whereby you become larger in Midstream and Chemicals with refining staying flat or even potentially shrinking. So now just based on your comments earlier, it sounds as though, this could be more of a three to four year target referring to the pie chart that you put in your corporate presentations rather than a five plus year target.

Do the volatile capture rates that we have been seeing recently and some of the softness in gasoline and maybe the various view on refining as an industry that you’ve expressed pretty consistently over the last couple of years, lead you to start thinking about different assets as potentially being non-core, maybe even assets that are North American refining assets and maybe even some assets that are in the mid continent or the Gulf Coast region?

Greg C. Garland

Well, what I would say is we do like the refining business. As you think about it we got here this quarter, but we got there because we didn't make any money in refining. So that’s not the way we want to get there. But when we look at our assets around the Midcontinent and Gulf Coast, we think those are pretty good assets, and long-term those assets will probably be in our portfolio, because if we think about West Coast and East Coast and U.S, it is not necessarily true, Atlantic Basin is a very challenging place if you well know.

We think Bayway is a great asset and a challenged market. You think around the rest of portfolio, our Humber assets is a great asset that needs especially great need of coke, we did good returns out of that, draw a circle around our European operations, excess of 30% the return on capital employed. So that is a good solid business for us.

If you look at that, 30,000 feet the market that we are in North America and Europe aren't going to be growing market, in fact they're probably declining markets. And so the opportunity to employ capital and make a good return on that is just more difficult. I’d rather move into the higher valued businesses in midstream in chemical and we have been pretty consistent about that. But we are always going to look at our portfolio and optimize the portfolio.

Bradley Olsen – Tudor Pickering Holt & Co. Securities, Inc.

Okay, great. And maybe just a quick follow-up on that, the East and West Coast comments that you made, given the fact and I appreciate that you intended it in the kind of tongue-in-cheek way, but when we are in the margin environment we're in today, you made the point that our earnings contribution is not so meaningful, and so I guess my question is on the East and the West Coast where you have assets that are maybe non-core long-term, is it easier to let those assets go in a market that you think will be challenged or does it make you more inclined to hold onto those assets before another, however long it takes until we're back in a margin environment where you can maybe get a higher price for those assets.

Greg C. Garland

Well, I think in any time we look at an asset and we’re going to let an asset go, if we go to get value for PSX shareholders. It has to be tax efficient in terms of the transaction itself. And we look at these assets East and West Coast, we’ll put in advantaged crudes, so that we think we can make them better and drive more value ultimately and optionality that thing, we look at these assets both east and west, we don’t have to put a lot of money into these assets.

The option value to hold on is not high for us and again they are generating positive cash or generating maybe single-digit returns, but they are adding value to the portfolio overall. So we don’t feel like there it is stressed assets, we just have to move today. So we’ll hold them for some option value. We’ll consider multiple ways to create values with these assets, but in the mean time we’re going to work to make them better.

Timothy G. Taylor

I think the focus, Brad, of getting this to portfolio where less than half of our income is coming from refining really is, the focus is how do we grow midstream and chemicals rather than how do we shrink refining. I think that’s the – and refining capacity maybe lower in the future than it is right now, but there’s a lot going on in to growing our midstream business more quickly and while competing in the refining sector as well.

Greg C. Garland

And maybe just one more thing, I mean we see opportunity to improve the base refining. We’ve been out there saying we think there is 200 basis points of improvement mostly [ph] by getting advantage crude, managing our costs, pushing our yield and so we still have room to improve our base refining business.

Bradley Olsen – Tudor Pickering Holt & Co. Securities, Inc.

Okay, great. And if I could, that served as a pretty good segue into my second question, which is more on the midstream side. You’ve spoken quite a bit about the organic project swipe that you’re looking at and the significant CapEx outlays over the next few years on the midstream side. And the projects at least to date between large projects like the export facility and smaller projects like the Galena Park pipeline that you recently announced, they tend to leverage off of the existing downstream footprint. Do you think or when do you think we’ll see PSX midstream start looking more at projects that step outside of the downstream footprint and would you be willing to look at developing or even potentially acquiring significant midstream assets that are outside that footprint?

Greg C. Garland

Well, I think the answer is yes. I think ultimately you have to look at that. One of the things we’re really blessed with is we have a portfolio of great projects that touch the existing assets and infrastructure and those are going to be the best returns. We’ll move on those first. You look around the midstream space today. Things look a little expensive to us as you look at valuations, but we would never say we will never do something in that space, but clearly we look at that opportunity set as a existing portfolio, there is lots to do.

Bradley Olsen – Tudor Pickering Holt & Co. Securities, Inc.

Okay, great. And just one quick follow-up on the midstream side, there was recently a transaction where a large SEACOR basically almost recapitalized an existing midstream company with an asset contribution and so maybe found a way around some of the high valuations of some of the assets that are out there in the market. Have you thought about different structures either using PSX or PSXP to maybe consolidate with one of the existing players or even consolidate the remaining 50% of DCP to kind of jump-start some of the midstream growth asset you’ve guided to over the next few years?

Greg C. Garland

Yes, I think we look at all those options, but clearly we have a – the MLP we form today at PSX is small and the organic growth opportunities were large here. So I think it’s a very synergistic relationship, but yes, you can use that vehicle to increase your presence over time. So I think as Greg said, we’re always looking at that opportunity, but we’ve got that forward-looking opportunity there and then we got a huge portfolio from an organic or drop-down perspective as well.

Bradley Olsen – Tudor Pickering Holt & Co. Securities, Inc.

Okay, great. That’s all from me. Thank you.

Operator

Thank you. Our next question is from Roger Reed of Wells Fargo. Please go ahead.

Roger Read – Wells Fargo Securities LLC

Yes. Good morning. Thanks. I guess to follow-up a little bit on the last question line on the clean products, I mean some of your competitors are investing somewhat more aggressively and the ability to get to the distillate side of the barrel and your split is close to 50/50. But I was wondering within your parameters, the specific ROCE required and obviously a desire not to spend too much money here, is there anything we should expect in terms of further clean product yield increases or more of a maybe favorable switch to distillate versus gasoline given where the obvious margin differences are here today?

Greg C. Garland

So we look at our portfolio. We’re kind of industry-leading distillate yield today. As we look at the investments that will be required to really move the needle a lot on that it’s a lot of money. And so I don’t think we want to make that kind of investment. We do think and now do have in our plans small changes in operations, optimization and maybe some very small capital projects. We think we can push yields another 1% or so within our existing portfolio without spending a lot of capital and I think that’s our plan at this point.

Roger Read – Wells Fargo Securities LLC

Okay. And then, could you refresh us the contract you got on the two Jones Act tankers to move crude from the Gulf Coast up to Bayway? Between that and the rail, what is kind of the daily ability to deliver some sort of disadvantaged – price advantage crude – discounted crude into Bayway at this point or if you haven’t actually done it, what’s kind of the theoretical daily capacity at this point.

Greg C. Garland

All right, it’s one of the optimization refinery. We pushed up over 100,000 from time to time and it’s a 250,000 barrel a day approximately refinery. So I think it’s really about the logistics and we’ll keep pushing north of that as we look at the opportunity that really is around the value of the crude slates and we optimize that, but the crudes that we’ve got from the Bakken and Eagle Ford are actually a pretty good fit in Bayway. So we’ve got a pretty healthy appetite hence you’ve seen the investment that we got underway at Bayway rail unloading and we certainly have the capability from a marine standpoint to bring a lot of barrels into that facility that way.

Roger Read – Wells Fargo Securities LLC

So can you get to the full 250,000 barrel a day or you can always be a little bit dependent on some sort of an imported barrel there?

Greg C. Garland

Yes, I mean I think we’ll just optimize and if the sources develop then I think you can push that. It’s just a question of what’s the right grade, but I think Bayway very likely will have some component of imports for the foreseeable future.

Roger Read – Wells Fargo Securities LLC

Okay. Well that’s it from me. Thank you.

Greg C. Garland

Thank you.

Operator

Thank you. Our next question is from Faisel Khan of Citigroup. Please go ahead.

Faisel Khan – Citigroup Global Markets Inc.

Yes. Hi. Thank you. Good morning. I want to ask you a question on Wood River. I believe well your partner is talking about kind of may be potentially increasing the amount of crudes to pass heavy crude capacity into that joint venture. Can you just give us an update where you guys stand with that project or if it’s potential project in the future?

Greg C. Garland

Yes, it’s a potential project and it’s really looking at ways to utilize fully that system. So, I think we’re always interested in those higher returns, debottlenecks that did make sense there and so I think we’re continuing to work definitely in the engineering side to try and find a way to increase the use of those heavy crudes and the advantage that we seek with that.

Faisel Khan – Citigroup Global Markets Inc.

So would that be kind of a big ticket project, I mean always it’s a kind of modest sort of amount of capital development?

Greg C. Garland

Yes, it’s not anything at all like the revamp that we went through Wood River runs heavy crudes. This is much more incremental optimization kind of stage show. This is looking at the bottlenecks and thinking about where we can find capacity and ways to handle lights perhaps in the heavy crude.

Faisel Khan – Citigroup Global Markets Inc.

Okay. And then I was wondering if you can also kind of give us an idea of how do you think maybe sort of butane blending is affecting for the seasonality of gasoline margins. So obviously as we go into the winter season you increase butane blending, is there I was seeing kind of increased sort of seasonality in the margin because of kind of lower butane prices versus oil prices or is it kind of relatively the same versus last year?

Greg C. Garland

Well, certainly the winter seasons here, so butane blending and the lights going in swells of gasoline pool with that and it is economically attractive to do that now. So yeah, I think you’re back into normal pattern where you will see butane blending being economically driven at this point.

Faisel Khan – Citigroup Global Markets Inc.

So nothing different from last year in anyway?

Greg C. Garland

No.

Faisel Khan – Citigroup Global Markets Inc.

Okay, got it. And then last question from me, on DCP Midstream, I mean given that you guys now have sort of your own MLP, you have your own assets, does it make sense at some point in time to maybe float DCP that you – you inspect for the float DCP as a separate entity. I mean it looks like overtime, you guys might compete with each other within the industry and I am just trying to figure out whether that’s compatible with DCP’s long-term goals and sort of your long-term goals in the Midstream sector?

Greg C. Garland

Yes, so I mean, we looked at DCP, the premier gas gathering NGL producer in the industry. I mean they’re the largest gas gatherer. They are the largest producer of natural gas liquids. We look this as a [indiscernible] going on 14 years, it’s been a great relationship, we’ve got a great partner respect there, they’re talented people, we like them and we see lots of runway left at DCP. And so we want to continue to have a exposure in DCP into the future.

There is lots of ways that we can create value at DCP and I will just say that those conversations are ongoing between the partners all the time as we’re looking at multiple options and how do we create more value for both SE and PSX.

Faisel Khan – Citigroup Global Markets Inc.

Okay. And the only thing I am asking is, because you recently had this general partnership of planes go public at a very high evaluation. So obviously DCP is sort of fits that, one of those entities that overtime could be a pure play GP. So I am just trying to understand how you are thinking about, is in the market dynamics and how it effects your – the process here?

Greg C. Garland

Yes, I think, I mean we are aware of that transaction and so I would say, we are considering multiple avenues for value creation at DCP.

Faisel Khan – Citigroup Global Markets Inc.

Okay, great. Thanks guys, I appreciate the time.

Greg C. Garland

You bet.

Greg G. Maxwell

Christine, we need to – we’ve kind of gone over the hour here. I know that there are people still on the line waiting to ask questions. We are just – I am certainly available, Rose is available after the call, if you’d like to call in, but I think we need to stop the call right now. I appreciate everybody’s interest and good questions and look forward to seeing and talking to you all very soon. Thank you.

Greg C. Garland

Thank you.

Operator

Thank you. And thank you ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.

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