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Phillips 66 (NYSE:PSX)

Q2 2012 Earnings Call

August 01, 2012 11:00 am ET

Executives

Clayton Craig Reasor - Vice President of Investor Relations, Strategy & Corporate Affairs

Greg C. Garland - Chairman, Chief Executive Officer and President

Greg G. Maxwell - Chief Financial Officer

Analysts

Edward Westlake - Crédit Suisse AG, Research Division

Mohit Bhardwaj

Douglas Terreson - ISI Group Inc., Research Division

Paul Sankey - Deutsche Bank AG, Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Blake Fernandez - Howard Weil Incorporated, Research Division

Jeffrey A. Dietert - Simmons & Company International, Research Division

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Evan Calio - Morgan Stanley, Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Operator

Welcome to the Second Quarter 2012 Phillips 66 Earnings Conference Call. My name is Sandra, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded.

I will now turn the call over to Mr. Clayton Reasor, Senior Vice President of Investor Relations, Strategy and Corporate Affairs. Mr. Reasor, you may begin.

Clayton Craig Reasor

Good morning, and welcome to the second quarter earnings conference call. We appreciate your interest in our company and are looking forward to giving you details on our financial operating results, update you on a few of our key strategic initiatives and provide an outlook for the rest of this year.

With me this morning are Greg Garland, Chairman and CEO; and Greg Maxwell, Executive Vice President and CFO. Our presentation material and supplemental information is available on the Investor Relations section of the Phillips 66 website. As promised, we've increased the amount of disclosure and granularity in our reporting to help you model future earnings and see the value of Phillips 66.

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

Before we have Greg Maxwell get into the second quarter results, we thought it would be great if Greg Garland would give a welcome to you all and give a few opening comments. Greg?

Greg C. Garland

Thanks, Clayton. Good morning, everyone. And thanks for joining us this morning. Today, we report out our initial quarterly results since the formation of Phillips 66. We're off to a solid start. The spend transaction was executed flawlessly. We think it's a real tribute to the dedication and the capability of our Phillips 66 employees. We are delivering on the financial and operating results we expected when the company was put together. And I'm really proud of what our employees have accomplished so far and have absolute confidence they will deliver industry-leading value creation. We have a clear strategy for growth, margin expansion and returns enhancement. And we think with the right balance between disciplined reinvestment and shareholder distributions, we expect our return on capital employed to improve over time. Our approach to capital allocation and balances are objectives for earnings growth while returning capital to shareholders. And we're demonstrating our commitment to shareholder distributions with the announcement in June regarding our first dividend, and this morning's announcement of a $1 billion share repurchase program.

We feel strongly that our strategy around returns, growth and distributions is the right one for our company, and we have advantaged assets, organizational capability and the opportunity set and commitment to drive differential value creation.

As Greg Maxwell reviews our second quarter results, you're going to hear that we operated with excellence, we ran well at high utilization rates and turned in a solid financial performance for the quarter, in what we've described as a positive margin environment.

So I'll now turn the call over to Greg, who will take you through our second quarter results.

Greg G. Maxwell

Thanks, Greg. Good morning, everyone. I'll get started with Slide 3. We successfully completed the separation with ConocoPhillips and began operating as an independent company on May 1. Our second quarter financials include 1 month of carve out financials and 2 months of actual financials. The financials for April were prepared on the same basis as our Form 10 and our first quarter 10-Q.

As stated in our earnings release, we had reported net income of $1.2 billion and adjusted earnings of $1.4 billion. The $236 million difference is attributable to special items including impairments and gains on the asset sales. On an adjusted basis, earnings per share for the quarter were $2.23 per share. Cash from operations was $1.4 billion and our year-to-date annualized return on capital employed was 18%.

Now, let's turn to Slide 4 for a high-level look at our second quarter earnings. Refining and Marketing generated $1.2 billion in adjusted earnings. The $437 million improvement was primarily driven by much stronger refining margins, particularly in the U.S. Mid-Continent and Europe. Midstream adjusted earnings were $79 million, which excludes the $170 million special item associated with the impairment of our investment in the Rockies Express Pipeline.

On an adjusted basis, Midstream earnings were $32 million lower than the second quarter of last year. The decline in earnings reflects a reduction in equity earnings from DCP, which was primarily driven by lower NGL prices.

Chemicals adjusted earnings were $242 million, and this excludes a special item of $35 million associated with the early retirement of $600 million of debt. Adjusted earnings improved this quarter by $52 million, primarily due to higher margins and lower utility costs. I'll go through each of these operating segments in more detail later in the presentation.

Corporate and Other costs this quarter were $89 million after adjusting for repositioning costs of $30 million. Our Corporate and Other segment consists of interest expense, staff costs, technology and other items not specifically identifiable to an operating segment. Details on our Corporate segment can be found in the appendix of this presentation.

Next, let's take a look at cash flow for the second quarter as shown on Slide 5. I'll back up for a moment and remind you that our March 31 restricted cash balance of $6.1 billion includes $5.8 billion in senior notes that we issued in March. In April, we closed the financing on a $2 billion 3-year term loan, which brought our total debt balance to $8 billion.

As part of the separation, we made a net distribution of $6.1 billion to ConocoPhillips which has, as shown on the slide, effectively resulted in Phillips 66 starting out with $2 billion in cash. During the second quarter, we generated $1.4 billion in cash from operations with a minor cash impact related to net working capital changes.

We generated proceeds of $234 million from asset sales, primarily from the sale of our Trainer Refinery. And our capital program this quarter was $270 million and was largely focused on the Refining and Marketing segment. This resulted in $3.1 billion in cash and cash equivalents at the end of the second quarter.

Let's turn to Slide 6 for a look at our capital structure and returns. At the end of the second quarter, we had $19 billion in equity and $8 billion of debt, for a debt-to-total-capital ratio of 30%. Our year-to-date annualized return on capital employed of 18% is up from 14% in 2011. This improvement is driven primarily by higher earnings in our Refining and Marketing segment and our Chemicals segment. And we ended the quarter with $27 billion in capital employed, of which R&M represented 76% of this total.

Next, we'll cover each of our segments in more detail, starting with Refining and Marketing, beginning on Slide 7. The story in Refining and Marketing this quarter was that we ran well during a strong margin environment. We ran globally at a 93% utilization rate, which is the highest second quarter rate we have achieved since 2008. We also maintained a high clean product yield at 84% and realized higher margins in our Refining, Marketing and Lubricants businesses. Our Refining realized margin of $12.56 per barrel is the highest since the second quarter of 2007, and our year-to-date annualized return on capital employed has improved to 17%.

Let's turn to Slide 8 and look at the Refining and Marketing adjusted earnings. Adjusted Refining and Marketing earnings of $1.2 billion reflect significant improvements in our Atlantic Basin Europe and Central Corridor regions, as well as U.S. Marketing, Specialties and Other.

In the Atlantic Basin Europe region, earnings increased due to improved margins and lower controllable costs. Margins improved largely as a result of higher market crack spreads, while controllable costs were lower, primarily, because of the absence of operating activities at our Wilhelmshaven and Trainer Refineries.

Earnings in the Gulf coast were fairly flat as improved clean product margins were offset by a less of a feedstock advantage, reflecting the narrowing LLS Maya differentials.

The Central Corridor improved significantly this quarter due to higher margins, reflecting our advantaged feedstock position in this region. The WCS discount to WTI and the increased amount of heavy crude processed at our Wood River Refinery following the completion of the CORE project drove the feedstock advantage this quarter.

The Western Pacific region was lower this quarter as positive secondary product impacts were more than offset by less of a feedstock advantage, along with inventory impacts.

Other Refining benefited from gains associated with Canadian crude imports as we were able to utilize our pipeline transportation capacity to take advantage of favorable WCS to WTI spreads.

Results for this quarter also include foreign exchange gains that are not directly attributable to one of our other regions. From an overall Refining and Marketing perspective, the foreign currency exchange impacts this quarter represented a modest loss.

U.S. Marketing, Specialties and Other improved by $67 million due to higher fuel and Lubricant margins which were partially offset by higher costs. While internationally, earnings in Marketing, Specialties and Other were comparable to the same quarter last year.

The next 2 slides highlight our performance in Refining.

As we turn to Slide 9, adjusted earnings increased $353 million this quarter. Improved margins were the key driver with higher market cracks and secondary product margins being the only offset by less favorable crude differentials. Additionally, lower natural gas prices this quarter resulted in lower utility costs and were a key driver in the lower overall operating costs.

Let's take a look at our market capture on Slide 10. Here, we look at our global market and realized crack spreads. Overall, the market crack was very favorable this quarter. Our realized margin of nearly $13 per barrel indicates that we captured 70% of the market crack this quarter, and we capitalized on these favorable margins by operating at a 93% utilization rate. The market indicator margin in the second quarter was $17.85 per barrel and assumes a 100% clean product yield.

As you can see, our actual clean product yield in the second quarter was 84%, which creates the $3.03 adjustment shown on the slide. The $5.32 reduction from secondary products reflects the fact that the non-clean products we produced attracted a sales price, which on average, was less than the cost of our benchmark crudes.

The feedstock advantage stems from running crudes and other processed inputs that are priced lower than our benchmark crudes. Our feedstock advantage this quarter was primarily related to the Canadian heavy and foreign sour crudes that we processed.

The other category which contributed to our realized crack of $12.56 per barrel for the quarter primarily reflects the impacts from volume expansion. In the appendix, we have also included updated market indicator crack spreads for each of our regions.

So move to Slide 11. In addition to running at a high utilization rate, this slide shows our progress in being able to increase our advantaged crude runs at our refineries while improving our clean product yield to over 84%. Advantaged crudes increased from 47% in 2011 to 52% year-to-date in 2012. This is primarily driven by an increase in Canadian heavy crudes, as well as domestic WTI price links streams, including an increase in the amount of shale crudes that we processed. For example, year-to-date, we've averaged throughput of 120,000 barrels per day of shale crudes.

Many of our refineries have the complexity to run price-advantaged Canadian crudes and we have access to multiple pipeline systems to reliably deliver these crudes to our inland U.S. refineries and this results in a competitive advantage.

Moving to Slide 12. Marketing, Specialties and Other generated adjusted earnings of $334 million, an increase of $84 million from the same quarter last year. The improvement was driven primarily by higher margins across major product lines. On the fuel side, U.S. wholesale margins improved due to a steep decline in spot -- a huge decline in spot-based product costs, which fell more rapidly than posted product prices. Our Lubricants business also generated improved results as product costs stabilized during the quarter, compared with the rapidly rising costs in the second quarter of last year.

The next slide shows our per barrel metrics. Refining and Marketing's income per barrel improved this quarter to $4.37 per barrel while the cash contribution increased to $5.19 per barrel. These results are reflective of R&M running well this quarter and a very strong margin environment.

This completes our review of the Refining and Marketing business or segment. Next, we move to the Midstream segment beginning on Slide 14.

Our Midstream segment was impacted this quarter by reduced equity earnings from DCP Midstream, offset by inventory gains in our other Midstream businesses. However, year-to-date annualized return on capital employed continues in line with last year's performance at 30%. We ended the quarter with $1 billion in capital employed in our Midstream segment. As mentioned earlier, we recorded an after-tax noncash impairment of $170 million related to our equity investment in the Rockies Express Pipeline.

As we move to Slide 15, Midstream's adjusted earnings of $79 million were comprised of $42 million in earnings associated with our interest in DCP and $37 million from our other Midstream businesses.

Slide 16 provides additional variance explanations for both our DCP and our other Midstream earnings. As shown on the top portion of the slide, earnings associated with our interest in DCP decreased by $48 million this quarter, mainly due to DCP's exposure to commodity prices. This was partially offset by a reduction in depreciation expense attributable to an overall increase in the remaining useful lives of DCP's assets. Volume mix was also favorable this quarter as DCP processed more liquids-rich volumes and a low dry gas. Our other Midstream business improved by $16 million. Inventory related gains primarily contributed to this improvement.

Shifting discussion now to our Chemicals segment, beginning on Slide 17.

Earnings for the Chemicals segment consists of our 50% equity interest in Chevron Phillips Chemical Company, or CPChem. CPChem had another great quarter. It's best quarter ever, with adjusted earnings of $242 million. Strong performance was driven by improved margins along with lower utility costs. Year-to-date, annualized after-tax return on capital employed increased to 30%, up from 28% last year, and we ended the quarter with $3.3 billion in capital employed in the Chemicals segment.

The next 2 slides provide more detail on Chemicals' earnings. This quarter, adjusted earnings increased by $52 million compared to the same period last year. The increase in earnings was primarily in Olefins and Polyolefins, partially offset by increased income taxes accrued by Phillips 66 on the equity earnings from CPChem. And this was primarily driven by the mix of foreign and domestic earnings.

Slide 19 provides additional details on CPChem's operating segments. Olefins and Polyolefins generated income of $245 million in the second quarter. The $62 million increase was due primarily to increased ethylene and polyethylene margins and lower utility costs as a result of reduced natural gas prices. Specialties, Aromatics and Styrenics earnings increased by $5 million compared to the same period last year, and this was due largely to improved benzene margins.

This concludes our discussion of the financial and operating results for the quarter. Next, I will provide you with some outlook items for the remainder of 2012.

In Refining and Marketing, we expect our global utilization rate to be in the mid 90s and our pre-tax turnaround expense of approximately $145 million over the second half of the year.

In Midstream, the majority of capital expenditures, depreciation and interest will be incurred by DCP. For 2012, we estimate DCP, on 100% basis, will fund the capital program of approximately $2 billion, with depreciation and amortization of $300 million and net interest expense of $170 million.

In Chemicals, we estimate that CPChem, on a 100% basis, will have capital expenditures and investments of approximately $1 billion in 2012, with depreciation and amortization of roughly $260 million and net interest expense of $10 million to $15 million. CPChem expects to complete the repayment of its remaining $400 million of senior notes during the third quarter of this year.

Corporate and Other is expected to be at costs of about $125 million per quarter for the remainder of the year, including after-tax interest of about $50 million per quarter.

Guidance for Phillips 66 for 2012 is capital expenditures of $1 billion to $1.5 billion with depreciation and amortization of $900 million. Our corporate tax rate is a function of mix, largely dependent on the amount of U.S. versus international earnings, and we expect our adjusted effective tax rate to be around 35% for all of 2012. And finally, Phillips 66 does not have any debt maturities coming due in 2012.

We can now turn to Slide 21 and I'll hand the call over to Greg Garland to take you through an update on how we are advancing our strategic initiatives. Greg?

Greg C. Garland

Thanks, Greg. Well, as we execute our strategy, we remain focused on our initiatives to enhance return on capital, deliver profitable growth and grow shareholder distributions. We're also committed to operational excellence and creating a great place to work. We continue to improve our metrics around personal and process safety, and environmental stewardship. As we said, we plan to reduce costs by eliminating spin-related di-synergies by the end of 2013 and we set a target of $200 million. We're also working hard to create a great place to work for our employees. We value our employees, we want to have a place of mutual respect and collaboration.

We completed the sale of the Trainer Refinery and we'll continue to work to optimize our portfolio. We did make the decision not to sell Alliance. We have a positive view on domestic Gulf Coast crudes to becoming an advantage feedstock, and we think as this plays out, Alliance will create long term value in the portfolio.

Earlier, you saw our crude slate, which demonstrates the progress we've made on getting advantaged crudes into our refineries. We continue to work this hard because every dollar we can save on feedstocks significantly improves our bottom line results. Crude and energy is greater than 70% of our cost structure. It's the single biggest lever we have to improve value.

Some of our initiatives in this area, we've talked about the railcar acquisition, to get 2,000 railcars, but we've also worked agreements to allow us to more efficiently load and unload crudes at both the source sites and the refinery. We're also expanding our own infrastructure. For instance, to bring Mississippi line crude into our Ponca City refinery. And we'll work other deals in other areas to get more advantaged crudes to the front end of our refineries.

Besides crude advantage, we're working to improve access to exports. So far this year, we've increased our capacity to export about 14,000 barrels a day, so we have a current capability of 130,000 barrels per day. We're progressing in about 4 different projects that are expected to increase our export capacity to over 220,000 barrels a day by the end of next year.

We have some key growth projects underway in Midstream and Chemicals. In Midstream, DCP is progressing its NGL logistics and gathering and processing projects. 2 big pipes. One is the Sand Hills Pipeline that run from the Permian, in the Eagle Ford to Mont Belvieu, 720-mile, 20-inch line. Initial capacity of 200,000 barrels a day. We can expand it up to 350,000 barrels a day. The Eagle Ford section is expected to be operational in the third quarter. This is about a $1 billion project.

The Southern Hills pipe really runs from the MidCon to Belvieu. This pipe's targeted capacity over 150,000 barrels a day of NGLs. About $1 billion of investment. Completion expected in mid 2013. Both these pipelines, once in service, will contribute to fee-based margins to DCP.

DCP is working on the Eagle plant in the Eagle Ford. It's a 200 million cubic feet per day gas processing facility. It's expected to be up in the fourth quarter. Also have other gas plants in construction. The LaSalle plant at the DJ Basin, Rawhide plant in the Permian and the National Helium upgrade in the Granite Wash, all scheduled for start up in 2013. In total, we expect DCP will spend between $4 billion and $6 billion in 2012 and 2014.

In Chemicals, CPChem has a 35% ownership interest in Saudi Polymers Company. This project was formed to execute a major petrochemicals project in Saudi Arabia. The facility will produce ethylene, propylene, high-density polyethylene, polypropylene, polystyrene and 1-hexene. Start up activities are in progress with commercial production expected in the near future. This facility will have an annual capacity of 1.2 million metric tons of ethylene and 1.1 million metric tons of high-density polyethylene. In the current environment, we expect this project will increase Chemicals segment's earnings by 10% to 15%.

CPChem is also expanding its fractionation capacity at Sweeny by 22,000 barrels a day, so total capacity will be 138,000 barrels a day. Expect completion of this project in the first quarter of 2013. This is roughly a $100 million investment.

CPChem is starting construction on a 1-hexene plant at Cedar Bayou facility. This plant will utilize CPChem's proprietary 1-hexene technology. Annual capacity of 250,000 tons. It will be the largest of its kind in the world. We expect start up in the first quarter of 2014.

CPChem also continues to progress efforts on its U.S. Gulf Coast petrochemicals project. This project includes a 1.5 million metric ton per year ethylene cracker at the Cedar Bayou facility and a 1 million metric ton per year polyethylene plant, which will be built adjacent to CPChem's Sweeny facility. Polyethylene capacity will consist of 2 plants that would both use CPChem's proprietary technology. This final project's approvals are expected in 2013, start up 2017.

As part of our plans to increase distribution to shareholders, our Board of Directors declared a $0.20 dividend to be paid in the third quarter. We expect to have modest dividend increases in the range of about 5% a year. We want to look back in 10 years and say, we increased the dividend every year at this company.

This morning, we announced that our Board of Directors had approved the repurchase of up to $1 billion of our outstanding common shares. The shares are going to be repurchased from time to time in the open market at our discretion, subject to market conditions and other factors. We plan to hold the shares of stock as treasury shares.

So all in, I think we had a solid quarter. We ran well. We generally had improved margins going for us. I'm proud of the employees. There was an immense amount of work done behind the scenes to get the new company up and running. Our employees didn't take their eye of the ball. They executed well. They turned in excellent results, from operational excellence to very disciplined management of the business in all aspects of the business.

So with that, we'll conclude and we'll open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question is from Ed Westlake from Credit Suisse.

Edward Westlake - Crédit Suisse AG, Research Division

So, I think a lot of questions are going to be focused on trying to understand the earnings outlook. So maybe just start with 1 small question on Chemicals. You mentioned the 1-hexene plant. Could you give us a sort of an idea what the investments in that plant so we can think about the contribution it might make to cash flow ... ?

Clayton Craig Reasor

But Edward, that's a proprietary technology for us. And we typically have not given out the investment in that. We think it is the best route in the industry to make 1-hexene. We have those facilities up and running in Qatar today. Just starting one up in Saudi Arabia. This will be our third such facility.

Edward Westlake - Crédit Suisse AG, Research Division

And just to confirm on the Saudi cracker, you said 10% to 15% uplift to the CPChem overall earnings, is that?

Greg C. Garland

Correct.

Edward Westlake - Crédit Suisse AG, Research Division

Right. And just on the plans to increase advantaged crudes. Obviously, we've seen your investment in the railcars, but maybe help us walk through where those crudes might go or in fact, if you think of the different U.S. regions, the types of barrels that you may be able to add into each region, which is advantaged?

Greg C. Garland

Yes. So, kind of year-to-date, we've increased our exposure to the TI-linked crudes obviously. 120,000 barrels a day of shale crudes. We've also increased Canadian heavy by about 33%. We're running about 205,000 barrels a day of Canadian heavy today. About 60,000 barrels a day of Canadian medium light. And then -- about 225,000 barrels a day of other WTI or TS-related crudes. So that's 600,000 barrels a day where I'd say TI-linked crudes. On the heavy, we are running -- the heavy asset, Latin American heavy, about 471,000 barrels a day. So actually, about 50,000 barrels a day reduced in this area. And we've also reduced our exposure to Brent-related crudes by about 165,000 barrels a day all in. So, as we think about where can we move crudes, we want to move the shale crude from 120,000 to ultimately 450,000, 460,000 barrels a day. And we're trying to get those crudes to every refinery we can. But clearly, to Ferndale on the West Coast, Bayway on the East Coast. We think Ferndale can probably run 50,000 barrels a day of Bakken crude. Wood River, we can run up to 90,000 to 120,000 barrels a day of shale-type crudes there. Ponca about 60,000 barrels a day. Bayway, 100,000 barrels a day of shale-type crudes that we can advantage, that we can move into Bayway. Smaller, Rodeo, we can get in 30,000 barrels a day. And Sweeny about 40,000 barrels a day. And then Alliance, we're running today, Eagle Ford crude and some Bakken crude in Alliance. But ultimately, 50,000 to 90,000 barrels a day. So we have a plan to get advantaged crude into most of our refineries, Ed.

Edward Westlake - Crédit Suisse AG, Research Division

And final one on that topic. Most of that is related to rail or are you going to be doing some sort of lower-cost -- I mean, rail is $12, $13 or so, if that's the right number, but some lower-cost numbers are on other forms of transport?

Greg C. Garland

No. Absolutely. So what I mean, we're down to 2,000 cars, that gets us about 120,000 barrels a day of capability. And that can go east or west out of Bakken. There's other areas and other shale plays that we're looking at rail to get to the front end of refineries. We're looking at making investments around P66 infrastructure. For instance, in gathering systems and/or trucking in the Mississippi Line to get advantaged crude into Ponca, we're looking at connecting to other pieces of pipe that are coming north, south, to get more Canadian heavy into some of our assets. And then around the Eagle Ford, we're looking at pipe solutions around Eagle Ford. So I would say that we're hooking at pipe, rail, truck, barge, just about any way we can get advantaged crude to the front end of the refineries.

Operator

The next question is from Faisel Khan from Citigroup.

Mohit Bhardwaj

Yes. This is actually Mohit Bhardwaj talking on behalf of Faisel Khan. I have a question regarding the CORE project. If you guys look at the WTI, WCS differentials, they move around a lot. I'm just trying to understand what level of heavy-light differential is required to make an investment in a new coker in these market conditions when everybody is trying to build one?

Greg C. Garland

Well, I'm not sure that anyone would start a new coker today in today's market environment. There's more coking capacity then there is heavy capacity to get into the cokers today. And I think we view that through at least 2017. But on the other hand, I would say that we're pleased with our investment that we made in the CORE project. It's delivering the results that we anticipated. We're up to 200,000 barrels a day of Canadian or heavy crude into Wood River. We're seeing the clean product yield improvement that we envisioned. We are net 65,000 barrels a day of clean products to us. So 120,000 across the refinery. So as we step back and look at that project, $3.8 billion investment, solid returns in our view. This is a 15%, 20% type return project for us.

Mohit Bhardwaj

You know the reason why I asked this question was it's been the darkest in years as far as the Gulf Coast is concerned. You have -- you require is a 8% to 9% is the discount that has been said if you want to run a sand coker for heavy-light differentials. I'm just trying to understand what's the number as far as some of these mid-continent cokers that you guys are building, some of the others are trying to build. What level of TI CS differential would be required to justify the economics?

Greg C. Garland

I'm not sure that we've really given the specifics. I guess it would depend upon the size of the coker, where the facility is, what other investment options you have. But I think -- I don't think we can give you a specific number on that one.

Operator

And the next question is from Doug Terreson from ISI.

Douglas Terreson - ISI Group Inc., Research Division

My question is on financial strategy and specifically, while equity is growing and some will be removed by the repurchase plan that you announced, you're probably going to have to remove a lot of equity to stay within your stated capitalization range, that is unless debt is reduced as well. So my question is, what is the plan for debt reduction, if there is one, given the low-cost nature of the debt that you took on recently? And how do you try to balance or how do you plan to balance these strategies in coming quarters?

Greg G. Maxwell

Doug, this is Greg Maxwell. I think in response to your question, it's a good question. As a mentioned, we don't have any debt maturities coming due in 2012. In the near term, we've got the 3-year term loan that starts coming due in 2013 on out about $570 million due in the first quarter of next year. The balancing aspect of it is, as you know, debt is cheap right now, and so we have to balance that with the other pieces of our capital programs as far as distributions, dividends, as well as capital expenditures. And currently, we have, as we mentioned, no intention or a stated intention to pay off any debt in 2012 and we -- the current plan is to meet the obligation that we have in March of the first piece of the 3-year term loan.

Operator

The next question is from Paul Sankey from Deutsche Bank.

Paul Sankey - Deutsche Bank AG, Research Division

I'd like to echo the appreciation for the disclosure that you gave. We appreciate that. I had 3 questions that are pretty quick to ask. They maybe long to answer. The first was, given your organic project queue and buyback, I assume that means that acquisitions are less important to you. You haven't really said anything about that. I just wondered if you could kind of make a statement for our benefit. The second was, can you just explain to us, to the best extent you can, what the impact of low NGL prices is on your business? And the final one was, you have a controllable cost target, which, off the top of my head, I seem to recall is, $4 billion of controllable costs for 5% with the target for around $200 million of savings. You did mention the controllable cost improvement you had during the quarter, but I wondered if you could just update us on the target?

Greg C. Garland

Okay, Paul. Great. I'll take them one by one. In terms of the project cues, we kind of said we expect that the P66 capital will be between $1 billion to $1.5 million. We certainly have some infrastructure investments that we'd like to make around getting the advantaged crudes to the front end of the refineries, to export infrastructure products out into attractive export markets. We've booked at what's out there on the market right now in acquisitions, and there's nothing really interesting to us at this time. So we've got our plate full in terms of executing the plan around improving our base R&M business. Improving margins, returns. As you know, we have a significant organic growth going on in our Midstream business at DCP and in our Chemicals business at CPChem. I mean, we're very comfortable with that profile of spend in both of those businesses. In terms of low NGL prices, in some ways, we balance across DCP and CPChem, and we tend to pick up margin across that value chain. But just in terms of the Midstream business itself, about $0.01 per gallon change in NGL price is about $4 million in net income for us.

Paul Sankey - Deutsche Bank AG, Research Division

The last one was controllable costs?

Greg C. Garland

Yes. Controllable costs, we've put a number out there, $200 million. We think it's a good number. I frankly think we'll do better than that. We tend to always exceed. We've got a program we call the Optimize 66 that we're working across this budgeting process which we're in the middle of it now. And people are looking at all avenues to improve efficiency and reduce cost. And frankly, the boys have come up with some great ideas from their early work that I've seen. So I think that the $200 million is a good number for a target.

Operator

And the next question is from Paul Cheng from Barclays.

Paul Y. Cheng - Barclays Capital, Research Division

I have a number of questions, hopefully that they are all short in terms of your answer. Greg,

do you have any low-cost, cheap capacity expansion opportunities in your Central Corridor in the Gulf Coast systems?

Greg G. Maxwell

So you're talking about Refining capacity?

Paul Y. Cheng - Barclays Capital, Research Division

Yes.

Greg G. Maxwell

I don't think so. I think the investment that we're looking in the Central Corridor in the Gulf Coast is really right in infrastructure around the refineries, rather than expanding the refineries.

Paul Y. Cheng - Barclays Capital, Research Division

Right. I know that you are not looking at expanding, I'm just wondering if there are opportunity for low-cost expansion at all?

Greg G. Maxwell

Yes. There maybe things on the back end of turnarounds, just normal de-bottlenecking that would occur in refineries. Maybe around Wood River, as we get more experience in the CORE project. But I'm not aware of any capacity additions that are coming in the Central Corridor or Gulf Coast.

Paul Y. Cheng - Barclays Capital, Research Division

And Greg, since that you guys have been talking about the focus, at least for the next couple of years, on the investment, if not the infrastructure. Does it make sense, from that standpoint, that to launch a MLP for the -- put some of your Refining, related logistics also into that and then use that as a vehicle to invest, given that they have a much better funding cost than Refining in general?

Greg C. Garland

Well, thanks for being the first person to ask the MLP question. So, what we said publicly and we'll continue to say is that, in the Analyst Meeting in December, we're going to shed more light on where we're going with the MLP. As you know, we have an MLP embedded within DCP. I think we understand the potential for value creation that MLP will bring and certainly, I think DCP is using MLP very effectively to raise equity to fund their growth program. So similarly, as we're thinking about a Phillips 66 MLP, we'd look to say can we add value through raising infrastructure. So we'll tell you more about that in December, but we're working that hard, we're thoughtfully considering how do we use an MLP to the best advantage of Phillips 66.

Paul Y. Cheng - Barclays Capital, Research Division

But at the minimum, Greg, based on your answer that we should assume that you guys are not resistant to the idea that this could be a value creation ...

Greg C. Garland

Oh, no, no, no. We're not resistant ...

Paul Y. Cheng - Barclays Capital, Research Division

[indiscernible] good vehicle [ph] that to host those growth projects that you may be talking about?

Greg C. Garland

No, we're not resistant at all. I think we have an MLP embedded within DCP. We like it. We think it's been a very efficient way of raising equity and will continue to be a good vehicle for DCP. And we're just thinking about what's the best way for Phillips 66 to work in this space.

Paul Y. Cheng - Barclays Capital, Research Division

Can I have the number of the balance sheet item that what is your inventory market value in excess of both your short-term debt or up the entire total debt? And also your working capital, as well as do you have any goodwill and intangible asset on your balance sheet?

Greg C. Garland

Okay, so let me run through those real quick again for Greg Maxwell so he can catch up. So the first one was [indiscernible] inventory relative to book?

Paul Y. Cheng - Barclays Capital, Research Division

Yes. In excess of the book.

Greg G. Maxwell

Yes, we've got a $5.5 billion of inventory on the books. I will get that additional number for you as we go through the answers. It's in the back of our Q and I'll get that for you. But I think it's in the neighborhood of $5 billion. The second question ...

Greg C. Garland

That one I think was short term debt relative to ...

Paul Y. Cheng - Barclays Capital, Research Division

Short-term debt.

Greg G. Maxwell

Short term debt. What you'll see, Paul, on our short-term debt is really only the maturity of what we have coming due, as I mentioned earlier on the first tranche of the term loan. $590 million.

Paul Y. Cheng - Barclays Capital, Research Division

And do you have any goodwill on your intangible asset on the book?

Greg G. Maxwell

Yes, we have a pretty good chunk of goodwill on our books. We have about $3.3 billion of goodwill associated with the previous acquisitions. And then intangibles of just about $700 million.

Paul Y. Cheng - Barclays Capital, Research Division

Okay. And what is your working capital?

Greg G. Maxwell

The working capital in total, if you look at our current assets, we have $18.5 billion -- this is all the end of second quarter, $18.5 billion of current assets of which $3.1 billion is cash. So looking at that, we have $15.4 billion of current assets and about $14.4 billion of current liabilities. That gives us a net overall working capital of about $1 billion.

Paul Y. Cheng - Barclays Capital, Research Division

Perfect. 2 final quick questions. One, the share buyback, Greg, I know this would be subject to your management's discretion. Any kind of target date? How quickly that you want to complete that?

Greg C. Garland

It's an open-ended program and we're not going to disclose an end point target. But you know, as we typically don't sit on our hands, I think you should expect to see us in the market every day, but not necessarily the same amount every day.

Paul Y. Cheng - Barclays Capital, Research Division

Sure. A final one, on dividend. I understand that...

Greg C. Garland

And Paul, we'll report the amount of shares that we buy or the number of shares that we buy and the amount that we've used on a quarterly basis.

Paul Y. Cheng - Barclays Capital, Research Division

Perfect. On the final one, on dividend. I understand the desire, that you raise your dividend every year. But I don't know whether you gentlemen agree, but to place [ph] somewhat a loan only account [ph] that historically, looking at Refining as a just a trading group, and I think management has a great opportunity to change that perception if we boost the pay out to at least into the 3.5% to 4%. And then even at that is like 150 per share and given your earning power, it seems like you still have plenty of room that you grow over time. So I don't know if that's something that may be under consideration or that you just wanted that to go slow --

Greg C. Garland

So Paul, I read your report. I thought it was thoughtful and well done. And I think we appreciate your advice and counsel in that subject. I think that what I would like to say about dividends are, I think they're the centerpiece, they're just fundamental to our philosophy around shareholder returns and distributions. We want to pay a competitive dividend. We want to increase that dividend over time. We recognize this is a volatile business. There's going to be some years where you feel flushed with cash and some years when you don't feel as good about cash flow in the business. You'll see us protect and the defend that dividend at pretty much all cost. It's so important to us. We do want to increase it. And you'll see us use share repurchases and specials also, as we think about returning cash to shareholders. So we'll look at that total toolbox that we have in terms of dividends, increasing the dividend, share repurchases and specials in terms of returning cash to shareholders.

Greg G. Maxwell

Paul, this is Greg Maxwell. I was a little light on the number for the excess of current replacement cost over LIFO. At the end of the second quarter, it was 6.9. Sorry about that.

Operator

And the next question is from Blake Fernandez from Howard Weil.

Blake Fernandez - Howard Weil Incorporated, Research Division

I had a question on your decision to retain Alliance. Obviously, in this market, there's a lot more sellers of assets than there are buyers. I was hoping maybe you could give us some kind of indication of the interest that you saw on the asset and how much of your decision was a result of maybe a lack of interest or your actual shift in strategy on Gulf Coast crude?

Greg C. Garland

I would say it's actually a combination of both. We had a lot of people go through the data room. We had a handful of offers and another one, we really regarded, as approaching our hold value for the asset. We made the decision to put the asset on the market, it really has integrated ConocoPhillips. We kind of had 1 view of where LLS was or where it was going. I think in the interim year that's passed since we made that first decision, that our view has changed in terms of Gulf Coast crudes, particularly LLS, becoming an advantage. So you think Alliance really has more future value than -- and certainly, value today than what people are willing to pay.

Blake Fernandez - Howard Weil Incorporated, Research Division

Greg, is it fair to say that Alliance is one of the key contributors to the increased export capability over the next year or so?

Greg C. Garland

So we are exporting out of Alliance and looking to increase the export out of Alliance. It's a nice refinery. Single train refinery built in '77. It's a good, solid refinery. It's just a light sweet refinery on the Gulf Coast of the U.S. And so I think that as our thinking has evolved around LLS and around exporting, we see more value in Alliance.

Blake Fernandez - Howard Weil Incorporated, Research Division

Okay. Fair enough. The second question I had for you was on the ethane cracker on the Gulf Coast. I see you're looking for FID in '13. I'm just trying to understand the process. The permitting component of that, do you need to have that in hand before you can move to FID? And if so, can you just tell us where you are in that process?

Greg C. Garland

Yes. So the credits we need have been acquired. Permits have been applied for. And I mean, just part of our process, we won't take FID without having the permits. And so, I think that's probably the factor that gets us there. We're in the process of -- we have a 2-step process where we do about 20% to 30% of the engineering up front. So we're just starting that, really, that first phase of engineering. But we fully expect that we'll be ready for FID in 2013.

Operator

And the next question is from Jeff Dietert from Simmons.

Jeffrey A. Dietert - Simmons & Company International, Research Division

On refining rationalization, there was something you talked about through the spin and now you've got Trainer done, and Alliance you've talked about retaining. So is effectively, the rationalization complete on the Refining side?

Greg C. Garland

Well, I think you'll see us continue to work the portfolio. I think we're like any company, we have a range of assets within our portfolio in terms of the returns and the future expected values of the assets. So you'll see us continue to work that. If you think about the assets around the periphery that could be non-core to us in the markets. But certainly, if you think around the Central Corridor assets, we really like those assets, we think they're long-term value-creating assets. Our Gulf Coast assets, same. And so we're not going to name specific assets today on the call. But I would say that we do have fixed our asset plans around some of our assets that are -- and you can see the numbers that we released today. Particularly, for example, the West Coast-challenged environment today, go back 2005, great earnings, great returns. But clearly, with the California crude decline, with the demand decline in California and the high operating costs that we see in California, really a challenged environment. And so we're working to put advantaged crudes to the front of those refineries and look at our cost structure and how to improve our cost structure to improve those assets.

Jeffrey A. Dietert - Simmons & Company International, Research Division

Very good. Slipping to crude on the U.S. Gulf Coast, particularly with Alliance. How much light crude are you importing into the Gulf Coast? I'm just trying to get an idea of what the opportunity is to shift from international sweets to domestic sweets?

Greg C. Garland

I'm not sure I've got that one. That's something that I can get, Jeff. But we run a little bit of sweet at Sweeny. So I think we've got a crude in there of 50 a day or so that West Africa or North Sea. I don't know if they're running Eagle Ford now. I think we have moved some Eagle Ford into Sweeny and moved -- but I think we're still importing at Sweeny. I think Alliance was primarily HLS and LLS. So, I don't think we were importing a whole lot into Alliance. Lake Charles, I think that was a heavy -- that's a heavy medium-sour refinery, but I can get those numbers for you. I don't think it's a big number. I don't know what our in parts are. We'll have to look at the waterborne barrels.

Greg G. Maxwell

We can get it for you.

Jeffrey A. Dietert - Simmons & Company International, Research Division

We'll follow up on that. And Greg, maybe just a quick update on what petrochemical demand and margins look like going into 3Q?

Greg G. Maxwell

Petrochemical demands.

Greg C. Garland

We can talk about 2Q. We are kind of hesitant to give a forecast, I think. If we think about CPChem, their volumes were relatively flat to slightly up, margins improved second quarter over first quarter. But there's a lot of turnaround activity during the kind of first half of the year, so we expect there's going to be some pressure on ethylene margins going into the back half of the year. So we think globally, we're concerned about Europe, we're concerned about China slowing down. And so I think that could have an impact on the global petrochemical business.

Operator

And the next question is from Arjun Murti from Goldman Sachs.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

My thanks as well to your accountants, especially for the appendix slides, your 25 to 28, that's very appreciated that you included that margin detail.

Greg C. Garland

We're here to serve.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

That’s nice. You mentioned you're keeping Alliance. Just a follow-up on that, can you quantify at all, order of magnitude, what types of discounts you're now looking at for, presumably LLS to Brent, that made you want to keep this?

Greg C. Garland

Oh, I think it's $2 to $3 is what our expectations are going to be, longer term.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Right. So it's gone up from what would have been $1 or $2 to coupled $3-type discount?

Greg C. Garland

Absolutely. It may take 1 year or 2 to get there.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Yes. That's great. And when we think about restructuring the portfolio, you mentioned the ability to get the shale to places like Bayway and Ferndale. We would've probably, at least at one point, had them on the list as kind of restructuring or potential asset sale candidates. I presume the decision to keep or not keep those very much hinges on, can you land that shale crude at enough of a discount to Brent or ANS as the case may be, and if you can, they're much more likely to remain part of the portfolio?

Greg C. Garland

Absolutely.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Yes. That's great. Just lastly, in terms of the -- it looks like 24% of your products slate that's heavy or non-light sweet crude. How much flexibility do you have if you wanted to run all light-sweet instead of that heavy, if the discounts are wide enough? Could you run all of that at light-sweet or would some of that have to always be heavy or is that [ph] a crude?

Greg C. Garland

Well I think we could run a lot more light-sweet if we're willing to take rate reductions. And we're running those models every day, and so, we're going to chase value versus volume. And if the models tell us that we can make more money running less crude, we will do that.

Greg G. Maxwell

But they're really configured. As you know, you get constraint at the light ends handling on the facilities and so that's what the issue is.

Greg C. Garland

We've looked at that. It seems like the numbers are -- it's like a 25% reduction in throughput to go all the way -- as far as we can, yes.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

There must be some ability to do one for one and then it falls off, I'd assume?

Greg G. Maxwell

I think that's right. Obviously, there's a blending that you can do as well as. I think that's the approach we're taking right now.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Yes. And I'm sorry, one last one. You're calling WTI, WTS Canadian. Is that Canadian syncrude or is there heavy crude in that Canadian portion? This is Slide 11.

Greg C. Garland

So, yes. We've got all the WTI WTS kind of lumped together, and so.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

But what you're calling Canadian, is that light sweet Canadian or is there WCS and heavy Canadian in that Canadian or is that all in the heavy acidic mix?

Greg C. Garland

I think that's all in the WTI. So what we've got in that 29% or 28% is we got about 100,000 of shale, we've got about 205,000 of Canadian heavy, 60,000 of Canadian medium light and then 225,000 of TI TS.

Greg G. Maxwell

Yes. The heavy and acid is Latin American, there's no Canadian in that.

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Got it. So some of the Canadian heavy's are in that Canadian number.

Operator

And the next question is from Evan Calio from Morgan Stanley.

Evan Calio - Morgan Stanley, Research Division

I'll make it unanimous, as we approach the hour, that I appreciate the additional disclosure. Yes, my first question is a, maybe a follow-up to Paul's question earlier. And maybe I missed the answer, but I know you guys are very focused on cash returns. You're focused on growth in Midstream and Chemicals, but I mean, are Refining acquisitions off the table or as a similarly situated peer looked it's on its way to maximize the value uplift in an MLP structure, I mean, are those types of transactions not in your forward plans?

Greg G. Maxwell

Yes. There's just nothing out there that interests us right now. In terms of acquisition in the R&M space.

Evan Calio - Morgan Stanley, Research Division

Okay. And in Midstream?

Greg C. Garland

Well, things are -- I don't think we would say we would not be interested in a Midstream acquisition, but I think with the valuations that we're looking at the Midstream assets right now, prices are...

Greg G. Maxwell

They look high to us. Both Chemicals and Midstream looks high on the valuations to us right now.

Greg C. Garland

So I wouldn't expect any significant M&A type deal in the near term from us. And we've said that increasing refining capacity for us is probably not in the cards. So, an acquisition of a refinery wouldn't be consistent with what we've said in the past.

Evan Calio - Morgan Stanley, Research Division

Understood. Second question. On the refined product export capacity that you're -- are you guys currently at that max rate? I think you mentioned is 130,000 barrels a day or effectively limited in any way in exports. Or are these expansion more to allow for profitable exit when new Gulf capacity, particularly distillate streams in 2013 or Gulf Coast utilizations ramp in a Brent [indiscernible] differential opening up?

Greg C. Garland

So we ran about 90 a day in the second quarter, which is -- it was actually down from the first quarter. But they have some turnaround activity that really impacted that. And so, our plan is to ramp exports up somewhere around 220. But we're going to chase value. So if [indiscernible] is there, we're going to take it, if not, we'll start where we can get the highest value.

Greg G. Maxwell

It's really around creating optionality for us at us at those facilities. So when the markets are better, we can participate in them.

Evan Calio - Morgan Stanley, Research Division

That's great. And on the railcar order, can you discuss maybe kind of cash costs or Bakken differentials you'll need to move feedstock into Bayway and whether or not there's any other transloading capacity that needs to be built out there? And are you railing anything, but currently I thought there was some volumetrics that were moving in there?

Greg C. Garland

Yes, we're doing some currently today. Yes, but we have 10,000 railcars today already, but there's probably just a couple of hundred, I would guess, in crude service right now for advantaged crudes. And that's the reason we went ahead and made the order for another 2,000 cars. So, we are negotiating with other third parties to improve access for loading and unloading. We're looking at doing some of our own infrastructure for loading and unloading, so it's kind of an all above. And yes, we're running in Bayway today, a couple -- I don't know, 10,000 or 20,000 barrels a day, I think, in Bayway today. So, the answer is yes, we like that we're trying to get as much in as we can. We're looking at all the infrastructure. Preferably, if we can get a third-party deal with someone else, that's great, if not, we'll build it ourselves.

Evan Calio - Morgan Stanley, Research Division

And maybe one last one, if I could. I know you guys clearly benefit on the NGL feedstock side in Chemicals. It was lower pricing and were ex impairment. Does it change, in any way, the way you look at NGL infrastructure such as Sand Hills or Southern Hills lines projects?

Greg C. Garland

I mean, those are both fee-based, for the most part, projects. We think they're good solid return projects. We're not going to slow down on those. To me, the governor is going to be on the E&P side and the development, is crude going to be $60 or is it going to be $100. And I think that will ultimately will set the pace for all this $80 billion worth of industry investment in infrastructure. But as we kind of look out, we're kind of $90 to $100 guys, so I think, in terms of our view of where crude prices go longer-term, and so, we think that there's going to be value in pursuing these infrastructure projects.

Operator

And the next question is from Doug Leggate from Bank of America.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Again, I'd like to echo all the additional disclosures. It's much appreciated. Thanks for that.

Greg C. Garland

Thanks, Doug.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

A couple of things. I think some of these have been touched in different questions but I wanted to get a little bit more granular on the portfolio. I mean, you still obviously have -- if of you look at the earnings mix, that clearly, things have been moving increasingly towards the U.S. That's going to be the dominant part of your business going forward. How do you feel therefore about how assets in Malaysia, I guess, Ireland -- I'm leaving Humber out, because we all know that's a phenomenal facility. But, some of these other peripheral facilities, are those a permanent part of the portfolio as given the strategic advantage the U.S. has right now over the rest of the world?

Greg C. Garland

So, I would say in the integrated ConocoPhillips, that, that asset was a strategic asset. I think if you think about Phillips 66, it's a not strategic asset for us.

Greg G. Maxwell

You're talking about Melaka.

Greg C. Garland

Melaka, yes.

Greg G. Maxwell

And Whitegate, of course, is challenged. From the standpoint, it's a light-sweet crude refinery that's fairly simple and European refining is under pressure, so. I guess we look at things from a couple of different angles. One is from the returns. So what are the returns at the facility compared to the rest of the portfolio and compared to what our targets are? Can it generate mid-teens returns? And then secondly, would be free cash flow generation. So what does that refinery do in terms of a discounted free cash after CapEx? And is it a source of capital or can we monetize it and redeploy that capital in another part of the portfolio. But those are, I would say, will be the 2 key criteria that we would use on whether or not the assets would remain in our portfolio.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

What would you expect to -- I mean, is that something that's going on as an active review or just something that's not a priority right now?

Greg C. Garland

I know, at least as part of the company that we were spun out of, we were very specific on the size of our asset disposition program and pretty public on how much we were going to sell when. I don't think we're going to take that same approach in terms of how we manage the portfolio, in terms of being as transparent on how much we're going to sell in any given year. But we have $50 billion of assets. And so, we need to be looking at our portfolio all the time and looking at the bottom 5% or 10% saying to ourselves, okay, is this worth more to somebody else or does it belong as part of our portfolio? So, you should expect us to continue to work that portfolio even if we're not saying something publicly.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Great. Terrific. And then a couple of quick follow ups if I may. The CORE project, I'm just curious, obviously, the whole thing is designed around, I guess, Canadian disadvantaged crude. But with the dynamics changing the way they have done, are you currently running heavy crude through the CORE project or are you basically -- I'm just trying to get an idea as to what the marginal economics looks like right now heavy versus light. I understand there's a yield loss or a utilization loss, but it would seem to us that the light sweet has the advantage right now?

Greg C. Garland

We like the numbers around the Canadian heavy right now or almost any Canadian crude, as you think about it. So, yes. We're running Canadian heavy today.

Greg G. Maxwell

Yes, I don't -- are you looking at like LLS to Maya being compressed or because actually the [indiscernible].

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Yes, I'm just trying to get an idea. I mean, obviously I bet there was huge drop off at the beginning of the quarter. But as we look forward, there's a lot -- it seems to be a lot of pipeline infrastructure coming on stream towards the back end of this year and early next year. I'm just curious of which -- what the LP would basically determine would be the better way to go. But I guess another way of asking the question is are you open to running light-sweet to [ph] cost even though the obviously, the investment was geared towards the heavy?

Greg G. Maxwell

Absolutely, of course. I mean to the extent that we'll back out other TI type barrels to run a cheaper Bakken barrel, we would do that. But quite [ph] I think we're pleased with the performance of the CORE project to date . It came up. It's run well. It's been profitable. It's done the advertised improvement in clean product yields, in capacity expansion. It's hitting on all of its metrics and so, we're pleased with that.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Last one for me. Just the big move in crude prices during the quarter. I'm just curious is there any kind of derivative or timing difference issues that helped your margins? And I'll leave it at that.

Greg C. Garland

I think it helped marketing, right? I think as crude prices or product prices fall sharply, it creates short-term margin expansion. But I don't think, in terms of inventory or trading gains, we saw a significant impact from the decline in crude price.

Operator

And the last question will be from Roger Read from Wells Fargo.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Just really kind of quick questions, maybe more on the operational front. As you look at your performance in the Mid-Con here, what you call the Central Corridor, how much of that was strictly the market and how much of that is maybe some of the changes you were able to make transportation wise, in terms of a little more permanence or at least a little bit of dislocation relative to just market indicators?

Greg C. Garland

I would think that a big part of it was the market. Part of it was improved around running more heavy at Wood River. We just talked about in clean product yield around that. We did get some more advantaged -- other advantaged crudes into the Mid-Con refineries. But if I had to guess, it's probably 80%, 85% market and 15% other improvements.

Greg C. Garland

During this second quarter, we really didn't have much turnaround activity in the central. The second quarter turnarounds were really on the coastal refineries. I guess we had 1 refinery that was down. But turnaround activity was relatively light as well. That may have helped.

Roger D. Read - Wells Fargo Securities, LLC, Research Division

Okay. And the only other question I had more on the financial side. The share repurchase, you said you're going to hold the shares as part of the treasury stock. What's the thought on that? Is that for future compensation and acquisitions? I mean, as opposed to retiring them, what's the thought process there?

Greg G. Maxwell

Roger, this is Greg Maxwell. Initially, the share repurchase program at $1 billion is about 4% over the time and since we're not starting out with really any treasury shares, the view, current view, is that we would hold those initially as treasury shares, and then we'll look at our options going forward. But as you hit on it, as you go forward, you could have some use for those. And so, that's just an opportunity for us to continue to hold those at least in the interim period.

Operator

At this time, I'll turn the call over to Mr. Clayton Reasor for closing remarks.

Clayton Craig Reasor

Okay, great. Well thanks Sandra. I think it was a great initial quarter conference call. Obviously, we feel good about the results. You can find a copy of our presentation material and the sensitivity data on our website. Transcript will be there as well. And if you have follow-up questions, feel free to give us a call. Thank you very much.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, you may now disconnect.

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