C3 splitter, the 1-hexene unit, and then they also added another furnace to one of the large crackers there. And 1-hexene and C3, they’re adding earnings in the first quarter. So they’re up, they’re running, they run at higher than nameplate capacity, which has been really good. And, again, generating earnings that are showing up at Cp Chem’s results. And we’re in really a startup mode with furnace on that, that works complete their you know starting it up going to normal shakedown you’ll have with those units we’re hoping in Q2 you’ll see something more material on the earnings side there too.
Mark Lashier: Yes, Ryan, you’re seeing live the last almost 25-years what CP Chem has done to position themselves to be able to run flat out at the bottom of the cycle and they did that and they did that profitably and you’re seeing rationalization of assets in Europe, while they’re running at flat out rates. And so that’s encouraging from a CP Chem perspective. We need to see that in this down cycle to see some of the less competitive assets come out of the system. And that’s going to be constructive, and that will help accelerate the industry out of the bottom of the cycle and to greener pastures out in the next couple of years.
Tim Roberts: And Mark, to add on to that point, I think that’s a great point, is what you’re saying is that a lot of your higher cost folks, they’re running at reduced rates or they’re shut down and extending maintenance. We’re running at reduced rates, and we’ve even seen some facilities, namely in Europe, two announcements of two crackers that will be shutting down from some competition there, because they’re at the wrong place in the cost curve where CP Chem is on the right place in the cost curve.
Ryan Todd: Great. Thank you very much.
Operator: Our next question comes from Manav Gupta of UBS. Please go ahead. Your line is open.
Manav Gupta: Hey, guys. So you did a good job of explaining the variability in earnings quarter-on-quarter on refining. Can we go through some of that in the midstream? We saw a big variation on the NGL and other side. I mean, transportation wasn’t off that much, but help us understand what drove the variability in the second part of that business?
Tim Roberts: Yes, Manav, thanks for the question. This is Tim Roberts again, and let me go ahead and address. I mean, first thing I want to lay out there is that last quarter on the earnings call, I talked about guiding toward $675 million per quarter IBT and we’re staying with that. I mean, that still feels good, $3.6 billion through the year. That’s where we’re at. So I just wanted to make sure that hasn’t changed. Now if you look at 4Q and 1Q, 4Q was a strong quarter, okay, that was the first thing. You had some one-time things that showed up in that fourth quarter. And in the first quarter, what impacted it, and especially the variance, number one, winter storm. So the winter storm it impacted us and impacted other people too and really the impact was and I think it’s worth noting we’re really not to our assets, it was to the producers.
So we really weren’t seeing the volumes come down the pipe due to freeze-offs and a variety of other different issues. So it took a while for those volumes to get back up and get running again, and then subsequently start working their way through the system. So about $30 million impact there. And then also we had some commercial true-ups from fourth quarter to first quarter, commercial true-ups, accruals, and some inventory timing that showed up between fourth quarter to first quarter. And so if you put those two quarters together, you really are getting in somewhere north of that $675 million number where we’re at. We think we’ll be on a more normalized basis as we go into 2Q. And you’ll see some inventory timing issues will show up. It’s not big, but we’ll show up in the second quarter as a positive.
But generally, that’s kind of how we look at it. We’re still in that $675 million is the right number as we see throughout the year.
Manav Gupta: Perfect. My quick follow-up is on the diesel macro. We have seen some pullback in cracks. Wasn’t fully anticipated because we expected Russia volumes to drop, which they did not. So I know Jeff does a lot of detailed work on this. So if you could help us with your crystal ball as to what’s going on in the diesel world and do you expect the cracks to get stronger in the year?
Brian Mandell: Hey, Manav. This is Brian Mandell. I would say that you know we’ve had a number of issues. We had a warm Northeast U.S. winter. Then refiners came back and they were running really well. Prices for diesel are in contango, we have seen about 200,000 barrels a day of Russian distillate off the market. But we are constructive. We do think the market will come back. You’re seeing, starting to see run cuts in Europe and Asia with hydrocracking and hydro-skimming margins that break even. As we move into driving season, we could see more gasoline mode. In fact, you’re seeing gasoline over distillate on the coast in the U.S., East and West Coast. That could drive less distillate, moving to more jet production from diesel, particularly fixing ahead into China’s Labor Day, Golden Week and we see real strong jet demand.
And then continued issues, geopolitical issues, you know, if Russia’s hit again, that means diesel exports as well. So we think that things are going to look better coming out of kind of this trough here.
Manav Gupta: Thank you.
Operator: Our next question today comes from John Royall of JPMorgan. Your line is open.
John Royall: Hi, thanks for taking my question. I had a follow-up on the retail sale in Europe. Are there any other assets on the international marketing side that might be less strategic that could shake out there? And on the U.S. marketing side, is the majority of that business too integrated with the refining operations to separate? I’m just trying to get a sense of the strategic direction in marketing in light of this new sales process?
Mark Lashier: Yes, John, from a Europe standpoint, the other marketing businesses are in Switzerland, where we have a joint venture with Co-op and in the U.K., and the two are very different in that the Switzerland business is somewhat of a standalone retail business, but it’s also in a joint venture structure and so the dynamics are a little bit different around that. The U.K., that marketing business is very integrated with our refining in the U.K., so it’s much more akin to the U.S. model where the marketing business serves to help ensure product placement coming out of the Humber refinery. And that’s really the case for the U.S. marketing business as well. It’s very much integrated with the refining system across the different regions.
John Royall: Great. Thank you. And then my next question is on the West Coast. I think Mark sort of alluded to this a little in his response to Neil, but how should we think about the structural capture rate on the West Coast and how it’s going to be different now with the Rodeo, you know, officially an RD unit and not a refinery. Should we expect it to be higher than what we’ve seen historically as a result?
Mark Lashier: Well, you want me to start with that?
Rich Harbison: Sure. You can come over the top. This is Rich Harbison. So there’s a reason, John. We’ve gone to Rodeo and converted it into a renewable fuel stock. It has not been a meaning contributor to the earnings profile on the West Coast for quite some time now. So that, we’re looking forward to getting that change fully implemented and then we do think that we’ll have a marked change to the West Coast profitability. The Los Angeles and the Ferndale facilities will continue to operate and they’ve been good contributors to the West Coast, but I’ll say in general the West Coast is a challenging market to make money on the refining side of the business. Our Los Angeles refinery has been challenged with the declining supply of California domestic crews, which has taken away a lot of the original crude advantage for that facility that was originally built.
Now, the TMX pipeline is opening up, so there’s a change in the crude flow dynamics, which has the potential to have a positive impact on the Los Angeles facility. And we’ll see how that dynamic works out here over the next few months as these crude flows change around. But, you know, changing and pulling the Rodeo refinery out will have a marked change on the west coast.
Operator: Our next question comes from Matthew Blair of Tudor, Pickering, Holt. Please go ahead.
Matthew Blair: Hey, good morning. Are you able to share the approximate EBITDA contribution of those German and Austrian retail assets up for sale? And then the cash from the sale, would that be earmarked for like share buybacks, and if so, would that mean an increase to the $13 billion to $15 billion target?
Kevin Mitchell: Yes, Matt, this is Kevin. The EBITDA, I’ll give you the numbers that are on the information that we’re providing to the prospective buyers. It’s a, the range is EUR300 million to EUR350 million, which the conversion for that is $325 million to $375 million. If you take the midpoint, $350 million of EBITDA is probably your best number to go with on that. In terms of cash generation, as we previously stated, our cash return target, the $13 billion to $15 billion, was not dependent on proceeds from asset sales. So it does have the potential to increase that. But I would also say we haven’t made any definitive decisions on exactly how that cash would be deployed. And also the timing is still quite uncertain at this point anyway. These processes usually take a while to run through. So that will be something that we will make a determination on near the time when that cash inflow becomes real.
Matthew Blair: That’s great, Thanks. And then the $180 million hit from the Rodeo conversion, I think that’s a little bit higher than what we were expecting. What drove that increase? And can you provide any sort of breakout on like how much of that was in gross margins versus OpEx versus depreciation? And then also, is it fair to assume that the current Rodeo plant is EBITDA negative , since it’s not running the low CIPs yet?
Kevin Mitchell: So on the first question, we’re not going to give that level of asset specific breakout. And I would say the $180 million does not include the absolute loss on a GAAP basis is a bigger number again, because we had some impairments related to assets that are taken out of service. So the $180 million is on the consistent with the way we report our adjusted earnings. And it does show up in the different areas, but we’re not going to provide that level of line item breakout. The second question was around EBITDA, while we’re in ramp-up mode. My observation and others can supplement this is, clearly, when we’re in ramp-up mode, we’re running the higher CI feedstocks. We don’t yet have the full economies of scale because we’re in ramp-up mode.
