Welcome to the Second Quarter 2013 Phillips 66 Earnings Conference Call. My name is Christine, and I will be the operator for today's call. At this time, all participants are in a listen only-mode. Later, we will conduct the question-and-answer session. Please note that this conference is being recorded. I would now like to turn the call over to Mr. Clayton Reasor, SVP of Investor Relations, Strategies and Corporate Affairs. You may begin.

Thank you. Good morning and welcome to the Phillips 66 second quarter earnings conference call. With me this morning are Chairman and CEO, Greg Garland; CFO, Greg Maxwell; and EVP, Tim Taylor. The presentation material we'll be using this morning can be found on our Investor Relations section of the Phillips 66 website, along with supplemental financial and operating information. Slide 2 contains our Safe Harbor statement. It's a reminder that we'll be making forward-looking statements during the presentation and our question-and-answer session. Actual results may differ materially from today's comments. Factors that could cause actual results to differ are included here on slide 2 and on our filings with the SEC. Also the registration statement relating to the securities of Phillips 66 Partners LP was recently declared effective by the SEC, because we remain in a sensitive period regarding disclosures around this offering, our remarks about the MLP will be limited and we will not take questions on the offering during today’s call. That said, I'll turn the call over to Greg Garland for some opening remarks.

Thanks, Clayton. Good morning everyone. Thanks for joining us today. We faced some challenges in the second quarter, both operationally and with overall market conditions, crude differentials narrowed and although overall crack spreads improved second quarter versus the first quarter, our realized margins were significantly lower. We had unplanned downtime at some of our chemicals and refining facilities which reduced utilization rate and because of the extended downtime in chemicals, we really missed an opportunity to demonstrate the earnings resilience of our portfolio. We should have run better and our earnings results reflect this. Despite these challenges, we continue to generate strong cash flows; cash from operations was $1 billion for the quarter, just over $3 billion year-to-date. During the quarter, we returned more than $700 million of capital to our shareholders and continued on our stated plan to strengthen our balance sheet, paying down $500 million of debt. In addition, we plan to complete the current $2 billion share repurchase program this year and our Board has authorized an additional $1 billion share repurchase program that we plan to initiate before the end of 2013. Our strategy to enhance refining returns through increasing use of advantaged crudes while growing our higher value businesses remains unchanged. On July 15, we launched our Master Limited Partnership, Phillips 66 Partners. This MLP will own, operate, develop and acquire primarily fee-based transportation and midstream assets. The MLP will be a tool to grow the midstream business of Phillips 66 and weave a web of infrastructure between our operating businesses. We continue to deliver on our plans. By the end of the second quarter, we’ve taken delivery of 650 railcars of the 2,000 that we’ve ordered. These cars will be used to transport advantaged crude to Phillips 66 refineries on the East and West Coast. Our chemicals joint venture CPChem completed the NGL fractionator expansion project during the second quarter at the Sweeny facility. The project increased capacity by nearly 20%. Also during the quarter, we commissioned a high-capacity truck facility at Ponca City Refinery, which gives us additional access to Mississippian Lime crude. We continue to increase our refined product exports. In the second quarter, we set a new quarterly record of 181,000 barrels a day. Finally, as part of our ongoing portfolio optimization efforts, Phillips 66 sold its proprietary E-Gas Technology. And earlier this month, we also closed on the sale of the Immingham Combined Heat and Power Plant in the United Kingdom. So with that, I’ll turn it over to Greg Maxwell, who will take you through the quarterly numbers.

Thanks, Greg. Good morning, everyone. For the second quarter, reported earnings were $958 million or $1.53 per share. If we look at on adjusted basis, earnings were $935 million or $1.50 per share. Excluding changes in working capital, cash from operations for the quarter was $1.2 billion. Our cash flow generation enabled us to fund our capital expenditures, pay over $190 million in dividends and repurchase nearly $550 million or 8.6 million shares of our common stock during the quarter. From the inception of the share repurchase program in 2012 through the end of the second quarter, we’ve repurchased 22.6 million shares. On an adjusted basis, our annualized year-to-date return on capital employed was 17%. Slide 5 provides a comparison of our second quarter adjusted earnings with that of the second quarter a year ago on a segment basis. As you can see, adjusted earnings decreased by $482 million to $935 million with lower realized refining margins accounting for the bulk of this variance. I’ll cover each of these segments in more detail later in the webcast. Moving next to our second quarter cash flow, during the quarter we generated $1.2 billion in cash from operations, excluding the impacts of working capital changes and as you can see on the slide, changes in working capital were a negative impact of $206 million. We returned $738 million to our shareholders in the form of dividends and share repurchases and this represented 76% of our cash from operations and during the quarter we repaid an additional $500 million of our three-year term loan. And finally, we funded about $370 million of our capital expenditures in investments and this is primarily in the Refining and Midstream segments and we ended the quarter with cash and cash equivalents of $4.2 billion. As for our…

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Doug Leggate from Bank of America. Please go ahead.

Thanks. Hi, guys. Maybe I’ll take my full quota of two if I may. Greg, can I ask you about RINs? It seems that you get a fairly big impact both on Refining and then the Marketing segment this quarter. What I’m trying to understand is that RINs have obviously spiked higher. I guess it pulled back a little bit here, but in terms of the moving parts as when you acquired your RINs sort of signing perhaps at lower prices versus selling RINs in retail at higher prices, how should we think about the net impact of RINs be at this kind of level as we move into let’s say 2014 because obviously it’s a big deal for Valero. Trying to understand what the scale could be for you guys. And I’ve got a follow-up please.

I’ll take a stab and then Tim can kind of fill in. And so, you got to let me get on the sub-box for a minute and with the standard that this is an unworkable program in our view in terms of RINs and where RINs is going, but with some hope that ultimately this is going to get fixed on a political level in Washington. So I would say there’s a broader understanding about the potential impact of what RINs causes for American consumers and for refiners. We look at RINs, we do trade RINs and we have a very sophisticated commercial organization that does that to optimize the value for P66. So we don’t necessarily want to go into what our positions are on RINs because we really think it disadvantages our commercial people in terms of that. We continue to believe we have a very sophisticated system and complex system. We have multiple levers that we use whether it’s export, producing non-RIN bearing product, blending more as we look to manage that overall value increment for PSX. So, sophisticated commercial capabilities of large system, and this is just one of the costs that we manage everyday.

Just to reiterate that, I think it is something that we look at in terms of optimization of our systems, we have to certainly factor that in, and I think that wait and see what the future holds in terms of those values, but there is a lot of moving parts to address RFS, at the larger level, and I think that just will continue till the resolution reaches, but to reiterate what Greg said, we look at this and just say, it doesn’t work post 2014 and that needs to be addressed.

Tim, are you prepared to say whether you’re net longer now across the organization.

No, we haven’t and again, actually the commercial activities they’d managed the RINs program and do a great job of that, and it has it, we don’t view that as a large determinant of our results.

Great. My follow-up is really more of a logistics question, I guess in terms of moving crude around obviously we’ve seen a lot of changes since the last call on the differentials. I am just curious as you’d step up your shale, share of your feedstocks, how important is yield improvement relative to the differential in terms of how sticky your commitment would be to maintaining that very high level of shale production and maybe any color on how it’s changing your transportation thoughts in moving advantaged crude to the different plants. I’ll leave it that. Thanks.

I think clearly the second quarter saw substantial narrowing on the light crude and several factors drove that so my comment is we have a very large multi-point logistics system, refining system, and we take in account those current markets signals and we’re adjusting our crude slate. The value of the shale crude in terms of its yield, its absolute price relative to other alternatives where you think about, so going forward, we still believe that those fundamentals are there on the supply piece as they continue to increase, so we like what we’ve done on logistics piece of our system, we are going to continue to increase our options on that. However, we are mindful of the current market and we adjust our crude slates accordingly and we are making some of those adjustments now to really maximize the value of our system, we take into account all the factors, yield price, et cetera, but fundamentally, we still see that inland crudes from Canada and North America will be advantaged and we are going to continue to find ways to increase our ability to run those.

I will leave it there. Thanks.

Thanks Tom.

Thank you. Our next question comes from Evan Calio from Morgan Stanley. Please go ahead.

Hi this is Manav Gupta for Evan today. Given your unique and leading position as a North American interior gatherer, a global chemical operator and now the new MLP, do you see additional growth projects or NGL exports out of the Gulf Coast, and in propane and butane and in the heavier NGL barrels, there is a clear arbitrage that global prices are much higher, so exporting NGLs will ultimately support your POP prices and the infrastructure might even be MLP-able so anything on those lines?

Well I think we have a stated position. We want to grow our midstream business. I think when you look at the breadth of our portfolio, spanning refining, petrochemicals, NGLs et cetera, we sat in a unique position, and I’ll talk about weaving this web of infrastructure, so we see both sides of this and I think we sat in a unique spot to make these investments and so we have talked about it, and 100,000 barrel a day crack at our Sweeney facility all the associated infrastructure where there is pipelines, storage, and export facility at Freeport. So it is a multi-billion dollar investment as we think about this, we are advancing the engineering on this project. But we see a clear opportunity and one that we think that Phillips 66 can execute on.

And just a follow-up on the crude by rail, I mean you took deliveries of 650 cars in this quarter and stuff, so the [inaudible] between the Bakken and what's coming on the East Coast through the African crudes has close a little. So is your system flexible, so you can move crude not only to the East Coast, but divert those cars to the West Coast and not any other place you would want or its more rigid there you have long-term contracts?

Specifically on the flexibility for rail that's why we like rail. It is a flexible system. So we have a lot of optionality in that and we have reduced our take on the Bakken to the East Coast as we have adjusted our crude slates and replacing that with more competitive barrels from imports.

Thank you so much guys. Thanks again.

I'd appreciate it.

Thank you. Our next question comes from Ed Westlake from Credit Suisse. Please go ahead.

Yeah, congratulations on PSXP. Just wanted to, just follow-up on the prior question, when do you think you could actually sanction this multibillion project, and what sort of I guess returns or EBITDA time multiples do you think such a project would, what is the correct way for us to think about it.

So, I think in terms of timing Ed that I think that the fractionator is advancing and we think about that as startup in 2015, so we're trying to bring that into a decision point from an FID in the early part of next year. It takes a little longer on the export terminal and so we’re working that piece and I look at the returns on these projects as, what I’d call, typical midstream returns to be competitive in MLP space. So to be accretive to MLPs and you look at transactions in the marketplace 10 to 12 multiples and EBITDA are kinds of things that kind of have to be met from a cost of capital standpoint. So clearly large investment opportunity, but we think these are very competitive from the midstream standpoint.

Ed I’ll add Tim answered that question because whatever data he gave you wasn’t going to be soon enough.

Right. So you said a bit longer on the export facility of Freeport in terms of startup beyond 2015, is that…?

Yeah, beyond startup. I think that takes longer with permitting an additional work that has to be done down there.

Right, okay. And then, just you mentioned in the opening remarks that product premiums were below and above benchmarks over time and obviously that affects the capture rates. I mean, is there any sort of dollar million number you could put around that in refining as we think about that just to help on the modeling side, maybe versus Q1 or year-over-year?

I’m not sure – I can come back to you on that one Ed. I think you are talking about tens of millions of dollars sequentially between the – on the Gulf Coast between the first and the second quarter, but we can circle back around.

Okay. And then final question on your Louisiana refineries, obviously you’ve seen competitive results, which also suffered from RINs, but the refinery is EBIT positive because probably they are situated over in Texas and obviously you had some downtime as well, but maybe talk a little bit about how you can improve the profitability of the sort of Louisiana refineries, say, as more crude production comes out of Texas.

Ed, it really is around getting the crude slate more competitive and so we have in Louisiana quite a bit of wide exposure LLS based crudes. So the Eagle Ford connection that we’ve started moving more barrels there and the charters that we took on the marine vessels are key piece of that. So we are increasing our utilization of really much of the Texas based crudes into that system and I think that’s really the shorter term opportunity. Our view would be Ho-Ho will help alleviate the situation in Louisiana as well when it comes out at the end of the year. But despite that I think there is additional logistics capacity needed to really bring additional pressure on the LLS. But our view continues to be that as these light oils make it to the Gulf Coast and they come into Texas that that’s going to continue to pressure. So we are spending a lot time thinking about how do we get additional amounts of those crudes into the Louisiana system. So that really is the focal point for Louisiana.

Thanks very much.

Thanks Ed.

Thank you. Our next question comes from Bradley Olsen from Tudor Pickering. Please go ahead.

Hey, good morning everyone.

Hi, good morning.

I wanted to follow-up on Ed’s question about Louisiana refining operations given the kind of persistent stubborn strength we’ve seen in LLS over the last several months, are you finding that you’re still processing I guess more than you would like of LLS crude and I guess put in other way between your tanking operations as well as the opportunity to potentially take crude by rail down there in St. James, do you have the opportunity to potentially displace all of the LLS imports which at least according to EIA data are now at a relatively low level.

You meant light oil importantly, essentially in our system we have essentially pushed that out. Frankly, I think that my comment would be as, we’ll make the economic, optimum decision, if we need to bring in waterborne cargos to optimize that, then we will. But yeah, I look at this and there is no reason as you look at the balances to believe that the next six to 12 months that you shouldn’t be able to really push a lot of the on the Gulf Coast in general, those light imports out of system and we think ultimately that’s what brings the pressure on the local production of the LLS type of crudes.

And I guess, in another way I’m asking that, the LLS benchmark, you don’t believe is going to see significant pressure from just rail volumes and the barge and tanker volumes alone, do you think that over the next kind of 12 months, we are going to need to actually see that pipeline come online from Texas to Louisiana to really bring an end to that LLS premium that we have seen recently?

That’s the short-term largest volume impact that we see on the supply side of that and clearly there is a lot of incentive for Bakken provinces to go to the Gulf Coast today, so that has an impact as well. I will say that I think that general shortage of light oil in the second quarter probably cropped up that LLS because there was actually pull on that to the midwest as well.

Right, okay, great. And you mentioned in your press release that RIN or rather product sales differentials reduced sequential quarter-over-quarter results in refining by about $200 million. I realize that you don’t want to give specifics around RIN exposure, but is it fair to say that those product sales differentials are largely composed of RIN-related costs?

No, I don’t think so. Greg, I don’t know if you know what the specific numbers are. But what we’re talking about there is the premium that we had been receiving for gasoline on the Gulf Coast shrunk in the second quarter versus the first, and the discount that we were receiving for our distillate sales on the Gulf Coast actually widened. And I don’t think that that was related or tied to RIN values increasing. I think that just was market forces on the Gulf Coast and the value of – I guess the value of the products that we’re selling, declining relative to the U.S. Gulf Coast markers. So, I really wouldn’t tie it to RIN values.

Right.

And generally speaking, when talking about RINs, they flow through Refining reporting through the other line alongside the differentials. Is that the right way to think about it?

Yes.

Okay. Great. And just – you know, just I don’t want to belabor this point, but on the Gulf Coast segment, you did mention LLS specifically, but didn’t mention Maya or heavier grade crudes as much. Was the mix in the Gulf Coast really just an LLS driven phenomenon? Or did you feel some of the impact of tight heavy light spreads in the second quarter? And going forward in the latter half of this year, do you feel as though maybe some of the pressure that you felt in the Gulf Coast around LLS will ease as we’ve seen heavy spreads widen out in the last month or two?

I would say the answer to that, yes. I mean, clearly the pull down in the light-heavy differential, [we’re] running about 40% heavy on the Gulf Coast. So that’s a piece of it and Maya was a large part of that. I think the other thing too is around – we make about 40% distillate and so we saw distillate crack go down and, well, the gasoline crack went up. So, I think there is a component of that in the miss also. But clearly we underperformed in the Gulf Coast.

Great. That’s all for me. Thanks a lot, guys.

Thanks.

Thank you. Our next question comes from Jeff Dietert from Simmons. Please go ahead.

Good morning.

Good morning.

I was curious on the RINs activity is, just for clarification, is the 100% of the RINs requirement for purchases going on in the Refining segment and 100% of the blending in RINs generating activity going on in the Marketing and Specialty segment or is it a little bit more of a mix?

Jeff, this is Greg Maxwell. I think you have it right. Basically, all of the RINs that are generated through our blending activities show up as a benefit in Marketing and Specialties, and then, the cost of those RINs or the value, if you will, are transferred over to Refining. So the Refining segment reflects the full impact of the RIN costs during the quarter.

Okay. And have you seen the high price of RINs impact the supply of gasoline more broadly in the U.S? Have you seen evidence of RINs discouraging fuel imports or encouraging fuel exports? Have RIN prices gotten high enough to discourage gasoline production. Are you seeing that evidenced in your portfolio or in the industry more broadly?

Yeah, I think on the industry perspective, I think utilization is still pushed to run given the spreads that we’ve seen. So I don’t think that that’s really affected the industry, the run. So still a lot of incentive. It has affected the mix. Imports clearly become more dear as you get a (inaudible) value on that, and you’re kind of seeing some shifting around a little bit in terms of, say, where European producers would sell where they maybe have gone to Northeast in the past, they may go to West Africa or some other markets. And then you’re seeing some of the production filling in that gap on the import side, but it also still creates an opportunity on the export side, the Gulf Coast as well. So, the value of a RIN does impact the optimization about which markets and where you choose to sell, and I think you’re seeing that across the system, but with the market cracks where they are, it’s still encouraging high run rates.

Got it. Final from me, I was wondering if you could provide the opportunity loss in the EBITDA for the Sweeny and Port Arthur outages for refining and for chemicals?

(inaudible).

Yeah, we’ve got that here. Hold on a second. You’re looking for the loss opportunity or what the cost is…?

Correct.

For those being down, got that Greg?

Yeah, I’m getting that for you.

Maybe I’ll address the chemicals piece. On the, most of the change in the operating income for the quarter-on-quarter was the majority of that change was due to the loss opportunity that we have in the power outages at Sweeny. Secondarily, the impact of the Port Arthur extended turnaround was the other piece of that. So the margin environment was still quite strong, certainly was about the volume impact.

Yeah, Jeff, if you look at the profit opportunities as we calculated in the second quarter, it’s about $175 million.

That $175 million is total for both Sweeny and Port Arthur including chemicals and refining all aggregated?

That is correct, and it’s our obviously our equity impact from CPChem and it also includes a small portion of Midstream, but it wasn’t really material.

Thanks for your comments.

You bet.

Thank you. Our next question comes from Paul Sankey from Deutsche Bank. Please go ahead.

Hi, good morning everyone.

Good morning Paul.

I got a couple of kind of deep in the weeds question about activities to changes that you’ve put on kind of reading that slide 22, but I rather than go straight into this greater high level question for you, the CO. Was there a patent issues would be under performance that you’ve identified in the quarters, is there concern here regarding your relatively low CapEx levels, and what you said was a tough quarter for you guys.

No, I mean we just look at the fundamentals, Paul and we think that the advantage crude pieces remains in tact, and we do expect spreads to open back up later this year. It doesn’t change our investment profile in terms of putting advantage crude to the front end of the refineries through infrastructure or increasing our ability to export because long-term we think that’s value creative, doesn’t change our view on our Midstream events or our chemicals investments and shifting more investment into these higher value business. So I would say our view the strategy it remains in tact from that standpoint. The other thing I would say is, the teams with under performance, the prior hedges, so we had a extended turnaround, major turnaround at Sweeny in the first quarter which was followed by a power outage. We had a second power outage in the second quarter and in my view that’s unacceptable. So we are working with the third-party power supplier to upgrade their systems, their networks, we are looking at what we can do within refinery to recover from one of these incidents quicker around our own systems and balances. There is a co-gen unit at Sweeny, it’s running sort 350,000 megawatt and we’ve used about 125,000 megawatt at the complex. So we are looking to say, what can we do to island that facility, technically it’s possible, practically difficult, but it can be done we’re working and then finally we are working to get a second supplier power into that complex. So that should be an event that is not repeated in the future. And so I think if you think for me personally and the biggest disappointment in the quarter was having a second power outage at Sweeny, which by the way impacts all the way across our businesses, so we had the refinery down, all the ethylene units were down, the frac was down. So it impacted all three business platforms that we had, and so we’ll absolutely get that one fixed.

Yeah, thank you. And then how important safety is to you personally? If I could go to this weedy question on sensitivities and apologies, it’s kind of to do with the comparison between this year and last year. One thing that stands out is that you seem to have flipped your sensitivity to the LLS brand differential from a positive last year to a negative, but that would imply obviously a widening discount of LLS to Brent. Last year would have been a negative, but this year is now positive.

No, that’s not right. I don’t know, that’s not true, I mean LLS prices weakening benefit us.

Yeah. It just seems to been the case last year that it was $30 million positive if LLS went up, now it's a $20 million negative?

Let us work on that, I mean we benefit on the Gulf Coast when LLS prices weaken relative to Brent that was true last year and that's true currently.

All right, okay. I think we just have to take a look at the slides, you taking that I appreciate you probably don't have the 2012 slide in front of you. The other thing you've done is, you've dropped the sensitivity to WTI Brent differential. Is there any particular reason for that? I mean I understand that you've given plenty of detail here, but it's just one differential that's longer on that sensitivity.

Well, we've really broke that up between, we really think about it on inland crudes to Gulf Coast crudes. We have a WTI LLS sensitivity and then we have an LLS to Brent sensitivity. So, we think about it that way rather than going all the way from inland to international. But let us do some work, we understand that this quarter our number was quite a bit different from where a lot of analysts' numbers were and we take some responsibility in that to make sure that we're giving you the sensitivities you need to be better predictors of what our earnings are going to be. What also is not on the sensitivities are the things that there was no way of you knowing was the relationship between the product prices that we've realized and what's implied by either LLS 321 or a Midcon 321 where we were using the Chicago-based products there. So, we are thinking about ways of providing additional sensitivity so that you guys are better equipped to predict what we're going to do on a quarterly basis, knowing that this business is complex and difficult to predict.

Yeah, I mean, I guess, you saw pre-announcements as well, is there any particular reason you didn't just pre-announce?

I don't think we really believe in pre-announcements. I don't think you really should expect us to do pre-announcements. We think sensitivities and the relationships we have with you guys is good enough to help you get to the right number.

Okay. that’s interesting. And then just, again just hammering on this point a little bit. The gas sensitivity has changed. Is there anything, nat gas sensitivities, is there anything particularly operationally going on with that or is it just a function of the basis between 2013 and 2012?

I don't know if it would be, that we have had trainer is or…

Well we’ve done a lot of energy projects too…

That’s true.

That we’re trying to capture this is a lower number now, I think, isn’t it?

Yeah.

Yes, it’s quite a bit lower.

But, let’s take this whole sensitivity issue up with you offline and will see as…

Yeah, sure. I appreciate it kind of seriously in the weeds, if we look at the very big picture, this is the last thing from me. 3Q to-date, you've got the wider heavies, you have got wider Canadians, you have probably got less product prices on balance 3Q to-date is worse than Q2 or better than the throughputs?

I mean you know better than the fact that we don't give quarterly guidance, and so, let's let the quarter unwind a little bit and see before we have…

But what I was saying is not quarterly guidance. It's month-to-date or quarter-to-date.

I don't think we're going to give that.

Okay, I’ll drop it. Fair enough, Thank you very much.

Thank you. Our next question comes from Paul Cheng from Barclays. Please go ahead.

Hey, guys.

Paul, good morning.

Greg, just want to maybe confirm, already are you saying that 100% of your RIN requirement is now currently showing up in your other cost or that whatever is the implied cost, they are showing up in your Refining business and that the 100% of whatever your Brent, you are showing up in your wholesale marketing result?

That is correct, Paul.

The reason why I asked that is that, it seems now you are marketing if that's the case, the results should be much better and refining should be far worse. Based on your throughput level on gasoline and estimate on road diesel, you'll probably do above 1.2 million barrel per day to 1.3 million barrel per day and you export about 181,000. That target for 8.03% what's the requirement that would suggest that for the quarter, your RIN obligation is about 350 million gallons and that with the RIN costs in the second quarter about $0.80 to $0..85, it seems like should be a much bigger impact than for both your marketing business in terms of the earning impact of benefit as well as the negative impact on refining? So I think I must be missing something.

I will take a stab at it, and then turn it over to Tim. But as we said earlier with our commercial operations we are not going to signal to you whether we are balanced long or short Paul. But as far as the pure accounting perspective that is exactly right as I said earlier to the extent that we blend, we capture that positive value in marketing, specialties and subsequently transfer that cost at market value to our refining organization. So the full cost impact for the RINs obligation ends up in our refining segment.

Tim, earlier that you are talking about you have the flexibility on the well system. So with the volatility in the market piece how quickly that you can turn the volume and decide I am not going to ship into this location, I decide to ship into another location given your contractual obligation with the well operator and other people. Is it like 30 days that you can make the switch, is it three months, is it six months, any kind of rough number you can provide?

Yeah, Generally, Paul, I would just say that you kind of pictured crude and you’ve got a pretty time that it takes, but the option should develop in terms of the ultimate supplies. So this is shorter-term versus longer-term and then with our system, we have the flexibility to alter that probably as fast as we can move the crude slate. And I think that's the way we tend to look at that realizing that the industry on pipeline commitments et cetera that you’ve got to schedule those out. So that really is something that you got, even the rail system quite a bit of flexibility with.

So you – essentially if I interpret your statement correctly, you will be somewhere between one to three months because, I mean, if you look at the alternative or it probably doesn’t take that much, it depends?

Yes. It depends, but it's probably on the shorter side of that.

Okay. Greg, just curious, one of your competitor was starting to build condensate splitter and use the natural gas in naphtha and then brent (inaudible) certainly your sensory that sort of a replacement of the light oil run in their refinery. Is there any opportunity for you guys along that line?

So, we've looked at – I think we've said publicly, we are not going to build a standalone condensate splitter, but we do have opportunities at our Sweeny facility at Alliance, Lake Charles assets where we think we can make some modifications and actually process more light oil through these facilities and with minimal capital investment. That's still, I mean, but as we think about where we want to spend our money, we are looking for 40% return type projects on the refining side. And so we’re looking for quick hit, fast payout projects. We have some underutilized equipment that we can kind of tie together and use that all and so we've got some projects around that that we are executing.

When do you think that you may be able to sanction or provide more data on those projects?

In terms of the increased throughout that we’re looking at?

No, whether that you actually definitely go ahead with those projects and what kind of CapEx and what kind of throughput and what is the current benefit that you are looking at?

$30 million, $50 million type projects and they’re underway.

They are already underway.

Yes. We actually do things like tie-ins and turnarounds and some other things. So, it kind of depends on the schedule and things that are available, but those are our plans that we have in place to make those margin in some of our refining system already.

What is the total capacity on the condensate splitter in those facilities that we are talking about?

This is really – I don't want to call it condensate splitter per se. It can just be – I will call it the flash system. So, there's just a variety of ways to approach, primarily trying to drive lights out ahead of the crude column. So, it's not a new column per se. It's really trying to see what's in the refinery to accomplish what you needed to increase the ability to take out those lights and then also looking at things to the – say, the gas plant capabilities to make sure that you can process that.

Thank you. Okay, okay. If I can just make a proposal, I try to understand that Tim or Greg that what is the major difference in the RIN issue comparing to say the ethanol issue back several years ago. The industry had most of that when you build you customer and here we have in your invoice specifically identify how much you have charged on the outport and what is the passthrough of the ethanol price and given that everyone essentially have to pay for the RIN. Why the industry is not moving into that direction, so that from the consumer standpoint and investment community standpoint we know that this is 100% passthrough and we won’t get confused by the margin capture rate, because now that artificially the margin capture rate is lower since that part of the RIN cost is perhaps that in the, at the upward price already? And also that, I mean, if really you want Washington, D.C. to act on yen changes you need to have a process and need to make sure that the consumer speak up and provide a transparent way that seems is the more effective way to ensure something would get done in D.C. because the consumer then realize that how much they’ve been getting.

Yes, I mean it isn’t one approach and to be explicit on the pump would be a great way for the consumer to realize what that means. It’s competitive pricing business and you are right. It has to be an industry kind of thing, but it would be an interesting approach to highlight that. And I think…

Because everyone – everything will refine regardless whether you have today balance or not, next year you probably will be short.

Hey, Paul, I don't think we disagree. We probably have to go onto the next question.

Okay. Thank you.

Thanks.

Thank you. Our next question comes from Arjun Murti from Goldman Sachs. Please go ahead.

Thank you. Just a question as the Gulf Coast gets awash with light crude oil. Can you talk about your ability or capacity to reship that stuff to the East Coast, especially if the differential is warranted?

Yes, Arjun, we have taken the charters on two marine tankers that allow us to move that product today from the Southern Texas Coast to Corpus into our system. Clearly, as you go long haul of the East Coast the capacity drops because you got longer haul times, but I think it’s all about the value and where do we drive the greatest value. So, that’s the optionality we do. We do move from time to time cargoes from Texas up to Bayway, and so that’s something that we’ve done and we will keep open. That really is part of our optimization and I think whether use barge or other part marine will have to be a piece of the solution longer term on this.

Is there kind of a volume capacity you can do in order of magnitude, kind of cost or tariff to do that?

Yes, I think we’ve said in the past $4 to $5 a barrel movement on Jones Act vessel.

Each vessel is about $300,000.

Yeah. And so, depending on the length of haul, you are probably East Coast, we’ve not given that, but probably more than in order of $20,000 a day and you get a much better utilization in the Gulf Coast. Clearly, if you are not using Jones Act vessel going to Canada, the costs drops to about half of that.

Our view is that because of the limitations of Jones Act vessel, that’s going to push you to more barge and more rail just to evacuate the Gulf Coast.

And I assume that it’s Ho-Ho or when Ho-Ho reverses that will free-up barge capacity to increase volumes to the East Coast, just again if the differential [warrants] it?

Right. That’s part of what happens and as the supply increase in the Gulf Coast, clearly the Bakken is going to continue to clear the East and West Coast by rail.

Yeah, great. And then just a quick final one on stock buyback, a nice bump in Q2 versus Q1. Looking forward, do we think about this as sort of, if you have free cash flow that’s the quantity? Are you kind of targeting a set amount or a debt-to-cap ratio? How do we think about the stock buyback go forward?

Well, I think, as we said in the call today that we are going to finish the first $2 billion repurchase plan this year and that we’ll get started on the reload this year also. So, we’re in the market everyday, and you’ll see us there. Some days we’ll buy more than others obviously, but we really don’t want to put out a set amount of what we're going to buy everyday Arjun.

And going forward in the out years again free cash flow type metric is how we should think about it or debt-to-cap or both.

I think we think about the intrinsic value of the company and we see we are trading now and as long as we are trading at a discount that we currently see to what we think we were we should expect us to be buying back shares.

We are going to pay the dividend. You should expect that we are going to increase the dividend every year and then to the extend that we have free cash and looks value accretive to us we’ll take shares then.

Arjun you saw that we did paydown the $500 million of the term loan we will finish out prepaying that term loan as I mentioned this year. So I’ll take our debt balance to roughly $6 billion and put us at the low end of our debt capital target.

Got it. Thank you.

Thanks Arjun.

We have run out of time. Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating you may now disconnect.