Phillips 66 (PSX) — Q4 2017 Earnings Call Transcript

Good morning, and welcome to the Phillips 66 Fourth Quarter Earnings Conference Call. Participants on today's call will include Greg Garland, Chairman and CEO; and Kevin Mitchell, Executive Vice President and CFO. The presentation material we will be using during the call can be found in the Investor Relations section of the Phillips 66 website along with supplemental financial and operating information. Slide two contains our Safe Harbor statement. It is a reminder that we will be making forward-looking statements during the presentation and our Q&A session. Actual results may differ materially from today's comments. Factors that could cause actual results to differ are included here, as well as in our SEC filings. With that, I'll turn the call over to Greg Garland for opening remarks.

Okay. Thanks, Jeff. Good morning everyone, and thank you for joining us today. Adjusted earnings for the fourth quarter were $548 million, or $1.70 per share. We ended the year with a strong quarter, and our operating performance was at record levels. Refining ran at 100% capacity utilization, and we continue to operate safely and reliably. Our Midstream business significantly grew Phillips 66 Partners by completing a $2.4 billion dropdown; our largest transaction to date. And in Chemicals, CPChem is nearing completion of its U.S. Gulf Coast petrochemicals project. Our fourth quarter cash from operations was $1.9 billion, our highest quarter since 2013. For the year, operating cash flow was $3.6 billion. We continue our commitment to shareholder distributions. This quarter, we returned $816 million through dividends and share repurchases. This brings our total distribution since inception to $16.4 billion. During the quarter, we made progress on several of our key projects. In Midstream, we operated well at our Sweeny Hub in a challenging market environment. We averaged nine cargos a month at the export facility, and the fractionator operated at 101% utilization. We completed the expansion of the Beaumont Terminal's export capacity to 600,000 barrels per day. Today, the terminal has over 11 million barrels of crude and product storage capacity. An additional 3.5 million barrels of fully-contracted crude storage is under construction, and that will take the total capacity to 14.6 million barrels by the end of the year. We announced an open season with Enbridge with the Gray Oak pipeline project to transport crude oil from the Permian Basin to markets along the Texas Gulf Coast. The pipeline is expected to have initial throughput capacity of 385,000 barrels per day, and will be placed in service during the second half of 2019. The Bayou Bridge pipeline, in which PSXP holds a 40% interest, has received all permits for the extension from Lake Charles to St. James, Louisiana. Construction is underway. Commercial operations are expected to begin in the second half of 2018. The existing segment of the line from our Beaumont Terminal to Lake Charles is operating well, providing crude optionality to our refinery. DCP Sand Hills pipeline, which transports NGL from the Permian Basin to the Texas Gulf Coast has exceeded 3,000 barrels per day of throughput in the fourth quarter, and is expected to complete the capacity expansion to 365,000 barrels a day by the end of the quarter. Further capacity expansion of the line to 450,000 barrels a day is anticipated in the second half of 2018. Sand Hills is owned two-thirds by DCP and one-third by Phillips 66 Partners. DCP continues to progress construction of two gas processing plants in the high growth DJ Basin. The Mewbourn 3 plant is expected to start up in the third quarter of 2018 and the O'Connor 2 plant is scheduled for completion in mid-2019. DCP also announced the final investment decision to proceed with joint development of the Gulf Coast Express Pipeline project, in which it holds a 25% interest. The pipeline will provide an outlet for natural gas production in the Permian Basin to markets along the Texas Gulf Coast. In Chemicals, CPChem is commissioning its new Cedar Bayou ethane cracker, which will start up this quarter and ramp up to full commercial production in the second quarter. At Old Ocean, CPChem has successfully transitioned the two polyethylene units to commercial operations. In Refining, we continue to focus on high return quick pay up projects. We have multiple yield-enhancing projects that are expected to deliver an additional 25,000 barrels a day of clean products by the end of 2018. This includes the diesel recovery project which we completed at our Ponca City Refinery in the fourth quarter. In addition, we are modernizing FCC units at both our Bayway and Wood River Refineries with anticipated completion during the second quarter of 2018. We also have projects including the Lake Charles Refinery, where we are completing modifications to run more domestic crude. Our 2018 capital budget is $2.3 billion, including $1.4 billion of growth capital and $900 million of sustaining capital. Our portion of capital spent by CPChem, DCP, and WRB is expected to be about $900 million. As we move into 2018, our strategy for long-term value creation remains unchanged. This includes capturing growth opportunities in our midstream and our chemicals business, where we see long-term demand growth and enhancing returns in refining and marketing. Also fundamental to our strategy is our shareholder distributions consisting of a competitive, secure, and growing dividend complemented with share repurchases. We believe the share repurchases are an important part of shareholder value creation, and as long as we trade below intrinsic value, we are buyers of our shares. So with that, I will turn the call over to Kevin.

Thank you, Greg. Good morning. Starting with an overview on slide four, our fourth quarter earnings were $3.2 billion. We had special items that netted to a gain of $2.7 billion mainly due to the U.S. tax reform legislation. This benefit primarily reflects the revaluation of our net U.S. federal deferred tax liability position from 35% to a 21% tax rate, and is partially offset by the repatriation transition facts on foreign sourced earnings. After excluding special items, adjusted earnings were $548 million or $1.7 per share. Cash from operations for the quarter was $1.9 billion, which includes a positive working capital impact of $913 million. Capital spending for the quarter was $537 million with $234 million spent on growth projects. Distributions to shareholders in the fourth quarter consisted of $353 million in dividends and $463 million in share repurchases. Slide five compares fourth quarter and third quarter adjusted earnings by segment. Quarter-over-quarter adjusted earnings decreased by $310 million, driven by lower results in Refining, Marketing, and Chemicals, partially offset by improvements in Midstream. New this quarter, our segment reporting is on a net income basis, instead of net income attributable to Phillips 66, as previously presented. Our segment earnings now include earnings that are attributable to non-controlling interests. This segment reporting change better aligns with how we manage the business and makes our reporting more comparable with our peers. Slide six shows our Midstream results. Transportation adjusted net income for the quarter was $108 million, up $10 million from the prior quarter. The increase was primarily due to higher terminal and pipeline volumes. In NGL and other, the $20 million increase from the prior quarter was largely due to the PSXP acquisition of Merey Sweeny. DCP Midstream had adjusted net income of $14 million in the fourth quarter. A $13 million increase from the previous quarter was due to the absence of third quarter asset impairments, higher NGL prices, and increased volumes. Turning to Chemicals on slide seven, fourth quarter adjusted net income for the segment was $121 million, $32 million lower than the third quarter. In olefins and polyolefins, adjusted net income decreased by $42 million. This decrease was due to lower sales volumes and higher depreciation and operating costs, partially offset by improved margins. The increased depreciation and operating costs reflect the startup of the new polyethylene units at Old Ocean. Global O&P utilization was 79%, reflecting continued downtime at Cedar Bayou. The Cedar Bayou facilities hurricane-related repairs continued into the fourth quarter with most major units returning to service by December. Adjusted net income for SA&S increased by $12 million due to higher margins and lower operating costs. In Refining, our crude utilization was 100% for the quarter, up from 98% in the third quarter. Pre-tax turnaround costs were $99 million, $56 million higher than the third quarter. Clean product yield was 87%, an increase of two percentage points from the prior quarter, primarily due to processing more intermediate term inventory and increased butane production. Realized margin was $8.98 per barrel, down from $10.49 per barrel last quarter. The chart on slide eight provides a regional view of the change in adjusted net income. In total, the Refining segment had adjusted net income of $358 million, a decrease of $190 million from last quarter. This decrease was driven by a 35% decline in gasoline market cracks and higher turnaround costs, partially offset by improved clean product differentials and increased volumes. Adjusted net income in the Atlantic Basin was $120 million, down $52 million from the third quarter. The decrease was primarily due to the lower gasoline market crack, partially offset by increased volumes and improved clean product differentials as European cracks improved relative to the New York Harbor crack. The Atlantic Basin region ran at 104% utilization in the fourth quarter; the third consecutive quarter at or above full capacity. The Gulf Coast adjusted net income was $72 million, down $5 million from the third quarter. The decrease was due to the lower market crack, which was largely offset by higher clean product realizations and increased volumes. The Gulf Coast capacity utilization was 102%, up from 93% in the third quarter. Adjusted net income in the Central Corridor was $192 million, down $6 million from the previous quarter. The decrease was primarily due to turnaround activity at the Ponca City Refinery. The West Coast adjusted net income decreased $127 million from the previous quarter, reflecting the 32% decline in the market crack. Slide nine covers market capture. The 3:2:1 market crack for the quarter was $13.98 per barrel, compared to $18.19 per barrel in the third quarter. Our realized margin for the fourth quarter was $8.98 per barrel resulting in an overall market capture of 64%, up from 58% in the third quarter. Market capture is impacted in part by the configuration of our refineries. During the fourth quarter, we produced less gasoline and more distillate than premised in the 3:2:1 market crack. And the distillate crack was stronger relative to the gasoline crack. As a result, the configuration loss of $1.44 per barrel was an improvement from $1.58 per barrel from the prior quarter. Losses from secondary products of $1.99 per barrel were lower than the previous quarter due to improved NGL prices relative to crude. Feedstock advantages improved realized margins by $0.82 per barrel. This was $0.20 better than the prior quarter. The other category mainly includes costs associated with rents, outgoing freight, product differentials, and inventory impacts. This category reduced realized margins by $2.39 per barrel, compared with $3.20 per barrel in the prior quarter. The improvement was primarily due to clean product price differentials. Let's move to marketing and specialties on slide 10. Adjusted fourth quarter net income was $124 million; $87 million lower than the third quarter. In marketing and other, the $76 million decrease in adjusted net income was largely due to lower realized margins and seasonally lower branded volumes. During the fourth quarter, we exported 236,000 barrels per day of refined products with continued strong demand from Latin America. Specialties adjusted net income was $37 million, a decrease of $11 million from the prior quarter, mainly due to lower base oil and finished lubricant margins. On slide 11, the Corporate and Other segment had adjusted net costs of $140 million this quarter compared to $127 million in the prior quarter. The $13 million increase in net costs was primarily due to positive tax adjustments in the third quarter. On slide 12, we summarized our financial results for the year. 2017 adjusted earnings were $2.3 billion, or $4.38 per share. At the end of the fourth quarter, our net debt to capital ratio is 20%. The adjusted return on capital employed for 2017 was 8%. Slide 13 shows the change in cash during the year. We entered the year with $2.7 billion in cash on our balance sheet. Cash from operations was $3.6 billion with minimal working capital impact, and PSXP raised $1.2 billion in equity proceeds. We funded $1.8 billion of capital expenditures and investments, and distributed $3 billion to shareholders in dividends and share repurchases. The $400 million in other includes affiliate loan repayments. We ended the year with 502 million shares outstanding, and our cash balance was $3.1 billion. This concludes my review of the financial and operational results. Next, I'll cover a few outlook items. In the first quarter, in Chemicals, we anticipate the global O&P utilization rate to be in the mid-90s. In Refining, the first quarter will be a heavy turnaround quarter for us. We expect the worldwide crude utilization rate to be in the mid-80s and pre-tax turnaround expenses to be between $230 million and $260 million. We anticipate corporate and other costs to come in between $160 million and $180 million after-tax during the first quarter. For 2018, we plan full-year turnaround expenses to be between $520 million and $570 million pre-tax. We expect corporate and other costs to come in between $640 million and $680 million. Our after-tax corporate costs are higher due to the lower U.S. tax rate as well as the inclusion of interest expense associated with non-controlling interests. We anticipate full-year D&A of $1.4 billion. And company-wide, we expect the effective income tax rate to be in the low to mid-20% range. Our effective income tax rate reflects the impact of the new U.S. Federal rate, state and foreign tax rates, and the impact of income attributable to non-controlling interests. The Tax Cuts and Jobs Act should be positive for Phillips 66. We will benefit from the 21% corporate tax rate and the capital cost recovery provisions. We also have more flexibility in managing our global cash balances. With that, we'll now open the line for questions.

Good morning, Neil.

Good morning, guys. A couple of questions here, the first is just around share repurchases. With tax reform coming in and the amount of cash flow, you guys should be able to draw as you go into this harvesting mode with lower capital spending. You should be in a position to be aggressive around share repurchases, especially if you do believe the stock is trading below intrinsic value. You have come out with this $1 billion to $2 billion range in the past, Greg and team, just want to see how you are thinking about the potential to even go over that in this type of environment?

Neil, good morning, it's great to hear from you. I have a few thoughts. One is that we are seeing new income from the investments we've been making, which we estimate to be between a billion and $1.5 billion mid-cycle. We are also likely benefiting from tax reform. However, the investment landscape is very competitive, so I don't foresee an increase in our capital expenditures. Looking back at the 2012 to 2017 period, we maintained a 60:40 allocation between reinvesting in the business and returning cash to shareholders. Moving forward into 2018 and 2019, we are likely to shift closer to a 50:50 allocation. We expect to be at the upper end of that range, and if we exceed it, we'll adjust based on how the year develops.

Thank you. For a follow-up on the refining macro, Greg, could you and your team share your perspective on product balances? We've observed gasoline builds, which seem seasonal, and distillate demand has been strong. Additionally, what are your thoughts on Brent TI, especially since it's been significantly compressed over the past few weeks as we consider the upcoming year?

Do you want to take a stab at that, Jeff? And then I'll come in.

Yes, I think as we look, the global economic indicators are really multiple year highs, both from a manufacturing and from a consumer confidence and unemployment, multi-year lows on unemployment. So, the economy looks good globally in all the major regions. That's positive for the demand outlook. As we start the year and think back to last year, gasoline and distillate inventories on days of demand cover last year were above the 5-year range. And they shifted to the bottom of the 5-year range this year. So, the starting point certainly feels better. As we think about demand, we are seeing strong demand on the product export side. We had record exports in the fourth quarter, 260,000 barrels a day. And then, as we look at Canadian production in particular continuing to grow with Fort Hills ramping up this year and really no major pipeline start ups for 2018 and 2019. The rails ramped up in the fourth quarter relative to third quarter, but it doesn't appear they have substantial excess capacity. So that's going to be a positive. And PSX is the largest importer of Canadian crudes, buying over 0.5 million barrels a day of Canadian crude. Lower taxes should benefit U.S. refiners. And then we have got the IMO bunker fuel specifications on the horizon. So, we are cautiously optimistic on the outlook for refining profitability this year.

Great, guys. Thank you very much.

Thank you.

Good morning, everybody.

Hey, Doug.

Hi.

I also wanted to ask a question about your views on some of the likely market impacts of some of these new environmental regulations that are set for the next few years. Meaning Jeff mentioned IMO 2020. And then, we've got tier fuels too that I wanted to ask about, and how the company is positioned. So, the first, do you sense that the U.S. and global refining industries are investing enough to satisfy some of these roles? Second, do you envision margin to the key products such as the ultra-low sulfur fuels and crude oil spreads? How do you think they are going to vary because of these mandates? And then, finally, how is the company positioned for these changes? Meaning, there's three parts to the questions: 1, is the industry ready in your view? 2, what do you think are the likely outcomes with spreads? And most importantly, how is Phillips 66 positioned for these new environmental mandates?

Well, let me start backwards, and I will then pass it off to Jeff to talk about some of the details. So the answer to how we are positioned, we are pretty much through the Tier 3 investment period. And that's one reason you have seen our sustained capital come down in refining, Doug. In terms of IMO, we are not planning on making significant investments. There are probably some small things we’ll do around the assets in terms of looking at yields and conversions. But, we don't view that necessarily as a negative impact on our business. I think we are constructive on what that does in terms of the distillate price. But, we are probably not as optimistic as some of the others out there, although Jeff is pretty optimistic on it. So, I will let him talk you through what he thinks the impacts are going to be in terms of margins and maybe some of the other refiners out there.

Yes, you are touching on a topic that often sparks internal discussions. Currently, the IMO is estimated to be around 4 million barrels a day. Of that, scrubbers and potential non-compliance may account for about 1 million barrels a day. Another million barrels a day may be blended, leaving us with approximately 2 million barrels of additional diesel demand. When you compare that to the global demand of 35 million barrels a day, it represents about a 6% increase, which is significant. On the high sulfur side, there is also 2 million barrels a day that requires destruction, which compares to a global coking capacity market of 6 to 8 million barrels a day, much of which is already in high use. The industry is proactively preparing for these changes. The global system has some flexibility, but these are important shifts. Back in 2017, we initiated about 15 projects that added 10,000 barrels a day of diesel production capacity. In 2018, we are looking at around 30 projects that will add 20,000 barrels a day of clean product, with a focus mainly on gasoline but also including diesel. These projects require low capital expenditure but have a high return.

Okay, thanks, Jeff, and congratulations everybody on your solid results.

Right. Thanks, Doug.

Hey, folks, good morning. I wanted to go back on the WCS differentials. And Jeff, I think you mentioned you guys have access to over 500,000 barrels a day of Canadian crude. Can you help remind me I guess the actual access to that as far as is that piped, is that railed, a combination? I guess I am just trying to fish around to see how of this blow out in the differential you are actually going to realize?

Yes, there is a big pipe component of it. It's primarily heavy and primarily the vast majority of this is utilized in our own refineries. We do import some offshore barrels. That's a small portion of the total. But, we are large buyers across the way. There is not much movement by rail at this point.

Okay. So, it sounds like you've got pretty direct leverage to the differential move here.

Right.

Yes, so let me just talk. So, margins in the quarter were up about $0.02 for the year. They're up about $0.03 in 2017. You kind of think about the new cracker came on in the fourth quarter. We had our polyethylene capacity up in the fourth quarter. So from a market basing standpoint, we were moving the products, and we believe that ExxonMobil actually ran some of their derivative capacity in the fourth quarter also. So you're starting to see the impact of those products hit the market. I think that in many ways the global economy is pretty good. You think about in U.S., think about Europe, you think about Asia, and it's really taking these materials without a lot of margin impact. To your point, I think if you look at that full chain polyethylene margin based on a weighted average speed it is kind of hovering around the $0.25 level, which is kind of reinvestment level economics mid-cycle if you want to think about it. You look at on ethane basis, that full chain margin is around $0.31, $0.32. And so those are the really healthy margins for us. And so, I think that we kind of look at the Chemicals business as getting this new cracker up, getting polyethylene in the market, maybe there's going to be some margin compression, you know, these other projects to come online in 2018, but I think you got to remember higher crude prices are very constructive for us. And we like high crude, low natural gas prices in the Chemicals business. And so, that'll open up the margins for CPChem. Thanks, Greg. You bet.

Hi, guys. I'll start with the detail one if I could. You said utilization was up at 100% respectively over the past couple of quarters. It seems a bit lower in Q1. Could you just talk a little bit about whether that's sort of a level number and what the outlook for you guys this is in terms of turnarounds over the coming year? And then, I have a follow-up. Thanks.

Go ahead.

Yes, we provided guidance. You saw that the first quarter is a relatively heavy lift for us on maintenance. We are guided to $230 million to $260 million. The first quarter of last year was $299 million, and that was the heaviest quarterly maintenance period in the last decade. So we're below last year, but still a meaningful lift for the first quarter.

Is there any bigger items that you can talk about?

I think as we look at it, last year was more crude unit heavy, and some of the downstream units, the conversion units are more impacted in this quarter.

Sure. Well, we are never going to give you the number, but you can keep asking, Paul. But yes, so the way we think about intrinsic value, we're looking at kind of EBITDA two years out. We're using kind of historical multiples and some of the parts. And based on that, obviously, it's a higher pricing than what we're trading today and that's why we're buying shares today.

Yes, it's an interesting point. I mean, I don't think we haven't quite got to the answer on when the optimum time, I think there are long academic studies on the optimum times for buying back, but I guess just to follow-up, there's nothing really you have to do on the debt side, is that I mean it sounds that maturities or any other outlet for excess cash?

That's right, Paul. Yes, nothing coming up in the near term.

Great, thanks good morning everybody. I guess maybe just to start, Jeff; you made a few comments on the Canadian heavy differentials. Has there been any thoughts or discussions in terms of the asset profile of Refining? Are you comfortable with the asset base as it stands or any ownership structure of the WRB shifting on those lines?

No, I think, look, we're pretty happy with the portfolio today. We always look at the portfolio many times a year. We're always looking at it. But I just think as the portfolio lies today, we like the portfolio where it sits. WRB has been a great partner for us. And we continue to make investments there between the two of us. In fact, we're modernizing the FCC. It's one of the projects we have for 2018 there. So I would say the portfolio is in pretty good shape.

Perfect. Thanks, Greg. And then maybe shifting on taxes, Kevin you mentioned in your opening remarks, but anything else to note as it relates to the earnings outside the U.S., whether it's tax payments over time for the new tax law or any plans to repatriate cash?

No, not specifically. The new tax law likely gives us access to between $1 billion and $1.02 billion of cash that was previously overseas and not easily accessible. This provides us with more flexibility in managing our overall cash. In reality, we already have plenty of cash, so there's no immediate urgency, but it does enhance our ability to manage our cash position.

Perfect, thanks Kevin. I'll leave it there. Have a good weekend, guys.

You too. Thank you.

Hey, guys. Good morning. This is on for Doug. I've got a couple of questions, both macro-related. First, I wanted to see if I get an update on the performance at the LPG export business. I know in prior quarters, you guys have talked about the cargo turning near capacity, and I think you are working on doing some things optimized cost there. But the bigger piece of the EBITDA contribution is really ARB related and that hasn't been there in past quarters. I'm wondering if you can talk about whether that's improving against these positive demand trends in oil?

I will start by saying that we have demonstrated 25% of the design capacity of the terminals. We are loading about 10 cargos this month, following 96 in the fourth quarter. We are utilizing the capacity fully. Currently, the ARB fees have been fluctuating between $0.05 and $0.07, which is significantly lower than what we had anticipated when we enhanced the project. Looking ahead, particularly with developments from the Permian, we expect strong growth in 2018. We believe that utilization rates across the docks will increase, and there will be opportunities to raise those dock fees and improve margins as we progress into the latter half of 2018 and into 2019.

Yes. You saw the DOE monthly stats October and November NGL production up over 400,000 barrels a day year-on-year. I don't know if that pace is going to be sustained, but clearly we're seeing very strong growth on the NGL front, which is going to need to be exported. And that's going to help fill these pipelines. Based on DOE stats last year, LPG export facilities ran in the low 80s percentage utilization and we think that will move into the high 80s this year, which by the end of the year 2019 starts helping margins.

Got it. Thanks, guys. Second question, just kind of looking at the WTI brand spread today. It's nearing below $4. What do you think the appropriate ranges for the sustainable WTI brand spread? What do you think set those parameters? And secondly, do you attribute any of this weakness to seasonality, perhaps staggered refinery maintenance profiles which means the Gulf Coast and the Mid-Continent post refinery maintenance could this perhaps start widening out again?

Well, I think if you look at just West Houston versus Brent it's traded around a buck-and-a-half, kind of $0.50 plus or minus. That part of the differential has been relatively stable. When you look at what's happening between Cushing and Permian and the Gulf Coast, we've seen substantial changes recently with those pipelines being very highly utilized, close to full in the October-November timeframe. Since that time, Valero's diamond pipeline has added 200,000 barrels a day out of Cushing. That's drawing pushing inventories down pretty rapidly. And from the Permian, the Midland-to-Sealy and the expansions of the existing added 700,000 barrels a day, so we've gone from a period of not enough capacity to too much capacity in the short term. Permian, it's certainly possible; could grow 700,000 barrels a day this year, and be back to a very tight level by the end of the year, or certainly 2019. So that Cushing to Gulf Coast is going to swing more. Right now there's enough capacity and those rates are tightening. We'll see some seasonal impacts for maintenance, but I think those are the big drivers.

Got it. Thanks, guys.

Yes, hi. Good morning. So Kevin, you probably know I was going to start with this one; so I'll get this one out of the way, but just the deferred tax fees in terms of the tax reform and the impacts and how you think about 2018 with the investments you have, kind of a cash tax versus book tax rate?

Yes, Phil. The best way to approach this is not to provide a specific cash tax rate, as that requires knowledge of your pre-tax income. However, you can model it by assuming a deferred tax benefit of around $400 million for the total company in 2018. This primarily reflects the additional tax depreciation beyond financial depreciation. Therefore, there is approximately a $400 million benefit to cash flow compared to the financial tax.

Thanks for your question. Regarding Midstream, the recent filings indicate an EBITDA run rate on an adjusted basis of approximately $1.2 billion on an annualized basis. We are guiding for a longer-term target of between $1.8 billion and $2.0 billion by the end of 2018. Can you provide insights into the trajectory towards this target and which projects are expected to drive the majority of that growth?

I’ll start by confirming that if you take the approximately 300, or 295, and annualize it, you arrive at about 1-2. It's important to note that in the slides we presented, we highlighted around $300 million from refining, which brings you to about $1.5 billion. Additionally, there's approximately $300 million in market growth incorporated into this year's plan, which affects your run rate. We have expansions on Sand Hills, the second segment of Bayou Bridge, and significant work at the Beaumont Terminal. There are numerous projects related to blending at various terminals throughout the system, and organic growth at PSXP is also included in that figure. Therefore, I don't believe that the $300 million growth rate or annualized run rate growth will be overly challenging to achieve in 2018. I think we will reach it.

And so, are you implying that the $300 million on the refining side is likely to be dropped in '18 then, or is it just a categorization?

No. That's just trying to highlight potential Midstream income that we had. It could be droppable. I suspect that refining incremented some of the very last step we get to, Phil.

Good afternoon. Thanks for taking my question. So on the export terminal, LPG export terminal, it sounds like ongoing optimism going out in the second half and into '19, what do you think the prospects are in the coming 12 months, maybe 18 months of expanding the amount of contract and position on that facility?

As our prices are, you suddenly want to expand your contracts at the bottom; it's kind of our view. You know, look, sometime in '19 we are probably going to hit limits in terms of industry capacity to clear the barrels and you kind of need a $0.10 to $0.12 fee across the dock to justify new investment and so I think we will get there but a lot of it depends on what's going on in the Permian and how many NGLs are going to be showing up, we remain constructive around our views on that.

One last question. Regarding balance sheet management, I understand there's not much debt maturing for some time. If I'm correct, there are a couple of billion due in 2022. How do you view building cash balances and managing a significant maturity like that? Would you consider maintaining large cash balances for a couple of years?

Yes, Craig. It's Kevin. I - we may build cash simply by virtue of strong operating cash flow and depending on where overall capital fits, how much what is going on from a capital expenditure standpoint and then the other side of that with distributions, dividends and buybacks. But I don't think we would be building cash just for the purpose to hold it to pay time debt for years out from this point. We have a lot of flexibility from a balance sheet debt management standpoint and so given the strength of our balance sheet and credit rating that we got we can easily refinance maturities as they come due, that's what we choose to do. So, I would look at cash balances more from a broader perspective in terms of what it means from a capital allocation standpoint.

Understood. And that Kevin, I got you. That $1 billion to $1.2 billion of foreign cash, is it pretty nominal cost to bring that back, if you wanted in the future?

Yes, that's the point that post tax reform we now have access to that cash without having to pay any excessive U.S. taxes.

Oh, zero. Okay. Thanks.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.