All right. Everybody, we're going to continue on with the program. We're excited to have a conversation here. We've got Mark Lashier, who's the Chairman and CEO of Phillips 66, one of the largest Refining, Midstream, Chemical, Marketing companies in the country. We're excited to have a great conversation touching on a number of different businesses here. Thanks for doing this, Mark.
Hey, thanks for having us here today, Ryan.
Maybe we'll start it off. I want to start off talking about Midstream, and we're going to kick down the line a little bit the elephant in the room regarding the Midstream. If we can just talk a little bit about what you've built in the Midstream over the last few years in particular, what you've been able to build, where you think it's headed, what you think are the relative strengths or weaknesses within your Midstream portfolio at this point.
Absolutely, Ryan. I think if you go back all the way to our MLP era with PSXP, we were able to develop a lot of really valuable assets under the MLP model, and it grew and it kind of ran its course. Also, in parallel to that, we had our DCP joint venture, and we came to the realization that we really needed to align those interests in a way that was synergistic. DCP needed to grow, but the ownership structure made that kind of restrictive. By rolling up PSXP, bringing in DCP, we could create that actual synergistic wellhead-to-market entity.
We also had a lot of other assets that either were contributed when we spun out of ConocoPhillips or developed during our MLP stage that we realized that once we built that NGL Midstream, we had our crude value chain that there were assets that were non-core that we could monetize. As we did that, we knew that was just the first step. We rolled up DCP, we brought in $1 billion of EBITDA, and we targeted $300 million of synergies to capture. We ended up capturing $500 million, and then we stopped counting because then we just rolled that right. Beyond that, we just rolled that right into our efficiency work that we're doing across the enterprise to continue to drive costs out.
It opened up opportunities for us to look at assets and organic growth opportunities along that value chain to really fill out what we needed. You think about what we have done over the last couple of years, we have grown our position from strengths. We have monetized $3.5 billion worth of assets, assets that were generating good earnings, but the capital was constrained, like the Rockies Express Pipeline, the REX Pipeline. We had an interest in there, but there was no growth opportunity around that. We were able to release that capital through a good asset disposal, getting something like nine multiple. We did the same thing with Gulf Coast Express and some other Midstream assets that were not core to what we were doing.
We are able to free up that capital for all of our strategic purposes, whether it is returns to shareholders, balance sheet, or in some cases to really go after nice Midstream assets that were a direct plug into our system. I think the best example that we already have in-house is the Pinnacle acquisition. That acquisition allowed us to get access to an operating G&P asset with a footprint for greater growth. We were able to do that for a very reasonable multiple, much lower than the multiple that we dispose assets of. We were already executing on an organic opportunity to grow the G&P capacity at that site. It was directly on top of our system in the Midland Basin. We could bring those liquids in-house into our system. You look at what we are doing with the EPIC acquisition.
That actually gives us more transportation assets, not just for the sake of getting more transportation assets, but in a key location that, again, opens up more organic growth opportunities and then feeds us directly into the Corpus Christi market where there is fractionation capacity, maybe some more organic expansion capability there. That EPIC system ties right into our Sweeny complex, the heart and soul of our NGL assets, giving us access from that system, not just to Corpus Christi, but then out to Freeport and on up to Mont Belvieu. We have this shuttle system of purity products between Corpus, Sweeny Hub, Mont Belvieu that gives our upstream producers a lot of optionality in how they can get their molecules to market. It has really been a great growth story, a great value-creating story every step along the way. It has opened up a number of organic growth opportunities down the road that we can continue to add G&P assets to fill out our Pipeline system.
Anything, I guess, as you think about that, any weaknesses? Do you feel like it's relatively balanced at this point, or anything that you think needed addressed to kind of?
We've got great positions today in the Permian Basin with lots of life-of-lease contracts. We have long-term value creation opportunities with those assets that we can take to other people's gathering and processing facilities or on into our system to capture it. Certainly, we'd like to grow and enhance our G&P presence. We can see line of sight about 35% of our pipeline capacity is filled by our own volumes. We want to grow that to about 50%. We also will have the ability to bring in other people's G&P production into our system through long-term contracts that go out through the 2030s. We have a long-term contractual position plus our own proprietary volumes that we feel quite comfortable that we can fill out our system.
We're transporting on other people's pipelines a tremendous amount of our volumes today that we can bring into our system over time. Even out in the DJ Basin, we've got the ability to use other people's assets that we've contracted to have commitments on, other people's G&P assets that can feed into our system all the way down to our Sweeny Hub. We are very comfortable with where we are, but we do want to continue to look at how we can create accretive value through adding GMP assets to feed our system.
Great. Thanks. Maybe with all that being said, I want to address the headline question here. What is the risk that the market never adequately recognizes the value of the Midstream business? You've obviously got an activist investor that's pushing this case. Why do you think the Midstream is a better position within your portfolio versus spinning it out?
If you look at where we're trading today, based on 2025 consensus earnings, we're trading at something like an 8.8, 8.9 multiple. That's more than one turn above our refining competitors. We believe there is some recognition of that in the shares today. You step back and look at how these assets are integrated with our entire system. The focus in the epicenter really is the Sweeny Hub. We built four world-class fractionators leveraging assets at Sweeny. All of these assets tie into the Clemens Salt Cavern system just outside of Sweeny, where we store massive quantities of Y-grade NGLs, purity products, crude oil, hydrogen. CPChem stores their feedstocks and their products there as well. It's all very efficient, co-located, a lot of operational synergies that are captured there between the fractionators and the refining system and the petrochemical system.
There are streams that are flowing back and forth without a lot of friction, certainly between the NGL system into the refinery. The refinery is able to unload light ends into that fractionation system to process more crude. We're able to send streams to be upgraded over to CPChem . CPChem sends what would be waste streams over to us to be upgraded inside our refinery system. There is just a massive level of physical integration, a massive level of molecular integration there as well. We can optimize that system daily. You go out and look at how we're creating value out in the marketplace.
We've got a global trading system, offices in London, Calgary, Singapore, where the same people that are trading naphtha and crude oil and fuel oil can trade propane, butane, and maximize the value of those molecules as we move them offshore through our Freeport hub, through Mont Belvieu, and eventually through Corpus Christi as well. We believe that there just is truly monumental integration value there. We believe that that's reflected in a couple of metrics that are indisputable. If you look at our balance sheet, we've got an A3/BBB+ credit rating. That's a stronger credit rating than any of our refining peers. It's a stronger credit rating than any of our NGL peers. We think that's a strong vote of confidence that we've got the ability to manage our cash flow across the business cycles.
The volatility in refining is offset by the stability of earnings in NGL and the marketing side of the business. It enables us to make the kind of growth investments that we've made in Midstream, the kind of performance-enhancing investments we've made in refining, and still return cash to shareholders. That's what's going to enable us to make those investments while we're returning over 50% of our operating cash flow to our shareholders. If you look at that metric, while we were investing in these Midstream assets in 2023, we returned 66% of our operating cash flow to our shareholders through dividends and share repurchases. In 2024, again, we returned over 100% of our operating cash flow to investors while we continued to improve refining through targeted investments and continued to enhance our position in NGL Midstream. We've got incredible strength.
We believe that every decision that we make through capital allocation, asset dispositions, that we can enhance our ROCE. We believe that that's the leading metric for total shareholder return. If you look at average over the last 10 years, our ROCE has been higher than a basket of NGL companies. It's been higher than a basket of our competitors in the refining world. We believe those are indisputable, solid numbers that show that this integration is working and that there's upside for it in the future. That does lead to greater TSR. If you look at our TSR performance since July of 2022, when I moved into the CEO position, TSR has been something like 66%-65%, again, higher than a basket of our refining peers, higher than the S&P Energy Index as well. All of those metrics are firm and indisputable.
Great. Thanks. You talked a little about refining there. I want to shift the conversation a little bit to talk refining. Since the start of the year, there's been a significant amount of volatility in refining markets. Margins have improved a bit over the last couple of months. What's your latest? You guys always have a pretty informed view. What's your latest view on refining supply demand as you look right now and as you look over the remainder of the year?
If you look at it globally, we see, and I think there's some general consensus around the fact that we see something around the order of a million and a half barrels a day of new capacity coming on. It's always a challenge to handicap that because things tend to take longer to come online. If you look at Dos Bocas and Dangote, they continue to have these rolling capacities coming into the system, but we're chalking those up as well. You look at the shutdowns globally, we see something like a million barrels of capacity coming offline, and we think those are actually being accelerated. That's probably a pretty good number, maybe some upside there. In the U.S., you see assets coming off. Los Angeles Refinery is in the process of shutting down. We've committed to idle our Los Angeles Refinery by October.
That's a big portion of the million barrels a year. You compare that to the demand growth. Demand growth is forecasted to be around a million barrels a year. You have a net offset of about 500,000 barrels a day demand versus supply. That will tighten things up a bit. Certainly, we'll see the positive impacts of that in North America. You combine just looking at the Los Angeles Refinery shutdown and the ongoing challenges at Dos Bocas, I think North America gets directly impacted by that. We should see some tightening there.
Thanks. Still in refining, I mean, you've had a plan going on for a few years here, kind of the self-help improvement plan on operational reliability, capture improvement, etc. You've lowered operating costs by about $1 a barrel and improved the reliability of the assets. What do you think are the next steps of improvement or the biggest needle movers from here going forward?
Yeah. I think through this process, and we're two and a half years into a multi-year journey, let me just say that upfront that we know that we've got more work to do. What we've accomplished, we're happy with what we've accomplished in the last two and a half years. We're not satisfied. I don't know that I would ever use the word satisfied on any of these aspects of the business. We've always got things to do to improve performance. The fact is we have made tremendous strides in the right direction around reliability, particularly in the crude units. Our crude utilization has been high and improving. We've been above average crude utilization rates for, I think, the last 10 quarters or so. If you look at the fourth quarter of last year, we were at 94% crude utilization rate versus industry average of 91%.
We're also making improvements in our yields, in our clean product yields. We've taken that from 84% to 87%, which will, over time, improve our market capture metrics as well. We're improving operational efficiency. We're improving reliability. We're improving the value of the products we make, and we're enhancing the flexibility of the assets. It's a multi-year journey. Some of these things have to match up with turnaround timing and how we can do that. One of the things that we're quite proud of is the fact that we've enhanced our turnaround capabilities. We've lowered the cost of our turnarounds and the length of our turnarounds, the duration of our turnarounds, and we've increased the interim between our turnarounds. We've done that through leveraging technologies.
Instead of going into a refinery and opening everything and laying it open and finding out that, well, this piece of equipment did not really need to be worked on, but there is still cost and time involved with that, we have employed technologies that allow us to be more predictive in how the maintenance needs to work. We have been more efficient in applying that, and we have had great results. If you look at our most recent investor deck that is online, you can see how dramatically we have reduced the cost impact of turnarounds, but that also enhances our utilization rates. There is also some upside coming in more reliability work that we are moving downstream in the refineries into the units downstream of the crude units.
We believe that we've got opportunities to enhance utilization of those units as well, either by bringing in intermediates elsewhere or leveraging the high utilization rates of our crude units. It's a multi-year journey. We're two and a half years in. We believe we've got several years to go before we get to the point where we'll probably just come back and press through it all again. I believe that these things, there's always opportunities. There's always changes in technology. There's always changes in markets that you can take advantage of at any given point in time.
All right. Thanks. On the chemical side, you've got a couple of big projects underway at CPChem there that should start up over the next few years. Where are we on the road back to midcycle? What do you think it takes to get there?
I think that we are experiencing a long downturn after a very robust period of margins through COVID. You've seen a lot of capacity come on in North America as a result of the shale revolution. That capacity is being digested in the marketplace. I think now North America, for the first time, exports more polyethylene than it consumes domestically. That's, frankly, taking market share from Europeans and other parts of the world. We are seeing those volumes find a home. You are seeing assets rationalize in Europe. The good news, the really good news is CPChem is designed to thrive in this environment as well. They are generating great earnings, a billion dollars of EBITDA coming our way even at the bottom of the cycle. It is because of their cost position both in the U.S. and in Qatar.
When these new units come on, these will be the largest of their kinds in the world, very integrated, relying on low-cost ethane in North America, low-cost ethane in the Middle East, and they will be the cost leaders in the world. We are going from strength to strength as far as the cost position. Demand continues to grow in the world of high-density polyethylene, and that is their primary end product. If you have got growth at a multiple of GDP combined with the lowest cost position in the world, it is going to be a good value-creating story over time. We do see margins starting to improve. They were improving last year. Some seasonality came in. Ethane prices picked up a little bit. I think you are going to see margins continue to improve towards midcycle the rest of this year and into 2026.
Great. Maybe similar to the question on the Midstream, how do you view CPChem as positioned in terms of a core position with the portfolio? What do you think would be the benefits or the risks of monetizing CPChem ?
There is a lot of deep integration, particularly around Sweeny again with the CPChem assets. They have three cracking facilities co-located at Sween y. They've got two world-scale high-density polyethylene plants. They're a hexene plant. It is deeply integrated, sharing lots of resources. It is one more step removed today than the NGL assets are. If we were to fully own CPChem , that ownership friction that exists today, which we benefit from half of it, we'd benefit from 100% of it. It would be even more deeply integrated if we owned 100% of it. I will tell you, I'll be first to say, because I've lived inside of CPChem , I was there when it was founded, that it's been a great success story. The model has worked.
You've got these two large energy companies that own this business when it was spun out of two large integrated oil companies put together to create focus on petrochemicals, but still it was able to grow more aggressively and create more value than its competitors over the 25 years that it's been in existence because of that ownership. It's been a great model, and we see a lot of future growth based on that model. We've had the same conversation across the table from Chevron. If Mike Wirth was sitting there, he would say the same thing, that for 25 years, we've looked each other in the eyes and said, "This is a great business. If you don't want your half, we'll take your half." It's been the same conversation. In the meantime, we've both worked together rather heroically to create tremendous value.
I mean, CPChem has self-funded all of its growth over the last 25 years without getting a dime from the owners. In the meantime, they've sent over $17 billion back to the owners. When they started off, it was basically a break-even business, plus or minus a few hundred million dollars. Now they're going to hit midcycle. By the time these new projects are online, they're going to be exceeding $5 billion of EBITDA at midcycle. That's a tremendous growth story. The model's been great. We don't think there's any need, unless Chevron wants to exit, to mess with that model.
Okay. Renewable diesel. Lots of uncertainty out there right now. A lot of moving pieces, right? You've got BTC expiry. You've got the PTC, which may or may not last depending on what happens with the IRA. Moving pieces in California with the Low Carbon Fuel Standard . Can you maybe talk about how you view the near-term and the medium-term outlook for that business? It's clearly pretty challenging at the moment, but where do we go from here?
Yeah. Rodeo is a great asset. It's operating well at or above design rates. We're in the process of optimizing the cost structure there to get it as competitive as we can get it. We've got a global commercial organization that's able to get the right feedstocks into that facility. We optimize on the best feedstocks, a combination of cost and carbon intensity. One challenge is that the rules tend to change a bit there, but we're seeing things settle down on pathways. We're seeing California make constructive moves around stabilizing LCFS systems. There's more work to do there. The change from Blenders Tax Credit to Producers Tax Credit will be beneficial over time because now you've got two different streams that are trying to replace traditional diesel. You've got renewable diesel, and you've got biodiesel. Now, biodiesel will be very disadvantaged under the Producers Tax Credit.
In fact, you're already seeing moves there. Biodiesel is not as viable as it used to be. That'll do two things. That'll tighten up the market for diesel, and it will loosen up the market for feedstocks. That'll be beneficial. Producers Tax Credit is law, and it will take legislation to make it go away. We're betting that the PTC will be there. The devil's always in the details. All of the rules that are being proposed around PTC, will you be able to use foreign-sourced used cooking oil or not? That's a proposed rule. It's still out for public conversation. We think it makes all kinds of sense to use imported used cooking oil, but we're prepared to take advantage of wherever they land with the PTC. Right now, the rules are in flux.
For our first quarter, we're just saying, "Okay, we're not taking any consideration for the Producer Tax Credit." When the rules are firmed up, we will lean into it. It will be part of our optimization going forward. One thing, though, that is interesting is you can use used cooking oil to produce renewable jet that then gets diluted to sustainable aviation fuel. We've proven that we can produce the renewable jet at a Rodeo facility, even at higher rates than we thought. We are poised to move more of the renewable diesel into sustainable aviation fuel that will again tighten up renewable diesel. Other producers are doing the same because the incentives are there to do so around sustainable aviation fuel. Market efficiencies will come into play. Pressures will come into play We're constructive over the long-term prospects around the Rodeo facility.
Great. One on the balance sheet or just use of cash. You have headline optics might suggest on a consolidated basis that you should delever a little bit. Based on your Midstream weighting, as I think you've talked about before, you could argue in a different way that you might be actually underlevered. What's the right amount of debt for your business? And how should we think about how you're approaching that from a cash point of view?
First point is that we like our A3/BBB plus credit rating. That is a fortress balance sheet level. We believe it gives us lots of strength across the cycle. In COVID, we were one of a few companies that could go out and secure debt, no questions asked, because of the strength of our balance sheet. When you look at the structure of our business, like I said, we have got solid earnings in the Midstream business. We have taken Midstream from $2.1 billion in 2021 to about $3.8 billion now, soon to be $4 billion when we roll up again. We have got organic opportunities that will take us to $4.5 billion. That is very steady fee-based earnings. You stack on top of that another $1.8 billion from our marketing and specialties business that is also very stable.
You look at that, not only can we between those two things, we can fund our dividend at about $2 billion a year. We can fund both our sustaining capital at about $900 million a year and our growth capital at right around $2.1 billion a year. All of that can be funded from that baseload of Midstream and marketing and specialties. That is very secure. All of the cash that will be thrown off by chemicals, all the cash that will be thrown off by the more volatile refining segment, that is available to flex the balance sheet, to ramp up returns to shareholders, or to do if there is an opportunistic bolt-on out there to do that. We believe that provides great strength.
The other thing, the way to look at it, Ryan, is that $5.5 billion-ish of steady earnings at three times that EBITDA to support the debt, that completely covers our targeted debt level of $17 billion from a debt coverage perspective. We are not relying on the volatile earnings in refining to support the debt. We can look anybody in the eye and say, "We've got zero net debt on our refining business," which is kind of the conventional wisdom of where refiners should be. We have the Midstream business and the marketing, especially businesses that can support that debt. Across the cycle, we are going to be able to return at least 50% of our cash to our shareholders.
We're able to grow our Midstream business, focus on improving our refining business to make it world-class across the cycle without worrying about the volatility in those earnings and return to our shareholders consistently, both through a sustainable growing dividend as well as share repurchases. We believe we've got that mix, the diversification, the integration that allows us to do that year in and year out.
All right. Thanks, Mark. I think that's all the time we have.