EBITDA generation is going to be challenged in the early phases. But as we go through that series of bringing all the units up, production coming up to the 50,000 barrels per day, the feedstocks migrating to the more — the lower carbon intensity, we should start to see that transition into positive EBITDA contribution.
Rich Harbison: Supported by sustainable aviation fuel.
Kevin Mitchell: That’s right. It’s another uplift, yes.
Matthew Blair: Great. Thanks for your comments.
Operator: Our next question comes from Paul Cheng of Scotiabank. Please go ahead. Your line is open.
Paul Cheng: Thank you. Hey, good morning, guys. I have to apologize, but I want to go back into the West Coast. Can you share that what is the OpEx excluding Rodeo? And also what is Rodeo going to look like once it’s fully ramped up in terms of the OpEx? That’s the first question.
Kevin Mitchell: OpEx excluding Rodeo. Yes, Paul, I think the best way to answer that is because we don’t give that level of asset level detail out. But we will be providing more reporting transparency on a going-forward basis that will enable you to see the kind of level of information that your — the questions that you’re asking for. In future periods, we will be providing more transparency around the Rodeo renewable fuels business separate from West Coast Refining. And so I would just say, I know that doesn’t help you in terms of modeling right now, but just watch this space because we will be providing more transparency around that.
Paul Cheng: Right. Kevin, can I ask that, from the first to the second quarter, I understand there’s some onetime OpEx related with that transition in the first quarter. So the OpEx, should we assume that it’s going to stay at this level as the first quarter or that is actually going to be down?
Kevin Mitchell: It’s probably down a little. There’s still going to be an elevated element of that, and there’s some, what we would classify, as turnaround-related costs associated with the conversion as well that will show up at Rodeo. But the trend is downward. We’re past the peak spend, I guess, is the way to say it.
Operator: Our next question comes from Jason Gabelman of Cowen and Company. Your line is open.
Jason Gabelman: Yes. Hey, thanks for taking my questions. The first one is just on commercial performance. And I think you had discussed a desire to integrate different plans in terms of how you buy crude and sell product and try to maximize profitability across the portfolio rather than at a site level. I’m just wondering if you could provide an update on that journey, and if you’ve seen any of that earnings benefit come through in the results. And then second, just a quick clarification. Can you remind us what your target cash balance is? Thanks.
Brian Mandell: Hey, Jason, it’s Brian Mandell. I’ll give you some kind of flavor of our journey for commercial. Our commercial supply and trading organization is, as you know, an integrated global business. We have offices in Houston, Calgary, London, and Singapore. And as you mentioned, our focus is now to fully optimize and capture the optionality value embedded in all of the assets and then to capture that kind of integration value between the various business segments to drive additional value for the company. Last year, internally, we announced a reorganization of our commercial group, the goal of reducing our back office costs and continuing to advance our capabilities and value generations. We’ve made some really strong hires this year.
We also have a companion organization that we call value chain optimization group, VCO for short, whose function is to work across the integrated value chain to ensure that we continue to make the best corporate general interest decisions. And ultimately, we’re kind of focused on driving increased earnings, maximizing our return on capital employed and increasing the market capture for our Refining segment and doing all this while thinking about continuous improvement and continually growing the business.
Kevin Mitchell: And Jason, on the cash number, the target cash balance, the same as we’ve said in the past, $2 billion to $3 billion. We were slightly below that level at the end of the quarter. I’d also say the first quarter is typically a heavy drain on cash quarter. So as we look ahead, we’re still very comfortable with that target level.
Jason Gabelman: Thanks.
Operator: And our final question today comes from Theresa Chen of Barclays. Your line is open.
Theresa Chen: Thank you for taking my question. First on the near-term outlook for capture in second quarter and maybe third as well. Just thinking about the different moving parts, you have presumably less noise from the onetime items impacting first quarter, whether it be from turnarounds or Rodeo, but you do have WCS narrowing based on your sensitivity and the magnitude that we’ve seen to date, that should be a sizable headwind? And then later maybe with TMX ramping online, delivering barrels to Patch 5 indirectly or directly, that should help your West Coast assets. Just help us think about how to reconcile these variables as we look to capture in the near-term, please.
Mark Lashier: I think at a high level, Theresa, we’re laser focused on the things we can control, and that’s what we focus on, and that’s what Rich and Brian focus on. I think that the things out of our control would be speculative. But I think Rich can talk about what we’re doing to — and what we see over the next couple of quarters with respect to market capture potential, and Brian can chime in from a commercial perspective.
Rich Harbison: Yes. So Theresa, we talked — this is Rich again. We talked a little bit about some of the headwinds on market capture, which when I think about market capture from a Refining perspective, it’s our clean product yield. And then it’s the products that we make. Are we moving up the product value chain on that? So first quarter, certainly some headwinds with some downstream conversion unit turnaround activity. Good news is we’ve refreshed all that catalysts now, and they’re ready to run here. Some of that did bleed a little bit into the second quarter. But as we roll into the summer driving season, you’ll see our clean product yield and product values in about the best place we can put them. Now we continue to invest in these as well.
We’ve seen over the last two years that we’ve completed a number of projects on this front and continue that program through this year as well with a target of increasing our market capture by 5% from a mid-cycle basis. Through last year, we put projects in that have raised that bar by 3%, and we expect to close the balance of that out of the five this year with an additional 15 projects that are currently in construction at the sites. So when we think about the market capture this quarter at 69%, I see that as a lower part of our market and something to build on as we move through the rest of the quarter as the facilities come out of turnaround cycle.
Brian Mandell: And Theresa, this is Brian Mandell. Just to add some color on the commercial side. I would say we’re seeing this year, gasoline and diesel roughly flat to last year in terms of demand. Jet fuel, a little bit stronger this year. I talked about our commercial organization, how kind of moving up that curve to take advantage of the optionality in our assets. We’ll continue to do that. And then thinking about WCS, you made a good comment. I would say that WCS will remain volatile. What we have appetite, we can move around different grades so we can run Canadian heavy, we can run Canadian lights as well. We have an integrated system, a big commercial footprint. And if the WCS is unfavorable, particularly on our Gulf Coast plants or West Coast plants, we can switch to other grades such as Latin American grades and AG grade. So a lot of flexibility in our system.
Theresa Chen: Got it. And if I could ask a follow-up related to Kevin’s earlier comments about what the appropriate leverage is for the company and the commentary related to how some of your more cash flows stable businesses can bear more leverage. Can you just share with us what portion of your Midstream business at this point, what portion of the EBITDA is paid by third-party customers and not Phillips Refining fits Midstream?
Tim Roberts: Theresa, I’ll verify the number, but we’re well into, I would say, it’s 65% to 70% third parties.
Theresa Chen: Thank you.
Operator: This concludes the question-and-answer session. I’ll now turn the call back over to Mark Lashier for closing remarks.
Mark Lashier: All right. Thank you all for your great questions. The market fundamentals that we’re looking at are supportive and our assets are running strong since the completion of seasonal maintenance activities. Our integrated portfolio is well positioned to capture market opportunities and to meet the peak summer demand. We’ve got a clear path forward to achieve our strategic priorities that support $4 billion of growth from our 2022 mid-cycle adjusted EBITDA to our $14 billion target by 2025. We’re confident in our ability to grow cash flows and create significant long-term value for shareholders. Thank you for your interest in Phillips 66. If you have questions after today’s call, please call Jeff Dietert. Thank you.
Operator: This concludes today’s call. Thank you for joining. You may now disconnect your line.
