Welcome to the Fourth Quarter 2014 Phillips 66 Earnings Conference Call. My name is Paulette [ph] and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Kevin Mitchell, Vice President, Investor Relations. Kevin Mitchell, you may begin.

Thank you, Paulette. Good morning and welcome to the Phillips 66 fourth quarter earnings call. With me this morning are Chairman and CEO, Greg Garland; President, Tim Taylor; EVP and Chief Financial Officer, Greg Maxwell; and EVP, Clayton Reasor. The presentation material we will be using this morning can be found on the 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 the second page as well as in our filings with the SEC. With that, I’ll turn the call over to Greg Garland for some opening remarks.

Thank you, Kevin. Good morning, everyone, and thanks for being with us today. We ended 2014 with a strong quarter. Adjusted earnings were $913 million and we generated more than $1 billion of cash. Full year 2014 adjusted earnings were $3.8 billion. We accomplished a lot this year starting with operating excellence. We spent just over $1 billion in maintenance capital. And from an operating reliability perspective, our businesses ran well. 2014 was our safest year so far. Refining, midstream, and chemicals were all top performers in recordable injury rates. We also made progress in our environmental performance. The strategy we shared first three years ago remains unchanged. Enhancing returns continues to be a key strategic objective. During 2014, total company adjusted return on capital employed was 14%. Chemicals, and marketing and specialties, both increased returns over 2013 at 27% and 32% respectively. Refining’s adjusted return on capital employed was 12%. We continue to take steps in refining to enhance capital efficiency. From a portfolio perspective, we sold our interest in the Melaka refinery. We continue to limit growth in capital employed in our refining business. We completed several projects to access advantage crews. We’ve doubled Eagle Ford and Bakken lease volumes. Around the Ponca City refinery, we’ve built out infrastructure for direct access to Mississippian Lime crude. At Alliance refinery, we modified the crude unit, increasing our ability to run shale crudes from 45,000 to 90,000 barrels a day. In addition, at Sweeny and Lake Charles refineries, we completed upgrades of FCC units improving yields. All these actions were taken to increase the returns of the business with relatively small investments. We continue to shift our portfolio into higher-valued businesses. In 2014, we’ve made significant advances on our growth plans. We reinvested $2.7 billion on growth projects. In midstream,…

This is Greg. Good morning. Starting on Slide 4, fourth quarter adjust earnings were $913 million or $1.63 per share. We had several special items this quarter that impacted earnings in all of our segments, primarily related to the sale of our interest in the Melaka Refinery and impairments. Excluding special items, our adjusted effective income tax rate was 32%. Cash from operations excluding working capital for the quarter was $1.1 billion. From a capital allocation perspective, we reinvested $1.1 billion in the business and we returned over $800 million to shareholders in the form of dividends and share repurchases. For the year, our adjusted return on capital employed was 14%. In the next slide, I’ll cover earnings for the full-year compared to 2013 prior to focusing on the results for the quarter. 2014 adjusted earnings were higher than 2013 as lower earnings from refining were more than offset by improvements from our chemicals and our midstream businesses. We had a 4% increase in adjusted earnings while adjusted earnings per share increased over 12%. This reflects the progress that we’ve made in reducing our share count. We ended the year with 546 million shares outstanding, down 44 million shares from year-end 2013. Slide six compares fourth quarter adjusted earnings with the third quarter on a segment basis. Overall, adjusted earnings were down $227 million, mainly driven by lower results in refining, partially offset by continued strong earnings in our Marketing and our Specialties segment. I’ll cover each of these segments in more detail as we move forward. Starting with Midstream, our NGL business had a good quarter partially offsetting the lower earnings from DCP and transportation. The 2014 adjusted return on capital employed for this segment was 13% and this is based on an average capital employed of $4.2 billion.…

Thank you. [Operator Instructions] And our first question comes from Evan Calio from Morgan Stanley. Please go ahead.

Hi, good morning guys.

Good morning.

My first question is on refining and I was wondering if you could discuss the developing and steeping contango and how that may benefit Phillips, especially given the structural way in which the crude markets are being forced to balance with the U.S. as a new [indiscernible] and I have a follow up.

Yeah, Evan, I look at it from our commercial standpoint it creates some opportunities around that. So it’s one of the things that have opened up opportunities with that. I think longer term it just speaks to still a lot of expected recovery and with the inventory building it seems like that’s going to be something that kind of keeps the market in a bit of a [indiscernible], with this much contango I think we still look for a fairly, I’d say fluent and soft market for crude going forward.

Great, makes sense. My second question is on DCP. And given the current results and the commodity price environment and the recent Moody’s downgraded at DCP midstream LLC. I mean do you see any opportunity there to consolidate or may you have to inject any liquidity into DCP, any thoughts or color on what I appreciate in evolving situation?

Sure. Well so first of all we like DCP, we think it’s a great asset. We continue to think that the NGL value chain is going to be a very attractive chain to us. This venture is going on 15 years. We value with the partnership, with spectrum that we have here. And by the way, this isn’t the first we’ve seen commodity prices go down in this business. So, we aware of these crisis before if you want to call it that. I think that if you start with just self help, first of all the DCP team is doing a great job. They’re focusing on running the asset safely and reliably and that builds value by doing that. I think [indiscernible] and his team are doing a great job in terms of pulling in levers they can pull. Aggressive cost reduction, aggressive reductions in capital. In 2014, DCP level were circling around $1.6 billion, we probably had $800 million out of that in 2015. So, significant reductions in capital spending. The owners have agreed to forego distributions coming out of DCP in this low commodity price environment. That said, if NGL stay at $0.55, that probably doesn’t fix DCP for 2015. And the owners are, I would say we’ve had on going and we’re still talking about restructuring options for DCP, but clearly important asset is one that we’ll get fixed and it will weather the storm.

Okay, I appreciate that.

Thank you.

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

Good morning.

Good morning, Jeff.

The global market is oversupplied by some thing like 1 million to 2 million barrels a day depended on whose forecast you look at over the first half of the year and we’ve seen some weakness in brand in some of the West African crudes that I assume are being offered attractively into Bayway and even into the U.S. Gulf Coast. I was hoping you could talk a little about what you are seeing there? Are you seeing escalating competition among your suppliers? Do you expect further deterioration in the Atlantic Basin crude market or as floating storage starting to stabilize it?

Jeff, it’s Tim. I think fundamentally we’re looking at the options now on the East Coast to what’s the right value, so we’re still bringing in inland crudes by rail but it clearly the advantage is narrowed. So I look the East Coast will think that’s a logical place that you start to see perhaps some adjustment with the values that sit there. And as far as the Gulf Coast probably not quite as much incentive there with all of the inland crude showing up there, but I think fundamentally this increased supply in terms of import options will put pressure on the inland U.S. crudes and that’s why we would expected this on the U.S. piece to come back out from where they’ve been. So I think that’s more of the fundamental, but you are right that they had oversupply but yet it still work its way through the system. On the storage piece with the forward markets, there's a lot of incentive on that and so that’s occurring but at some point that becomes something it’s got to be corrected, so that’s why the inventory overhangs still portends some weakness I think on the flat price.

I think given the forward curve, our view though is storage continues to fill out to it full. And I guess the other complicating issue that’s always hard to get your arms around is - how much refinery maintenance is really going to happen but it looks like we’re heading into a fairly heavy spring refinery turnaround season, which is going to put its own pressures on prices and debts.

Secondly, I was hoping you could talk a little bit about chemical margins for CPChem. They’ve got a large component of having exposure and internationally I think simplistically the market set more on nap the crackers which net prices is softened with crude and yet you had a pretty strong fourth quarter. I was hoping you could comment on first quarter or current outlook and what you see happening in 2015, why is we won’t be able to track it and appreciate those changes?

Yeah, Jeff, when you look at the fourth quarter clearly feedstock prices continue to fall faster than product price. So you got to look both the demand side as well as the feedstock cost. I think product prices are likely to respond a bit more as we go forward, but still fairly good operating rates and pretty good demand in the chemical business particularly in the U.S. So pretty strong market here, but we would expect that as you go forward that the feedstock got derivative price with narrow somewhat, but still expect the pretty good year in chemicals from a historical perspective. In terms of the cost curve, it’s actually simplistically, yes, the gap between ethane is narrowed, but fundamentally because of the total chain margin ethane is still very preferred for us in the U.S. as we maximize the value of the cracking slates. So I think that has a longer term impact which helps to bring those margins in. But again we look at the demand side and still see a lot of upside with that in the U.S. And then if you look at the - what could happen in the U.S. - the world economy with lower crude price as we think that’s a good boost for demand on the chemical side as well. So I think there is a lot of demand side support with that so again we are still expecting pretty good year on chemicals.

Thank you for your comments.

Our next question comes from Doug Leggate from Bank of America Merrill Lynch. Please go ahead.

Thanks. Good morning everybody.

Yes, good morning, just checking.

I wonder if I could have two quick ones please. First of all, just away from the operational business, just for a second, I am just looking at the chart you have on your net debt range which not decide towards about 30% but the day as you - you did recently you are sitting about 28%. Is there any withdrawal from not in terms of how you deal with buybacks particularly given where your share prices and just overall capital allocation, does that there is any constraints on you or is this some needs to expect to manage through not too much concerned.

No, I don’t think you put constraints on to all. I think that we did delever coming out of the gate by $2 billion and we did that with great capacity, we saw an opportunity to the lock in some long term debt is what we think is very attractive prices and so we took it. We also have some nodes coming due in 2015 and I think about $800 million. So we are look at that when that comes but we are committed to our 40, 60 distribution capital allocation policy that we laid out a year ago or two years ago. We’ve got a big capital program in front of us in 2015 mostly imply project that we are going I think it’s going to have a lot of value to our midstream business. So we are going to execute that. At the same time continue with the pretty aggressive distribution program to shareholders.

Okay, thanks for that, may be just back to the operations for a second and on my follow up. So obviously we capture a pretty strong. I want to pick in a follow up on Evan’s question. How much of recapture rate outlook or I guess the fourth quarter, but also the outlook is transitory as a result of the bottom of the barrel lag if you like, but more importantly, on the contango issue, that was something that you think would have a meaningful durable benefit to you or something which is more transitory? I’m trying to get a measure of how big of an appetite you guys have to really try and exploit that contango if it’s material or if it’s something that is incremental, I’ll leave it there? Thanks.

Well on the secondary products, I mean, clearly as the crude price falls, the losses on the secondary products that those product prices don’t move. So we got quite a bit more value uplift, so to speak, on the secondary products and that was a big factor in the capture rate improvement. So that’s kind of that dynamic that worked, so just lower feedstock prices helped that typically. On the contango, I look at it really as it’s going to be part of our normal course of business, we’re not changing where we go in terms of our commercial activity, it does create more opportunity for that and I look at it more in that line, but we’re not fundamentally shifting our business model to work off that contango.

Got it. Thanks fellas.

You bet, thank you.

Our next question comes from Paul Cheng from Barclays, please go ahead.

Hey guys, good morning.

Hey, Paul, good morning.

I have several hopefully quick questions. On page 25 of your presentation, when you're looking at the Gulf Coast capture rate, the last bar, just call it other around 3.60, what are the major drivers behind?

Yeah, we’re trying to catch up with you here. On the Gulf Coast, right?

That’s correct, page 25.

It is really product differential was the biggest piece of that.

Yeah.

That’s the product differentials?

Yeah, the distillate gasoline crack and then - that really drove that and it’s widening based on our opportunities that we had in the fourth quarter.

I thought that’s being captured in the configuration, is it?

No, so that actually Paul, It’s Clayton, it’s the difference between the marker and our actual product netback, so to the extent that we get a higher price for gasoline or distillate compared to the Gulf Coast marker. So it would reflect, if we move product out of the Gulf Coast into Florida for example or other locations or export it, that gain is captured in that bar. Yeah.

Okay, and then so I presume that the wholesale and [indiscernible] all into that part?

That’s right.

Any kind of value added that we get above that market price.

Now that does not include the uplift in marketing.

No.

Okay. So the - let’s say the wholesale margin between the wholesale to rack differential is really captured in the marketing segment not captured there.

Okay, but up to - the rack is captured in here.

That’s correct.

Okay. And, Tim, it is for you. I think that there is a couple of companies that now trying to directly bring all your full pipeline into the [indiscernible] you guys are having one proposal and I think that just went through the open season. Can you give us an update on how is the response and whether that you actually think that will be moving ahead?

Yeah, so the DAPL, ETCOP line from the Bakken to the Gulf Coast, that piece is going forward. The terms aren’t disclosed successful on projects moving forward. So in terms of construction, engineering, and still looking at the end of 2016 and we are currently in a kind of an extensionalized system from Beaumont terminal east into Louisiana, and so that process is ongoing. And so it’s really too early to comment, but we think that projects still got some good potential as well.

Tim, what kind of timeline - that I know that it’s still early day from the -- brining into the vision, we’re talking about a - may be more clear whether the project going forward or not in another year or again what kind of timeline we may be looking?

In the east down piece of that [Indiscernible]…

That’s correct.

Yeah, I think we’ll have the opportunity to have that decision on investment this year.

Okay, that early?

Yeah.

And that 2.11 on the NGL MLP-able asset that you guys talking about $1 billion EBITDA, and can you just tell us that what is the percentage of that expected $1 billion EBITDA has been under long-term single [ph] pay and fixed by contracts? The last question is that, I think some of your peers that has came out, including one just this morning that with a new -- maybe more transparent pace and higher pace of asset drop down to their MPL and also with a quite direct part of the EBITDA on their MPL. Wondering that, is that something you guys currently reveal and maybe coming up with a new [indiscernible] also?

I think, we said in the past of the MLP-able EBITDA in our midstream segment both today and what we are building is roughly 80% fee-based, if you look at that in its entirety. And as far as drops, we dropped a $1 billion of assets in 2014. We increased the distribution by 50%. I think, as you think about 2015, we’re going to remain aggressive in terms of how we utilize the MLP really to help fund the growth of our midstream program. Tim, if you want to add anything on there?

Yeah. Sure, Paul. I think that on the contract question the supply side and the frac were in good shape. We got the uptick in the terminal. We have not disclosed the percentages. But we made the comment that the implied capital that these are large independent contract, so we feel very good about the success of that track one in the LPG terminal. So that’s kind of in line with Greg’s comment on the fee-based, the commercial piece is coming together on that pretty nicely.

Alright. Thank you.

Yeah. Thank you.

Our next question comes from Edward Westlake from Credit Suisse. Please go ahead.

Yes, good morning and I’ll see us in some good downstream results from in fact this morning. I wanted to come back to Doug’s line of questioning on the 28% gearing. Obviously you’ve said that you’re going to try and help DCP and obviously you got a heavy capital investment program and then obviously you’ve said you want to be committed to as a shareholder distribution. If for some reason you know that say midstream and chemicals is tougher this year and feel free to disagree with that statements and maybe cash flow is a bit short. How would you square the circle? What is the priority list?

I would start with 14% net debt to capital. We got $5.2 billion on the cash on the balance sheet. I mean, we thought about this, we plan for this moment, Ed, and so we positioned the company to successfully execute its plans in 2015 and 2016. So I don’t think that we are concerned about it. Our view is that chemicals business is going to be pretty good in 2015 and that will continue to be self funding in 2015. DCP is going to be under some stress and we are talking about what potential solutions we can do for DCP with the partners. So I am just - I am not really concerned about 2015 in cash. We’ve already said we are going to operate 2020 to 30% debt to cap ratio. We are certainly in line with that. We will protect and defend our investment grade rating at PSX that’s important to us as we’ve said many times in the past.

Okay. And then that was my second question around demands. I mean obviously everyone focuses on ethylene prices which sort of get linked to oil. You guys made polyethylene which has lagged the decline in oil, but people expect it to fall. But maybe give us some of the rationale why you think chemicals will still be good in 2015 with the oil price having fallen?

Well, first of all, let me talk about - let me backed up and kind of finished your first question. One important piece I missed was around distributions to shareholders and so we have been out there consistently saying and expect double digit increases in dividend, that's so good. 40 - 60 capital allocation, we talk a lot about. We remain committed to that. You moved the chemical business, I think people were discounting the impact of $50 crude globally, in terms of economic activity, demand for petrochemical products. In fact we are seeing increased demand for even refined products. And so I think the demands are the equations priorly a little better than what people were thinking in terms of 2015. And so we are seeing fairly robust demand in the U.S for petchems. European kind of moving sideways, Asia had weakened in the fourth quarter, but looks like maybe coming back to us. And so I think that fundamentally demand it’s going to be good for petrochemical products, and there is not a lot of new capacity coming on at 2015. So we’re seeing globally marginally higher operating rates, which directionally should be positive for margins.

Yeah.

And we do expect some narrowing on that. It’s just really hard to call, because you’ve got this offsetting effect on demand side. So I think that is why we still say, we look at a exceptional year on the margin side with ethylene based cracking in the U.S and it’s probably just going to soften off of that somewhat. So really hard to call how much, but it’s unlikely would fall in unison with the change in the naphtha price.

Maybe what I was trying to get at. Just on the one small question then on Slide 8 - sorry Slide 8 of your recent presentation you have this $2.3 billion Midstream in refining logistics EBITDA for 2018. That was excluding DCP, so I was just wondering, as we think maybe of a tougher environment how much of that would you put in these sort of at-risk category, if any?

I think as we step back we look at the crude oil pipe in the Bakken, we look at the LPG terminal, we look at track one, those are in quiet, we’ve got some smaller things, under payment good contract. So that is over a $1 billion right there in terms of incremental EBITDA. And so I would say that it probably pushes out perhaps some of that infrastructure, we still like that target, in terms of the EBITDA. But we have - that is a tremendous cooler stuff in play that we have plus, what is left at PSX. So I guess, we looked at 2.3 and say the 2017 or is it pushed out a bit and I think moving parts currently with the change in the U.S. liquids growth, I think we just want the market clarity around those projects. And so I think we are going to close some of that, but a big chunk of that still step that we committed to and underpinned with good contracts and frankly good fundamentals.

Thanks guys, thanks a lot.

Okay, thank you.

Our next question comes from Blake Fernandez from Howard Wheel. Please go ahead.

Hi, guys good morning. Question for you continuing on the Midstream theme, it’s obviously you’ve got an awful lot of drop down opportunity and organic opportunities there, but it seems like with the collapse in crude prices some of the EMP companies may have some assets coming to market that could be available, just curious if you could talk about M&A opportunities, is that something that would be of interest or do you have your hands full with the organic opportunities there?

No, I think we have a great currency with PSXP and I think with the right opportunity we might be interested in that. Our focus today remains on executing into organic projects and so we will just, I think we will see how the market unfolds here in 2015, but I don’t disagree with the idea that there could be some distressed assets out there in 2015.

Okay, thanks Greg. The second question now that, I guess we focus along on light suite and it seems like heavy shower spreads are coming back into favor. I’m looking at slide 34 of your slide back here, but I’m just curious is there any flexibility that you can kind of provide to us as a percentage of maybe shifting the crudes slight away from light suite back to heavy processing?

Yeah, I think we’ve looked at it and we’ve really - if you think about our configuration globally we are about 65% light, 35% heavy. We typically optimize a heavy around heavy so it’s a lot harder to make that optimization, takes a lot of dip so we still focus on the light piece in terms of where we’ve been getting capability and I think we would believe that that light opportunity is going to be reemerge a little bit more strongly as the year develops as we see, we would expect this on U.S crudes to come back out reflect more dip. So there's a not just a tremendous amount of flexibility, you can always do some adjustments, but it’s really kind of fixed around that and then we just optimize around that kit.

Got it. Thank you.

[Indiscernible] optimize a run more heavy as a percentage of quarter. [indiscernible].

Okay, thank you guys, appreciate it.

Our next question comes from Paul Sankey from Wolfe Research. Please go ahead.

Hi guys.

Good morning.

I just had a question on the dollar, how does the strong dollar effect you guys, if at all, thanks.

Certainly, Paul we look at that from a different - where our functional currencies are in everything and the dollar strengthening as far as looking at it from a global perspective or our international has a slight impact, but not - I wouldn’t say it was an overall significant impact on us.

Paul, probably the one business where we would see that would be kind of exports on petrochemicals and the competition for export markets, a lower dollar would increase to contingency of Asian manufacturer. So there can be some effect from the dollar just in terms of exports more in those materials markets, but not so much I don’t believe in the fuels.

Yeah. I guess basically because you sell in dollars right so?

Right.

Right.

So something around to the internal point of view of the function of currency it kind of doesn’t make any difference to your numbers, is just a question of whether the market is weaker, as a whole right?

[indiscernible] affect the operating cost.

Yeah. did you, just forgive me if I missed, did you talk about your exports levels and stuff I am sure if you gave that number, but just I want the usual question on how much was exported in the quarter regards the petroleum products? Thanks.

So we were up slightly from the third quarter to around the 400,000 barrels a day. We were down from last year. And frankly, just reflected the fact that we had better options for placements in the U.S. it was not really a lack of access or opportunity, it was more, our optimization around where is the best product placement for those products.

Yeah, [indiscernible] it’s interesting. So there’s no sort of notional limitation on your ability to export it just a market function?

Yeah

Would that be I means it seems a bit pretty roughly on the Chicago market, would that be selling into the Mid Con or into the East Coast as opposed to exposing? What is the better opportunity that you referred to?

So, [indiscernible] I think about the Gulf Coast from an export platform is our primary vehicle, some of the West Coast as well, but really it’s the Gulf Coast and we just had better so to say inland placement opportunities in the U.S. when we had for exports. So we just always try to add the best value and we just optimized around the highest netback.

Yeah. I’ve got it.

Okay.

Okay, thanks guys. I think most of the other stuffs has been answered. Thank you.

Great, thank you.

Our next question comes from Phil Gresham from JP Morgan. Please go ahead.

Hey, good morning.

Good morning.

A couple of quick ones, one is just on CPChem, is there any possibilities that the both partners would agree on a less conservative balance sheet strategy at this stage or and I know it’s self funding but is that - something like completely off the table?

I think we have capacity at CPChem has a pristine balance sheet. And I think, may be - we can certainly go to that.

Okay. And then just on the buyback plan for this year. You talked about coming into the double digit increase in the dividend, just given the balance sheet positioning off and potential negative free cash flow. So that would you consider being a bit more conservative on the amount of buybacks that you do this year kind of relative to the run rate we saw on the second half noting that obviously you had some asset sales that helped in the fourth quarter and things like that.

Yeah. So we always hesitate to get too far out in front, but I mean as long as we are trading below in terms of value, we're going to buy shares and share price is low where we are going to buy more, we’ve been pretty consistent about that.

Okay, last one would just be in terms of the feedstocks that you used in the chemicals business, I think you have a fair amount of flexibility. Is that something you are looking at, does that cost any money to make that kind of switch and do you see any kind of meaningful contribution from doing something like that?

On the chemical side, they look at that almost daily and then - things that changes but you got to consider not only the feedstock cost which I think about the marginal contribution in the products that you get. So for CPChem for instance lot of ethylene consumption internally and so that factors into the total contribution. So it’s really an optimization around which feedstock, and then which products and what the pricing and right now there are still - it’s still favors ethylene because of agile to ethylene versus say a propane but that’s something that’s being watched and when that begins to change you can see that switch in the petrochemical industry. So a lot of flexibility there, but it is still hanging pretty tight in the industry basis to ethane right now - that’s an U.S. perspective.

The other thing I would say I mean Sweeny team [ph] is heavily levered to LPG fees and we imply would not make the investments to modify facilities to crack more liquids mostly in line with our view the LPG is going to be advantaged over the long-term.

Sure, absolutely. Okay, thanks.

Our next question comes from Neil Mehta from Goldman Sachs. Please go ahead.

Good morning guys.

Good morning.

So one part of the business you may not began for credit for here is the wholesale business in wholesale segment, especially if you look at wholesale and retail comps what based on over the last couple of months - and the value increase they have seen. Would you ever consider monetizing wholesale in MLP or spin off and then if so wherewith logical place be in-house with players PSX are an independent vehicle.

Yeah, when I look at the wholesale it’s a business that’s typically very solid, so we are - that’s something we’ve not putting into our thinking perceive we have all the other projects on that. But it is something we could consider so MLP four of that would be an option and so it’s something we’ll continue look at, but it is not really the focus point at this point. But I think as that gets clear and when we see how the opportunity and the market accepts that kind of move then that could be a option for us.

Thanks, Tim. And then on Slide 23 you show some sensitivities here to WTI, NGL and then changes in the chain margins. Is there any back over the envelope we could do if you aggregate the three components together, let’s say every $5 change in brand or every $5 change in crude does this to our net income?

I think…

Well, this thing is up really built that way. This is Greg. We hold the other commodity prices constants when we apply those sensitivity. So you really can’t add those up and come up with an overall sensitivity to a movement in net price or brent-WTI.

Yeah, we haven’t waited there.

We have not. Yeah. So it may overstate the impact of the commodity price movement has on our net income, if you just took the approach of adding all those things up.

Fair enough. And last question is related to global demand to pick on your point where you said there that you expect a sequential pick up here in 2015 versus 2014. Is that pick-up that you anticipate - where do you expect it regionally? And then specifically in the U.S. as you think about the outlook for diesel demand versus the outlook for gasoline demand, which of those two end markets do you see greater opportunity for growth in 2015?

I think on the distillate in U.S. just keeps going if industrial activity, so with - I think that’s been consistent. I think the surprise upside will be the gasoline piece and what is the consumer response to lower prices are driving, we are seeing early signs that demand has picked up. And so we anticipate with lower prices that you should see some favorable demand impact particularly with the gasoline. I would look at distillate to be a bit more of stable in terms of where it has been versus the gasoline. I think that’s where the real variable would be for us.

On crude dist?

On crude dist?

Yeah. What do you see on crude dist?

So the crude dist, again we think the crude dist on the U.S. crude should widen, the brent-WTI should widen back out to something reflecting more of the differential. Cushing inventories are building inventories are building really in the U.S. That’s going to put pressure on that and when people look at the import option. So I don’t think that the inter-crude competition so to speak has yet played out. So we expect that to widen which also could have a favorable impact on the business.

Tim, would you be willing to put a point of estimate in terms of brent-WTI, where do you think [indiscernible]?

I’m going to let him do that because he’s always wrong.

Certainly been tight. I think it’s been harder than we had expect, but I think if you look at that, we’ve always said something around $6 to $10 in WTI-brent, that’s probably too large I think.

For 15?

Yeah, for $15 with where flat prices are. So there is still something that’s got several dollars a barrel advantage $4 to $5 on [indiscernible] it seems makes sense with some discount we would think around LLS as well.

Perfect, thanks guys.

You bet.

Our next question comes from Roger Read from Wells Fargo. Please go ahead.

Thanks good morning.

Good morning, Roger.

Guess, we could come back to the Midstream in the DCP issues there. I know there is no way that you’d have to make a commitment at this point. We all know well what’s going on in terms of the credit ratings in that business. Yes you were to find yourself in a situation where you needed to do funding of that? What are the mechanics around that sort of the partnership? What would you need both sides to agree is it enough for one side to agree just sort of trying to understand how that could progress?

I think you got the governments documents, it takes unanimous consent of the partners taking action around the structure, financial structure of the company.

And that would be yourselves and Spectra correct?

Spectra, that’s correct.

Okay. And is there any sort of a quit call or anything in that agreement?

There is a [indiscernible] in terms of an exit by one of the parties, but there is no quit call in the agreement.

Okay, that’s helpful. And then on a - I guess just sort of a look back in the fourth quarter here taking a look at slide 25 and some of these questions were asked before. But the weakness in the secondary products and I understand how you were saying earlier compares to an index. But little surprised typically on following crude environment that secondary products actually gets an uplift not a downdraft as we think about realized margins, particularly sometime out on the Gulf Coast here, but then in your marketing and specialties business you talked in the specialties, you know the lub and the base oils actually did get a nice uplift as we’d expect, I just wonder what the cross currents where in that area and maybe that’s something that reverses as we go into first part of ’15?

So, I think taken the secondary products first. As the crude price falls, the other products prices can move, they don’t move in unison with crude, so the crude price falls, so if they sell less than crude price then your gap between what you realize in net back and the cost so to speak of the feedstock is down. So it’s not, if the prices here, like LPG prices fell, but not by the same absolute amounts that you actually get an uplift say on that “some of the same things.” So it’s kind of more of the reflection of the feedstock cost moving faster than the product price move and so you have less of a loss on the secondary products. Then, the second product question.

Well, I just - my question is the secondary products appear to be a loss if I am reading this correctly.

They are, when compared to the third quarter was less of a loss, so it’s about $6 in the third quarter and this is about $4 yeah.

So it’s not really a change it’s what the actual realizations are on those kind of products?

Correct.

All right, so it was more profitable on the fourth quarter on the secondary products, good. Got it.

Yeah, better margin.

And then the base oils in the loops business that I guess a similar dynamic at work there?

Yeah, I mean I think you’ve got feedstock fast falling faster than the market prices and the finished products and base oil product margins are really set off to a supply demand on that. So, it’s a very similar story to a lot of our business. So, we benefited from really that fall off versus a unison fall in the product price.

Okay, that’s it from me. Thank you.

Thanks.

And our next comes from Brad Heffern from RBC Capital Markets. Please go ahead.

Good morning everyone.

Good morning.

Just looking at the Western Pacific segment of the refining business, obviously Melaka is not going to be in the portfolio anymore starting in 2015 and I suspect that that probably had worse margins than the other refineries that are in that segment. Is any color you can give as to maybe what that segment would like historically without that in the portfolio or maybe how you expect margins to change going forward?

Yeah, I will say that first of all we worked on the denominator, so we have less capital employ and by selling it our EBITDA actually improves in the West Coast.

We can probably get to a better answer than that. Greg’s working on that.

If we normalized out and just basically strip all the impact to Melaka our West Coast performance would have been just slightly less than a $300 million loss in the fourth quarter, sorry.

Okay, got it. That’s perfect, thanks. And then just thinking about you all having a lot of major projects under construction on the Gulf Coast. Is there any chance that sort of the big drop in crude oil here is going to make the labor market a little looser and maybe help you hit those cost targets?

Yeah, I think directionally it is helpful to us. Some projects are getting pushed or cancelled and that should free up availability. I would say at this point we are more than half way through on track one and we haven’t seen the inflationary pressures that we thought we might see on those projects, particularly quickly around the Freeport/Sweeney area, where there is a lot of work going on. To begin to have some work going on, we have work others in that area have work going on Dell, Freeport et cetera. So I would say that we are executing well in that environment and directionally it should be helpful in terms of: a) schedule; and b) cost.

Great, thank you.

You bet.

And I will now turn the call back over to Kevin Mitchell for closing comments.

Okay, thank you very much for participating in the call this morning. We do appreciate your interest. You will be able to find the transcript of the call posted on our web site shortly. And if you have any additional questions, please feel free to contact me or Rosy. Thanks again.

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.