Speaker 1:
From the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, welcome inside the ICE House. Our podcast from Intercontinental Exchange is your go-to for the latest on markets, leadership, vision, and business. For over 230 years, the NYSE has been the beating heart of global growth. Each week we bring you inspiring stories of innovators, job creators, and the movers and shakers of capitalism here at the NYSE and ISIS exchanges around the world. Now let's go inside the ICE House. Here's your host, Pete Asch.
Pete Asch:
Phillips 66 traces its origins back to 1917 when brothers Frank and L.E Phillips founded the Phillips Petroleum Company in Bartlesville, Oklahoma. Initially established as an oil and gas exploration and production company, it quickly expanded its operations throughout the United States, capitalizing on the burgeoning demand for petroleum products. Throughout the Mid 20th Century, Phillips Petroleum continued to grow and diversify its business ventures.
During World War II, the company played a critical role supplying high octane fuel for military aircraft contributing to the Allied war effort. In the years after, Phillips Petroleum Company expanded into the chemicals industry, establishing a strong presence in the production of plastics and petroleum based products. In 2002, Phillips Petroleum Company merged with Conoco to form ConocoPhillips becoming one of the world's largest integrated energy companies. This merger combined the strength and resources of both companies enhancing their capabilities and exploration, production, refining, and marketing on a global scale.
A decade later, in 2012, ConocoPhillips split into two separate entities, reestablishing Phillips 66 as a leading energy manufacturing and logistics company. At the helm of Phillips 66, NYSE ticker PSX is our guest today, chairman and CEO Mark Lashier. Previously serving as President and COO, he assumed the role of CEO and chairman earlier this year.
As he traveled east from Phillips 66 headquarters in Houston to the New York Stock Exchange, Mark joins us inside the ICE House to discuss the evolution of the energy industry. We'll dive deep into his transformation from aspiring doctor to chemical engineer, explore recent investments made by Phillips 66 and detail the company's sustainability efforts. Our conversation with Mark Lashier, Chairman and CEO of Phillips 66 is coming up right after this.
Speaker 2:
Explore the world the Viking way, from the quiet comfort of elegant small ships with no children and no casinos. We actually have reinvented ocean voyages designing all-inclusive experiences for the thinking person. Viking, voted world's best by both Travel and Leisure and Condé Nast Traveller. Learn more at viking.com.
Pete Asch:
Our guest today, Mark Lashier is the chairman and CEO of Phillips 66 NYSE ticker PSX, a chemical engineer and the holder of 13 US patents with an undergrad degree and doctor from Iowa State University. Mark has spent 30 years with Phillips 66 and its joint venture with Chevron CPChem. He's on the board of several industry groups and non-profits and serves on the executive committee of the American Petroleum Institute. He is a member of the Business Roundtable, the Business Council, and the National Petroleum Council. Mark, thanks so much for joining us inside the ICE House and welcome back to the New York Stock Exchange.
Mark Lashier:
Glad to be here, Pete.
Pete Asch:
Providing energy, improving lives, those four words prominently displayed on the Phillips 66 website encapsulates a brand deeply familiar to many of our listeners, mostly because of the iconic gas stations that dot the landscape across the country. However, with over a century of history, Phillips 66 represents more than just a place to refuel. What is the core mission of Phillips 66 beyond the surface of its well-known consumer-facing identity?
Mark Lashier:
Well, you nailed it, it's providing energy and improving lives. And it's a mission we take very seriously. When I came back to Phillips 66 from Chevron Phillips, I thought that had a nice ring to it, but as I got to know the people and got to know what that mission really meant, it really became part of the core of who I am. You think about it, providing energy does improve lives. Your life gets pretty miserable pretty fast if the lights go out, if you can't get the fuel you need to get from point A to point B, groceries don't show up on the shelves. You can't get your kids to school. It's a tough life without energy.
And so our mission is to make sure that people have access to the energy and the materials they need to have a great lifestyle, to have a sustainable lifestyle. And over the years, we know that it's going to evolve. The kind of energy we may be providing to improve people's lives may evolve from what we do today, but we're committed to ensure that people have access to low cost, affordable, sustainable, abundant energy just like we've done for the last 125 plus years.
Pete Asch:
Yeah, we were talking before we started recording about Labor Day weekend, traveling, and I did my family what family's done since the advent of the automobile, we piled into the car and drove to a warmer, nicer climate. And as you're driving by, you think about how we've done things that have happened for decades, but also something completely different. And I'm in a hybrid vehicle. I'm not in an old model T. When you think about even just in the much shorter timeframe that you've been in the industry, how has the sector changed? How has the dynamics changed? And how have you as a company began to deal with some of the problems of transforming how we get that energy that lights our lights and drives our vehicles?
Mark Lashier:
Well, for the entire 125 years, I think the industry has been improving. In fact, one of our oldest facilities that we recently converted to renewable feedstocks from crude oil was originally built in the late 1800s to produce kerosene from crude oil to replace whale oil. And so we've been transforming and changing what we do and how we do it for 125 years.
And every engineer, every operator, every accountant that we have in the company is committed to figuring out better ways to what we do every day, to be more efficient with what we do, to be kinder to the environment, to mitigate the CO2 that we might produce for those that consume our fuels might produce. It's a journey of continuous improvement throughout our history.
Pete Asch:
Yeah, that continuous improvement requires education, new blood. And back in 2022, you spoke at your alma mater, Iowa State University, and you talked about growing up in the small town of Farragut, Iowa named after Admiral David Farragut, who I don't think he was a whaler, but his ships were on the sea at the same time. But how did your formative years shape your path to become into the energy sector and eventually lead you to your current role as chairman and CEO of Philips 66?
Mark Lashier:
Pete, you are a historian for sure. Yeah, Farragut's a little town in the southwest corner of Iowa. I grew up in a large family. We didn't have a lot, but we did learn how to work hard, how to have a good time, both at play and at work. And I think that really instilled in me the need to commit yourself to whatever it is you decide to do.
I went off to Iowa State, though I had no idea what it was I wanted to do. Unfortunately, I went to a great university that had lots of different opportunities and I literally stumbled across chemical engineering. I knew I liked chemistry, I liked math. I didn't know I could put all those things together and have a great career. And once I discovered that I liked it so much that I decided to get a PhD and here I am.
Pete Asch:
In our research, we found out that you might've looked at medical for a short time.
Mark Lashier:
I did.
Pete Asch:
So tell me about that moment. You're at university, you're studying, when did you say not just engineering, right, but chemical engineering was going to be your future, and how does that then go to where you find yourself pointing in the extra years to get the doctorate?
Mark Lashier:
It's a great story. I went off to Iowa State. I was pre-med because when you do well in school as a kid in small town Iowa, everybody says, "Yeah, go be a doctor. You should be a doctor." And there's a couple of things that happened. I remember being in a zoology lab dissecting a squid and identifying the parts of a squid and memorizing that. And I thought, I don't think this is really my thing. And in the meantime, I was figuring out how to pay for college.
I lived in the dormitories. A lot of the guys in my dormitory were studying engineering and they were struggling to get through physics and chemistry, and I was earning money tutoring these guys. And I said, "Hey, what do you do with this engineering degree?" And literally my exposure to engineering were the guys that drove the trains into our little town and hauled the corn and soybeans away. And I had no idea what a career in engineering, let alone chemical engineering might be.
So I explored it a little further. I discovered the engineering curriculum, the chemical engineering curriculum, and found my home and it just clicked. It helped me understand how the world worked, to be able to predict how things will work, to be able to design things that provide the kinds of materials we all take for granted every day in our lives, just was a huge attraction to me.
Pete Asch:
I want to talk about that, solving the problems and seeing how things work. I mentioned in the introduction you hold 13 patents, part of that engineering background. A lot of other engineers do end up actually in the Naval Academy and go off into the Navy, but you stayed in the chemical space. When it comes to innovation, what is your process to seeing a problem in the world, identifying a solution, and then occasionally getting a patent on top of that?
Mark Lashier:
Yeah, it was one of the greatest times of my career when I first started at Phillips Petroleum Company back in 1989, I went to the research center and I worked with lots of great chemists and I became kind of this technical translator taking things from the world of chemistry and research into actual physical reality into our plants. And one of the biggest opportunities I had was to take a catalyst that one of our chemists discovered somewhat by accident, he was trying to make new polyethylene catalysts, and this time he just made a liquid. And we figured out what that liquid was and it was something that is useful.
And so I had the job of optimizing that catalyst, building a process around that catalyst, and then further in my career had the opportunity to commercialize it and help build the first commercial facility. And now Chevron Phillips Chemical Company is the largest producer of that material on the planet. So it was kind of a cool thing. That just really epitomized everything I wanted to do when I got into chemical engineering.
Pete Asch:
And the thing about that, that process of taking an idea, creating a product, and then capitalizing on it, how does that background, that history from when you first arrived influence how you lead the company today to make sure that the company is innovative, that the company doesn't rest on its laurels and is constantly trying to push your products?
Mark Lashier:
Well, it really is you're providing value for the world, improving lives. What can you do with what you know to help make people's lives better? And in our competitive society, in our capitalist system, you'll be rewarded for that. So you can take the resources that you earn from making people's lives better to investigate other opportunities to make things bigger, better, faster, stronger, along the way.
And it all boils down to problem solving. Solving a problem that makes people's lives better will enable you to do more of that and to build on that and to innovate. And you always have to keep in mind laws of physics, the laws of chemistry, the laws of economics as you endeavor to improve people's lives. And if you pull all those things together, you really can do things to make the world a better place.
Pete Asch:
From Iowa State, big school, well-known school way better than that other school, Iowa.
Mark Lashier:
Yes.
Pete Asch:
But then you do over your career, go across the globe, you go to Asia, Saudi Arabia, how did those global experiences shape you as you went up through the company? And also how did you take a little bit of your small-town know-how-ness and hard-working and pull that all together to be a leader of a big public company?
Mark Lashier:
It's a long ways from small-town in Iowa to Singapore, figuratively and literally. And learning to do business, learning to solve problems, learning to create value in other people's cultures was incredible. You learn how to negotiate differently. You learn how to see things from other people's perspective. You really come to appreciate the need for diverse thinking and solving problems because there's not always just one way to do things. And I thrived in that environment because I had some mentors that helped me understand what it meant to be successful in different cultures than Chinese culture and the Japanese culture in the Singaporean culture.
And in turn, I helped them understand how Americans think, how Westerners think, and how they can achieve the goals that they're trying to achieve from a business perspective in Western culture. They helped me do the same thing in Eastern culture. And I think it made me a much better person, not just a better business person, but a much better person. And I'll tell you, we had three kids that were pretty young when we moved there, and it changed how they see the world. It gave them a greater appreciation for things that go on outside of North America and the impact that decisions have on the entire planet.
Pete Asch:
From 2017 to 2021, you were the present CEO of CPChem, which was a joint venture with Chevron. What is that joint venture and how did that work prepare you to then come back into Phillips?
Mark Lashier:
Yeah, back in the late '90s, early 2000s, both Phillips and Chevron frankly were a little frustrated with their petrochemicals businesses. They were big growing integrated oil companies, and they came to the realization that if they combine their assets, they could create a little better critical mass. But they literally cast us out there, burned all the bridges and said, "Okay, you guys go figure out how to run this chemicals business or we'll exit it." And it was pretty courageous thing to do for those companies. And it was a lot of fun to get in there to create the focus on petrochemicals and succeed.
And it's been a phenomenal joint venture for going on almost 25 years now. And it's been tremendously successful. It's created a lot of value for both companies and it's created materials, produced materials on a global basis that also improved people's lives and make people's lives more sustainable. Everything from Advil bottles to kayaks and canoes to you name it, things that you and I touch every day and take for granted are produced by Chevron-Philips Chemical company.
Pete Asch:
And let's dive into that setup. They're basically, these are two established companies, very long NYSE listed, I should note, both of them companies, and then they kind of created this startup culture by creating this joint venture together. Does that something that you think companies should be doing more, or do you think really it's something that every company has to do internally now?
Mark Lashier:
I think it's important that you stay in touch with those basic fundamentals that drive value in a company. It's critically important. We talk a lot about that at Phillips 66, that we've got to have this competitive edge. We've got to have this absence of a sense of entitlement, that we've got to go out there and earn it every day. And that's what CPChem was all about.
The mantra was fix or exit. We either fix it or we go home and we did, and we shut down some businesses that didn't make sense. We exited some businesses that didn't make sense, and the remaining businesses we were able to focus on and foster them into thriving opportunities. And at the core of every business, there needs to be that element, that fire, that drive to be the best at what you're doing or get out of the way.
Pete Asch:
So you took that and you stepped into the role of CEO in 2022. You followed Greg Garland who had been there for a decade. Every CEO starts a job. They get their 30, 60, 90 plan. When you sat down, what was that 30, 60, 90 plan? I mean, for those not thinking about 2022 sort of on the tail end of a pretty major event that affected the energy space in a very unique way. I think we all remember gas and oil selling practically at negative and then rising back up again. What was that 30, 60, 90 plan and how did that prepare you to come out of the pandemic?
Mark Lashier:
It was an incredibly volatile time, and throughout COVID, I think the company was very resilient. They had financial resources that allowed us to come through COVID in really good shape, but many of our competitors during COVID used the opportunity to drive a lot of cost out of their business. So we came out of that period at a bit of a cost disadvantage and a bit of a performance disadvantage. And so we needed to refocus our efforts on being more competitive, driving costs out of the business, getting the maximum value out of our assets, running things safely and reliably each and every day. Making sure every one of our employees went home safely at the end of the day.
And we initiated a business transformation to drive things across the board. It's safe, reliable operations, control the things that you can control, deliver value to the shareholders, never lose track of that and make the tough decisions you have to make around assets and around people to be able to create a better position for the greater good. And we made some pretty hefty commitments when we were here at the New York Stock Exchange for my first investor day in November, 2022. We committed to return $10 to $12 billion to shareholders by the end of 2024. That went so well that we bumped it up to $13 to $15 billion by the end of 2024, and we have line of sight on achieving that goal.
We committed to our shareholders that we're going to improve our refining performance by taking 75 cents a barrel out of our cost basis. Now we're on target to hit a dollar per barrel of cost reduction out of our refining business. We committed through business transformation to take over a billion dollars in costs out and we will hit $1.4 billion by the end of this year. So we set targets, we raise those targets and we're outperforming those targets.
We said we were going to establish a well-head-to-market position in our NGL midstream business. We did that and we've taken our earnings from about two and a half billion to about $3.8 billion a year in that critical business. So we've made commitments. We focused on the fundamentals that would allow us to deliver those commitments. We executed and we over-delivered.
Pete Asch:
And part of that plan was investments and M&A. You mentioned midstream. You acquired DCP midstream in 2023, Pinnacle this May. How do you look at the M&A process to ensure that these and the other additions add value and also reduce costs and frankly fit in with the culture that you've built with Phillips?
Mark Lashier:
You absolutely have to be very disciplined. You can go crazy and buy something every day and put yourself out of business very quickly, but you have to focus on the fundamentals. Can you bring something to the table to that business that you want to acquire to those assets you want to acquire? Does one plus one equal three or does one plus one equal 1.5? You really have to sit down, do a lot of homework around those assets to make sure that they are going to be in a better situation in your hands than someone else's.
In other words, can you create more value with those assets than the incumbent? Otherwise you should just leave them alone. We always look at something called synergies. Can we reduce costs? Can we operate better? Can we be in a better commercial situation by having those assets? And that's the DCP roll-up is a great example. We acquired a billion dollars a year of earnings, but then we went on to capture another $400 million in synergies. So the way to think about that is we increased the return by 40% based on doing the hard work of squeezing the synergies, squeezing the costs out, finding better commercial opportunities than we had before.
Every acquisition that we might consider, we have to look at those things. We have to look at what will our shareholders think about this? What will this do to earnings per share or cash flow per share? What will this do to our debt? There are financial metrics that we have to be very disciplined at. We screen dozens of these things and we turn down far more than we ever act on because we don't see the metrics that would be beneficial to the company. It's all about discipline, Pete.
Pete Asch:
So let's dive into the recent one, Pinnacle. So you're making that decision and you're putting together your thesis you're going to make to your leadership team as well as your investors, what does the acquisition of Pinnacle add to the company? And how does it expand what you're able to offer?
Mark Lashier:
It was a great addition because we had built this, think about it as a backbone from the Permian Basin where we can gather and process natural gas and natural gas liquids. And then those gathering and processing assets separate the natural gas and send it off in trunk lines to the natural gas markets. Then we take what's called raw Y-grade NGLs, and we move those to our pipelines to our facilities called fractionators, where we separate that raw NGL into high purity components like ethane and propane and butane.
And when we looked at that, we built that whole backbone, we said, okay, now that we've got all these assets, we can provide services to all those big producers out in the Permian, what can we do to make it even better? And we can either build more assets that connect to that trunk line, or we can acquire assets that aren't really connected to anything that maybe are more stranded out there or need to pay somebody to put their materials in there.
And so we started a screening process, and Pinnacle really epitomizes the perfect opportunity for us because it sat right next to our backbone, our trunk lines. It had a brand new state-of-the-art gathering and processing facility that could process 200 million standard cubic feet a day of gas. And it had plans for another one and the utilities in place for another one, and there's room for even more expansion. So we could do an inorganic acquisition that allowed us to do more organic growth over the long term. And so we were able to buy it at a very reasonable value and create even more value by expanding it over time.
Pete Asch:
And so that's the growth thesis. You're going to buy something and grow and sometimes, as you mentioned a few minutes ago, you also need to divest.
Mark Lashier:
Yes.
Pete Asch:
And so shortly after the Pinnacle agreement was announced, you also announced that you were divesting your equity stake in Rockies Express Pipeline. When you're making that decision, it's always hard to let something go, what goes into that? And then how does that then fit into that organic and inorganic growth-
Mark Lashier:
Yeah, Rockies Express Pipeline, good valuable asset, generated good earnings for us on a consistent basis, but it wasn't really integrated to the rest of our system. It didn't provide us any growth opportunities. And so you think about it, we didn't do the Rockies Express disposition to fund the Pinnacle acquisition, but it was a good trade. We were able to sell the earnings from the Rockies Express Pipeline for about 10 times those earnings, and we bought the Pinnacle assets for a little over five times their earnings.
And so we sold something that had no growth potential for us that we didn't have control of. It was controlled by our partner, and we bought something that we controlled our destiny around. We bought it for a much lower multiple and allows us to grow in something that we're fully integrated in.
Pete Asch:
So talk about renewal, reusing of capital, who also invested in renewable spaces. In 2020, you announced the intention to transform the San Francisco Refinery in Rodeo, California into one of the world's largest renewable facilities. What has the process been like converting that? You mentioned going from whale to oil, which in some ways seems to be a bigger leap in many ways, but how do you then go from oil to renewable?
Mark Lashier:
I'm guessing it was a lot easier to get that first refinery permitted in California than it was for us to get this conversion permitted, but it really was a great opportunity for the company. That asset was really losing access to competitive crudes to be able to operate, and it became an existential threat to the asset, our San Francisco refinery in Rodeo. And it came down to a decision, do we shut down that refinery or do we do something else with it?
And about that time, the incentives to produce renewable diesel were coming into play. And so you had the low carbon fuel standards in California. You had the national RIN program and a couple of other incentives. And we just happened to have the perfect assets in that refinery to convert renewable feedstocks to diesel fuel. They're called hydrotreaters, and they were fairly new. They were big world scale. And we did the analytics and we convinced ourselves we could convert that refinery at very low capital cost to enter the renewable diesel and also now the sustainable aviation fuel business.
And so we sanctioned the project, we executed the capital project, and early this year we went off of our diet of crude oil and started bringing in things like soybean oil and used cooking oil and animal fats, which I guess is a little bit like whale oil, but not exactly, and other difficult to process, but low carbon intensity feedstocks that we can convert into renewable diesel.
So today we're now processing 50,000 barrels a day, give or take a little bit of renewable feedstocks with low carbon intensity, and we're selling it as renewable diesel direct to customers at our 76 stations in California and other locations on the West Coast. And we're now starting to build inventory of renewable jet fuel that can be blended with traditional jet fuel and marketed as sustainable aviation fuel. So we're well off to a good start with our Rodeo Renewed project.
Pete Asch:
Yeah, and also, as you mentioned, you're processing it in California then selling it in California. There's a very, going back to those pipelines, the pipelines don't have to be that long and supply lines don't have to be that long. But what has that taught you about potentially other areas in the country or internationally for where Phillips 66 could look to either renewable or other ways of generating energy and how are you taking, analyzing those results from Rodeo and beginning to think about how that could expand?
Mark Lashier:
Rodeo is a good case study in exactly that because we had existing assets that were perfect with some minor modifications for what we wanted to do. So the capital cost was low, so that's a competitive advantage. It sits right on the water at the north end of San Francisco Harbor, and so there's plenty of feedstock access and product movements that can be done on the water. So that's another competitive advantage.
We also have a global commercial organization with offices in Houston and London and Calgary and Singapore. So we had this built-in network that can go out and aggregate feedstocks all over the planet because it really is a global game. And we had the ability to sell the product in our own gas stations or diesel stations in California, so we could pull through what we call our last mile strategy. We can deliver that product directly out to the consumer and not have to share the value of that product with distributors or intermediaries that would want to take a piece of the pie.
And so anytime we look at an opportunity, we have to think about what are the competitive advantages that we can secure and lock in that would make it difficult for somebody to compete with us? If you don't have any competitive advantages, if there aren't many barriers to entry, I suggest you don't get into that business because pretty soon anything that you could capture and value there will be competed away. And so we've got lots of competitive advantages around Rodeo, lots of barriers to entry in that market, and we believe it's going to be successful long term. So any opportunity we would look at, we would want to see do we have the capabilities to execute this? Do we have the competitive advantages and are they long-term and are they sustainable?
Pete Asch:
So speaking of the ability to do it, Phillips 66 has some ambitious targets for greenhouse gas emissions, 30% by 2030, 50% by 2050 as part of its commitment to addressing climate change. In addition to the work we just talked about in Rodeo, what are some of the strategies, initiatives being implemented to make sure that those goals are achievable and potentially because as you've been saying, you've been pushing through your goals left and right further diminish the company's carbon footprint down the road?
Mark Lashier:
It's a great question. Rodeo is a big piece of that. Processing more NGLs is a big piece of that because they're lower carbon intensity and less impactful on the environment as we operate those facilities. We're also aggressively installing things like solar panels around all of our major refineries to use zero carbon electrons to operate our facility. So that ultimately lowers the carbon intensity of the fuel that you would burn in your car. And everything that we can do across the board to make our existing facilities more efficient impacts the carbon intensity of what we produce. And so we've got identified projects like Rodeo that we can execute, identified projects like having others install solar panels around our facilities and using those low carbon electrons to lower our carbon intensity. And that's what's factored into those goals.
We didn't make those commitments unless we had line of sight on the technologies and the opportunities to make those reductions. We didn't make a net zero 2050 commitment like a lot of people have because nobody that's made those commitments has any idea how they're going to achieve those commitments. We don't make commitments that are overly aspirational. We want to be able to know that we've got the technologies, the capabilities, and line of sight on the opportunities to make those reductions before we make that commitment.
Pete Asch:
Speaking of line of sights, we just talked earlier about the most consumer facing part of your company, those gas stations that dot the highways, but increasingly those gas stations have electric charging stations either as part of them or in collaboration. Last year, 1.4 million electric vehicles were sold in the US alone. What is Phillips process for either building its own charging infrastructure or manufacturing to fit into another infrastructure to make sure that as the type of energy those vehicles need changes, Phillips is ready to deliver?
Mark Lashier:
We've been working with our marketers to install charging stations at many of our retail locations. In fact, we've got a flagship retail outlet within eyesight of our headquarters in Houston, and it has charging stations there, and they're quite busy all the time. And so we're looking at what are the right locations, what are the right opportunities? We're working with our marketers to get insights from them where they think the best locations are to locate rapid charging facilities.
And we've done it in a number of places. We've done quite a bit of it at our retail outlets in Continental Europe as well as in the UK affiliated with our jet brand there. So we've done a number of installations of charging stations because it's all about attracting the customers to your locations and encouraging them to come in and buy a cup of coffee or a donut or a cheeseburger, whatever they may be interested in, but spend a little time there, spend a little money there, and you get a nice return on those investments.
Pete Asch:
And you have the advantage of having the global footprint, so you can kind of see trends ahead of time, but also it's 2024, we can't have any conversation without talking AI. It's literally in the rules of all business conversations.
Mark Lashier:
Yes.
Pete Asch:
So what is the impact that AI's having on the energy sector in general? And then also how is Philips looking to leverage that?
Mark Lashier:
I think the biggest impact that we've seen is really on our safe, reliable operations for our facilities. We have massive facilities that are inherently challenging to operate. We operate them at very high temperatures, high pressures. If uncontrolled, they can be very dangerous, but with the right controls, you can do it safely and reliably year in and year out. And AI has helped us do that.
It's helped us be smarter about maintaining our facilities, detecting issues before they become a big problem, lowering our costs. So we can use a lot of data that's generated by monitoring all this equipment to decide this piece of equipment needs to be taken offline and repaired, or this piece of equipment looks like it's good to run for another five years. And so we don't have to waste time opening it up and looking at, we can also operate the facilities closer to their operating limits.
So we get a little bit more juice through them than we normally would on our own or to, if you're looking at separating regular gasoline from a higher octane gasoline, typically to make sure we weren't hurting the higher octane gasoline we would overshoot on octane. Well, now we're using AI using the right sensors, the right detectors that can manage that right down to the last 10th of a percent. We don't give product away. We sell product for what it's really worth. And so we're using it across the board in our facilities.
Pete Asch:
And part of that, we've talked a lot about transition, both energy, fuel types, and also technology using, that requires increasingly different skill sets. And so I want to talk a little bit about employee development and retention and acquisition. In 2024, your sustainability and peer report, 98% of new hires expressed that Phillips 66 felt like it was a place they could belong. How are you and your team fostering an environment that's bringing in these people who have these skills sets that are new and groundbreaking and may not be the traditional background for someone who might come in and work on an oil rig?
Mark Lashier:
First of all, it's amazing the talent that's coming out of the colleges and universities that we recruit from. I don't know that I could compete if I was to fast-forward by 35 years and be in competition with some of these young bright minds coming out. And they are hungry to use the tools that they've been studying, and we give them the space to do that. We give them the opportunities to come in. We allow them to challenge the status quo. We give them the training they need to understand how to use those tools safely in our environment. And we say, go experiment with these things in a safe way, in a safe manner, and let us know what you think.
I've been in some of our refineries and listened to presentations from young engineers. I was just in the UK at our Humber Refinery a few weeks ago when a young engineer took us through a process where he was using AI to enhance the maintenance of a certain piece of equipment. And I'll tell you that the 30-year experience to operators were just eating it up. They were there to support that 22, 23-year-old engineer with this great idea using this new technologies to make their lives better and to help them do their jobs better.
And so I get goosebumps when I see that kind of thing happening at our facilities. When you've got somebody just fresh out of college, understands the technologies, understands the capabilities, and convinces these crusty old 30-year operators that know how that equipment works, and you can convince them that you can help them make it work better by using some new technology. That's a really cool thing.
Pete Asch:
And they're probably providing a lot of insight to that wet behind his ears. Engineering might not know everything going on in that product.
Mark Lashier:
Absolutely, absolutely. And it's great to see that level of collaboration.
Pete Asch:
So there are I believe 14,000 employees in the company. You mentioned being overseas and seeing them, but how do you stay connected with the employees and how do you let them know your directions, your thoughts, and make sure that you're hearing from them where they want to see the company going and that they feel that these systems you're putting in place to keep them safe, to keep them efficient are working?
Mark Lashier:
I make sure I get to all of our facilities at least once a year. We do a number of town halls. I speak to all kinds of different employee groups, employee resource groups. I speak directly to our new hires, our summer interns. I spend a lot of time talking. I tell my grandkids when they say, "What do you do as a CEO?" I said, "I talk a lot." And really that's why it's so important. That's why we have these great communicators to help me hone my message in. It is important to not just talk to the employees, but to have a dialogue with them.
My favorite part of these town halls, my favorite part of these interactions is the Q&A afterwards. And that's when I really hear what's going on out in the organization, what's really on people's minds. And over the last couple of years, employees have gotten more and more comfortable being more and more direct with me, and I love it. I love to have a conversation about what's going on, what are they worried about, what are they excited about? What should we do more of? What should we do less of? How can we make their work-life balance better? How can we get obstacles out of their way so they can be as productive as we would like them to be? It takes a lot of work. It takes a lot of time, but it's worth it.
Pete Asch:
And one of the things, when you have 14,000 employees and you have such a consumer-facing brand, you are a part of the communities that you operate in and supporting Operation BBQ in the aftermath of Hurricane Beryl in Texas to donate millions in education equity initiatives. Philanthropy is obviously part of the mission for Phillips 66 for its entire history. But under your leadership, how do you envision the company's role in the communities that operates in and in the communities that your 14,000 employees live in?
Mark Lashier:
We've always had a commitment to the communities in which we operate. And it is so important to be connected to those communities because many of the communities, if we have a significant issue, it is horrifically impactful to those communities. But more importantly, we want to see those communities thrive. We want to see them have great schools. We want to see their kids grow up healthy, excited, hopefully come back and work in the energy industry.
But our employees are committed to the communities in which they live, and we want to give them the opportunities to give back. Whether it's Habitat for Humanity, food banks, the fight against cancer, we're all in. We go into the community, we give employees the opportunity, we give them extra time off to go get involved with the causes that mean the most to them in the community. And yeah, we give quite a bit of money to the community to be able to have the resources they need to build the institutions that the community needs to have safe, reliable communities as well.
Pete Asch:
And part of that is reliable energy. So as we wrap up, we've covered a lot of ground today, a lot of things from whale oil to EV. Since you entered the fields coming out of Iowa State, what now in 2024 is the biggest factors that you see as a challenge to not just Phillips 66, but the entire energy industry?
Mark Lashier:
Well, I think lowering the carbon footprint of the energy industry is one of the biggest challenges that the world has faced in a long time. And back when I came out of university, there were lots of technical things that we could do that were really exciting, really amazing, but no one was really thinking about the carbon footprint of what we were doing. That was just starting to become a thing.
I think back when I was a kid in the '70s, the big challenge was just pollution in general. And I would say we took that challenge on and we fixed it. I remember seeing on TV and the nightly news bodies of water on fire because there were just uncontrolled hydrocarbons flowing in streams because the controls just weren't in place. And we've grown and we've matured as an industry and we've taken on that challenge, and now you never see that happen. Or if you do, it's small and it's mitigated very quickly. You certainly don't see any bodies of water on fire.
And I think that we as an industry can do the same thing around CO₂, that we can find ways to mitigate the impact of CO₂ in the environment while still giving people the opportunity to have access to affordable, reliable, abundant energy so they can enjoy the kind of lifestyles that they've come to enjoy. And don't forget about the billions of people out there that have lifestyles that are nowhere near what we enjoy here in North America. They'd love to just be half the lifestyle that we have, but it's going to take a lot of energy to get them there.
Energy in the last 150, 200 years has transformed the world population. We are healthier, we have greater longevity, we have better lifestyles than anybody could have ever imagined 200 years ago. We don't want to step back and give that up. We've got to figure out how to provide those energies that improve people's lives in an affordable and sustainable way.
Pete Asch:
Going back to the '70s, you had that crisis of the environment. Also, you had lines in the gas stations because there wasn't enough affordable and accessible gasoline. So let's look forward for a little bit. How are you making sure that Phillips 66, regardless of where the winds of the industry take, will be at the front of it, and making sure that in those communities you operate in for 100 years, you're operating there in another 100 years?
Mark Lashier:
Starts with great people. We talked about it, recruiting great people that know technologies that are willing to challenge the status quo, leverage technologies to get better every day and to be more competitive every day. We've got to make sure that our governments make good choices. Those gas lines that I experienced back in the '70s, those were driven by political decisions to control prices, to not let free markets be free markets. I also, in those days, went to grocery stores with my mother and looked in the meat counter, and there was no meat in the meat counter because the government tried to control the price of meat.
Markets work, free markets work, and we can never forget that. And if you provide a stable environment for companies that want to compete in a free market, they will do amazing things to improve and enhance your lifestyle. And so we've got to focus on great people, great technologies, great policies, great investments, and that's how we'll win at the end of the day.
Pete Asch:
Well, that's a great way to end this conversation. So thank you Mark so much for joining us inside the ICE House.
Mark Lashier:
Thanks a lot, Pete. It was fun to be here.
Speaker 1:
That's our conversation for this week. Remember to rate, review, and subscribe wherever you listen and follow us on X @ICEHousePodcast. From the New York Stock Exchange, we'll talk to you again next week inside the ICE House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified.
Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.
