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Thanks, Joe. I'm good here. Good morning. Well, welcome to Phillips 66 Investor Day. We're glad to have you here in the room today and also welcome those that are participating via the webcast. We'll hear from Mark Lashier, the President and CEO, and other members of our executive leadership team this morning. Our chairman, Greg Garland, is with us today, as well as Bruce Chinn, the CEO of CPChem. Bruce will participate in the Q&A session with us as well. The webcast and the presentation material is available on our website. After today's conference, we will post the transcript as well for your review. Slide four shows our safe harbor statement. We'll be making forward-looking statements today. Actual results may differ materially from what we present.
Factors that could cause actual results to differ are included here as well as in our SEC filings. Today's agenda will start with key messages coming from Mark, followed by presentations from Rich Harbison, Refining, Tim Roberts, Midstream and Chemicals, David Erfert is our Chief Transformation Officer, and Kevin Mitchell, our CFO. After that, Mark will make some closing remarks. We'll take a brief break and then have a question and answer session. We ask that you hold your questions until that time. Before I kick it off to Mark, we'll start with a short video.
Since 2012, Phillips 66 has returned over $30 billion to our shareholders and increased our dividend 11 times. We've delivered 10 years of strategic growth, 10 years of investing in our future, 10 years of providing energy and improving lives. Over those 10 years, we operated thousands of miles of pipeline, built critical infrastructure, and processed more than seven trillion barrels of crude with a safety performance far exceeding the U.S. manufacturing average. We took on world-scale infrastructure projects to capitalize on growth in chemicals and natural gas liquids. We built our Sweeny hub in Texas. We are converting our Rodeo refinery into one of the world's largest renewable fuels facilities.
We grew our NGL footprint by increasing our interest in DCP Midstream and advanced a number of Gulf Coast projects for our joint venture, CP Chem, to further establish its position to meet the world's growing demand for plastics. As we continue to focus on the future, we also took the assets we had and made them better, smarter. Our iconic fuel brands kept up and ahead of consumers' changing needs. In Europe, our Humber refinery emerged as one of the most advanced in the world, a refinery of the future. We established our emerging energy team in 2021 and tasked it with building a thriving, returns-focused, lower carbon business platform. Back in Oklahoma, where it all started with the Phillips brothers, our energy research and innovation team pushed the bounds of what's possible.
All the while, we made sure our communities were stronger, and we made sure we were stronger. We spent years actively shaping our culture, and now we're transforming our business to embrace the energy transition, to thrive in a lower carbon future, to provide energy and improve lives in a new era.
We're ready for this moment to seize the next decade. This moment, our moment.
Thanks, Jeff, and good morning. I wanna thank you all for being here today. I'm truly honored to be leading Phillips 66 as President and CEO. Last time I spoke to all of you as a group was back in 2019 at the last Phillips 66 Investor Day. At that point in time, I was sitting in Bruce's chair as CEO of CPChem. Fact is, I began my career with Phillips Petroleum Company back in Bartlesville, Oklahoma, in a research lab. This company's afforded me to have a great career that's prepared me for this moment and this opportunity. While at CPChem, I initiated a successful business transformation. We had a focus on utilization, market capture, and cost, and we're doing the same thing here at Phillips 66 today to position us to thrive in any market environment by making the tough choices now.
The challenges are different, but the drive and the determination's the same. I'm laser-focused on disciplined value creation and rewarding shareholders now and in the future. This team is. It's a new season. We've got new challenges and new opportunities, and we're unified in our vision and our mission, and we're fully committed to executing on your behalf. I'm thrilled to be part of this team. These are accomplished experts in their field with the learning agility to drive change across the enterprise. They bring a diversity of thought and backgrounds to the table that challenges all of us to bring our best every single day, and I'm proud to call them colleagues. Together, we're strong, we're driven, and we're unified, and the team has the experience and vision to lead Phillips 66 into the future.
While we're here today representing Phillips 66, we're just a small part of this incredible team of people, employees that are hard at work, taking care of business every day to deliver on our promise to provide energy and improve lives. They do this while honoring our values of safety and honor and commitment, and we're proud of them. We're proud of the contributions they make to Phillips 66. Over the last 100+ days as their CEO, I've had the opportunity to lead them, but more importantly, I've had the opportunity to learn from them. I can tell you firsthand, our employees are focused, they're energized, and they're aligned on our efforts to be an even stronger company than we are today.
As I was transitioning into CEO, one of the first things I had the opportunity to do was to invite many of you on a listening tour to get investor feedback. We encouraged some really candid conversations. We wanted to hear things like, "Well, what do you think about us? What do you think, how do you like what we're doing? What can we do different? What can we do better?" Really simple questions that had powerful answers. Similarly, we reached out in a more formal survey to better understand views on our strengths and the opportunities that we have. We took that feedback and sat down with the team, aligned on our strategic priorities, and that's what you're gonna hear about today.
At Phillips 66, we believe engagement's a two-way street, and we're excited to show you that we've been listening, and that we're responsive to shareholder feedback. The first order of business today is make it crystal clear what the purpose of this meeting is, and that purpose is to demonstrate the Phillips 66 management team is committed to creating value for our shareholders. We're focused on returns and growing distributions in a competitive and sustainable way. We're committed to our integrated downstream model. Our diversified integrated assets provide us with resilience during turbulent times and allow us to maximize value capture during favorable market conditions. We have the ability to unlock value that our competitors simply don't have, and we also have the discipline to extract that value, and we're finding ways to enhance our long-term resilience. It's clear to us that you expect results.
We will deliver those results. This morning, you'll hear us make commitments. These commitments are meaningful, they're quantifiable, and they are achievable. Here's those commitments. These are six priorities that'll enable us to reward Phillips 66 shareholders now and in the future. Rewarding you means we're increasing our distributions. Our priority following the post-COVID recovery period was repaying debt. We strengthened our financial position back to pre-pandemic levels, and we're prioritizing the return of significant capital to shareholders. How will we deliver? We will improve the performance of our refining business. We're gonna capture value along the NGL value chain from wellhead to market as we integrate DCP. We're executing our business transformation to deliver sustainable cost savings, and we're gonna maintain absolute financial strength and flexibility. Lastly, we'll be disciplined in our approach to accretive value-enhancing growth.
We have an overarching returns-oriented mindset that drives our choices as we consider opportunities in our existing business lines, as well as our pursuit of lower carbon opportunities. As we highlighted in the video, we have a solid foundation rooted in our core values and a clear mission. That's not going to change. Okay, let's talk about how Phillips 66 is accelerating return of capital to shareholders. Today, we're committing to return $10-$12 billion through a combination of dividends and share repurchases over the second half of this year through 2024. Supporting this commitment, our board of directors authorized an additional $5 billion of share repurchases. That brings our total outstanding authorization to $6.7 billion. Further, we're committed to a secure, competitive, and growing dividend.
We've increased our dividend 11 times since inception, and you can expect annual dividend increases going forward. Improving our refining performance is absolutely key to enhancing our strong history of returning cash to shareholders. We're taking the necessary steps now to ensure reliability, to increase market capture, and reduce costs. Our midstream, chemicals, and refining marketing model integrated by global commercial team provides us with additional market opportunities around the world. Rich Harbison, our brand new head of refining, will provide more detail in his presentation on the initiatives we're executing. We're excited about our DCP Midstream transaction, which unlocks significant opportunities for us. It positions us to compete more effectively in the midstream NGL business. We made an offer to acquire all the publicly held common units, and if it's successful, our economic interest in DCP will increase to 87%.
The transactions that we've undertaken with DCP will add over $1 billion of relatively stable EBITDA per year. On top of that, we're gonna aggressively pursue and capture operating and commercial synergies as we integrate DCP. Timothy D. Roberts, the head of our midstream business, will provide more color on the foray into NGLs that led us to increase our ownership in DCP. Looking ahead, we're committing our business to a lower cost, more profitable, and more sustainable business model. We have an ambitious vision of the future of Phillips 66. This fundamentally positions us to compete and win as the energy markets continue to evolve. Our business transformation is enabling that vision. We're making great progress executing our initiatives to save more than $1 billion in cash every year, sustainably, reproducibly over and over again.
Our Chief Transformation Officer, David Erfert, is here to provide further details about where you'll see that $1 billion show up in Phillips 66 results. Let's take a look at our financial strength and flexibility. Operating well on margins, executing growth, and managing our costs. These are key to maximizing cash flows and maintaining our financial strength. It gives us the ability to reward shareholders with competitive distributions while still selectively reinvesting to grow at the same time. We're gonna deliver $3 billion of additional EBITDA growth by 2025. That's our commitment to you. We'll continue to prioritize our strong investment-grade credit ratings. A strong balance sheet gives Phillips 66 the flexibility to execute our long-term strategy as a diversified energy company across the commodity cycles. Kevin Mitchell, our CFO, will provide more details on our balance sheet strength and our disciplined financial strategy.
Lastly, we're focused on driving growth and returns in a very focused and disciplined way. We have great projects with strong returns, and our disciplined approach to capital allocation ensures that shareholder value is always at the core of our decision-making process. As we invest in these projects, you can expect our total capital spending to be about $2 billion annually through 2024. With this lower spending over the next couple of years, this will allow us to sustain our existing assets, continue returns to shareholders in excess of 40%, and provide disciplined, focused growth to support future distributions. Our ability to deliver and secure growing shareholder distributions in the future is enabled by pursuing disciplined and selective growth today. I'll cover those growth projects in more detail later in the presentation.
We have a proven track record of distributing cash to Phillips 66 shareholders, and we have every intention of upholding and building on this record. Phillips 66 was among the first energy companies to commit to the pledge of returning substantial cash to shareholders through dividends and share repurchases. We've returned more than $30 billion of shareholder distributions since our inception in 2012, and it's been well above our 40% target. This track record's been enabled by our uniquely integrated midstream, chemicals, refining, and marketing assets. Investors have seen an increase in the annual dividend every year since inception. We prioritized dividend security during the pandemic in 2020, when others were forced to cut and even eliminate their dividend. We're gonna continue that trend.
We've reduced our net shares outstanding by 24% since 2012, and our commitment is to continue down this path. We're confident that our strategy and our investments are supported by the macro environment we see developing. If you look at global liquids demand, it continues to increase. We expect further growth this decade from the approximately 100 million gallons a day we saw pre-pandemic. The U.S. will continue to play an important role meeting oil and NGL demand in years ahead. The geopolitical events underscore the call on U.S. hydrocarbons, given the abundant resources we have in this country and the stability that we enjoy. NGLs and petrochemical feedstocks are the fastest growing segment of liquids demand, and petrochemical demand to grow faster, driven by growing middle class worldwide. The macro fundamentals support our investment case focused on NGL and chemicals opportunities.
The expected demand growth for plastics drives the need for more capacity, including CPChem's potential investments in world scale petrochemical facilities. Refining outlook's improved due to U.S. operating cost advantages and global refinery rationalizations. U.S. refiners have more flexibility to process a wider range of crude slates and intermediate products than the European refiners do. Higher natural gas prices, increased environmental costs, these are making European refineries the marginal producer, supporting higher market cracks globally. Underpinning the strength of refining is the 4.5 million barrels per day of capacity that's been closed or converted since 2019 globally. In the U.S., we've seen a 1.5 million barrels per day of capacity removed from the market. The global loss of capacity, combined with the recovering demand for clean products over the next few years, support utilization rates and margins.
These market fundamentals are why we're optimistic about our future and confident in our strategy. Over the next few years, we expect share repurchases to be about $2 billion a year or more and to deliver on our commitment to distribute $10 billion-$12 billion a year or overall to our shareholders. How are we gonna do that? Well, today, our portfolio is capable of generating $7 billion of cash flow in a mid-cycle margin environment. In three years, that mid-cycle cash flow is expected to increase to $10 billion per year. Initiatives we already have underway are expected to add that incremental $3 billion in EBITDA. This includes the buyback of DCP, the startup of our Rodeo Renewed facility, and our business transformation. Our capital priorities haven't changed.
The first dollar goes to sustaining capital to ensure continued asset integrity and safe, reliable operations. Next, we fund our dividend, including growth, as we remain committed to a secure, competitive, growing dividend. That leaves us with $7 billion a year by 2025 in a mid-cycle market environment to allocate between share repurchases, debt reduction, and growth capital. Growth capital will be about $1 billion per year. We'll also be in a position to further pay down debt as our bonds mature. Before I turn this over to the team, let me reiterate why I'm excited to lead this company, especially at this particular time. We continue to make meaningful changes to position the company to compete and win as the energy markets continue to evolve.
Phillips 66 will thrive over the next decade by capitalizing on improved market conditions while simultaneously executing cost reduction and margin enhancement opportunities. Our strategy is ambitious, and it's achievable. Just like we've done over the last decade, Phillips 66 will rise to the challenge and deliver meaningful results for you. Our hard work will enable us to reward shareholders today, and it will enhance our ability to compete for years and decades to come. With that, let's hear from others on the leadership team, starting with Rich Harbison, who leads our refining organization.
Thanks, Mark. Good morning, everyone. How we doing? It's great to be here. I thought I'd start first with a brief introduction, a background, of my career. You know, I started in this business 34 years ago. Actually started as an operator in our lubricants division, and then I transferred into terminal operations, pipeline operations, and then refining operations over 22 years ago. I can't tell you how honored I am to be part of this leadership team here in front of us today, as well as humbled to be leading the refining organization. Let's talk a little bit about refining here. One thing I've learned over the years is our organization, our people, are committed to achieving the highest standard of performance. We're an organization of problem solvers operating a business capable of generating significant cash flow for Phillips 66.
We know there are opportunities to improve. Let me say we're keenly focused on positioning ourselves as the industry leader in any market environment. Operating excellence is foundational. Everything, every day, we must earn our right to operate in our communities. The license to operate demands excellence from us in personal process safety, as well as continuing our journey on the environmental, reducing our environmental footprint. The good news is we are performing very well as an organization. Performing significantly better than our peer average when it comes to personal safety. We're an industry leader when it comes to process safety. This culture of high standards and continuous improvement that's molded us as leaders in safety is now being harnessed to improve our refining performance. We have three specific goals, operating improvement goals over the next couple of years. These goals are, one, increase mechanical availability.
Two, enhance our market capture. Three, reduce our operating expense. We are actively working these goals systematically across the entire organization, empowering our employees to identify and implement opportunities to improve the business. I can assure you, we have an organization that is driven to operate the assets safely, efficiently, and be the best at what. Now let's take a deeper dive into these goals. First goal, increase mechanical or asset availability. Our historical pre-COVID average utilization was 94%. We have operated at or below industry average utilization since the pandemic. Our utilization has improved in 2022 despite heavy turnaround activity, but remains well below our standards. Utilization is generally driven by two key factors. One, market conditions, which we cannot control. Two, mechanical availability and capability, which we can control. We have line of sight of 98% crude unit mechanical availability by 2025.
We are attacking these three areas outlined in the chart on the right-hand side of the slide. First are turnarounds. We're executing initiatives for all phases of these planned events. The goal of this effort is to reduce the time, to optimize the time to shut down our units, to optimize the time to complete the maintenance, and to optimize the time to restart the units. We are standardizing our planning and execution norms to challenge traditional approaches in all phases of the turnaround cycle. We're also optimizing work scope by incorporating enhanced inspection techniques. These advanced techniques will assure we are working only on the equipment we need to be working on and only when we need to be working on that equipment. This will reduce the maintenance execution timeframe.
Secondly, our equipment oversight programs continue to progress, providing advanced monitoring and data analytics, improving our predictive maintenance, which improves reliability. Finally, we're focused on ensuring our units are ready to run and are running full. We are accomplishing this through targeted small capital investments that deliver online reliability and capability. Much of these improvements are developed on the backbone of our previous digital investments. We are capturing and communicating data in real time. We're efficiently turning the data into information, and most importantly, we're enabling our organization to take action. We have line of sight to achieve a world-class crude unit mechanical availability of 98%, assuring our assets are ready to run and running full. Switching to our second goal here, enhanced market capture. Refining is a competitive business, and having the flexibility to capture margin during any market environment is essential.
We operate 10 refineries in the U.S., one of two refineries in Western Europe. You can see our assets are regionally distributed, limiting our concentration of exposure to any single market. Many of our refineries were built to efficiently process advantaged heavy or high sulfur crude with high coking capabilities relative to our peers. Overall, our crude slate has been balanced between heavy, medium, and light crudes. Our system, our U.S. system ranks in the top third in complexity. Our European refinery assets rank in the top 10% of Western European refineries. We have a strong kit. The question is, how do we enhance market capture? We're focusing on the things we can control, and these are outlined in the chart. Product value improvements ensure we are maximizing production of the highest value product.
We are progressing initiatives to increase our flexibility to swing between gasoline and diesel production. Another opportunity is to increase our capability to upgrade products like ultra-low-sulfur diesel, upgrading low-sulfur diesel to ultra-low-sulfur diesel, or taking butane out of our fuel gas systems and putting it into gasoline. Those are just a couple examples. There's many more. We've identified several opportunities to improve clean product yield and volume gain through enhanced molecule management. Actually, one of the more innovative opportunities we've been pursuing is the use of machine learning, AI. We're actually using this to optimize our process unit performance. This allows us to achieve higher production rates, but yet still maintain our product quality as we do that. We are continuing to expand this application across our system. Crude advantage. We know increased crude processing flexibility will create opportunities to capture value.
We have identified several small projects that will enhance this flexibility across our system. Utilization and flexibility. Utilization and reliability. Both of these are supported by our first goal of improving mechanical availability and our work to increase flexibility to fill the process units to their capacity. We are committed to creating the most value with our existing assets, operating them safely, efficiently and effectively. We will implement targeted capital investments focused on small projects that have high returns. Bottom line, we will improve our market capture by 5%. This equates to $400 million in realized margin improvement at mid-cycle pricing. I'd like to highlight an integration example here in our central corridor. You can see the three central corridor refineries, product pipelines in blue, and the marketing footprint illustrated on the map.
In this region, we have access to high-quality low crudes as well as advantaged crudes. High clean product yield is pulled through the refineries by a strong network of product pipelines. These product pipelines lead directly to key consumer markets where we have strong branded presence and strategic marketing joint ventures. Additionally, our value chain optimization organization is maximizing value across this system, this integrated system, and they do that by really sharpening our focus on general interest decision-making. I think this provides a really good example of how an integrated system supports market capture, utilization, and maximizes value. We saw this play out nicely in our third quarter results. Now let's move on to cost. We've embarked on a mission to make a significant step change in how we do business across the enterprise.
The goal of this effort is to improve organizational efficiencies and drive cost from the business. In refining, we're looking at everything from simplifying work to organizational structures. Because the best ideas generally come from those closest to the work, we are engaging all levels of the organization to participate in this process. Let me provide a couple of examples within refining. I mentioned our effort earlier about turnarounds, turnaround efficiencies. This effort's not only a time-based exercise, but it's also intended to drive value. We will reduce our turnaround cost by $50 million per year, and this will place Phillips 66 in the top quartile of performers. We have reviewed all of our critical work processes with a keen eye of focusing on reducing low value added activity.
The team has identified over $30 million per year in value through avoided investment or reduced operating expense through this exercise. This broad effort to reduce operating expense includes all phases of the operation, organizational design, third-party spend, maintenance activity, energy costs, and more. The mindset that we're driving is capture value in everything we do. Bottom line, we are reducing costs to produce by $0.75 per barrel. This is equivalent to reducing our operating expense by $500 million annually. All right, in closing, our refining team is focused on being world-class operators that will thrive in any market environment. Our integrated system and complex refining portfolio positions us well for long-term competitiveness. Our refining organization is made up of people who are problem solvers. We are committed to be an industry leader in every metric we measure.
We have line of sight to 98% crude unit mechanical availability, market capture improvements of 5%, and we will reduce our cost structure by $0.75 per barrel. We will create shareholder value by delivering on our refining vision. World-class operations competing in any market environment. Thank you for your time this morning. I'm gonna turn the podium over to Tim now and talk about Midstream.
Thanks, Rich. I guess I'm the only old school one here with paper. Don't be nervous. Good morning. Really good to be here with you. It's glad to be back. Really appreciate each of you taking the time out of your day to spend time with us, and really excited to talk about our Midstream business. First and foremost, what is it each of you should take away from this session? We've been busy. We have brought DCP in for control of that through that transaction, and we've created a wellhead to market NGL business that will not only create stable and growing cash flow, but also have a competitive advantage against our peers and competition. Also, the successful integration of DCP will improve our cost structure and create growth opportunities to further generate value.
The net result of all that will highlight the earnings potential and unlock the full value that this Midstream business has to offer. NGLs clearly present the best pathway for value creation and growth going forward. With U.S. production growing and the long-term positive outlook for global petrochemicals, the fundamentals are constructive for those that have an integrated NGL system. These are exciting and busy times in this business, and I'm proud of the work that the team has accomplished over the last three years to build a cost-competitive platform. You can expect us to perform. We do know who our competitors are, and we know what it will take to compete. The team is all hands on deck to integrate DCP and drive our cost structure to a new level. We have a macro environment that supports the supply and demand story for natural gas and NGLs.
We expect over seven million barrels per day of global liquids growth. The US will play a key role in meeting the global demand for LPGs and petrochemical feedstocks. US crude oil production is expected to grow by over two million barrels per day from the current level through the end of the decade. NGL production is growing at a faster pace than crude and is expected to grow by 1.3 million barrels per day over the same time period. It's important to highlight that the level of investment to meet such demand is falling short, which makes the fundamentals for our business more constructive. Let's talk about the demand side of the story, petrochemicals. As Mark talked about briefly, as global economies mature, we will see continued growth for pet chems, which supports growing demand for advantaged US-based natural gas and natural gas liquids.
How do we drive value? This map shows the competitive positioning of our NGL portfolio. Let me paint a picture for you. Imagine a toll road from the Permian to Houston. Before the DCP transaction, we only owned a portion of the toll road, so we could only clip so many coupons. Post DCP transaction, we own the entire toll road, which means capturing the full economic rent available versus partial. Phillips 66 now touches the molecule at every point on the NGL toll road. Not only are we levered to some of the best basins in the U.S., like the Permian and the DJ, but we also have some of the highest leverage to the NGL value chain among peers. We are now able to offer services that only a select few midstream companies can provide, and you know many of them.
This simplified structure will lead to expanded relationships with new and existing customers. This integrated system will capture more value and drive lower costs, improve reliability, and provide much needed optionality for producers. The Sweeney Hub is a world-class NGL complex where our fracs, cavern storage, and export dock are located. We also have pipeline connectivity to the domestic petrochemical industry, along with waterborne access to global LPG markets. We provide valuable optionality to customers who want an alternative to Mont Belvieu or the congested Houston Ship Channel. The site recently commissioned Frac Four, which has been running above design capacity since start. This is a remarkable achievement by our operations and our project teams. Our enhanced integration also puts us squarely into natural gas business. We have over five billion cubic feet per day of gas processing capacity that will be the backbone of our integrated system.
Assets are only one part of the story. We have some of the best people in the industry. Our success would not be possible without their efforts. This chart provides an in-depth view of the value chain, as we've talked about before. Using the Permian as a focus point, like the toll road analogy, we will capture value at every point along the chain. With the integration of DCP, we will move the molecule through our own system versus competitors. This will maximize value capture for Phillips 66. Our efforts are aimed at providing competitive, reliable, and attractive options to producers, which will show up in higher volumes and higher margins. The transaction is accretive, and once the buy-in is complete, will generate an incremental $1 billion + of EBITDA.
We are currently in negotiations with the special committee on the buy-in, which limits how much I can share on the value capture and synergies. What I can say is we are moving quickly integrating DCP into Phillips 66. Stay tuned as we work through the process. I'm excited about the potential that exists for us. Our NGL platform creates a highly competitive value proposition for both our customers and our shareholders. Over time, one thing that stands out is the relative stability in midstream earnings. Okay, let's be clear. We are not immune from commodity swings and cycles, but our high percentage of fee-based business is well-positioned to dampen some of that volatility. The DCP transaction is transformational for our business, and a successful integration is our primary focus.
We will bring rigor, structure, speed, and discipline to the integration. The transaction will allow us to leverage the best that both companies have to offer, including technology, talent, best practices, scale, and culture. As we manage the midstream portfolio, we have existing non-core assets that generate solid underlying cash flow to the business. Non-core assets will need to earn the right to remain in the portfolio. To wrap up, why are we excited about this business, and why should you be? We have created a wellhead-to-market NGL business that will provide and create stable cash flows and growing cash flows. We believe we will have competitive advantage versus our peers. That if we successfully and when we successfully integrate DCP, we will improve our cost structure further and create growth opportunities to further generate value for our shareholders.
We have the assets, integration, scale, operational excellence, and people that will deliver the results and unlock the full value this integrated business will create. Thank you for your time this morning. I'd like to go ahead and turn it over to David Erfert.
Thank you, Tim. Good morning, everyone. I'm really excited to be here today to share more about our business transformation with you. I've worked in this industry for over 32 years, numerous assignments in refineries, various business, technical and project assignments. Most of my roles have involved making significant improvements or driving significant change. Earlier this year, when I had the opportunity to become our chief transformation officer to lead this effort to reduce our cost structure, I was more than excited as it was right up my alley. Today's business environment brings an accelerating pace of change, and this has catalyzed our business transformation. To compete effectively, we recognize our need to operate differently and to sustainably lower our cost structure. We will deliver $1 billion annually by the end of 2023.
We see $800 million coming from costs and the other $200 million from a reduction in our sustaining capital. We will get these reductions to the bottom line, and the cost savings will be sustainable in the years to come. We started our transformation program earlier this year. We established a very structured and disciplined program to identify and execute cost reductions across the entire enterprise. We are now in full execution mode and already getting savings. We have a high degree of employee engagement across the company at all levels, which is imperative for us to drive permanent cost savings to the bottom line. The pie chart shows the breakdown of the $1 billion savings. This highlights where it will show up on the bottom line. I already mentioned the $200 million reduction in sustaining capital.
Third-party freight costs consist of marine, pipelines, trucking, and rail associated with our operations. $500 million of our cost reduction from refining is a combination of operating expense and SG&A. The other operating cost reductions are from other businesses and corporate staff functions. This will primarily be SG&A, but does include some midstream operating expense. Now let's dig a little deeper into what's fueling these savings. Our business transformation is truly a summation of many new cost reduction initiatives. We are leaving no stone unturned and have looked at every single cost in our company from top to bottom. Here are examples of ways reducing our cost structure. We're increasing our use of rejuvenated catalysts at our refineries, which have a lower cost but similar performance to new catalysts. We are creating a new centralized projects organization to drive greater capital efficiency.
This change will leverage our scale, our technical expertise, and fully take advantage of our EPC partnerships. Another more technical example is energy efficiency at our hydrogen units at our refineries. By safely challenging historical operating limits, we're able to reach the full technical capability of the latest generation catalyst. This results in lower energy costs by consuming less natural gas, and we've already implemented this at two of our refineries and are now scaling this across our entire portfolio. In terms of labor-related costs, we are going through a rigorous organizational restructuring process. We will achieve a significant portion of our cost reductions by redesigning our organization. We have reduced staffing since 2019, but the business transformation in 2022 drove a major step change and reduced headcount by over 1,100 employees.
$250 million of our transformation savings is related to these 2022 staffing reductions, most of which are already implemented. We used a comprehensive process to reevaluate our activities and organizational structure. We identified where work should be done at what level. What do we need to be really good at to achieve our strategy? Where do we need to be fit for purpose? We are centralizing organizations where it makes sense and where we can reduce cost. An example of this is in refining. We implemented a hub and spoke centralized model for many of the support functions such as finance, procurement, IT, business services, capital projects, and so on. This will help refineries focus on what Rich said, increasing market capture, utilization, and reducing costs. We're standardizing, streamlining, and simplifying work, and we are leveraging our digital capabilities to increase automation to reduce headcount.
We are already seeing value hit the bottom line. By the end of this year, we will reach $500 million of run rate savings across the company. The $500 million reflects $250 million for the organizational structure changes, quick wins across the enterprise, and the $200 million from sustaining capital. With our disciplined approach and enterprise-wide employee engagement, we will achieve the full $1 billion run rate by year-end 2023. We are on a great path to the $1 billion, and we are excited about it. We see more opportunity ahead on our business transformation. You can expect us to provide updates on our progress at upcoming quarterly earnings calls. With that, I'll now turn it over to Kevin to review our financial strength and flexibility.
Thank you, David. Good morning, everyone. It's great to see you again. Today, you heard Mark talk about our commitment to returning cash to shareholders. I will describe how our growth in EBITDA and cash generation balance sheet will enable us to deliver on these commitments. Critical to executing this commitment is financial discipline, strong balance sheet, as evidenced by our peer-leading credit ratings. We have been disciplined in our approach to capital allocation. Over the past 10 years, we have returned significant cash to shareholders, and we have invested to grow the company and create shareholder value. This growth enabled us to continue providing a secure, competitive, and growing dividend. Our growth in midstream and chemicals has improved our financial strength and flexibility. The value of this financial strength was demonstrated during the pandemic.
We were able to secure the dividend and fund our capital obligations in a challenging environment. The conditions at the time required us to add $4 billion of debt. This was a painful but necessary step. Now most of the debt has been repaid, and the balance sheet is where we want it to be. We have greater flexibility. We are experiencing refining margins that are trending well above mid-cycle levels. We're now positioned to return a significant portion of cash generation to shareholders. We recently released third-quarter results. You saw the significant increase quarter-over-quarter in our share repurchases. You can expect this to continue. Let me talk about the balance sheet. Our strong balance sheet is necessary to support healthy cash returns to shareholders. We have peer-leading credit strength made possible by prudent financial management, combined with robust cash flow from our differentiated assets.
Our balance sheet allowed us to weather the pandemic with credit ratings intact. As you know, in our third-quarter financial results, we consolidated DCP Midstream. Upcoming debt maturities are manageable within our mid-cycle cash flow assumptions, including the optionality to refinance debt. We plan to repay the April 2022-23 maturity this year. It's a $500 million maturity. The rating agencies reaffirmed our credit ratings in light of the DCP transaction. We have a strong liquidity position with more than $10 billion of total liquidity. This includes $5 billion of capacity under our revolving credit facility at Phillips 66 and $1.8 billion of credit and accounts receivable facilities at DCP. We target a $2-$3 billion cash balance. However, we are carrying more cash in the near term given current market conditions.
We're targeting a net debt to capital ratio between 25%-30%. Just one point of clarification on that. At the end of the third quarter, our net debt to capital ratio was 29%, and that included the consolidation of DCP Midstream. It's a healthy balance sheet, provides us with financial flexibility, and is a key enabler to our cash return commitments. Strong distributions are nothing new for us. We have returned more than $30 billion to shareholders since 2012. This represents over 150% of the Phillips 66 market capitalization at spinoff. In addition, investors have seen an increase in the annual dividend every year, including during the pandemic period. We will continue to increase the dividend annually.
We're making a significant commitment today to return $10-$12 billion to shareholders via dividends and share repurchases from midyear 2022 through the end of 2024. To put this in perspective, we will return more than one-third of the amount we did in our first 10 years in just 2.5 years. Earlier today, we announced that our board of directors approved an additional $5 billion dollar share repurchase authorization. With this approval, we have $6.7 billion of remaining authorization. Now, let me tell you about our strong cash flow generation and how it enables us to reward shareholders. Clearly, to return this level of cash, we need significant cash generation. We are fortunate that we're seeing refining margins well above mid-cycle levels.
While earnings today are stronger than mid-cycle, I will update you on our current mid-cycle thinking. Based on our ongoing efforts to reduce cost, deliver midstream growth, and other growth, including Rodeo Renewed, we expect to increase mid-cycle Adjusted EBITDA by $3 billion by 2025. Let's step through it. The increase in midstream EBITDA is driven by our increased ownership in DCP, as well as completion of Frac IV at our Sweeney Hub. This contributes over $1 billion. We are enhancing EBITDA by reducing the company's cost structure. We continue to progress the conversion of the Rodeo Refinery into a world-class renewable fuels facility. This capital-efficient project provides $700 million of EBITDA growth while lowering carbon emissions. Finally, our chemicals joint venture is increasing EBITDA through investments to debottleneck and optimize existing assets.
The two world-scale projects that are currently in development, that's the U.S. Gulf Coast II Petrochemical Project and the Ras Laffan Petrochemicals project, they fall outside this guidance window. We expect to realize over half of this mid-cycle EBITDA increase by the end of next year through increased ownership in DCP and business transformation savings. This increase in mid-cycle Adjusted EBITDA translates into higher mid-cycle cash flow. Next, I'll update you on our capital allocation priorities given the increase in cash flow generation. With increasing mid-cycle cash flow, we have a significant amount of discretionary cash that can be utilized for share repurchases, debt reduction, and strategic growth. Capital allocation priorities have not changed. We will fund sustaining capital with $1 billion to safely maintain our assets. Sustaining capital is $800 million for Phillips 66 and $200 million for DCP.
The Phillips 66 sustaining capital reflects a $200 million reduction from previous years because of our business transformation savings. The next $2 will go towards the dividend, and share repurchases will offset the cash impact of dividend increases. This leaves over $4 billion of discretionary cash flow at 2022 mid-cycle levels. With growing mid-cycle EBITDA, we expect to increase discretionary cash flow to $7 billion by 2025. Keep in mind, current year actuals are above mid-cycle. The market environment means 2023 is also shaping up to be an above mid-cycle year. In reality, we anticipate reaching $7 billion in discretionary cash flow before 2025. Our main priority for incremental cash flow is funding share repurchases. We continue to strengthen the balance sheet.
We have $ 2 few billion of additional debt maturities to repay over the next couple of years. We also expect to fund the DCP transaction with a combination of debt and cash. From a balance sheet perspective, we expect all of this to be manageable within our free cash flow outlook and will not detract from our cash return commitments. We are also committing to a $2 billion dollar per year capital budget through 2024. Even at the lower end of our mid-cycle assumptions, we can spend $2 billion on share repurchases, $1 billion on debt reduction, and have $1 billion to fund growth capital. We also expect to enter 2023 with a higher-than-typical cash balance. This is appropriate given the current market environment and enhances our financial flexibility.
As we manage our portfolio, proceeds from asset dispositions will serve to increase cash return to shareholders. We still believe in our original long-term capital allocation guidance of 60% reinvested in the business and 40% returned to shareholders. For the next couple of years, we will return over 40% to shareholders, as evidenced by our $10-$12 billion cash distribution commitment and $2 billion capital budget. In summary, the combination of capital discipline, a competitive integrated portfolio, a strong balance sheet, and $3 billion in EBITDA growth supports our commitment to shareholder distributions. We will prioritize shareholder returns while maintaining a conservative net debt to capital ratio of 25%-30%. I will reiterate that a healthy balance sheet with strong investment-grade credit ratings is foundational to our ability to return significant cash to shareholders.
Thank you for your time today. I'll now turn it back to Mark Lashier.
Thanks, Kevin. Now I'm going to have the opportunity to provide some additional color on how we're going to drive disciplined growth and returns going forward. As Kevin just demonstrated, we've got really strong financial position and a disciplined approach to capital allocation, and we plan to reinvest only $12 billion per year of capital between 2020 through 2024. At the same time, we're gonna meet our ironclad commitment to distribute over 40% of our available cash flow to shareholders. Our ability to achieve secure, competitive, and growing dividend shareholder distributions in the future will be enabled by pursuing selective disciplined growth today. In chemicals, the demand for plastics products will continue to grow.
These products make life better for people around the world, and CPChem is a world leader in ethane cracking to produce ethylene, an essential building block for many chemical and plastics products. North and the Middle East remain the best places on the planet to secure ethane and to take advantage of that pricing and to access growing global markets. As demand growth continues, additional capacity is gonna be needed, including CPChem's potential U.S. Gulf Coast II and Ras Laffan projects, and we're absolutely convinced that meeting that growth will be rewarded. Project financing at the joint ventures level is key. It'll reduce CPChem's cash outflow during construction, reducing the impact on our cash distributions from CPChem to Phillips 66. Our net cash exposure in the form of CPChem distribution impact will be about 10% of the total capital invested in the combined projects.
These are attractive projects utilizing CPChem's proprietary technologies and allowing it to meet growing demand for its products. CPChem's portfolio of high return projects and proven project execution record enables it to invest confidently across the business cycle. We recognize that we play an important role in the transition to a lower carbon economy, but our commitment is that energy transition projects will have to exceed our internal hurdle rates and compete for capital with our traditional investments. Our energy research and innovation organization is a true differentiator for us. Having that in-house expertise to evaluate the technology pathways is invaluable. We're gonna leverage technologies, and we're gonna leverage our capabilities to secure competitive advantages in that space where we simply won't invest. Renewables are key for us. They're a growth opportunity for us and a leading path to decarbonize heavy transport as well as aviation fuels.
We'll leverage and repurpose existing assets with core competencies to participate and win in the fuels of the future. A great example of this is our Rodeo Renewed project. It's ideal for conversion to renewables, and it'll save jobs, it'll reduce emissions, and it's an incredibly capital efficient opportunity. It's gonna provide attractive shareholder returns. Building a successful and resilient portfolio for a sustainable future means securing competitive advantage, and we'll do that by securing the right returns with the right technologies in the right regulatory environments with the right partners and at the right time. At Phillips 66, we absolutely recognize that how we work is as important as what we do. It's simply who we are. We've established ourselves as an industry leader in operating excellence, focused on ESG and operating safely while protecting our people and our communities.
We recognize that safe and responsible operations are good business. We have both short and long-term greenhouse gas emission intensity reduction targets. Here is the best part of how we do things. Through our business transformation efforts, we're actively honing a competitive edge with our employees, and our employees are energized and aligned, and they're as optimistic about the future as they were when we launched this great company ten years ago. We're confident in our integrated, diversified portfolio. Rich and Tim shared examples of how our integrated assets unlock value creation across the midstream, chemicals, refining, and marketing segments. This diversification allows us and provides us the opportunity to generate cash flow with a stability that protects us against commodity cycles. This absolutely differentiates us from our competitors. Phillips 66 has the financial strength and discipline to extract value and enhance long-term resilience.
Okay, last slide. Take a good look at this slide. It shows our commitment. I'm committed, this leadership team is committed, our employees are committed to delivering on these results. If there's one thing that you take away from today, it's this chart. Burn it into your memory, print it out, set it on your desk, and check off these items as we complete or exceed each one of these commitments. Our plans are ambitious, and our plans are achievable. We'll return $10-$12 billion to shareholders through dividends and share repurchases by the end of 2024. When we acquire the public common units, our interest in DCP Midstream will increase to 87% and provide more than $1 billion of EBITDA uplift.
We are absolutely resolved to reduce our cost structure and achieve more than $1 billion of annual cash savings through our business transformation. We'll increase cash distributions to shareholders while continuing to enable Phillips 66 to pursue disciplined growth and enhance our cash flow generation and maintain our financial strength. I'm gonna throw out an old line here. Henry Ford once said that you can't build a reputation on what you're going to do. The implications for us are crystal clear. We're gonna execute, and we're gonna deliver, and we're gonna build on our solid reputation. Phillips 66 is positioned to reward shareholders now and well into the future. Thank you for being here today, and more importantly, thank you for your continued interest in our company. We're gonna take about a 15-minute break while we assemble the team up here to handle your questions and your comments.
See you back then.
If you would go ahead and find your seats, and we'll start the Q&A session here in a few moments.
Oh, [uncertain] makes you guys look different.
All right. Thank you very much. In addition to the presenters from this morning, we've got Bruce Chinn, CEO of CP Chem, to join for the Q&A session. Zhanna Golodriga, who runs our emerging energy and sustainability business, and Brian Mandell, who runs marketing and commercial activities. We'll go ahead and start with Q&A. If you would announce your name and your firm so that it shows up properly on the transcript. Neil, can we start with you?
Thanks, Jeff. Neil Mehta with Goldman Sachs. Thanks for doing this great presentation. First question was around Rodeo Renewed and the $700 million of EBITDA. Can you talk about your confidence level around the achievability of that number, given we've seen some of the renewable diesel projects in recent quarters not living up to maybe the initial anticipated profitability, especially with weaker LCFS levels? I have a quick follow-up.
Thanks, Neil. It's a great question. I'll tee it up a little bit, and then Rich can dive in, and even Brian may have some things to say about it. We're actually operating a smaller unit there now that has been exceeding our expectations on profitability. I think it's in the right location, the right market, great access to feedstocks. We're securing feedstocks for that facility. We're securing feedstocks for our Humber refinery today. We've got a solid plan to upgrade that feedstock in volume and in our ability to capture low CI materials and bring that in. There's almost a concerted thing that goes on amongst the different benefits that are generated there, whether it's LCFS, RINs, Blenders' Tax Credit, all the above.
Rich is far more versed in the details, but he can talk about our expectations there.
Thanks, Mark. You know, what we're seeing, Neil, is this essentially interactive nature between the incentive programs that are incentivizing the renewable diesel production. As one comes down, others are kinda creeping up a little bit. The actual margin of the project based on the original economics is still very positive for us. We're quite constructive on this project and continuing to develop it as we progress through this year and into next year. We're looking forward to get this up and running first quarter of 2024. Brian, anything to add?
I guess I would also say we view the acquisition of the feedstocks as being very important, and we've been in that business for 4.5 years at Humber, buying used cooking oil. We have access, and we've run used cooking oil in the Rodeo. Unit 250 is what we call the first startup of the Rodeo, and we've run canola oil, we've run distillers corn oil, soybean oil. We've run a lot of different feedstocks. We have access to those feedstocks both on the water and by rail. As you know, we have soybean from Shell Rock Soy Processing. We have a lot of optionality in the system.
We're on top of the big demand zone, California, and we have our own retail stores that we can run the diesel right through, so we don't have to share value with wholesalers as we integrate our system.
Yeah, that Neil, I think that element is key, that we've got that value chain. We've converted over 600 retail outlets. We've got truck fueling stations. We're just capturing the whole value chain, kinda like Tim's Toll Road. You know, we're gonna do that with renewable diesel as well.
Yeah.
Let me just also add, I think the Inflation Reduction Act has made renewable jet or sustainable aviation fuel also much more interesting in the economics of the project as well.
If you recall, we did not include Blenders' Tax Credit in our economics, so there could be some upside there.
Okay. Thank you.
Great. Doug?
Thank you. Doug Leggate from Bank of America. Jeff, did you say we could have two or just one?
One with a follow-up.
One with a follow-up. 'Cause Neil, I think that Neil only did one. So my question is, I wanna go back to the 2019 presentation and just help reconcile the differences between what you presented then and what you presented today. Because at the time, I think you said $9 billion of mid-cycle going to $12 billion. With DCP, you're now at $10 billion going to $13 billion. So it sounds like you missed the 2022 target by, you know, by some margin. Can you walk us through whether I'm thinking about that correctly? And my follow-up is whether your definition of mid-cycle has changed in any way, especially for refining. Thanks.
I'll answer the second, and then maybe Jeff will have some color on that, and then Kevin can go through the breakdown of what was discussed in 2019. I think that we're not making any prognostication on a change in mid-cycle. We tend to view it from a historic basis, although we do believe that we're gonna outperform that historic mid-cycle. If that's a signal that we think it's gonna be stronger, I guess that's what that is. That's what you see in what we presented today. Yeah, we think that refining is in for a good, strong run.
The fundamentals around, you know, capacity rationalization, clean product demand surge, the geopolitical impacts all add up to us being in the right place at the right time to really capture a lot of value in refining. Now, Jeff will touch on 2019 math.
Yeah, Doug, I wanna make sure we're looking at the same numbers because my recollection is we went from $9-$11 billion in 2022 at the investor day back in 2019. The difference between that $9 billion, the $11 billion we said then for 2022 and the $10 billion we're saying today, this really comes down to two things. One, we had certain midstream projects that we did not execute as we went through the pandemic. That was the Rodeo Pipeline, the Liberty Pipeline. There's a couple other smaller projects. That accounts for about $350 million of EBITDA.
The other shift that we have made in that, in the current mid-cycle update is we took out the historic mid-cycle EBITDA for the Alliance refinery and for San Francisco refinery, given that that's converting to renewable service. That's about another $400 million that was included last time, excluding this time. Net, when you put that together, yeah, we may have missed it a little bit, but not by much. We're talking $200 million-$300 million gap from what we said three years ago to where we are today.
Kevin, you wanna go through the by segment for starters?
For the current. Yeah. In terms of that, $10 billion starting point, the way to think about it is this. Refining is four. Four billion dollars of adjusted mid-cycle EBITDA for refining. The midstream business pre-DCP transaction is 2.3. The marketing business is two, the marketing specialties segment. Chemicals is $2 billion. Those add up to 10.3. You take off 0.3 for the corporate costs, and you get to the $10 billion of mid-cycle Adjusted EBITDA as a baseline for 2022.
To put that in perspective, the 2012 to 2019 period, the 3-2-1 RIN-adjusted crack was $12 a barrel. Think about today, I looked this morning, we're at $32 a barrel. There are structural changes that have occurred. The rationalization of over 4.5 million barrels a day of refining capacity, the higher natural gas prices in Europe and international markets relative to where we are today. Natural gas prices are about $30 per MMBtu above U.S. pricing today. Every refinery is different, so rules of thumb are only so accurate. Every dollar per MMBtu is roughly about $0.30 cents a barrel of cash operating costs.
$30 per MMBtu higher is about $9 a barrel higher cash operating cost. If you look historically, the US advantage has been closer to $1.50 a barrel. Those are significant differences relative to that 2012-2019 period, just to kind of put that in perspective.
Good. Roger.
Thank you. Sorry, a little loud. Roger Read, Wells Fargo. Kevin, this question's for you. If I look at the EBITDA growth and then the cash flow growth, your conversion off the current number $7 billion out of $10 billion, and you're gonna go to $10 billion out of $13 billion, it implies like 100% conversion for cash flow. I was just curious, what are the moving parts in that and why is the guess, in a sense, the cash call on that so modest on the growth here?
Yeah, we may need to get into Jeff's model here. Fundamentally, the big drivers as you think about this. DCP on roll-up, we will have access to all of the cash. The DCP model on a roll-up, once the roll-up is complete, all the cash will be distributed back out, right? We will have full access to that cash. The cost savings flow straight through. Those are straight up cash savings. Likewise, the other growth, Rodeo Renewed, we expect all of that translate into back into a cash from a cash standpoint. There's gonna be some impact from a tax standpoint.
There will be a little bit of an offset, but in aggregate, as you look high-level at this, it's a $3 billion growth in available cash.
Yeah. I mean, it's an impressive conversion rate for sure.
Yeah.
Follow-up question. Nothing in here about dispositions, acquisitions. It was mentioned in the midstream presentation there might be some non-core ops. What are the thoughts on any use of proceeds outside of an operational level? In other words, if you do dispose of something, where should we think of that going?
If we dispose of assets, I think you'll see that roll right into the same capital allocation that the cash that's generated from operations. You know, right now, our intense focus is on getting DCP fully integrated, getting it into our organization, getting the synergies captured. Then there may be modest growth opportunities that will attract. There's assets that are out there that may make more sense. Nothing significant at this point. But we do believe in the long-term growth capability of that NGL value chain, and that's where our focus will be. Of course, we've got a broad array of midstream assets that are generating good cash.
If they are more valuable to someone other than us, we'll be glad to liberate them and collect the cash for that.
Yeah. Roger, I think in my when I was up at the podium, my comment was the primary use of additional cash, whether it's from dispositions or other purposes, will be returns to shareholders.
I think, as you have time to work through the presentation and the notes in the back, there's a lot of financial disclosure there, and we're happy to kinda help you work through that and find the information as you look through some of the details on EBITDA, and cash flow. We'll have detailed information available there, or there is detailed information there. All right, Ryan.
Hey. Maybe a quick one to understand all the moving pieces as well. The $400 million of capture improvement that you've targeted on the refining side.
Does that show up in the $3 billion of incremental EBITDA by 2025 or is that upside to those, to that guidance?
It's upside. Yeah, it is upside to what we put in there. We did not roll it directly into that calculation. Partly it's an acknowledgment that in recent periods we have underperformed. There's an element of getting us back to where we believe we should be anyway. For that reason, we did not add it onto there. If we deliver that ahead of that, then there's potential upside.
All right. Thanks. Maybe just a follow-up on your earlier comments there. I mean, obviously you're talking $10 billion-$12 billion of shareholder distributions over a 2.5-year period at a mid-cycle level. We're clearly well above mid-cycle, and you're gonna be generating a lot more cash than that. As we think about the pacing of how you might accelerate shareholder distributions, you know, ahead of that $10 billion-$12 billion target, how should we think about your willingness to do that? How does the potential cash outlay from the DCP transaction impact, you know, the cadence of that as we think over the next few quarters?
I think that we take a focused view on the intrinsic value of our shares and drive our share repurchase program based on that. If there's upside potential there, and we have extra cash, we'll absolutely allocate it to share repurchases, debt reduction, across the board. Whatever makes the most sense when we have line of sight on that cash. It really, the primary focus is return to shareholders. We've got very selective, very focused growth opportunities that we're going to deliver against. We see that in the $2 billion, $1 billion of sustaining capital and $1 billion of growth capital. We will wait until we see the whites of the eyes of that extra cash coming in, and then we'll make those distributions.
From a DCP standpoint, don't really expect the roll-up of DCP. Well, it won't change our commitment. We factored all of that into our thinking. It will consume some cash. We'll take on some debt. We'll want to repay some debt. Given the amount of available cash we'll have, we're very confident that we can return a significant amount of cash through buybacks, invest the relatively modest growth capital budget and make some periodic debt reductions. We think we can accomplish all of that quite comfortably.
Paul Cheng.
Thank you. Paul Cheng, Scotiabank. Two questions. First, Mark and Kevin, if you look at the organization, what, let's say in the ideal world and you have all the attractive project you can invest, what's the maximum organizational capability you can do? I mean, when you're still talking about 60/40 and your mid-cycle cash flow at $10 billion post-2025, certainly I don't think you can invest $6 billion even if you have all the investment opportunities. Curious as to what you think is the maximum investment capability for the company?
Yeah, Paul, I think in that make it very clear that 60/40 is, has been and will continue to be a long-term average. What we're saying today, at least 40% back to shareholders. There is upside to that, and we're demonstrating the upside to that. We have no intent in the next two years of executing $6 billion of capital projects. If we have the cash and if we have a compelling investment opportunity, we will explain that very clearly to everyone so they're on board and take advantage of those opportunities if we can do so and still meet the obligations that we laid out here for you today. As far as organizational capability, we've seen the ability to ramp that up and down.
We've done hundreds of millions of dollars of capital projects at any given time, and have that capability. I think Todd Denton's got our capital group, and he understands the organizational capability. Much of the growth aspiration resides at CPChem, where they do have the organizational capability. They have in the past executed $tens of billions of dollars worth of projects simultaneously, and they've done it with excellence and done it well. They may have the opportunity to do something like that going forward, but they've got the proven track record to execute as well.
Okay. The second question is on the midstream. I think team mentioned that with DCP roll-up, you will be able to offer services to your customer that otherwise you could not. Can you elaborate on that? Maybe give us some example and if possible quantify what kind of benefit to you guys that can achieve from those effort. Thank you.
Yeah. I think, Paul, it's probably a little tougher to quantify as much as maybe if I couched it this way. Currently, where we participate, if we were to go to a large producer right now, we have the ability. This is pre-transaction with DCP. Before that transaction, we were able to go and discuss transportation and fractionation rates. What we didn't have was the ability to also go negotiate gathering and processing. We would have to work with a third party to secure the gathering and processing piece. Two of us would have to go into a producer. Where some other competitors out there, they go in, and it's one-stop shop.
They can offer all the way for the producer, all the way from the wellhead to the market. We were only participating in a part of that. Now also what happens, Paul, which is the part where we're like where we're at as far as, you know, we built a wonderful set of assets, but this integration now helps because what happens is the economic rent shifts in that value chain continuously. Either dock fees may blow out, a G&P may blow out, G&P may be depressed, pipeline fees may go up, may go down. It's always moving. What happens is that value usually moves along the chain. If you're in all of it, you can capture it and moderate it.
That would be the best example I have, and especially as you go again, we go as a one-stop shop to a large producer or even mid-sized producer and can give them a full offering to get their barrels where they need them to be.
It enhances our ability to make sure that our assets in that full chain are fully utilized all the time. That there's no gaps, no contracting issues. We can ensure over the long term that we've got molecules flowing through gathering, processing, into the transportation and fractionation, out to the dock, over to petrochemical producers, the entire value chain.
Let's go to John Royall here.
Hi, John Royall from JPMorgan. Just looking at your 25%-30% net debt to capital, first maybe for Kevin, can you give some color on how you got to that number and why you think it's the right mid-cycle number? I assume you run scenarios when you think about these mid cycles. Where does the net debt to capital go in your stress case? I'm just trying to kinda understand the through the cycle range.
Yeah, John, we probably would have had a slightly lower range if we were not consolidating DCP. That certainly did influence our thinking. Now, the reality is, with DCP debt, you have the cash flow that supports that, and that debt is separate from Phillips 66 debt insofar as it's not guaranteed by Phillips 66. That debt is funded by the DCP-generated cash. That does have an impact on how we think about that consolidated level. It felt like at 25%-30% it's a comfortable band that supports our credit ratings. We've got strong investment-grade credit ratings. It's a comfortable band. If we end up with higher cash generation than anticipated, and we're anticipating that's probably gonna happen in the near term, we may end up going below it.
It's perfectly okay that we're below that range. At DCP, we'd probably been looking at a 20%-25% range target, probably. We've run some scenarios from a stress case, and we've got a fair amount of flexibility within that, in part because of the diversification of the portfolio. We're not entirely driven by just the volatility of refining margins in terms of both the EBITDA standpoint, debt-to-EBITDA ratios, and also cash generation and what that means for the balance sheet. We feel pretty comfortable with that range. It's relatively conservative the way we're looking at it. We think that's. We're already in the range and should be able to move our way further down that range. Even, you know, DCP roll-up will have a little bit of an impact, but that's all very manageable.
Great. Thank you. I guess this one's probably for Rich. Just on the refining improvements, this concept of mechanical availability, something we don't normally see disclosed. I'm just trying to understand how does that 98% translate to a utilization number, you know, relative to the 94% you saw in pre-COVID? You know, just thinking about it in sort of normal market conditions and normal turnaround conditions. Do you have a number for sort of how that hits the bottom line? You gave a number for market capture.
Yeah.
Well, usually, you know, utilization, we will give that guidance on a quarterly basis, right? When I think about mechanical availability and utilization, I almost think about utilization as a backward-looking metric, right? Mechanical availability as a forward-looking metric that takes out the marketplace. From my perspective, if we directionally drive up the mechanical availability of our equipment, then directionally we can capture more of the market. Exact ratio, I don't presume that at this point, but I do presume directionally it's the right way to go and it's the right way for the organization to progress.
Paul Cheng.
Thank you, Jeff. A fairly specific one to start, if I could, and then a more general one. On the specifics you mentioned U.S. Gulf Coast II FID this quarter, I think it said Q4 2022. Ras Laffan Q1 next year, which is obviously very short term, very short timeframe. Could you just talk a little bit about how those two projects fit within the framework that you've outlined? It mentioned that there would be a lower call on cash, I guess, because of project financing, you know, and how the EBITDA and everything else falls within the framework. I assume that the fact that you said it's a Q4 2022 FID means there's gonna be FID in the next couple of weeks. Is that fair?
Yes. I think the quarter runs out soon. Yeah, we'll be within that timeframe. Again, at a high level, these projects have been under development for some time. There's been an intense focus on getting the capital right, mitigating any inflationary impact, negotiating with EPC contractors. You know, we've got the expert just 2 seats over, and I'll just make some high-level comments that in this environment, they've done a fantastic job negotiating some really strong contracts and a really strong position that will benefit. The front end of getting that right on these mega projects is critical to their success. It fits right in with what CPChem has been doing successfully for the last 20 years.
They take a long-term view of the market, and we believe in those long-term fundamentals. It will take about four years to execute the project. You're looking at a timeframe when very little else is being done in that environment as demand continues to march up. We've got great partners with QatarEnergy. They're quite popular in the world right now. They're very constructive, very supportive, good long-term relationship. Both projects will sit on top of the most advantaged ethane on the planet, and they will sit on top of the most competitive infrastructure on the planet, whether it's the other joint venture infrastructure that we participate in Qatar through Q-Chem, Q-Chem II, Ras Laffan. Here in the U.S., on the U.S. Gulf Coast, the unparalleled infrastructure that CPChem enjoys.
Part of that deal is that CPChem will benefit by providing services to that venture that make it a very competitive venture as well. Bruce, you can dive into more color on that.
You just stole all my thunder, man.
Sorry.
I really don't have a lot to add. I think they both are very attractive projects. We believe in the fundamentals of this business, and we look long-term. They make a lot of sense. Our team has done, as Mark said, an outstanding job of positioning them. We're ready as soon as we get that order to really focus on execution and to deliver what we've always delivered is good, successful, strong projects.
Within the framework, is someone gonna talk about that? EBITDA assumptions, CapEx.
Well, I mean, Mark explained that basically, with project financing, we have a good plan to deliver, to our owners a steady stream of distributions, that makes sense to them, and they're fully supportive of that. Also, you noted that the range that he showed today, that actually delivery is outside of that, even during some execution times.
Understood. The follow-up is completely different actually. On Rodeo, just even last night, we had an accident at El Segundo in California. I was just wondering if you would potentially keep running it as a refinery. And also, could you talk about what the major risks are to the project in your perception in terms of any permits that you need or anything else? A few years ago, we sat through many meetings with Tesoro saying they would deliver crude by rail to California, and they never finally succeeded in doing it. I think we're all nervous that there's gonna be some sort of ongoing roadblock to actual delivery of the project. If you could just highlight if there is anything that could obviously come up within the timeframe of, I think you said Q1 2024, first delivery. Thank you.
Yeah. I think that Rich, the last job he had before coming back to headquarters was to manage the San Francisco refinery and the Rodeo project, and more importantly, manage all the complexities on the ground in California. He's well-versed to describe how supportive that environment is. With regard to delaying Rodeo to continue to capture margins, I would say we won't pay any extra to accelerate Rodeo in this environment. You have to look at the backdrop of the stated policies of the state of California to eliminate internal combustion engines. We've got to be thinking long-term about how we respond to that and the things we do. We take it very seriously. Part of the government support for Rodeo is it's consistent with their policies. Rich?
On the permitting front, you know, we received our land use permit back in May of this year. That was the critical permit to go through public review process and provide our ability and our permissions to actually develop the project at the Rodeo site. That was a major hurdle for us. Since that period of time, we've been getting the necessary building permits to, you know, advance a lot of the preconstruction activities of the project. Now, are we all the way through the permitting process? Absolutely not. We still have some permits to get through. Every indication we're getting from the permitting agencies is that they will proceed with the permitting process.
We have a lot of political support from the Sacramento office as well, and a lot of support from the community and the local labor unions there supporting the development of it so.
Sam.
Thank you. Thanks, everybody. This is Sam Margolin from Wolfe Research. This is a refining question, but I think it ties into DCP integration too. For a long time, call it a decade, crude grade differentials were set by geographic factors, and now they're really set by intrinsic values. For example, the most advantaged crudes at a refinery have a high NGL cut or a high sulfur content. I wonder if you think that transition in crude differentials is structural and here to stay, and what that means for your system specifically, you know, as we move away from regional factors, and then how that ties into DCP as well.
Well, I think the key is to have the optionality to run the crudes in the refineries, various crudes. Just as an example, we have Borger Refinery, and we generally run Permian crudes into Borger. Now we have access to a new pipeline coming from Cushing, so we can run WCS or WTI or other crudes right from Cushing. For all of our assets, the goal is to drive as much optionality as we can, that includes inside the facility as well. We're increasing our ability to process not only heavy crudes, which we are an industry leader in, but also in the medium and the light crudes, increasing our opportunity. If those differentials change, we'll be prepared to capture those opportunities as well.
Okay, great. Thanks. This is a follow-up, but, Phillips 66 has a very large peer that's famous for its refining and chemicals integration and, you know, moving molecules back and forth. That's really good for the business, but it introduces what you might call unproductive conversations about which multiple is higher and what kind of optimized operation is best for shareholder value. I wonder if, you know, you're thinking about the new platform as a dynamic optimization or more of just an improved platform with a steady state operation that's raised all the time.
Our vision is it's absolutely a dynamic optimization platform. Our value chain optimization organization is key to just that. We call it working for the greater good, that it's you are looking at how you maximize the value of profitability of all of our assets. We're not gonna be siloed. We're not gonna look at one refinery, one midstream. How does that work? How do we maximize value across the enterprise? This entire team is focused on that, and we've got key individuals that are in Brian's organization that are tightly linked to refining and midstream to make sure that happens. They're gonna be compensated based on that. They're gonna be driven to do that every day. It's not just an academic exercise. It's gonna drive how we do things.
Matthew.
Thanks, Jeff. It's Matthew Blair from TPH. My question is really on the sum of the parts discount in the stock and, you know, thinking about PSX. I think it's fair to say the most diversified refiner in the space, and you combine that with some stock underperformance over the past decade. I guess I'm a little surprised that there's not more talk about, you know, potentially looking at selling some refineries or simplifying the business overall. Really my question is just on how do you plan to monetize the sum of the parts discount?
Yeah. I think that we are focused on simplifying the business. That's. We've rolled up PSXP in the midstream. We're rolling up DCP to simplify the business there and to unleash our ability to generate value there. We're always keen to do that in refining. We're looking at ways to simplify. We're actively simplifying how we do our work in refining to simplify that business model as well. I would argue that the value chain optimization we just talked about is an overarching simplification and optimization of the business. We're constantly looking at what refining assets belong in our portfolio long-term and what is the best way to deal with those that maybe aren't having a long-term future. You've seen us exit Alliance. It was aided by mother nature.
We're transforming San Francisco into the Rodeo Renewed facility, and we're looking at other things too that we're not gonna discuss at this point in time.
All right. Got a question here. I'm trying to see. Oh, Jason, I'm sorry.
Hey, thanks, Jeff. First of all, appreciate the format of the presentation. Thought the messages were very clear, so thanks for that. Jason Gabelman from Cowen. My first question is just on the cost-cutting program. In 2019, you laid out a similar cost-cutting program, and it actually looks like costs increased over that period on an absolute basis, stripping out energy and maintenance costs, on a per unit, on a per barrel basis, and relative to peers. To instill some confidence maybe in this program that you're about to embark on, can you discuss maybe what went wrong in that 2019 to 2022 program and how you expect to maybe not incur those same issues?
I can come in from a 50,000-foot level. I think Kevin and Zhanna can drill in maybe some more. The primary focus of the work at Advantage 66 was deploying advantageous digital innovation across the enterprise. That's been a great success. We're leveraging off of that now as we speak. There was a major focus on enhancing margin capture, and then COVID hits and cut the knees out from under the ability to capture margin and show you where that value shows up. The business transformation we're undertaking today is laser-focused on cost reduction, changing the way we work, reducing unnecessary work, creating efficiencies in the organization. You saw we've eliminated 1,100 positions right in the middle of the two best quarters of our existence. We're committed to executing that and delivering on that.
You will see sustainable recurring cost reductions that we will report on consistently.
Can I just add, from the perspective of laying the digital foundation for the company, which that program, Advantage 66, started in 2018, and it was supposed to be finished by 2020. What we were trying to do is to lay this digital foundation that allows us to get to the second phase of the transformation, which is what we're doing now. If you think about some of the comments that Rich made in his presentation about mechanical availability, about bringing in more efficiency. Digital for us has laid out that foundation and ability to do it. I would venture to say that we are taking advantage of the asset. One of the biggest assets is data. That kind of gave us an opportunity to do things differently.
If you look about bringing efficiency and agility to the organization, by building off that digital foundation, we could do our organizational redesign, literally changing our ways of working and how we operate as an organization. That's setting us for years and years ahead for the future to make sure that we can deliver that we were committing to in business transformation and beyond, because there are so many opportunities, and this is not just the advancements in technology from AI to machine learning, too. We talk about value chain optimization, which is empowered in our case, but an optimization engine that takes advantage of all of the data that we have across all of the business units to make the right decisions at the right time.
To Rich's point, to go from changing how we do maintenance across our operations into being more predictive and doing maintenance, I always said just in time instead of just in case.
Jason, I would add, if you look at 2019, I think our utilization was 94%-95%. 2022 was a heavy turnaround year, about 90%. A few percentage points over 700 million barrels a year of throughput impacts that calculation as well. I don't know if there's anything, Rich, you wanna add there.
No, I mean, Jason, your question is very valid, right? We are absolutely committed to getting this to the bottom line. The organization and what Zhanna is talking about, you know, we're held to the highest standards of safety, right? Personal and process safety. Any changes we make are heavily scrutinized to make sure we're not compromising that part of our business. We have to earn that right every day. As we get through this, and we look at ways to drive efficiency into the process, we have to keep that at top of mind, but also take advantage of a lot of this platform that's been put in place and really change the way we're working.
That's probably the biggest fundamental difference that you'll see in this exercise, is we are fundamentally changing how our organizational structure is and how we are actually executing our work as an organization.
Thanks. I appreciate all that color. If I could ask a follow-up. There was some discussion on the Inflation Reduction Act related to the Rodeo project, but not much outside of that. I'm just wondering at a high level, as you look at opportunities moving forward, anything else that you think you have an advantage of investing in that's been maybe catalyzed by the Inflation Reduction Act. Thinking about your position in the battery value chain and also the fact that you obviously produce a lot of hydrogen in your plants. Thanks.
Yeah, you've touched on our key pillars, and you know, and I think that our focus today is renewable diesel, of course, and then next nearest neighbor, sustainable aviation fuel. We will be producing quantities of sustainable aviation fuel or renewable aviation fuel that gets turned into sustainable aviation fuel both at Rodeo and at Humber. We're looking through our energy research innovation teams and our business development teams at opportunities to grow sustainable aviation fuel at the right time. One of the key elements was looking for the signals that we saw in the Inflation Reduction Act that would help subsidize that. We have to make sure that any path we go down, we can secure competitive advantage. It's still early days around that.
Certainly, you know, the battery production, the battery value chain, if we're going to come even close to generating the amount of lithium-ion batteries in North America, there's gonna be a strong pull on our carbon business and on our needle coke business. We're working with our colleagues at NOVONIX to look at how do we meet that demand. How do we make a better needle coke or make a needle coke that's just good enough to increase the volume to serve that. The demand is gonna be huge. In the Inflation Reduction Act, the mandate to provide materials that are sourced from North America or North America free trade agreements or countries with free trade agreements with North America, it just doesn't exist today.
There's pretty substantial upside if that value chain is going to meet the stated commitments. In hydrogen, we consume a lot of hydrogen. We can make all the hydrogen you want today, you're just not gonna like the price, okay? We know how to make hydrogen, we know how to move hydrogen, we know how to store hydrogen. You know, hydrogen can be a way to store electricity. It's not, you know, if you're gonna store electricity as hydrogen, then produce electricity from it, there's a loss in efficiency there. We are looking at that landscape, trying to understand what the right role is. There'll be roles that hydrogen will play in the energy transition in the right location at the right time. We think it's over the horizon a little bit.
We're doing things in Europe to understand and participate in a very low capital way in that value chain. We're not investing in electrolysis facilities. We're not investing in wind facilities. We've got retail outlets to deliver hydrogen to trucks that have fuel cells, that kind of thing. So we understand how that works and what the growth potential is. That's a bit over the horizon versus, say, things like renewables and even batteries.
Yes, Phil.
Hi, Jared from Asheville Capital. I just had one on the OpEx reduction plan. Did that include the tailwinds from shutting the Rodeo and Alliance refineries, or is that incremental to those two closures?
That's incremental to those.
Other questions? Stephen Lane, I'm having a hard time seeing the back if there's someone back there. All right. Seeing none, I would thank you for your interest in Phillips 66. Thanks for being here today and your participation. Shannon and I will be available for follow-up questions. Thank you very much.
Thanks.