*** Total pipeline system consists of three zones for a total of 1,712 miles. The third zone of the pipeline is bi-directionalbidirectional and can transport 2.6 Bcf/d of natural gas from east-to-west.east to west.
† Owned by Phillips 66 Partners; Phillips 66 held a 57 percent ownership74% of the limited partner interest in Phillips 66 Partners at December 31, 2017.2019.
* Marine facilities in thousands of barrels per hour; Rail in thousands of barrels daily (MBD); Marine and NGL Facilities in thousands of barrels per hour..
Rockies Express Pipeline LLC (REX)
We own a 25 percent interest in REX, which owns a natural gas pipeline system with approximately 1,712 miles of transportation pipelines, including laterals, extending from Opal, Wyoming, and Meeker, Colorado, to Clarington, Ohio. The REX Pipeline delivers natural gas to markets, primarily in the Midwest, from both the Rocky Mountain region and the Appalachian Basin.
Marine Vessels
At December 31, 2017,2019, we had 1117 international-flagged crude oil, refined petroleum product and productNGL tankers and two Jones Act-compliant tankers under time charter contracts, with capacities ranging in size from 300,000 to 1,100,0002,200,000 barrels. Additionally, we had under time charter contract two Jones Act-compliant tankersa variety of inland and 38offshore tug/barge units. These vessels are used primarily to transport crude oil and other feedstocks, or provide product transportationas well as refined petroleum products for certain of our refineries, including delivery of domestic crude oilrefineries. In addition, the NGL tankers are used to export propane and butane from our Gulf Coastfractionation, transportation and East Coast refineries.storage infrastructure.
Truck and Rail
Our truck and rail fleets support our feedstock and distribution operations. Rail movements are provided via a fleet of more thanapproximately 10,000 owned and leased railcars. Truck movements are provided through our wholly owned subsidiary, Sentinel Transportation LLC, and through numerous third-party trucking companies, as well as through our 100-percent-owned subsidiary, Sentinel Transportation LLC.companies.
NGL and Other
Our NGL and Other business includes the following:
A U.S. Gulf Coast NGL market hub comprisingcomprised of the Freeport LPG Export Terminal and Phillips 66 Partners’ 100,000 BPD100,000-BPD Sweeny Fractionator. These assets are supported by 9 million9,000,000 barrels of gross capacity at Phillips 66 Partners’ Clemens Caverns storage facility. We refer to these facilities as the “Sweeny Hub.”
A 22.5 percent22.5% interest in Gulf Coast Fractionators, which owns an NGL fractionation plant in Mont Belvieu, Texas. We operate the facility, and our net share of its capacity is 32,625 BPD.
A 12.5 percent12.5% undivided interest in a fractionation plant in Mont Belvieu, Texas. Our net share of its capacity is 30,250 BPD.
A 40 percent40% undivided interest in a fractionation plant in Conway, Kansas. Our net share of its capacity is 43,200 BPD.
Phillips 66 Partners owns the River Parish NGL logistics system in southeast Louisiana, comprising approximately 500 miles of pipelinespipeline and a storage cavern connecting multiple fractionation facilities, refineries and a petrochemical facility.
Phillips 66 Partners owns a direct one-third interest in both the DCP Sand Hills Pipeline, LLC (Sand Hills) and DCP Southern Hills Pipeline, LLC, which own pipelinesNGL pipeline systems that connect the Eagle Ford, Permian Basin and Midcontinent production areas to the Mont Belvieu, Texas, market.market hub.
Phillips 66 Partners, through its ownership of MSLP,Merey Sweeny LLC, owns a 125,000 BPD capacity vacuum distillation unit with a capacity of 125,000 BPD and a 70,000 BPD capacity delayed coker unit with a capacity of 70,000 BPD located at our Sweeny Refinery in Old Ocean, Texas.
In July 2019, Phillips 66 Partners completed the construction of a 25,000 BPD isomerization unit at our Lake Charles Refinery, which reached full production during the year. The project increased Phillips 66’s production of higher-octane gasoline blend components.
Phillips 66 Partners’ Sweeny Fractionator is located adjacent to our Sweeny Refinery in Old Ocean, Texas, and supplies purity ethane to the petrochemical industry and LPGpurity NGL to domestic and global markets. Raw NGL supply to the fractionator is delivered from nearby major pipelines, including the Sand Hills Pipeline. The fractionator is supported by significant infrastructure including connectivity to two NGL supply pipelines, a pipeline connecting to the Mont Belvieu market center and a multi-million-barrel salt domethe Clemens Caverns storage facility with access to our LPGliquefied petroleum gas (LPG) export terminal in Freeport, Texas.
The Freeport LPG Export Terminal leverages our fractionation, transportation and storage infrastructure to supply petrochemical, heating and transportation markets globally. The terminal can simultaneously load two ships with refrigerated propane and butane at a combined rate of approximately 36,000 barrels per hour. In support of the terminal, we have a 100,000 BPD unit near the Sweeny Fractionator to upgrade domestic propane for export was installed near the Sweeny Fractionator.export. In addition, the terminal exports 10,000 to 15,000 BPD of natural gasoline (C5+) produced at the Sweeny Fractionator.
MSLP processes long residue, which is produced from heavy sour crude oil, forWe are expanding the Sweeny Hub with three additional fractionators, each with a processing fee. The fuel-grade petroleum cokefractionation capacity of 150,000 BPD. Fracs 2 and other by-products produced as a result3 are anticipated to start up in the fourth quarter of the processing are retained by our Sweeny Refinery.
During 2017, Phillips 66 Partners continued development of a new 25,000 BPD isomerization unit at our Lake Charles Refinery to increase production of higher octane gasoline blend components. The project2020. Frac 4 is expected to be completed in the second quarter of 2021. The new fractionators are supported by long-term customer commitments. Upon completion of Frac 4, the endSweeny Hub will have 550,000 BPD of 2019.fractionation capacity. DCP Midstream has committed to supply the fractionators with raw NGL and has an option to acquire up to a 30% ownership interest in Fracs 2 and 3.
At the Sweeny Hub, Phillips 66 Partners is adding 7.5 million barrels of storage capacity at Clemens Caverns. Upon completion in the fourth quarter of 2020, Clemens Caverns will have 16.5 million barrels of storage capacity. Phillips 66 Partners is also constructing the C2G Pipeline, a 16 inch ethane pipeline that will connect Clemens Caverns to petrochemical facilities in Gregory, Texas, near Corpus Christi. The project is supported by long-term commitments and is expected to be completed in mid-2021.
DCP Midstream
Our Midstream segment includes our 50 percent50% equity investment in DCP Midstream, which is headquartered in Denver, Colorado. As ofAt December 31, 2017,2019, DCP Midstream, through its subsidiary DCP Midstream, LP (DCP Partners), owned or operated 6144 active natural gas processing facilities, with a net processing capacity of approximately 7.86.5 billion cubic feet per day (Bcf/d). DCP Midstream’s owned or operated natural gas pipeline systems included gathering services for these facilities, as well as natural gas transmission, and totaled approximately 63,00058,000 miles of pipeline. DCP Midstream also owned or operated 1211 NGL fractionation plants, along with natural gas and NGL storage facilities, a propane wholesale marketing business and NGL pipeline assets.pipelines.
The residual natural gas, primarily methane, which results from processing raw natural gas, is sold by DCP Midstream at market-based prices to marketers and end users, including large industrial companies, natural gas distribution companies and electric utilities. DCP Midstream purchases or takes custody of substantially all of its raw natural gas from producers, principally under contractual arrangements that expose DCP Midstream to the prices of NGL, natural gas and condensate. DCP Midstream also has fee-based arrangements with producers to provide midstream services such as gathering and processing.
In addition, DCP Midstream markets a portion of its NGL to us and CPChemour equity affiliates under existing contracts. The primary commitment on certain contracts began
On November 6, 2019, DCP Partners completed a ratable wind-down periodtransaction to eliminate all general partner economic interests in December 2014DCP Partners and expiresIDRs in January 2019. These purchase commitments are on an “if-produced, will-purchase” basis.exchange for 65 million newly issued DCP Partners common units. With completion of the transaction, DCP Midstream held a noneconomic general partner interest and approximately 118 million common units, representing approximately 57% of DCP Partners’ outstanding common units.
During 2017,2019, DCP Midstream completed or advanced the following growth projects:
In
The 200 million cubic feet per day (MMcf/d) O’Connor 2 plant was placed into service in the firstthird quarter of 2017,2019, and the associated 100 MMcf/d bypass was placed into service in the fourth quarter of 2019, increasing DCP Midstream’s total available DJ Basin capacity to over 1.4 billion Bcf/d.
The Gulf Coast Express pipeline began commercial operations in the third quarter of 2019. The pipeline transports approximately 2 Bcf/d of natural gas to Gulf Coast markets. DCP Midstream announcedowns a 25% interest in the construction of a 200-million-cubic-feet-per-day (MMcf/d)pipeline.
In October 2019, DCP Midstream exercised an option to increase its ownership interest in the Cheyenne Connector to 50%. The 600 MMcf/d natural gas processing plant, the Mewbourn 3 plant, and further expansion of its Grand Parkway gathering system. Both are located in the Denver-Julesburg (DJ) Basin and arepipeline is expected to be in service in the third quarter of 2018.
In the second quarter of 2017, DCP Midstream approved the 200 MMcf/d O'Connor 2 natural gas processing plant in the DJ Basin. The O'Connor 2 plant and associated gathering infrastructure are expected to be in service in 2019.
In the second quarter of 2017, DCP Midstream increased capacity in the DJ Basin by up to 40 MMcf/d by placing additional field compression and plant bypass infrastructure in service.
In the third quarter of 2017, DCP Midstream executed definitive joint-venture agreements on its 25 percent interest in the development of the Gulf Coast Express pipeline project (GCX project). The GCX project is designed to transport up to 1.98 Bcf/d of natural gas. The mostly 42-inch pipeline would traverse approximately 500 miles and be placed in service in 2019, pending regulatory approvals.
DCP Midstream is jointly developing the Cheyenne Connector pipeline with Tallgrass Energy Partners, LP (Tallgrass) and Western Gas Partners, LP (Western Gas). Tallgrass serves as the operator, and both DCP Midstream and Western Gas hold an option to invest in this pipeline at a later date. The Cheyenne Connector pipeline will provide takeaway solutions with capacity of at least 600 MMcf/d for DCP Midstream's DJ Basin assets, connecting natural gas to REX’s Cheyenne Hub, where it can then be delivered to numerous demand markets across the country.
DCP Midstream is currently expanding the Sand Hills Pipeline to 365,000 BPD, which is expected to be completed in the first quarter of 2018. Further expansion to 450,000 BPD is progressing and is expected to be in service during the second half of 2018. This expansion includes a partial looping of the pipeline and the addition of new pump stations.2020.
Effective January 1, 2017, DCP Midstream and its master limited partnership (then named DCP Midstream Partners, LP, subsequently renamed DCP Midstream, LP on January 11, 2017, and referred to herein as DCP Partners) closed a transaction in which DCP Midstream contributed subsidiaries owning all of its operating assets and its existing debt to DCP Partners, in exchange for approximately 31.1 million DCP Partners units. Following the transaction, we and our co-venturer retained our 50/50 investment in DCP Midstream, DCP Midstream retained its incentive distribution rights in DCP Partners through its ownership of the general partner of DCP Partners, and DCP Midstream held a 36 percent limited partner interest and a 2 percent general partner interest in DCP Partners. See the “Equity Affiliates” section of “Significant Sources of Capital” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on this transaction.
CHEMICALS
The Chemicals segment consists of our 50 percent50% equity investment in CPChem, which is headquartered in The Woodlands, Texas. At the end of 2017,December 31, 2019, CPChem owned or had joint-venturejoint venture interests in 30 global28 manufacturing facilities located in Belgium, Colombia, Qatar, Saudi Arabia, Singapore and the United States. Additionally, CPChem has two U.S. research and development centers.centers in the United States.
We structure our reporting of CPChem’s operations around two primary business segments:lines: Olefins and Polyolefins (O&P) and Specialties, Aromatics and Styrenics (SA&S). The O&P business segmentline produces and markets ethylene and other olefin products; theproducts. The ethylene produced is primarily consumed withinused by CPChem for the production ofto produce polyethylene, normal alpha olefins (NAO) and polyethylene pipe. The SA&S business segmentline manufactures and markets aromatics and styrenics products, such as benzene, cyclohexane, styrene paraxylene and cyclohexane, as well as polystyrene. SA&S also manufactures and/or markets a variety of specialty chemical products including organosulfur chemicals, solvents, catalysts, and chemicals used in drilling chemicals and mining chemicals.mining.
The manufacturing of petrochemicals and plastics involves the conversion of hydrocarbon-based raw material feedstocks into higher-value products, often through a thermal process referred to in the industry as “cracking.” For example, ethylene can be produced fromby cracking the feedstocks ethane, propane, butane, natural gasoline or certain refinery liquids, such as naphtha and gas oil. The produced ethylene has a number of uses,Ethylene primarily is used as a raw material in the production of plastics, such as polyethylene and polyvinyl chloride.chloride (PVC). Plastic resins, such as polyethylene, are manufactured in a thermal/catalyst process, and the produced output is used as a further raw material for various applications, such as packaging and plastic pipe.
CPChem and its equity affiliates have manufacturing facilities located in Belgium, China, Colombia, Qatar, Saudi Arabia, Singapore and the United States.
The following table reflects CPChem’s petrochemicals and plastics product capacities at December 31, 2017:2019:
| | | | Millions of Pounds per Year | | Millions of Pounds per Year* |
| | U.S. |
| | Worldwide |
| U.S. |
| | Worldwide |
|
| O&P | | | | | | |
| Ethylene | 8,110 |
| | 10,585 |
| 11,910 |
| | 14,385 |
|
| Propylene | 2,675 |
| | 3,180 |
| 2,675 |
| | 3,180 |
|
| High-density polyethylene | 5,305 |
| | 7,600 |
| 5,305 |
| | 7,470 |
|
| Low-density polyethylene | 620 |
| | 620 |
| 620 |
| | 620 |
|
| Linear low-density polyethylene | 1,590 |
| | 1,590 |
| 1,590 |
| | 1,590 |
|
| Polypropylene | — |
| | 310 |
| — |
| | 310 |
|
| Normal alpha olefins | 2,335 |
| | 2,850 |
| 2,335 |
| | 2,850 |
|
| Polyalphaolefins | 125 |
| | 255 |
| 125 |
| | 255 |
|
| Polyethylene pipe | 590 |
| | 590 |
| 500 |
| | 500 |
|
| Total O&P | 21,350 |
| | 27,580 |
| 25,060 |
| | 31,160 |
|
| | | | | | | |
| SA&S | | | | | | |
| Benzene | 1,600 |
| | 2,530 |
| 1,600 |
| | 2,530 |
|
| Cyclohexane | 1,060 |
| | 1,455 |
| 1,060 |
| | 1,455 |
|
| Paraxylene | 1,000 |
| | 1,000 |
| |
| Styrene | 1,050 |
| | 1,875 |
| 1,050 |
| | 1,875 |
|
| Polystyrene | 835 |
| | 1,070 |
| 835 |
| | 1,070 |
|
| Specialty chemicals | 439 |
| | 574 |
| 440 |
| | 575 |
|
| Total SA&S | 5,984 |
| | 8,504 |
| 4,985 |
| | 7,505 |
|
| Total O&P and SA&S | 27,334 |
| | 36,084 |
| 30,045 |
| | 38,665 |
|
* Capacities include CPChem’s share in equity affiliates and excludes CPChem’s NGL fractionation capacity.
In 2017, CPChem continued construction
Effective January 1, 2019, capacity at CPChem’s new ethane cracker inat the U.S. Gulf Coast region. This project leverages the development of the significant shale resources in the United States. The polyethylene facilities successfully completed commissioning and start-up in September 2017. The two polyethylene units, each with an annual capacity of 1.1 billion pounds, are located near CPChem’s Sweeny facility in Old Ocean, Texas. CPChem’s Cedar Bayou facility in Baytown, Texas, was increased to 1.7 million metric tons per year, which is 15% above the locationoriginal design capacity.
In June 2019, CPChem signed an agreement with a co-venturer to jointly pursue the development of a petrochemical facility on the 3.3 billion-pound-per-year ethane cracker. Mechanical completion of the ethane cracker was achieved in December 2017, and commissioningU.S. Gulf Coast. The U.S. Gulf Coast II Petrochemical Project is expected to be completedinclude a 2 million metric tons per year ethylene cracker and two high density polyethylene units, each with capacity of 1 million metric tons per year. CPChem would own a 51% interest in the first quarterjoint venture and have responsibility for the construction, operation and management of 2018,the facility. Final investment decision is expected in 2021, with targeted startup in 2024.
Also in June 2019, CPChem signed an agreement with a transitionco-venturer to full production duringjointly pursue the second quarterdevelopment, construction and operation of 2018.
In February 2017,a petrochemicals complex in Qatar. The facility is expected to have a 1.9 million metric tons per year ethylene cracker and two high-density polyethylene derivative units with a combined capacity of 1.7 million metric tons per year. Pending final investment decision, the project is expected to start up in late 2025. CPChem completed the sale of its K-Resin® styrene-butadiene copolymers (SBC) business, which included the K-Resin® SBC plantwill own a 30% interest in the Yeosu Petrochemical Complex in South Korea.joint venture.
In April 2017, CPChem completed expansion of the polyalphaolefins capacity at its Cedar Bayou plant by 20 million pounds per year, or 20 percent. This expansion, together with the NAO capacity added in 2015, allows CPChem to meet the increasing demand for high-performance lubricants feedstocks.
In October 2017, CPChem completed the sale of its equity investment in Petrochemical Conversion Company, which included nylon 6,6, nylon compounding, and polymer conversion assets.
REFINING
Our Refining segment refines crude oil and other feedstocks into petroleum products, (suchsuch as gasoline, distillates and aviation fuels)fuels, at 13 refineries in the United States and Europe.
The table below depicts information for each of our U.S.owned and internationaljoint venture refineries at December 31, 2017:2019:
| | | | | | | | | Thousands of Barrels Daily | | | | | | | | Thousands of Barrels Daily | | |
| Region/Refinery | | Location | | Interest |
| | Net Crude Throughput Capacity | | Net Clean Product Capacity** | | Clean Product Yield Capability |
| | Location | | Interest |
| | Net Crude Throughput Capacity | | Net Clean Product Capacity** | | Clean Product Yield Capability |
|
At December 31 2017 |
| Effective January 1 2018 |
| | Gasolines |
| | Distillates |
| | At December 31 2019 |
| Effective January 1 2020 |
| | Gasolines |
| | Distillates |
| |
| Atlantic Basin/Europe | | | | | | | | | | | | | | | | | | | | |
| Bayway | | Linden, NJ | | 100.00 | % | | 241 |
| 258 |
| | 155 |
| | 130 |
| | 92 | % | | Linden, NJ | | 100 | % | | 258 |
| 258 |
| | 155 |
| | 130 |
| | 92 | % |
| Humber | | N. Lincolnshire, United Kingdom | | 100.00 |
| | 221 |
| 221 |
| | 95 |
| | 115 |
| | 81 |
| | N. Lincolnshire, United Kingdom | | 100 |
| | 221 |
| 221 |
| | 95 |
| | 115 |
| | 81 |
|
| MiRO* | | Karlsruhe, Germany | | 18.75 |
| | 58 |
| 58 |
| | 25 |
| | 25 |
| | 87 |
| | Karlsruhe, Germany | | 19 |
| | 58 |
| 58 |
| | 25 |
| | 25 |
| | 87 |
|
| | | | | 520 |
| 537 |
| | | | | | | | | | 537 |
| 537 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Gulf Coast | | | | | | | | | | | | | | | | | | | | |
| Alliance | | Belle Chasse, LA | | 100.00 |
| | 247 |
| 247 |
| | 130 |
| | 120 |
| | 87 |
| | Belle Chasse, LA | | 100 |
| | 250 |
| 255 |
| | 130 |
| | 120 |
| | 87 |
|
| Lake Charles | | Westlake, LA | | 100.00 |
| | 249 |
| 249 |
| | 100 |
| | 115 |
| | 70 |
| | Westlake, LA | | 100 |
| | 249 |
| 249 |
| | 105 |
| | 115 |
| | 70 |
|
| Sweeny | | Old Ocean, TX | | 100.00 |
| | 247 |
| 256 |
| | 135 |
| | 120 |
| | 86 |
| | Old Ocean, TX | | 100 |
| | 265 |
| 265 |
| | 140 |
| | 125 |
| | 86 |
|
| | | | | 743 |
| 752 |
| | | | | | | | | | 764 |
| 769 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Central Corridor | | | | | | | | | | | | | | | | | | | | |
| Wood River | | Roxana, IL | | 50.00 |
| | 157 |
| 157 |
| | 85 |
| | 60 |
| | 81 |
| | Roxana, IL | | 50 |
| | 167 |
| 173 |
| | 85 |
| | 70 |
| | 81 |
|
| Borger | | Borger, TX | | 50.00 |
| | 73 |
| 73 |
| | 50 |
| | 30 |
| | 91 |
| | Borger, TX | | 50 |
| | 75 |
| 75 |
| | 50 |
| | 35 |
| | 91 |
|
| Ponca City | | Ponca City, OK | | 100.00 |
| | 203 |
| 203 |
| | 120 |
| | 95 |
| | 93 |
| | Ponca City, OK | | 100 |
| | 213 |
| 217 |
| | 120 |
| | 100 |
| | 93 |
|
| Billings | | Billings, MT | | 100.00 |
| | 60 |
| 60 |
| | 35 |
| | 30 |
| | 90 |
| | Billings, MT | | 100 |
| | 60 |
| 65 |
| | 35 |
| | 30 |
| | 90 |
|
| | | | | 493 |
| 493 |
| | | | | | | | | | 515 |
| 530 |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| West Coast | | | | | | | | | | | | | | | | | | | | |
| Ferndale | | Ferndale, WA | | 100.00 |
| | 101 |
| 105 |
| | 65 |
| | 35 |
| | 81 |
| | Ferndale, WA | | 100 |
| | 105 |
| 105 |
| | 65 |
| | 35 |
| | 81 |
|
| Los Angeles | | Carson/Wilmington, CA | | 100.00 |
| | 139 |
| 139 |
| | 85 |
| | 65 |
| | 90 |
| | Carson/Wilmington, CA | | 100 |
| | 139 |
| 139 |
| | 85 |
| | 65 |
| | 90 |
|
| San Francisco | | Arroyo Grande/San Francisco, CA | | 100.00 |
| | 120 |
| 120 |
| | 60 |
| | 65 |
| | 85 |
| | Arroyo Grande/Rodeo, CA | | 100 |
| | 120 |
| 120 |
| | 60 |
| | 65 |
| | 85 |
|
| | | | | 360 |
| 364 |
| | | | | | | | | | 364 |
| 364 |
| | | | | | |
| | | | | 2,116 |
| 2,146 |
| | | | | | | | | | 2,180 |
| 2,200 |
| | | | | | |
* Mineraloelraffinerie Oberrhein GmbH.
** Clean product capacities are maximum rates for each clean product category, independent of each other. They are not additive when calculating the clean product yield capability for each refinery.
Primary crude oil characteristics and sources of crude oil for our owned and joint venture refineries are as follows:
|
| | | | | | | | | | |
| | Characteristics | | Sources |
| | Sweet | Medium Sour | Heavy Sour | High TAN* | | United States | Canada | South and Central America | Europe** | Middle East & Africa |
| Bayway | l | l | | | | l | l | | | l |
| Humber | l | l | l | l | | l | | | l | l |
| MiRO | l | l | l | | | | | | l | l |
| Alliance | l | l | | | | l | | | | |
| Lake Charles | l | l | l | l | | l | l | l | l | l |
| Sweeny | l | l | l | l | | l | l | l | | |
| Wood River | l | l | l | l | | l | l | | | |
| Borger | l | l | l | | | l | l | | | |
| Ponca City | l | l | l | | | l | l | | | |
| Billings | | l | l | l | | l | l | | | |
| Ferndale | l | l | | | | l | l | | | l |
| Los Angeles | | l | l | l | | l | l | l | | l |
| San Francisco | l | l | l | l | | l | l | l | l | l |
* High TAN (Total Acid Number): acid content greater than or equal to 1.0 milligram of potassium hydroxide (KOH) per gram.
** Includes Russian crude.
Atlantic Basin/Europe Region
Bayway Refinery
The Bayway Refinery is located on the New York Harbor in Linden, New Jersey. Bayway’s facilities include crude distilling, naphtha reforming, fluid catalytic cracking, solvent deasphalting, hydrodesulfurization and alkylation units. The complex also includes a polypropylene plant with the capacity to produce up to 775 million pounds per year. The refinery produces a high percentage of transportation fuels, as well as petrochemical feedstocks, residual fuel oil and home heating oil. Refined petroleum products are distributed to East Coast customers by pipeline, barge, railcar and truck.
Humber Refinery
The Humber Refinery is located on the east coast of England in North Lincolnshire, United Kingdom, approximately 180 miles north of London, United Kingdom.London. Humber’s facilities include crude distilling, naphtha reforming, fluid catalytic cracking, hydrodesulfurization, thermal cracking and delayed coking units. The refinery has two coking units with associated calcining plants, which produce high-value graphite and anode petroleum cokes. The refinery produces a high percentage of transportation fuels.plants. Humber is the only coking refinery in the United Kingdom, and a major producer of high-quality specialty graphite cokes and anode coke. Approximately 70 percentanode-grade petroleum cokes. The refinery also produces a high percentage of transportation fuels. The majority of the light oils produced by the refinery are distributed to customers in the United Kingdom by pipeline, railcar and truck, while the other refined petroleum products are exported tothroughout the rest of Europe, West Africa and the United States by waterborne cargo.world.
MiRO Refinery
The MiRO Refinery is located on the Rhine River in Karlsruhe, Germany, approximately 95 miles south of Frankfurt, Germany. MiRO is the largest refinery in Germany and operates as a joint venture in which we own an 18.75 percent18.75% interest. Facilities include crude distilling, naphtha reforming, fluid catalytic cracking, petroleum coking and calcining, hydrodesulfurization, isomerization, ethyl tert-butyl ether and alkylation units. MiRO produces a high percentage of transportation fuels. Other products produced include petrochemical feedstocks, home heating oil, bitumen, anode-gradeand anode- and fuel-grade petroleum coke andcokes. Refined petroleum coke. Refined products are distributed to customers in Germany, Switzerland, France, and Austria by truck, railcar and barge.
Gulf Coast Region
Alliance Refinery
The Alliance Refinery is located on the Mississippi River in Belle Chasse, Louisiana, approximately 25 miles southeast of New Orleans, Louisiana. The single-train facility includes crude distilling, naphtha reforming, fluid catalytic cracking, alkylation, hydrodesulfurization, aromatics and delayed coking units. Alliance produces a high percentage of transportation fuels. Other products produced include petrochemical feedstocks, home heating oil and anode-grade petroleum coke. RefinedA majority of the refined petroleum products are distributed to customers in the southeastern and eastern United States through major common-carriercommon carrier pipeline systems and by barge. RefinedAdditionally, refined petroleum products are exported primarily to customers primarily in Latin America by waterborne cargo.
Lake Charles Refinery
The Lake Charles Refinery is located in Westlake, Louisiana, approximately 150 miles east of Houston, Texas. Refinery facilities include crude distilling, naphtha reforming, fluid catalytic cracking, alkylation, hydrocracking, hydrodesulfurization and delayed coking units. Refinery facilities also include a specialty coker and calciner. The refinery produces a high percentage of transportation fuels. Other products produced include off-road diesel, home heating oil, feedstock for our Excel Paralubes joint venture in our M&S segment, and high-quality specialty graphite and fuel-grade petroleum coke and petroleum coke. Thecokes. A majority of the refined petroleum products are distributed to customers in the southeastern and eastern United States by truck, railcar, barge or major common carrier pipelines. RefinedAdditionally, refined petroleum products are also exported primarily to customers primarily in Latin America and West AfricaEurope by waterborne cargo.
Sweeny Refinery
The Sweeny Refinery is located in Old Ocean, Texas, approximately 65 miles southwest of Houston, Texas. Refinery facilities include crude distilling, naphtha reforming, fluid catalytic cracking, alkylation, hydrodesulfurization, and aromatics units, as well as access to the on-site vacuum tower and a Phillips 66 Partners owned delayed coking unit, which effective October 2017 became an asset owned by Phillips 66 Partners.unit. The refinery produces a high percentage of transportation fuels. Other products include petrochemical feedstocks, home heating oil and fuel-grade petroleum coke. The refinery receives crude oil by pipeline and via tankers, through wholly and jointly owned terminals onA majority of the Gulf Coast, including a deepwater terminal at Freeport, Texas. Refinedrefined petroleum products are distributed to customers throughout the Midcontinent region, southeastern and eastern United States by pipeline, barge and railcar. RefinedAdditionally, refined petroleum products are also exported primarily to customers primarily in Latin America by waterborne cargo.
Central Corridor Region
WRB Refining LP (WRB)
We are the operator and managing partner of WRB, a 50/50 percent-owned joint venture with Cenovus Energy Inc., which consists ofthat owns the Wood River and Borger refineries.
Wood River Refinery
The Wood River Refinery is located in Roxana, Illinois, about 15 miles northeast of St. Louis, Missouri, at the confluence of the Mississippi and Missouri rivers. Refinery facilities include crude distilling, naphtha reforming, fluid catalytic cracking, alkylation, hydrocracking, hydrodesulfurization and delayed coking units. The refinery produces a high percentage of transportation fuels. Other products produced include petrochemical feedstocks, asphalt and fuel-grade petroleum coke. Refined petroleum products are distributed to customers throughout the Midcontinent region by pipeline, railcar, barge and truck and are shipped to markets throughout the Midcontinent region.truck.
Borger Refinery
The Borger Refinery is located in Borger, Texas, in the Texas Panhandle, approximately 50 miles north of Amarillo, Texas. Refinery facilities include crude distilling, naphtha reforming, fluid catalytic cracking, alkylation, hydrodesulfurization, and delayed coking units, as well as an NGL fractionation facility. ItThe refinery produces a high percentage of transportation fuels, as well as fuel-grade petroleum coke, NGL’sNGL and solvents. Refined petroleum products are distributed to customers via pipelines from the refinery toin West Texas, New Mexico, Colorado and the Midcontinent region.region by company-owned and common carrier pipelines.
Ponca City Refinery
The Ponca City Refinery is located in Ponca City, Oklahoma, approximately 95 miles northwest of Tulsa, Oklahoma. Its facilities include crude distilling, naphtha reforming, fluid catalytic cracking, alkylation, hydrodesulfurization, and delayed coking units. It produces a high percentage of transportation fuels and anode-grade petroleum coke. Refined products are primarily distributed to customers by company-owned and common-carrier pipelines to markets throughout the Midcontinent region.
Billings Refinery
The Billings Refinery is located in Billings, Montana. Its facilities include crude distilling, naphtha reforming, fluid catalytic cracking, alkylation, hydrodesulfurization, and delayed coking units. The refinery produces a high percentage of transportation fuels and anode-grade petroleum coke. FinishedRefined petroleum products fromare primarily distributed to customers throughout the Midcontinent region by company-owned and common carrier pipelines.
Billings Refinery
The Billings Refinery is located in Billings, Montana. Refinery facilities include crude distilling, naphtha reforming, fluid catalytic cracking, alkylation, hydrodesulfurization and delayed coking units. The refinery produces a high percentage of transportation fuels and fuel-grade petroleum coke. Refined petroleum products are distributed to customers by pipeline, railcar and truck. Pipelines transport most of the refined products to markets in Montana, Wyoming, Idaho, Utah, Colorado and Washington.Washington by pipeline, railcar and truck.
West Coast Region
Ferndale Refinery
The Ferndale Refinery is located on Puget Sound in Ferndale, Washington, approximately 20 miles south of the U.S.-Canada border. Facilities include crude distillation, naphtha reforming, fluid catalytic cracking, alkylation and hydrodesulfurization units. The refinery produces a high percentage of transportation fuels. Other products produced include residual fuel oil, which is supplied to the northwest marine bunker fuel market. Most of the refined petroleum products are distributed to customers by pipeline and barge to major markets in the northwest United States.States by pipeline and barge.
Los Angeles Refinery
The Los Angeles Refinery consists of two facilities linked facilitiesby pipeline located five miles apart in Carson and Wilmington, California, approximately 15 miles southeast of Los Angeles. The Carson facility serves as the front end of the refinery by processing crude oil, and the Wilmington facility serves as the back end of the refinery by upgrading the intermediate products to finished products. TheRefinery facilities include crude distillation, naphtha reforming, fluid catalytic cracking, alkylation, hydrocracking, and delayed coking units. The refinery produces a high percentage of transportation fuels. The refinery produces California Air Resources Board (CARB)-grade gasoline. Other products produced include fuel-grade petroleum coke. Refined petroleum products are distributed to customers in California, Nevada and Arizona by pipeline and truck.
San Francisco Refinery
The San Francisco Refinery consists of two facilities linked by a 200-mile pipeline.our pipelines. The Santa Maria facility is located in Arroyo Grande, California, 200 miles south of San Francisco, California, while the Rodeo facility is located in the San Francisco Bay Area. Semi-refined liquidIntermediate refined products from the Santa Maria facility are shipped by pipeline to the Rodeo facility for upgrading into finished petroleum products. FacilitiesRefinery facilities include crude distillation, naphtha reforming, hydrocracking, hydrodesulfurization and delayed coking units, as well as a calciner. The refinery produces a high percentage of transportation fuels. It also producesfuels, including CARB-grade gasoline. Other products produced include fuel-grade petroleum coke. The majority of the refined petroleum products are distributed to customers in California by pipeline and barge. AdditionalAdditionally, refined petroleum products are also exported to customers primarily in Latin America by waterborne cargo.
Renewable Fuel Projects
We are developing renewable fuel projects that leverage existing infrastructure. Waste fats, recycled cooking oils and other renewable feedstocks will be used for diesel production that complies with low-carbon fuel standards. We have a renewable diesel project underway at the Humber Refinery, and we are developing a renewable diesel project at the San Francisco Refinery. Additionally, we have supply and offtake agreements for two third-party renewable diesel facilities under construction in Nevada.
MARKETING AND SPECIALTIES
Our M&S segment purchases for resale and markets refined petroleum products, (suchsuch as gasolines, distillates and aviation fuels),fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, (suchsuch as base oils and lubricants), as well as power generation operations.lubricants.
Marketing
Marketing—United States
In the United States, as of December 31, 2017, we marketedWe market gasoline, diesel and aviation fuel through marketer and joint venture outlets that utilize the Phillips 66, Conoco or 76 brands. At December 31, 2019, we had approximately 7,550 independently owned7,540 branded outlets in 48 states. These sites utilize the Phillips 66, Conoco or 76 brands.
At December 31, 2017, ourOur wholesale operations utilizedutilize a network of marketers operating approximately 5,7005,450 outlets. We place a strong emphasis on the wholesale channel of trade because of its relatively lower capital requirements. In addition, we heldhold brand-licensing agreements covering approximately 1,0501,280 sites. Our refined petroleum products are marketed on both a branded and unbranded basis. A high percentage of our branded marketing sales are made in the Midcontinent, Rockies and West Coast regions, where our wholesale marketing operationsnetworks provide efficient off-take from our refineries. We continue to utilize consignment fuel arrangements with several marketers whereby we own the fuel inventory and pay the marketers a fixed monthly fee.
In the Gulf Coast and East Coast regions, most sales are conducted via the unbranded saleschannel of trade, which dodoes not require a highly integrated marketing and distribution infrastructure to secure product placement for refinery pull through. We are expanding our export capability at our U.S. coastal refineries to meet growing international demand and increase flexibility to provide product to the highest-value markets.
In addition to automotive gasoline and diesel, we produce and market jet fuel and aviation gasoline. At December 31, 2017, aviation gasoline and jet fuel. Aviation gasoline and jet fuel wereare sold through dealers and independent marketers at approximately 800 810 Phillips 66-branded locations inbranded locations.
In the United States.fourth quarter of 2019, we formed a retail marketing joint venture with operations primarily on the U.S. West Coast. The joint venture operates a network that includes approximately 580 outlets. This joint venture enables increased long-term placement of our refinery production and increases our exposure to retail margins.
Marketing—International
We have marketing operations in four European countries. Our European marketing strategy is to sell primarily through owned, leased or joint-venturejoint venture retail sites using a low-cost, high-volume approach. We use the JET brand name to market retail and wholesale products in Austria, Germany and the United Kingdom. In addition, a joint venture in which we have an equity interest in a joint venture that markets refined petroleum products in Switzerland under the COOP brand name.
We also market aviation fuels, LPG, heating oils, transportation fuels, marine bunker fuels, bitumen and fuel coke specialtyother secondary refined products to commercial customers and into the bulk or spot markets in the above countries.
At December 31, 2017,2019, we had 1,3241,280 marketing outlets in our European operations,Europe, of which 993980 were company owned and 331300 were dealer owned. In addition, we had interests in 320 additional sites through our COOP joint-venturejoint venture operations in Switzerland, we have interests in 306 additional sites.Switzerland.
Specialties
We manufacture lubricants and sell a variety of specialty products, including petroleum coke products, waxes, solvents and polypropylene. Certain
Lubricants
We manufacture and sell automotive, commercial, industrial and specialty lubricants which are marketed worldwide under the Phillips 66, Kendall,Red Line and other private label brands. We also market Group III Ultra-S base oils through an agreement with South Korea’s S-Oil Corporation.
In addition, we own a 50% interest in Excel Paralubes LLC (Excel), an operated joint venture that owns a hydrocracked lubricant base oil manufacturing operations are included inplant located adjacent to the Refining segment, whileLake Charles Refinery. The facility has a nameplate capacity to produce 22,200 BPD of high-quality Group II clear hydrocracked base oils. Excel markets the marketing function for these productsproduced base oil under the Pure Performance brand. The facility’s feedstock is included in the Specialties business.sourced primarily from our Lake Charles Refinery.
Premium Coke, Polypropylene & SolventsOther Specialty Products
We market high-quality specialty graphite and anode-grade petroleum cokes in the United States, Europe and Asia for use in a variety of industries that include steel, aluminum, titanium dioxide and battery manufacturing. We also market polypropylene in North America under the COPYLENE brand name for use in consumer products, and market specialty solvents that include pentane, iso-pentane, hexane, heptane and odorless mineral spirits for use in the petrochemical, agriculture and consumer markets. In addition, we market sulfur for use in agricultural and chemical applications, and fuel-grade petroleum coke for use in the making of cement and glass, and generation of power.
Excel Paralubes
We own a 50 percent interest in Excel Paralubes, a joint venture which owns a hydrocracked lubricant base oil manufacturing plant located adjacent to the Lake Charles Refinery. The facility has a nameplate capacity to produce 22,200 BPD of high-quality, clear hydrocracked base oils. The facility’s feedstock is sourced primarily from our Lake Charles Refinery.
Lubricants
We manufacture and sell automotive, commercial, industrial and specialty lubricants which are marketed worldwide under the Phillips 66, Kendall and Red Line brands, as well as other private label brands. We also market Group II Pure Performance base oils globally, as well as import and market Group III Ultra-S base oils through an agreement with South Korea’s S-Oil corporation.
Other
Power Generation
We own a cogeneration power plant located adjacent to the Sweeny Refinery. The plant generates electricity and provides process steam to the refinery, as well as merchant power into the Texas market. The plant has a net electrical output of 440 megawatts and is capable of generating up to 3.6 million pounds per hour of process steam.
TECHNOLOGYRESEARCH AND DEVELOPMENT
Our Technology organization, located in Bartlesville, Oklahoma, conducts applied and fundamental research in three areas: 1)to support for our current business, 2)provide new environmental solutions, to address governmental regulations and 3)provide options for future growth.growth that are aligned with the Phillips 66 strategy. Technology programs include evaluating advantaged crudes;monitoring the quality of crude being processed; development and optimization of catalysts; modeling to anticipate corrosion and fouling rates in the refinery units; and modeling to reduce energy consumption, increase product yield and increase reliability. Our sustainabilityEnergy Transition group currently is focusing efforts ondeveloping organic photovoltaic polymers, solid oxide fuel cells, atmospheric modeling and battery materials while the Sustainability group continues to model air chemistry and water cleanup. Research continues on emerging renewable fuels processes, and a robotics program was introduced in 2019 to identify ways to use and reuse and renewable fuels.robots to do work that involves exposure to hazardous chemicals or working environments, or work that is considered highly repetitive. Additionally, we monitor emerging technologies such as electric vehicles and impacts of the digital space on energy consumption, and performglobal research and monitoring of developments in battery technology.development community for technologies that could impact our business.
COMPETITION
TheIn the Midstream segment, our crude oil and products pipelines could face competition with other crude oil and products pipeline companies, major integrated oil companies, and independent crude oil gathering and marketing companies. Competition is based primarily on quality of customer service, competitive pricing and proximity to customers and market hubs. In addition, the Midstream segment, through our equity investment in DCP Midstream and our other operations, competes with numerous integrated petroleum companies, as well as natural gas transmission and distribution companies, to deliver components of natural gas to end users in commodity natural gas markets. DCP Midstream is one of the largest U.S. producers and marketers of NGL, based on published industry sources, and one of the leading natural gas gatherers and processors in the United States based on wellhead volumes, and one of the largest U.S. producers and marketers of NGL, based on published industry sources.volumes. Principal methods of competing include economically securing the right to purchase raw natural gas for gathering systems, managing the pressure of those systems, operating efficient NGL processing plants and securing markets for the products produced.
In the Chemicals segment, CPChem is ranked among the top 10 producers ofin many of its major product lines according to published industry sources, based on average 20172019 production capacity. Petroleum products, petrochemicals and plastics are typically delivered into the worldwide commodity markets. Our Refining and M&S segments compete primarily in the United States and Europe. We are one of the largest refiners of petroleum products in the United States based on published industry sources. Elements of competition for both our Chemicals and Refining segments include product improvement, new product development, low-cost structures, ability to run advantaged feedstocks, and efficient manufacturing and distribution systems. In the marketingMarketing portion of the business, competitive factors include product properties and processibility, reliability of supply, customer service, price and credit terms, advertising and sales promotion, and development of customer loyalty to branded products.
GENERAL
At December 31, 2017,2019, we held a total of 356483 active patents in 1824 countries worldwide, including 275367 active U.S. patents. The overall profitability of any business segment is not dependent on any single patent, trademark, license or franchise.
Company-sponsored research and development activities charged against earnings were $60 million in both 2017 and 2016 and $65 million in 2015.
In support of our goal to attain zero incidents, we have implemented a comprehensive Health, Safety and Environmental (HSE) management system to support consistent management of HSE risks across our enterprise. The management system is designed to ensure that personal safety, process safety, and environmental impact risks are identified, and mitigation steps are taken to reduce the risk. The management system requires periodic audits to ensure compliance with government regulations, as well as our internal requirements. Our commitment to continuous improvement is reflected in annual goal setting and performance measurement.
See the environmental information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Contingencies” under the captions “Environmental” and “Climate Change.” It includes information on expensed and capitalized environmental costs for 20172019 and those expected for 20182020 and 2019.2021.
Website Access to SEC Reports
Our Internet website address is http://www.phillips66.com. Information contained on our Internet website is not part of this Annual Report on Form 10-K.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our website, free of charge, as soon as reasonably practicable after such reports are filed with, or furnished to, the U.S. Securities and Exchange Commission (SEC). Alternatively, you may access these reports at the SEC’s website at http://www.sec.gov.
Item 1A. RISK FACTORS
You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K. Each of these risk factors could adversely affect our business, operating results and financial condition, as well as affect the value of an investment in our common stock.
Our operating results and future rate of growth are exposed to the effects of changing commodity prices and refining, marketing and petrochemical margins.
Our revenues, operating results and future rate of growth are highly dependent on a number of factors, including fixed and variable expenses (including the cost of crude oil, NGL, and other refining and petrochemical feedstocks) and the margin we can derive from selling refined petroleum, petrochemical and Chemicals segmentplastics products. The prices of feedstocks and our products fluctuate substantially. These prices depend on numerous factors beyond our control, including the global supply and demand for feedstocks and our products, which are subject to, among other things:
Changes in the global economy and the level of foreign and domestic production of crude oil, natural gas and NGL and refined petroleum, petrochemical and plastics products.
Availability of feedstocks and refined petroleum products and the infrastructure to transport them.
Local factors, including market conditions, the level of operations of other facilities in our markets, and the volume of products imported and exported.
Threatened or actual terrorist incidents, acts of war and other global political conditions.conditions, and public health issues and outbreaks.
Government regulations.
Weather conditions, hurricanes or other natural disasters.
Availability of alternative energy sources.
The price of crude oil influences prices for refined petroleum products. We do not produce crude oil and must purchase all of the crude oil we process. Many crude oils available on the world market will not meet the quality restrictions for use in our refineries. Others are not economical to use due to high transportation costs or for other reasons. The prices for crude oil and refined petroleum products can fluctuate differently based on global, regional and local market conditions. In addition, the timing of the relative movement of the prices (both among different classes of refined products and among various global markets for similar refined products),conditions, as well as the overall change in refined product prices,by type and class of products, which can reduce refining margins and could have a significant impact on our refining, wholesale marketing and retail operations, revenues, operating income and cash flows. Also, crude oil supply contracts generally have market-responsive pricing provisions. We normally purchase our refinery feedstocks weeks before manufacturing and selling the refined petroleum products. Changes in prices that occur between when we purchase feedstocks and when we sell the refined petroleum products produced from these feedstocks could have a significant effect on our financial results. We also purchase refined petroleum products produced by others for sale to our customers. Price changes that occur between when we purchase and sell these refined petroleum products also could have a material adverse effect on our business, financial condition and results of operations.
The price of feedstocks also influences prices for petrochemical and plastics products. Although our Chemicals segment transports and fractionates feedstocks to meet a portion of their demand and has certain long-term feedstock supply contracts with others, it is still subject to volatile feedstock prices. In addition, the petrochemicals industry is both cyclical and volatile. Cyclicality occurs when periods of tight supply, resulting in increased prices and profit margins, are followed by periods of capacity expansion, resulting in oversupply and declining prices and profit margins. Volatility occurs as a result of changes in supply and demand for products, changes in energy prices, and changes in various other economic conditions around the world.
Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on acceptable terms and can adversely affect the financial strength of our business partners.
Our ability to obtain credit and capital depends in large measure on the state of the credit and capital markets, which is beyond our control. Our ability to access credit and capital markets may be restricted at a time when we would like, or need, access to those markets, which could constrain our flexibility to react to changing economic and business conditions. In addition, the cost and availability of debt and equity financing may be adversely impacted by unstable or illiquid market conditions. Protracted uncertainty and illiquidity in these markets also could have an adverse impact on our lenders, commodity hedging counterparties, or our customers, preventing them from meeting their obligations to us.
From time to time, our cash needs may exceed our internally generated cash flow, and our business could be materially and adversely affected if we are unable to obtain necessary funds from financing activities. From time to time, we may need to supplement cash generated from operations with proceeds from financing activities. Uncertainty and illiquidity in financial markets may materially impact the ability of the participating financial institutions to fund their commitments to us under our liquidity facilities. Accordingly, we may not be able to obtain the full amount of the funds available under our liquidity facilities to satisfy our cash requirements, and our failure to do so could have a material adverse effect on our operations and financial position.
Deterioration in our credit profile could increase our costs of borrowing money and limit our access to the capital markets and commercial credit, and could trigger co-venturer rights under joint-venture arrangements.
Our or Phillips 66 Partners’ credit ratings could be lowered or withdrawn entirely by a rating agency if, in its judgment, the circumstances warrant. If a rating agency were to downgrade our rating below investment grade, our or Phillips 66 Partners’ borrowing costs would increase, and our funding sources could decrease. In addition, a failure by us to maintain an investment grade rating could affect our business relationships with suppliers and operating partners. For example, our agreement with Chevron regarding CPChem permits Chevron to buy our 50 percent interest in CPChem for fair market value if we experience a change in control or if both Standard & Poor’s and Moody’s lower our credit ratings below investment grade and the credit rating from either rating agency remains below investment grade for 365 days thereafter, with fair market value determined by agreement or by nationally recognized investment banks. As a result of these factors, a downgrade of credit ratings could have a materially adverse impact on our future operations and financial position.
We expect to continue to incur substantial capital expenditures and operating costs as a result of our compliance with existing and future environmental laws and regulations. Likewise, future environmental laws and regulations may impact or limit our current business plans and reduce demand for our products.
Our business is subject to numerous laws and regulations relating to the protection of the environment. These laws and regulations continue to increase in both number and complexity and affect our operations with respect to, among other things:
The discharge of pollutants into the environment.
Emissions into the atmosphere, (suchsuch as nitrogen oxides, sulfur dioxide and mercury emissions, and greenhouse gas emissions, as they are, or may become, regulated).regulated.
The quantity of renewable fuels that must be blended into motor fuels.
The handling, use, storage, transportation, disposal and cleanup of hazardous materials and hazardous and nonhazardous wastes.
The dismantlement and abandonment of our facilities and restoration of our properties at the end of their useful lives.
We have incurred and will continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of these laws and regulations. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of our products and services, our business, financial condition, results of operations and cash flows in future periods could be materially adversely affected.
The U.S. Environmental Protection Agency (EPA) has implemented a Renewable Fuel Standard (RFS) pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The RFS program sets annual quotas for the quantity of renewable fuels, (suchsuch as ethanol)ethanol, that must be blended into motor fuels consumed in the United States. To provide certain flexibility in compliance options available to the industry, a Renewable Identification Number (RIN) is assigned to each gallon of renewable fuel produced in, or imported into, the United States. As a producer of petroleum-based motor fuels, we are obligated to blend renewable fuels into the products we produce at a rate that is at least commensurate to the EPA’s quota and, to the extent we do not, we must purchase RINs in the open market to satisfy our obligation under the RFS program. To the extent the EPA mandates a blending quantity of renewable fuel that exceeds the amount that is commercially feasible to blend into motor fuel (a situation commonly referred to as “the blend wall”), our operations could be materially adversely impacted, up to and including a reduction in produced motor fuel.
The adoption of climate change legislation or regulation could result in increased operating costs and reduced demand for the refined petroleum products we produce.
The U.S. government, including the EPA, as well as several state and international governments, have either considered or adopted legislation or regulations in an effort to reduce greenhouse gas (GHG) emissions. These proposed or promulgated laws apply or could apply in states and/or countries where we have interests or may have interests in the future. In addition, various groups suggest that additional laws may be needed in an effort to address climate change, as illustrated by the Paris Agreement, negotiated at the 2015 United Nations Conference on Climate Change, referred to as COP 21, which entered into force on November 4, 2016.2016 and establishes a commitment by signatory parties to pursue domestic GHG emission reductions. Although the United States submitted formal notification of its withdrawal from the Paris Agreement to the United Nations in November 2019, a future presidential administration could reverse the withdrawal. We cannot predict the extent to which any such legislation or regulation will be enacted and, if so, what its provisions would be. To the extent we incur additional costs required to comply with the adoption of new laws and regulations that are not ultimately reflectedrecovered in the prices of our products and services, our business, financial condition, results of operations and cash flows in future periods could be materially adversely affected. In addition, demand for the refined petroleum products we produce could be adversely affected.
Climate change may adversely affect our and our joint ventures’ facilities and our ongoing operations.
The potential physical effects of climate change on our operations are highly uncertain and depend upon the unique geographic and environmental factors present. We have systems in place to manage potential acute physical risks, but if any such events were to occur, they could have an adverse effect on our assets and operations. Examples of such effectspotential physical risks include floods, hurricane-force winds, wildfires and snowstorms, as well as rising sea levels at our coastal facilities, changing storm patternsfacilities. We and intensities,our joint ventures have incurred, and changing temperature levels. As manywill continue to incur, costs to protect our assets from physical risks and to employ processes, to the extent available, to mitigate such risks. Many of our facilities, as well as facilities of our joint ventures, are located near coastal areas,areas. As a result, extreme weather and rising sea levels may disrupt our or our joint ventures’ ability to operate those facilities or transport crude oil and refined petroleum products. Extended periods of such disruption could have an adverse effect on our results of operation.operations. We could also incur substantial costs to prevent or repair damage to these facilities. Finally, depending on the severity and duration of any extreme weather events or climate conditions, we or our joint ventures could be required to modify operations and incur costs that could materially and adversely affect our business, financial condition and results of operations.
Domestic and worldwide politicalPolitical and economic developments could affect our operations and materially reduce our profitability and cash flows.
Actions of the U.S.,federal, state, local and international governments through tax and other legislation or regulation, executive order, permit or other review of infrastructure or facility development, and commercial restrictions could delay projects, increase costs, limit development, or otherwise reduce our operating profitability both in the United States and abroad. Any such actions may affect many aspects of our operations, including requiringincluding:
Requiring permits or other approvals that may impose unforeseen or unduly burdensome conditions or potentially cause delays in our operations; furtheroperations.
Further limiting or prohibiting construction or other activities in environmentally sensitive or other areas; requiringareas.
Requiring increased capital costs to construct, maintain or upgrade equipment or facilities; or restrictingfacilities.
Restricting the locations where we may construct facilities or requiring the relocation of facilities.
In addition, the U.S. government can prevent or restrict us from doing business in foreign countries. These restrictionscountries and those offrom doing business with entities affiliated with foreign governments, which can include state oil companies and U.S. subsidiaries of those companies. The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security matters. For example, sanctions are currently in effect against Venezuela and certain entities affiliated with it. The effect of any such OFAC sanctions could disrupt transactions with or operations involving entities affiliated with sanctioned countries, and could limit our ability to operate in, or gain access to various countries, as well as limit our ability to obtain the optimum slate of crude oilslates and other refinery feedstocks. Our foreign operationsfeedstocks and those of our joint ventures are further subject toeffectively distribute refined petroleum products.
Other risks of loss of revenue, equipmentinherent in doing business internationally include global financial market turmoil; economic volatility and property as a result of expropriation,global economic slowdown; currency exchange rate fluctuations and inflationary pressures; import or export restrictions and changes in trade regulations; acts of terrorism, war, civil unrest and other political risks; unilateral or forced renegotiation, modification or nullificationdifficulties in developing, staffing and managing foreign operations; and potentially adverse tax developments. If any of existing contracts with governmental entities; and difficulties enforcing rights against a governmental agency because of the doctrine of sovereign immunity and foreign sovereignty over international operations. Our foreign operationsthese events occur, our businesses and those of our joint ventures are also subject to fluctuations in currency exchange rates. Actions by both the United States and host governments may affect our operations significantly in the future.be adversely affected.
RenewableAdditionally, renewable fuels, alternative energy mandates and energy conservation efforts could reduce demand for refined petroleum products. Tax incentives and other subsidies can make renewable fuels and alternative energy more competitive with refined petroleum products than they otherwise might be, which may reduce refined petroleum product margins and hinder the ability of refined petroleum products to compete with renewable fuels.
Large capital projects can take many years to complete, and market conditions could deteriorate significantly between the project approval date and the project startup date, negatively impacting expected project returns.
Our basis for approving a large-scale capital project is the expectation that it will deliver an acceptable level of return on the capital invested. We base these forecasted project economics on our best estimate of future market conditions. Most large-scale projects take several years to complete. During this multi-yearmultiyear period, market conditions can change from those we forecast, and these changes could be significant. Accordingly, we may not be able to realize our expected
returns from a large investment in a capital project, and this could negatively impact our results of operations, cash flows and our return on capital employed.
Our investmentsPlans we may have to expand existing assets or construct new assets, particularly in joint ventures decreaseour Midstream segment, are subject to risks associated with societal and political pressures and other forms of opposition to the future development, transportation and use of carbon-based fuels. Such risks could adversely impact our ability to manage risk.realize certain growth strategies.
We conduct someCertain of our operations, including partsplanned expenditures are based upon the assumption that societal sentiment will continue to enable, and existing regulations will remain intact to allow for, the future development, transportation and use of carbon-based fuels. A portion of our growth strategy is dependent on our ability to expand existing assets and to construct additional assets. Policy decisions relating to the production, refining, transportation and marketing of carbon-based fuels are subject to political pressures and the influence and protests of environmental and other special interest groups. For example, our Midstream Refiningsegment’s growth plans include the construction or expansion of pipelines, which can involve numerous regulatory, environmental, political, and M&S segments,legal uncertainties, many of which are beyond our control. Our growth projects may not be completed on schedule or at the budgeted cost. In addition, our revenues may not increase immediately upon the expenditure of funds on a particular project. Delays or cost increases related to capital spending programs could negatively impact our results of operations, cash flows and our entire Chemicals segment, through joint ventures in which we share control with our joint-venture participants. return on capital employed.
Our joint-venture participants may have economic,operations are subject to business or legal interests or goals that are inconsistent with ours or those of the joint venture, or our joint-venture participants may be unableinterruptions and casualty losses. Failure to meet their economic or other obligations, and we may be required to fulfill those obligations alone. Failure by us, or an entity in which we have a joint-venture interest, to adequately manage the risks associated with any acquisitions or joint venturesbusiness interruptions could have a material adverse effect on theadversely impact our operations, financial condition, or results of operations and cash flows.
Our operations are subject to business interruptions due to scheduled refinery turnarounds, unplanned maintenance or unplanned events such as explosions, fires, refinery or pipeline releases or other incidents, power outages, severe weather, labor disputes, or other natural or man-made disasters, such as acts of terrorism, including cyber intrusion. The inability to operate one or more of our joint ventures and, in turn,facilities due to any of these events could significantly impair our business and operations.
Activitiesability to manufacture our products. Additionally, our manufacturing equipment is becoming increasingly dependent on our information technology systems. A disruption in our Chemicals and Midstream segments involve numerous risks that may result in accidents thatinformation technology systems due to a catastrophic event or security breach could affect the ability ofinterrupt or damage our equity affiliates to make distributions to us.operations.
There are a variety of hazards and operating risks inherent in the manufacturing of petrochemicals and the gathering, processing, transmission, storage, and distribution of natural gas and NGL, such as spills, leaks, explosions and mechanical problems that could cause substantial financial losses. In addition, these risksExplosions, fires, refinery or pipeline releases or other incidents involving our assets or operations could result in significantserious personal injury or loss of human life, significant damage to property and equipment, environmental pollution, and impairment of operations any of which could result inand substantial losses.losses to us. For assets located near populated areas, including residential areas, commercial business centers, industrial sites and other public gathering areas, the level of damage resulting from these risks could be greater. Damages resulting from an incident involving any of our assets or operations may result in our being named as a defendant in one or more lawsuits asserting potentially substantial claims or in our being assessed potentially substantial fines by governmental authorities. Should any of these risks materialize at any of our equity affiliates, it could have a material adverse effect on the business and financial condition of ourthe equity affiliates in these segmentsaffiliate and negatively impact their ability to make future distributions to us.
Our operations present
There are certain hazards and risks which may not be fully covered by insurance, if insured. If a significant accident or event occurs for which we are not adequately insured,inherent in our operations that could adversely affect those operations and our financial results could be adversely affected.results.
The scope and nature of our operations present a variety of operational hazards and risks, including explosions, fires, toxic emissions, maritime hazards and natural catastrophes, that must be managed through continual oversight and control. For example, the operation of refineries, power plants, fractionators, pipelines, terminals and vessels is inherently subject to the risks of spills, discharges or other inadvertent releases of petroleum or hazardous substances. If any of these events had previously occurred or occurs in the future in connection with any of our refineries, pipelines or refined petroleum products terminals, or in connection with any facilities that receive our wastes or by-productsbyproducts for treatment or disposal, other than events for which we are indemnified, we could be liable for all costs and penalties associated with their remediation under federal, state, local and international environmental laws or common law, and could be liable for property damage to third parties caused by contamination from releases and spills. These
We do not insure against all potential losses, and, other risks are present throughouttherefore, our operations. As protection against these hazardsbusiness, financial condition, results of operations and risks,cash flows could be adversely affected by unexpected liabilities and increased costs.
We maintain insurance coverage in amounts we maintain insurancebelieve to be prudent against many, but not all, potential losses or liabilities arising from such operating risks. As such, our insurance coverage may not be sufficient to fully cover us against potential losses arising from such risks. Uninsured losses and liabilities arising from operating riskshazards. Uninsured liabilities arising from operating hazards, including but not limited to, explosions, fires, refinery or pipeline releases or other incidents involving our assets or operations, could reduce the funds available to us for capital and investment spending and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our investments in joint ventures decrease our ability to manage risk.
We conduct some of our operations, including parts of our Midstream, Refining and M&S segments, and our entire Chemicals segment, through joint ventures in which we share control with our joint venture participants. Our joint venture participants may have economic, business or legal interests or goals that are inconsistent with ours or those of the joint venture, or our joint venture participants may be unable to meet their economic or other obligations, and we may be required to fulfill those obligations alone. Failure by us, or an entity in which we have a joint venture interest, to adequately manage the risks associated with any acquisitions or joint ventures could have a material adverse effect on the financial condition or results of operations of our joint ventures and, in turn, our business and operations.
We are subject to interruptions of supply and increased costs as a result of our reliance on third-party transportation of crude oil, NGL and refined petroleum products.
We often utilize the services of third parties to transport crude oil, NGL and refined petroleum products to and from our facilities. In addition to our own operational risks discussed above, we could experience interruptions of supply or increases in costs to deliver refined petroleum products to market if the ability of the pipelines or vessels to transport crude oil or refined petroleum products is disrupted because of weather events, accidents, governmental regulations or third-party actions. A prolonged disruption of the ability of a pipeline or vessel to transport crude oil, NGL or refined petroleum products to or from one or more of our refineries or other facilities could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Increased regulation of hydraulic fracturing could result in reductions or delays in U.S. production of crude oil and natural gas, which could adversely impact our results of operations.
An increasing percentage of crude oil supplied to our refineries and the crude oil and gas production of our Midstream segment’s customers is being produced from unconventional oil shale reservoirs. These reservoirs require hydraulic fracturing completion processes to release the hydrocarbons from the rock so they can flow through casing to the surface. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into thea formation to stimulate hydrocarbon production. The EPA, as well as several state agencies, have commenced studies and/or convened hearings regarding the potential environmental impacts of hydraulic fracturing activities. At the same time, certain environmental groups have suggested that additional laws may be needed to more closely and uniformly regulate the hydraulic fracturing process, and legislation has been proposed to provide for such regulation. In addition, some communities have adopted measures to ban hydraulic fracturing in their communities. We cannot predict whether any such legislation will ever be enacted and, if so, what its provisions would be. Any additional levels of regulation and permits required with the adoption of new laws and regulations at the federal or state level could result in our having to rely on higher priced crude oil for our refineries. This could lead to delays, increased operating costs and process prohibitions that could reduce the volumes of natural gas that move through DCP Midstream’s gathering systems and could reduce supplies and increase costs of NGL feedstocks to CPChem ethyleneCPChem’s facilities. This could materially adversely affect our results of operations and the ability of DCP Midstream and CPChem to make cash distributions to us.
DCP Midstream’s success depends on its ability to obtain new sources of natural gas and NGL. Any decrease in the volumes of natural gas DCP Midstream gathers could adversely affect its business and operating results.
DCP Midstream’s gathering and transportation pipeline systems are connected to or dependent on the level of production from natural gas wells, which naturally declines over time. As a result, its cash flows associated with these wells will also decline over time. In order to maintain or increase throughput levels on its gathering and transportation pipeline systems and NGL pipelines and the asset utilization rates at its natural gas processing plants, DCP Midstream must continually obtain new supplies. The primary factors affecting DCP Midstream’s ability to obtain new supplies of natural gas and NGL, and to attract new customers to its assets, include the level of successful drilling activity near these assets, prices of, and the demand for, natural gas and crude oil, producers’ desire and ability to obtain necessary permits in an efficient manner, natural gas field characteristics and production performance, surface access and infrastructure issues, and its ability to compete for volumes from successful new wells. If DCP Midstream is not able to obtain new supplies of natural gas to replace the natural decline in volumes from existing wells or because of competition, throughput on its pipelines and the utilization rates of its treating and processing facilities would decline. This could have a material adverse effect on its business, results of operations, financial position and cash flows, and its ability to make cash distributions to us.
Competitors that produce their own supply of feedstocks, have more extensive retail outlets, or have greater financial resources may have a competitive advantage.
The refining and marketing industry is highly competitive with respect to both feedstock supply and refined petroleum product markets. We compete with many companies for available supplies of crude oil and other feedstocks and for outlets for our refined petroleum products. We do not produce any of our crude oil feedstocks. Some of our competitors, however, obtain a portion of their feedstocks from their own production and some have more extensive retail outlets than we have. Competitors that have their own production or extensive retail outlets (and greater brand-name recognition) are at times able to offset losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstand periods of depressed refining margins or feedstock shortages.
Some of our competitors also have materially greater financial and other resources than we have. Such competitors have a greater ability to bear the economic risks inherent in all phases of our business. In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial and individual customers.
We may incur losses as a result of our forward-contract activitiesforward contracts and derivative transactions.
We currently use commodity derivative instruments, and we expect to use them in the future. If the instruments we utilize to hedge our exposure to various types of risk are not effective, we may incur losses. Derivative transactions involve the risk that counterparties may be unable to satisfy their obligations to us. The risk of counterparty default is heightened in a poor economic environment.
One of our subsidiaries acts as the general partner of a publicly traded master limited partnership, Phillips 66 Partners, which may involve a greater exposure to legal liability than our historic business operations.
One of our subsidiaries acts as the general partner of Phillips 66 Partners, a publicly traded master limited partnership. Our control of the general partner of Phillips 66 Partners may increase the possibility that we could be subject to claims of breach of fiduciary duties, including claims of conflicts of interest, related to Phillips 66 Partners. Any liability resulting from such claims could have a material adverse effect on our future business, financial condition, results of operations and cash flows.
A significant interruption in one or more of our facilities could adversely affect our business.
Our operations could be subject to significant interruption if one or more of our facilities were to experience a major accident, mechanical failure, or power outage, encounter work stoppages relating to organized labor issues, be damaged by severe weather or other natural or man-made disaster, such as an act of terrorism, or otherwise be forced to shut down. If any facility were to experience an interruption in operations, earnings from the facility could be materially adversely affected (to the extent not recoverable through insurance, if insured) because of lost production and repair costs. A significant interruption in one or more of our facilities could also lead to increased volatility in prices for feedstocks and refined products, and could increase instability in the financial and insurance markets, making it more difficult for us to access capital and to obtain insurance coverage that we consider adequate.
Our performance depends on the uninterrupted operation of our facilities, which are becoming increasingly dependent on our information technology systems.
Our performance depends on the efficient and uninterrupted operation of the manufacturing equipment in our production facilities. The inability to operate one or more of our facilities due to a natural disaster; power outage; labor dispute; or failure of one or more of our information technology, telecommunications, or other systems could significantly impair our ability to manufacture our products. Our manufacturing equipment is becoming increasingly dependent on our information technology systems. A disruption in our information technology systems due to a catastrophic event or security breach could interrupt or damage our operations.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect sensitive data, including personally identifiable information of our customers using credit cards at our branded retail outlets.and employees. Despite our security measures, our information technology and infrastructure, or information technology and infrastructure of our third-party service providers (e.g., cloud-based service providers), may be vulnerable to attacks by hackersmalicious actors or breached due to employeehuman error, malfeasance or other disruptions. Although we have experienced occasional, actual or attempted breaches of our cybersecurity, none of these breaches has had a material effect on our business, operations or reputation (or compromised any customer data). Any such breaches could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of customer information, including the European Union’s General Data Protection Regulation, disrupt the services we provide to customers, and damage our reputation, any of which could adversely affect our business.
Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on acceptable terms and can adversely affect the financial strength of our business partners.
Our ability to obtain credit and capital depends in large measure on the state of the credit and capital markets, which is beyond our control. Our ability to access credit and capital markets may be restricted at a time when we would like, or need, access to those markets, which could constrain our flexibility to react to changing economic and business conditions. In addition, the cost and availability of debt and equity financing may be adversely impacted by unstable or illiquid market conditions. Protracted uncertainty and illiquidity in these markets also could have an adverse impact on our lenders, commodity transaction counterparties, or our customers, preventing them from meeting their obligations to us.
From time to time, our cash needs may exceed our internally generated cash flow, and our business could be materially and adversely affected if we are unable to obtain necessary funds from financing activities. From time to time, we may need to supplement cash generated from operations with proceeds from financing activities. Uncertainty and illiquidity in financial markets may materially impact the ability of the participating financial institutions to fund their commitments to us under our liquidity facilities that are supported by a broad syndicate of financial institutions. Accordingly, we may not be able to obtain the full amount of the funds available under our liquidity facilities to satisfy our cash requirements, and our failure to do so could have a material adverse effect on our operations and financial position.
Deterioration in our credit profile could increase our costs of borrowing money and limit our access to the capital markets and commercial credit, and could trigger co-venturer rights under joint venture arrangements.
Our or Phillips 66 Partners’ credit ratings could be lowered or withdrawn entirely by a rating agency if, in its judgment, the circumstances warrant. If a rating agency were to downgrade our rating below investment grade, our or Phillips 66 Partners’ borrowing costs would increase, and our funding sources could decrease. In addition, a failure by us to maintain an investment grade rating could affect our business relationships with suppliers and operating partners. For example, our agreement with Chevron regarding CPChem permits Chevron to buy our 50% interest in CPChem for fair market value if we experience a change in control or if both Standard & Poor’s Financial Services LLC and Moody’s Investors Service, Inc. lower our credit ratings below investment grade and the credit rating from either rating agency remains below investment grade for 365 days thereafter, with fair market value determined by agreement or by nationally recognized investment banks. As a result of these factors, a downgrade of credit ratings could have a materially adverse impact on our future operations and financial position.
The level of returns on pension and postretirement plan assets and the actuarial assumptions used for valuation purposes could affect our earnings and cash flows in future periods.
Assumptions used in determining projected benefit obligations and the expected return on plan assets for our pension planplans and other postretirement benefit plans are evaluated by us based on a variety of independent sources of market information and in consultation with outside actuaries. If we determine that changes are warranted in the assumptions used, such as the discount rate, expected long-term rate of return, or health care cost trend rate, our future pension and postretirement benefit expenses and funding requirements could increase. In addition, several factors could cause actual results to differ significantly from the actuarial assumptions that we use. Funding obligations are determined based on the value of assets and liabilities on a specific date as required under relevant regulations. Future pension funding requirements, and the timing of funding payments, could be affected by legislation enacted by governmental authorities.
In connection withWe are subject to continuing contingent liabilities of ConocoPhillips following the Separation ConocoPhillips has indemnified us for certain liabilitiesrelating to taxes and we have agreed to indemnify ConocoPhillips for certain liabilities.other matters. If we are required to act on these indemnities to ConocoPhillips,become obligated, we may need to use cash to meet thosethese obligations and our financial results could be negatively impacted. TheFurther, ConocoPhillips indemnity may not be sufficient to insurehas indemnified us against the full amount of liabilities for which it has been allocated responsibility, and ConocoPhillipscertain matters, but may not be able to satisfy its indemnification obligations to us in the future.
Notwithstanding the Separation, there are several significant areas where the liabilities of ConocoPhillips may become our obligations. For example, under the Internal Revenue Code of 1986, as amended (the Code) and the related rules and regulations, each corporation that was a member of the ConocoPhillips consolidated U.S. federal income tax reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the Separation is jointly and severally liable for the U.S. federal income tax liability of the entire ConocoPhillips consolidated tax reporting group for that taxable period. In connection with the Separation, we entered into the Tax Sharing Agreement with ConocoPhillips that allocates the responsibility for prior period taxes of the ConocoPhillips consolidated tax reporting group between us and ConocoPhillips. ConocoPhillips may be unable to pay any prior period taxes for which it is responsible, and we could be required to pay the entire amount of such taxes. Other provisions of federal law establish similar liability for other matters, including laws governing tax-qualified pension plans as well as other contingent liabilities.
Also pursuant to the Tax Sharing Agreement, we agreed to be responsible for, and indemnify ConocoPhillips with respect to, all taxes arising as a result of the Separation and certain related transactions failing to qualify under Sections 368(a) and 355 of the Code for U.S. federal income tax purposes to the extent such tax liability arises as a result of any breach of any representation, warranty, covenant or other obligation by us or certain affiliates made in connection with the issuance of the private letter ruling relating to the Separation or in the Tax Sharing Agreement. Our indemnification obligations to ConocoPhillips and its subsidiaries, officers and directors are not limited by any maximum amount. If we are required to indemnify ConocoPhillips or such other persons under the circumstances set forth in the Tax Sharing Agreement, we may be subject to substantial liabilities.
Pursuant to thean Indemnification and Release Agreement and certain other agreements with ConocoPhillips entered into in connection with the Separation, ConocoPhillips agreed to indemnify us for certain liabilities, and we agreed to indemnify ConocoPhillips for certain liabilities. Indemnities that we may be required to provide ConocoPhillips are not subject to any cap, may be significant and could negatively impact our business, particularly indemnities relating to our actions that could impact the tax-free nature of the distribution of Phillips 66 stock. Third parties could also seek to hold us responsible for any of the liabilities that ConocoPhillips has agreed to retain. Further, the indemnity from ConocoPhillips may not be sufficient to protect us against the full amount of such liabilities, and ConocoPhillips may not be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from ConocoPhillips any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.
We are subject to continuing contingent liabilities of ConocoPhillips following the Separation.
Notwithstanding the Separation, there are several significant areas where the liabilities of ConocoPhillips may become our obligations. For example, under the Internal Revenue Code and the related rules and regulations, each corporation that was a member of the ConocoPhillips consolidated U.S. federal income tax reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the Separation is jointly and severally liable for the U.S. federal income tax liability of the entire ConocoPhillips consolidated tax reporting group for that taxable period. In connection with the Separation, we entered into the Tax Sharing Agreement with ConocoPhillips that allocates the responsibility for prior period taxes of the ConocoPhillips consolidated tax reporting group between us and ConocoPhillips. ConocoPhillips may be unable to pay any prior period taxes for which it is responsible, and we could be required to pay the entire amount of such taxes. Other provisions of federal law establish similar liability for other matters, including laws governing tax-qualified pension plans as well as other contingent liabilities.
If the distribution in connection with the Separation, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, our stockholders and ConocoPhillips could be subject to significant tax liability and, in certain circumstances, we could be required to indemnify ConocoPhillips for material taxes pursuant to indemnification obligations under the Tax Sharing Agreement.
ConocoPhillips received a private letter ruling from the Internal Revenue Service (IRS) substantially to the effect that, among other things, the distribution, together with certain related transactions, qualified as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. The private letter ruling and the tax opinion that ConocoPhillips received relied on certain representations, assumptions and undertakings, including those relating to the past and future conduct of our business, and neither the private letter ruling nor the opinion would be valid if such representations, assumptions and undertakings were incorrect. Moreover, the private letter ruling does not address all the issues that are relevant to determining whether the distribution qualified for tax-free treatment. Notwithstanding the private letter ruling and the tax opinion, the IRS could determine the distribution should be treated as a taxable transaction for U.S. federal income tax purposes if it determines any of the representations, assumptions or
undertakings that were included in the request for the private letter ruling are false or have been violated or if it disagrees with the conclusions in the opinion that are not covered by the IRS ruling.
If the IRS were to determine that the distribution failed to qualify for tax-free treatment, in general, ConocoPhillips would be subject to tax as if it had sold the Phillips 66 common stock in a taxable sale for its fair market value, and ConocoPhillips stockholders who received shares of Phillips 66 common stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.
Under the Tax Sharing Agreement, we would generally be required to indemnify ConocoPhillips against any tax resulting from the distribution to the extent that such tax resulted from (i) any of our representations or undertakings being incorrect or violated, or (ii) other actions or failures to act by us. Our indemnification obligations to ConocoPhillips and its subsidiaries, officers and directors are not limited by any maximum amount. If we are required to indemnify ConocoPhillips or such other persons under the circumstances set forth in the Tax Sharing Agreement, we may be subject to substantial liabilities.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 3. LEGAL PROCEEDINGS
The following is a descriptionItem 103 of reportable legal proceedings, including those involving governmental authorities under federal, state and local laws regulatingRegulation S-K promulgated by the discharge of materials into the environment. While it is not possible to accurately predict the final outcome of these pending proceedings, if any one or more of such proceedings were decided adversely to Phillips 66, we expect there would be no material effect on our consolidated financial position. Nevertheless, such proceedings are reported pursuant toU.S. Securities and Exchange Commission (SEC) regulations.requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions, unless we reasonably believe that the matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $100,000. The following matters are disclosed in accordance with that requirement. We do not currently believe that the eventual outcome of any such matters, individually or in the aggregate, could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
Our U.S. refineries are implementing two separate consent decrees, regarding alleged violations of the Federal Clean Air Act, with the U.S. Environmental Protection Agency (EPA), fivethree states and one local air pollution agency. Some of the requirements and limitations contained in the decrees provide for stipulated penalties for violations. Stipulated penalties under the decrees are not automatic, but must be requested by one of the agency signatories. As part of periodic reports under the decrees or other reports required by permits or regulations, we occasionally report matters that could be subject to a request for stipulated penalties. If a specific request for stipulated penalties meeting the SEC reporting threshold set forth in SEC rulesdescribed above is made pursuant to these decrees based on a given reported exceedance, we will separately report that matter and the amount of the proposed penalty.
New Matters
ThereOn January 6, 2020, the California State Water Resources Control (Water Board) issued a penalty demand of $558,300 to resolve the Rodeo Refinery’s National Pollutant Discharge Elimination System permit requirement exceedance for total suspended solids that occurred following heavy rains on February 14, 2019. We are no new mattersworking with the Water Board to report.resolve this matter.
Matters Previously Reported (unresolved or resolved since the quarterly report on Form 10-Q for the quarterly period ended September 30, 2017)
The California Air Resources Board issued four separate Notices of Violation (NOV) to the company alleging violations of fuel specification requirements at our Los Angeles Refinery and Torrance Tank Farm. This matter was resolved with a payment of $190,000 in December 2017.
On June 27, 2017, Phillips 66 reached settlement with the San Francisco Regional Water Quality Control Board for certain exceedances of copper and chlorine under the Rodeo Refinery’s National Pollutant Discharge Elimination System permit. The settlement was finalized and payment of $109,000 to resolve the matter was made following a 30-day public comment period that ended in November 2017.
In October 2016, after receiving a Notice of Intent to Sue from the Sierra Club, we entered into a voluntary settlement with the Illinois Environmental Protection Agency for alleged violations of wastewater requirements at the Wood River Refinery. The settlement involves certain capital projects and payment of $125,000. After the settlement was filed with the Court for final approval, the Sierra Club sought and was granted approval to intervene in the case. The settlement and a first modification have been entered by the Court, but the Sierra Club still seeks to reopen and challenge the settlement.
In September 2014, the EPA issued an NOV alleging a violation of hazardous air pollution regulations at the Wood River Refinery during 2014. We are working with the EPA to resolve this NOV.
In July 2014, Phillips 66 received an NOV from the EPA alleging various flaring-related violations between 2009 and 2013 at the Wood River Refinery. We are working with the EPA to resolve this NOV.
2019)
In May 2012, the Illinois Attorney General’s office filed and notified us of a complaint with respect to operations at the Wood River Refinery alleging violations of the Illinois groundwater standards and a third-party’sthird party’s hazardous waste permit. The complaint seeks as relief remediation of area groundwater; compliance with the hazardous waste permit; enhanced pipeline and tank integrity measures; additional spill reporting; and fines and penalties exceeding $100,000. We are working with the Illinois Environmental Protection Agency and Attorney General’s office to resolve these allegations.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
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| | | |
| Name | Position Held | Age* |
|
| | | |
| Greg C. Garland | Chairman and Chief Executive Officer | 6062 |
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| Robert A. Herman | Executive Vice President, Refining | 5860 |
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| Paula A. Johnson | Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary | 5456 |
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| Brian M. Mandell | Executive Vice President, Marketing and Commercial | 56 |
|
| Kevin J. Mitchell | Executive Vice President, Finance and Chief Financial Officer | 5153 |
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| Chukwuemeka A. Oyolu | Vice President and Controller | 4850 |
|
| Timothy D. Roberts | Executive Vice President, Midstream | 58 |
|
* On February 23, 2018.21, 2020.
There are no family relationships among any of the officers named above. The Board of Directors annually elects the officers to serve until a successor is elected and qualified or as otherwise provided in our By-Laws. Set forth below is information about the executive officers identified above.
Greg C. Garland is has been the Chairman and Chief Executive Officer of Phillips 66 a position he has held since June 2014.April 2012. Previously, Mr. Garland served as Phillips 66’s Chairman, President and Chief Executive Officer from April 2012 to June 2014. Mr. Garland previously served as ConocoPhillips’ Senior Vice President, Exploration and Production—Americas from October 2010 to April 2012, and as President and Chief Executive Officer of CPChem from 2008 to 2010.
Robert A. Herman is Executive Vice President, Refining forof Phillips 66, a position he has held since September 2017. Previously, Mr. Herman served Phillips 66 as Executive Vice President, Midstream from June 2014 to September 2017, Senior Vice President, HSE, Projects and Procurement from February 2014 to June 2014, and Senior Vice President, Health, Safety, and Environment from April 2012 to February 2014.
Paula A. Johnson is Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary of Phillips 66, a position she has held since October 2016. Previously, Ms. Johnson served as Executive Vice President, Legal, General Counsel and Corporate Secretary of Phillips 66 from May 2013 to October 2016, and as Senior Vice President, Legal, General Counsel and Corporate Secretary of Phillips 66 from April 2012 to May 2013.
Brian M. Mandell is Executive Vice President, Marketing and Commercial of Phillips 66, a position he has held since March 2019. Mr. Mandell served Phillips 66 as Senior Vice President, Marketing and Commercial from August 2018 to March 2019, Senior Vice President, Commercial from November 2016 to August 2018, President, Global Marketing from March 2015 to November 2016, and Global Trading Lead, Clean Products, Commercial from May 2012 to March 2015.
Kevin J. Mitchell is Executive Vice President, Finance and Chief Financial Officer of Phillips 66, a position he has held since January 2016. Previously, Mr. Mitchell served as Phillips 66’s Vice President, Investor Relations from September 2014 when he joined the company, to January 2016. Prior to joining the company, he served as the General Auditor of ConocoPhillips from May 2010 until September 2014.
Chukwuemeka A. Oyolu is Vice President and Controller of Phillips 66, a position he has held since December 2014. Mr. Oyolu waspreviously served as Phillips 66’s General Manager, Planning and Optimization from February 2014 to December 2014 and General Manager, Finance for Refining, Marketing and Transportation from May 2012 to February 2014 when2014.
Timothy D. Roberts is Executive Vice President, Midstream of Phillips 66, a position he became General Manager, Planninghas held since August 2018. Previously, Mr. Roberts served as Phillips 66’s Executive Vice President, Marketing and Optimization.Commercial from January 2017 to August 2018 and as Executive Vice President Strategy and Business Development from April 2016 to January 2017. Before joining Phillips 66, Mr. Roberts served in a number of executive roles at LyondellBasell Industries N.V. beginning in 2011, most recently as Executive Vice President, Global Olefins and Polyolefins from October 2013 to March 2016.
PART II
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| Item 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Quarterly Common Stock Prices and Cash Dividends Per Share
Phillips 66’s common stock is traded on the New York Stock Exchange under the symbol “PSX.” The following table reflects intraday high and low sales pricesAt January 31, 2020, our number of and dividends declared on, our common stock for each quarter presented:stockholders of record was 34,639.
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| | | | | | | | | |
| | Stock Price | | |
| | High | | Low |
| | Dividends |
|
| 2017 | | | | |
| First Quarter | $ | 88.26 | | 76.28 |
| | 0.63 |
|
| Second Quarter | 83.11 | | 75.14 |
| | 0.70 |
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| Third Quarter | 92.19 | | 80.73 |
| | 0.70 |
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| Fourth Quarter | 102.43 | | 89.26 |
| | 0.70 |
|
| | | | | |
| 2016 | | | | |
| First Quarter | $ | 90.87 | | 71.74 |
| | 0.56 |
|
| Second Quarter | 89.31 | | 76.40 |
| | 0.63 |
|
| Third Quarter | 81.31 | | 73.67 |
| | 0.63 |
|
| Fourth Quarter | 88.87 | | 77.66 |
| | 0.63 |
|
|
| | | | | | |
| Closing Stock Price at December 29, 2017 | | | | $ | 101.15 |
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| Closing Stock Price at January 31, 2018 | | | | $ | 102.40 |
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| Number of Stockholders of Record at January 31, 2018 | | | | 38,605 |
|
Performance Graph
In our 2016 annual report, theThe performance graph includedabove includes a peer index (the “Previous Peer“Peer Group”) composed of Celanese Corporation; Delek US Holdings, Inc.; Dow Chemical Company; Eastman Chemical Co.; Energy Transfer Equity, LP; Enterprise Products Partners, LP; HollyFrontier Corporation; Huntsman Corporation; Marathon Petroleum Corporation; Oneok, Inc.; PBF Energy Inc.; Targa Resources Corp.; Tesoro Corporation; Valero Energy Corporation; Western Refining, Inc.; and Westlake Chemical Corp. To more appropriately weight our peers with our business segments and utilize peers with more comparable market capitalizations, we have removed Energy Transfer from the peer group and replaced Dow with LyondellBasell Industries N.V. Additionally, Tesoro acquired Western Refining (subsequently renamed Andeavor). Accordingly, the New Peer Index is composed of Andeavor; Celanese Corporation; Delek US Holdings, Inc.; Eastman Chemical Co.; Enterprise Products Partners, LP; HollyFrontier Corporation; Huntsman Corporation; LyondellBasell Industries N.V.; Marathon Petroleum Corporation; Oneok, Inc.; PBF Energy Inc.; Targa Resources Corp.; Valero Energy Corporation; and Westlake Chemical Corp. Additionally, Andeavor is included as a peer for periods prior to its acquisition by Marathon Petroleum Corporation in October 2018.
Issuer Purchases of Equity Securities
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| | | | | | | | | | | | | |
| | | | | | | | Millions of Dollars |
|
| Period | Total Number of Shares Purchased* |
| | Average Price Paid per Share |
| | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs** |
| | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
| | | | | | | | |
| October 1-31, 2017 | 1,717,513 |
| | $ | 92.25 |
| | 1,717,513 |
| | $ | 3,277 |
|
| November 1-30, 2017 | 1,675,652 |
| | 93.30 |
| | 1,675,652 |
| | 3,120 |
|
| December 1-31, 2017 | 1,492,675 |
| | 99.17 |
| | 1,492,675 |
| | 2,972 |
|
| Total | 4,885,840 |
| | $ | 94.72 |
| | 4,885,840 |
| | |
|
| | | | | | | | | | | | | |
| | | | | | | | Millions of Dollars |
|
| Period | Total Number of Shares Purchased* |
| | Average Price Paid per Share |
| | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs** |
| | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
| | | | | | | | |
| October 1-31, 2019 | 1,371,989 |
| | $ | 105.71 |
| | 1,371,989 |
| | $ | 3,224 |
|
| November 1-30, 2019 | 934,053 |
| | 117.79 |
| | 934,053 |
| | 3,114 |
|
| December 1-31, 2019 | 1,391,363 |
| | 113.22 |
| | 1,391,363 |
| | 2,957 |
|
| Total | 3,697,405 |
| | $ | 111.58 |
| | 3,697,405 |
| | |
* Includes repurchase of shares of common stock from company employees in connection with the company’s broad-based employee incentive plans, when applicable.
** As of December 31, 2017,On October 4, 2019, our Board of Directors has authorized repurchases totalingapproved a new share repurchase program that authorizes us to repurchase up to $12$3 billion of our outstanding common stock, includingbringing the authorization in October 2017 to repurchase $3 billiontotal amount of additional shares. The authorizations from theshare repurchases authorized by our Board of Directors since July 2012 to an aggregate of $15 billion. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. The authorized shares will beunder these authorizations are repurchased from time to time in the open market at the company’s discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. We are not obligated to acquire any particular amount of common stock and may commence, suspend or discontinue purchases at any time or from time to time without prior notice. Shares of stock repurchased are held as treasury shares.
Item 6. SELECTED FINANCIAL DATA
| | | | Millions of Dollars Except Per Share Amounts | Millions of Dollars Except Per Share Amounts |
| | 2017 |
| | 2016 |
| | 2015 |
| | 2014 |
| | 2013 |
| 2019 |
| | 2018 |
| | 2017 |
| | 2016 |
| | 2015 |
|
| | | | | | | | | | | | | | | | | | | |
| Sales and other operating revenues | $ | 102,354 |
| | 84,279 |
| | 98,975 |
| | 161,212 |
| | 171,596 |
| |
| Income from continuing operations | 5,248 |
| | 1,644 |
| | 4,280 |
| | 4,091 |
| | 3,682 |
| |
| Income from continuing operations attributable to Phillips 66 | 5,106 |
| | 1,555 |
| | 4,227 |
| | 4,056 |
| | 3,665 |
| |
| Per common share | | | | | | | | | | |
| Basic | 9.90 |
| | 2.94 |
| | 7.78 |
| | 7.15 |
| | 5.97 |
| |
| Diluted | 9.85 |
| | 2.92 |
| | 7.73 |
| | 7.10 |
| | 5.92 |
| |
| Sales and other operating revenues* | | $ | 107,293 |
| | 111,461 |
| | 102,354 |
| | 84,279 |
| | 98,975 |
|
| Net income | 5,248 |
| | 1,644 |
| | 4,280 |
| | 4,797 |
| | 3,743 |
| 3,377 |
| | 5,873 |
| | 5,248 |
| | 1,644 |
| | 4,280 |
|
| Net income attributable to Phillips 66 | 5,106 |
| | 1,555 |
| | 4,227 |
| | 4,762 |
| | 3,726 |
| 3,076 |
| | 5,595 |
| | 5,106 |
| | 1,555 |
| | 4,227 |
|
| Per common share | | | | | | | | | | | | | | | | | | |
| Basic | 9.90 |
| | 2.94 |
| | 7.78 |
| | 8.40 |
| | 6.07 |
| 6.80 |
| | 11.87 |
| | 9.90 |
| | 2.94 |
| | 7.78 |
|
| Diluted | 9.85 |
| | 2.92 |
| | 7.73 |
| | 8.33 |
| | 6.02 |
| 6.77 |
| | 11.80 |
| | 9.85 |
| | 2.92 |
| | 7.73 |
|
| Total assets | 54,371 |
| | 51,653 |
| | 48,580 |
| | 48,692 |
| | 49,769 |
| 58,720 |
| | 54,302 |
| | 54,371 |
| | 51,653 |
| | 48,580 |
|
| Long-term debt | 10,069 |
| | 9,588 |
| | 8,843 |
| | 7,793 |
| | 6,101 |
| 11,216 |
| | 11,093 |
| | 10,069 |
| | 9,588 |
| | 8,843 |
|
| Cash dividends declared per common share | 2.7300 |
| | 2.4500 |
| | 2.1800 |
| | 1.8900 |
| | 1.3275 |
| 3.50 |
| | 3.10 |
| | 2.73 |
| | 2.45 |
| | 2.18 |
|
In December 2013, we entered into an agreement to exchange the stock of Phillips Specialty Products Inc. (PSPI), a flow improver business, which was included in our Marketing* Sales and Specialties segment, for shares of Phillips 66 common stock owned by the other party. The PSPI share exchange was completed in February 2014. Accordingly, the selected income from continuing operations data aboveoperating revenues for the years ended December 31, 2014 and 2013, exclude income from PSPI’s discontinued operations2015 through 2017, are presented in accordance with accounting standards in effect prior to our adoption of $706 million and $61 million, respectively.ASU No. 2014-09 on January 1, 2018. See Note 1—Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements, for further discussion regarding our adoption of ASU No. 2014-09.
To ensure full understanding, you should read the selected financial data presented above in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, “the company,” “we,” “our,” “us” and “Phillips 66” are used in this report to refer to the businesses of Phillips 66 and its consolidated subsidiaries.
Management’s Discussion and Analysis is the company’s analysis of its financial performance, financial condition, and significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. It contains forward-looking statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.”
The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss) attributable to Phillips 66. The terms “pre-tax income” or “pre-tax loss” as used in Management’s Discussion and Analysis refer to income (loss) before income taxes.
EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW
Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. At December 31, 2017,2019, we had total assets of $54.4$58.7 billion.
Executive Overview
We
In 2019, we reported earnings of $5.1$3.1 billion and generated $3.6$4.8 billion in cash from operating activities in 2017. Our reported earnings included a $2.7 billion provisional income tax benefit from the U.S. Tax Cuts and Jobs Act (the Tax Act) enacted on December 22, 2017.activities. In addition, Phillips 66 Partners LP (Phillips 66 Partners) raisedhad net proceeds totaling $1.8debt issuances of $0.5 billion and received $0.4 billion from equity and debt offerings.its joint venture partners to partially fund the Gray Oak Pipeline capital project. We used available cash to fundprimarily for capital expenditures and investments of $1.8$3.9 billion, repurchase $1.6 billionrepurchases of our common stock of $1.7 billion, and pay dividendsdividend payments on our common stock of $1.4$1.6 billion. We ended 20172019 with $3.1$1.6 billion of cash and cash equivalents and approximately $5.8$5.7 billion of total committed capacity available under both our and Phillips 66 Partners’ credit facilities.
We continue to focus on the following strategic priorities:
| |
| • | Operating Excellence. Our commitment to operating excellence guides everything we do. We are committed to protecting the health and safety of everyone who has a role in our operations and the communities in which we operate. Continuous improvement in safety, environmental stewardship, reliability and cost efficiency is a fundamental requirement for our company and employees. We employ rigorous training and audit programs to drive ongoing improvement in both personal and process safety as we strive for zero incidents. Since we cannot control commodity prices, controlling operating expenses and overhead costs, within the context of our commitment to safety and environmental stewardship, is a high priority. Senior management actively monitors these costs. We are committed to protecting the environment and strive to reduce our environmental footprint throughout our operations.Optimizing utilization rates at our refineries through reliable and safe operations enables us to capture the value available in the market in terms of prices and margins. During 2019, our worldwide refining crude oil capacity utilization rate was 94%. |
| |
| • | Growth. A disciplined capital allocation process ensures we focus investments on projects that generate competitive returns through the business cycle. Our strategy focuses on investing in growth opportunities in the Midstream and Chemicals segments. Results from our Transportation and NGL businesses in our Midstream segment for 2019 were a reflection of this, as these businesses benefited from higher equity earnings and cash distributions from completed capital projects. In 2020, we have budgeted $2.4 billion for Midstream capital expenditures and investments, including $962 million for Phillips 66 Partners. Capital will be used to continue building out and maintaining our integrated logistics infrastructure network, including pipelines, storage, export and fractionation facilities. In Chemicals, our share of expected self-funded capital spending by Chevron Phillips Chemical Company LLC (CPChem) is $656 million. CPChem will fund continuing development of petrochemical projects on the U.S. Gulf Coast (USGC) and in Qatar, as well as debottlenecking opportunities on existing assets. |
| |
| • | Returns. We plan to enhance Refining returns by increasing throughput of advantaged feedstocks, improving yields, portfolio optimization and an ongoing commitment to operating excellence. Our Refining segment maintained a strong clean product yield and optimized advantaged crude oil throughput at our U.S. refineries in 2019. For 2020, capital in Refining will be directed toward high-return projects to enhance the yield of higher-value products and other high-return, quick-payout projects. Marketing and Specialties (M&S) will continue to develop and enhance our retail network and brands in the United States and Europe. |
| |
| • | Distributions. We believe shareholder value is enhanced through, among other things, consistent growth of regular dividends, complemented by share repurchases. We increased our quarterly dividend rate by 13% during 2019, and have increased it every year since the company’s inception in 2012. Regular dividends demonstrate the confidence our Board of Directors and management have in our capital structure and operations’ capability to generate free cash flow throughout the business cycle. In 2019, we repurchased $1.7 billion, or approximately 17 million shares, of our common stock. On October 4, 2019, our Board of Directors approved a new share repurchase program that authorizes us to repurchase up to $3 billion of our common stock, bringing the total amount of share repurchases authorized by our Board of Directors since July 2012 to an aggregate of $15 billion. At the discretion of our Board of Directors, we plan to increase dividends annually and fund our share repurchase programs while continuing to invest in the growth of our business. |
| |
| • | High-Performing Organization. We strive to attract, develop and retain individuals with the knowledge and skills to implement our business strategy and who support our values and culture. Throughout the company, we focus on getting results in the right way, embrace our values as a common bond, and believe success is both what we do and how we do it. We encourage collaboration throughout our company, while valuing differences, respecting diversity, and creating a great place to work. We foster an environment of learning and development through structured programs focused on enhancing functional and technical skills where employees are engaged in our business and committed to their own, as well as the company’s, success. |
Business Environment
The Midstream segment includes our Transportation and Natural Gas Liquids (NGL) businesses. Our commitmentTransportation business contains fee-based operations that are not directly exposed to operating excellence guides everything we do. We are committedcommodity price risk. Our NGL business is directly linked to protecting the health and safety of everyone who has a roleNGL prices. The Midstream segment also includes our 50% equity investment in our operations and the communities in which we operate. Continuous improvement in safety, environmental stewardship, reliability and cost efficiency is a fundamental requirement for our company and employees. We employ rigorous training and audit programs to drive ongoing improvement in both personal and process safety as we strive for zero incidents. We achieved a record-low combined injury rate in 2017. Since we cannot control commodity prices, controlling operating expenses and overhead costs, within the context of our commitment to safety and environmental stewardship, is a high priority. Senior management actively monitors these costs. We are committed to protecting the environment and strive to reduce our environmental footprint throughout our operations.Optimizing utilization rates at our refineries through reliable and safe operations enables us to capture the value available in the market in terms of prices and margins. During 2017, our worldwide refining crude oil capacity utilization rate was 95 percent.
Growth. We have budgeted $2.3 billion in capital expenditures and investments in 2018, including $0.6 billion for Phillips 66 Partners. Additionally, our share of expected capital spending by joint ventures DCP Midstream, LLC (DCP Midstream), Chevron Phillips Chemical Company LLC (CPChem) and WRB Refining LP (WRB). NGL prices were significantly lower in 2018 is $0.9 billion. In Midstream, we plan to invest in our Transportation and NGL businesses, focusing on projects integrated with our existing assets and infrastructure. In Chemicals, CPChem’s capital expenditures are expected to decrease due to completion of its U.S. Gulf Coast Petrochemicals Project. The two polyethylene units started up in September 2017, while commissioning of the ethane cracker is expected to begin in the first
quarter of 2018. Growth capital in Refining will be directed toward small, high-return, quick-payout projects primarily to increase clean product yields, while in Marketing and Specialties (M&S) it will be directed primarily towards increasing our retail sites in Europe.
Returns. We plan to improve refining returns by increasing throughput of advantaged feedstocks, disciplined capital allocation and portfolio optimization. A disciplined capital allocation process ensures we focus investments in projects that generate competitive returns throughout the business cycle. In 2017, we improved clean product yield in Refining, and in M&S, we continued to enhance our network and brand by re-imaging sites in the United States, while growing our number of sites in Europe.
Distributions. We believe shareholder value is enhanced through, among other things, consistent growth of regular dividends, complemented by share repurchases. We increased our quarterly dividend rate by 11 percent during 2017, and have increased it 250 percent since the company’s inception in 2012. Regular dividends demonstrate the confidence our Board of Directors and management have in our capital structure and operations’ capability to generate free cash flow throughout the business cycle. In 2017, we repurchased $1.6 billion, or approximately 18.7 million shares, of our common stock. Also, in October 2017, our Board of Directors authorized up to $3 billion of additional share repurchases. At the discretion of our Board of Directors, we plan to increase dividends annually and fund our share repurchase program while continuing to invest in the growth of our business.
High-Performing Organization. We strive to attract, develop and retain individuals with the knowledge and skills to implement our business strategy and who support our values and culture. Throughout the company, we focus on getting results in the right way and believe success is both what we do and how we do it. We encourage collaboration throughout our company, while valuing differences, respecting diversity, and creating a great place to work. We foster an environment of learning and development through structured programs focused on enhancing functional and technical skills where employees are engaged in our business and committed to their own, as well as the company’s, success.
Business Environment
Commodity prices rose significantly during 2017,2019, compared with 2016. The discount for the U.S. crude oil benchmark West Texas Intermediate (WTI) versus the international benchmark Brent widened over much of 2017, initially related to extended production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and certain non-OPEC countries, but further widened with Hurricane Harvey and logistical issues at the Cushing, Oklahoma, trading hub. Over the course of 2017, commodity prices had both favorable and unfavorable impacts on our businesses that vary by segment.
Net income in the Midstream segment, which includes our 50 percent equity investment in DCP Midstream, is closely linked to natural gas liquids (NGL) prices, natural gas prices and crude oil prices. Average natural gas prices increased in 2017, compared with 2016,2018, due to higher demandinventory levels resulting from supply growth and low production in early 2017. In the fourth quarter of 2017, natural gas prices gained momentum with colder temperatures and increased residential and commercial heating demand. Total U.S. natural gas production also increased through the fourth quarter of 2017, largely from dry gas in the Marcellus play and associated gas from the Permian Basin. NGL prices improved throughout 2017 due to internationalweak winter demand.
The Chemicals segment consists of our 50 percent50% equity investment in CPChem. The chemicals and plastics industry is mainly a commodity-based industry where the margins for key products are based on supply and demand, as well as cost factors. During 2017,2019, the chemicals and plastics industry continued to benefit from feedstock cost advantages associated with manufacturing ethylene in regions of the world with significant NGL production. The price of crude oil is rising faster than NGL prices and thus the petrochemicals industry continues to experience lower ethylene cash costs in regions of the world where ethylene manufacturing is based upon NGL rather than crude oil-derived feedstocks. In particular, companies with North American ethane-based crackers have benefited and have captured a somewhat higherbenchmark high-density polyethylene chain margin. The ethylene-to-polyethylene chain margins expandedmargin further decreased, compared with 2018, due to recent capacity additions, the continued trade policy uncertainty and slower demand growth in 2017 because of the crude oil price recovery after the significant decline in oil prices that began in 2014.Asia.
Our Refining segment results are driven by several factors, including refining margins, cost control, refinery throughput, feedstock costs, product yields, turnaround activity, and turnaround activity. Industryother operating costs. The price of U.S. benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of $57.02 per barrel during 2019, compared with an average of $64.92 per barrel in 2018, due to continued growth in Permian Basin production and higher inventories as exports failed to keep pace with production growth. In addition, heavy Canadian crude differentials narrowed in 2019, compared with 2018, due primarily to production curtailments implemented by the Alberta Provincial government. Market crack spreadspreads are used as indicators of refining margins and measure the difference between market prices for refined petroleum products and crude oil, are used to estimate refining margins.oil. During 2017,2019, the U.S. 3:2:1market crack spread (three barrels of crude oil producing two barrels of gasolinespreads slightly decreased in the Atlantic Basin/Europe, Gulf Coast and one barrel of diesel) strengthened across all quarters,Central Corridor regions, but increased in the West Coast region, compared with 2016, largely attributable to higher product demand and lower product inventories in the last half of 2017 due to Hurricane Harvey. Northwest European crack spreads on average increased in 2017, compared with 2016, also due to higher demand.2018.
Results for our M&S segment depend largely on marketing fuel margins, lubricant margins, and other specialty product margins. While M&S margins are primarily driven by market factors, largely determined by the relationship between supply and demand, marketing fuel margins, in particular, are influenced by the trend in spot prices for refined petroleum products. Generally speaking, a downward trend of spot prices has a favorable impact on marketing fuel margins, while an upward trend of spot prices has an unfavorable impact on marketing fuel margins. Spot prices moved upward in 2017, following the increase in crude oil prices.
RESULTS OF OPERATIONS
Basis of Presentation
During the fourth quarter of 2017, the segment performance measure used by our chief executive officer to assess performance and allocate resources was changed from “net income attributable to Phillips 66” to “net income.” This change reflects the recognition that management does not differentiate between those earnings attributable to Phillips 66 and those attributable to noncontrolling interests when making operating and resource allocation decisions impacting segment performance. Prior period segment information has been recast to conform to the current presentation.
Consolidated Results
A summary of net income (loss) before income taxes by business segment with a reconciliation to net income attributable to Phillips 66 follows:
| | | | Millions of Dollars | Millions of Dollars |
| | Year Ended December 31 | Year Ended December 31 |
| | 2017 |
| | 2016 |
| | 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | | | | | | |
| Midstream | $ | 464 |
| | 280 |
| | 74 |
| $ | 684 |
| | 1,181 |
| | 638 |
|
| Chemicals | 525 |
| | 583 |
| | 962 |
| 879 |
| | 1,025 |
| | 716 |
|
| Refining | 1,404 |
| | 374 |
| | 2,555 |
| 1,986 |
| | 4,535 |
| | 2,076 |
|
| Marketing and Specialties | 686 |
| | 891 |
| | 1,187 |
| 1,433 |
| | 1,557 |
| | 1,020 |
|
| Corporate and Other | 2,169 |
| | (484 | ) | | (498 | ) | (804 | ) | | (853 | ) | | (895 | ) |
| Income before income taxes | | 4,178 |
| | 7,445 |
| | 3,555 |
|
| Income tax expense (benefit) | | 801 |
| | 1,572 |
| | (1,693 | ) |
| Net income | 5,248 |
| | 1,644 |
| | 4,280 |
| 3,377 |
| | 5,873 |
| | 5,248 |
|
| Less: net income attributable to noncontrolling interests | 142 |
| | 89 |
| | 53 |
| 301 |
| | 278 |
| | 142 |
|
| Net income attributable to Phillips 66 | $ | 5,106 |
| | 1,555 |
| | 4,227 |
| $ | 3,076 |
| | 5,595 |
| | 5,106 |
|
20172019 vs. 20162018
Our earnings decreased $2,519 million, or 45%, in 2019, mainly reflecting:
Lower realized refining and marketing margins.
Impairments associated with our investment in DCP Midstream.
Decreased equity in earnings of affiliates in our Refining and Chemicals segments.
These decreases were partially offset by:
Lower income tax expense.
Improved results from our NGL and transportation businesses.
2018 vs. 2017
Our earnings increased $3,551$489 million, or 228 percent,10%, in 2017,2018, mainly reflecting:
RecognitionHigher realized refining and marketing margins.
Higher equity in earnings of affiliates in our Midstream and Chemicals segments.
A lower U.S. federal income tax rate beginning January 1, 2018, as a result of the U.S. Tax Cuts and Jobs Act (the Tax Act) enacted in December 2017.
These increases were partially offset by:
A $2,735 million provisional income tax benefit from the enactment of the Tax Act recognized in December 2017.2017, primarily due to the revaluation of deferred income taxes.
Higher realized refining margins.
Recognition of aA $261 million noncash, after-tax gain from the consolidation of Merey Sweeny, L.P. (MSLP)., predecessor to Merey Sweeny LLC (both referred to herein as Merey Sweeny), in 2017.
Improved equity earnings from affiliates in our Midstream segment.
These increases were partially offset by:
Increased costsHigher net income attributable to noncontrolling interests primarily due to Hurricane Harvey, primarily impacting CPChemthe contribution of assets to Phillips 66 Partners in our Chemicals segment.
Lower realized marketing margins.the fourth quarter of 2017.
Higher interest and debt expense.
2016 vs. 2015
Our earnings decreased$2,672 million, or 63 percent, in 2016, primarily resulting from:
Lower realized refining margins.
Lower olefins and polyolefins margins.
Recognition in 2015 of $242 million of the deferred gain related to the sale in 2013 of the Immingham Combined Heat and Power Plant (ICHP).
These decreases were partially offset by:
Improved results from DCP Midstream, primarily as a result of goodwill and other asset impairments recorded in 2015.
See the “Segment Results” section for additional information on our segment results.
Statement of Income Statement Analysis
20172019 vs. 20162018
Sales and other operating revenues and purchased crude oil and products increased 21 percent decreased 4% and 27 percent,2%, respectively, in 2017.2019. The increasesdecreases were primarily due to highermainly driven by lower prices for refined petroleum products, crude oil and NGL.
Equity in earnings of affiliates increased 22 percent decreased 21% in 2017, primarily resulting from higher equity in earnings from DCP Midstream2019. The decrease was mainly due to lower margins at WRB Refining LP (WRB) and other affiliates in our Midstream segment, as well as WRB,CPChem, partially offset by lower results from CPChem.
Equity in earnings from our Midstream segment increased $270 million due to improved results from our Transportation and NGL joint venture assets. Lower equity earnings in 2019 also reflected lower-of-cost-or-market inventory write-downs at CPChem and higher goodwill and other asset impairments at DCP Midstream, primarilyMidstream. See the “Segment Results” section for additional information.
Other income increased $58 million in 2019. The increase was mainly driven by improved margins, as well as higher equity in earnings from our Transportation affiliates, including our joint ventures that own the Bakken Pipeline, which started commercial operations in June 2017.
Equity in earnings of WRB increased $207 million, primarily due to higher market crack spreads, partially offset by lower feedstock advantage.
Equity in earnings of CPChem decreased $120 million, primarily due to hurricane-related costs and downtime.
Other income increased $447 million in 2017. We recognized a noncash, pre-tax gain of $423 million in February 2017trading activities not directly related to the consolidation of MSLP.our physical business. See Note 5—Business Combinations,15—Derivatives and Financial Instruments, in the Notes to Consolidated Financial Statements, for additional information.information associated with our commodity derivatives.
Operating expensesImpairments increased 10 percent$853 million in 2017. This2019. The increase was mainly due to the consolidation of a transportation joint venture in December 2016, as well as higher refining turnaround expenses and utility costs, pension settlement expense, and costsdriven by an $853 million pre-tax impairment associated with a full yearour investment in DCP Midstream recognized in the third quarter of operations at2019. See Note 7—Investments, Loans and Long-Term Receivables, and Note 16—Fair Value Measurements, in the Freeport LPG Export Terminal. These increases were partially offset by lower costs dueNotes to the sale of the Whitegate Refinery in 2016.Consolidated Financial Statements, for additional information associated with this impairment.
Depreciation and amortization increased 13 percent in 2017 due to the Freeport LPG Export Terminal beginning operations in late 2016, as well as other assets placed in service in 2017.
Interest and debt expense increased 30 percent decreased 9% in 2017. This increase2019. The decrease was primarily dueattributable to lowerhigher capitalized interest from the completion of majorassociated with capital projects including the startup of the Freeport LPG Export Terminalunder development in late 2016, as well as higher average debt principal balances.
Income tax expense (benefit) was a benefit in 2017, compared with expense in 2016, primarily due to the $2,735 million provisional income tax benefit from the enactment of the Tax Act in December 2017. This benefit wasour Midstream segment, partially offset by higher debt balances in 2019.
Income tax expense (benefit) decreased 49% in 2019. The decrease in income tax expense from increasedwas primarily attributable to lower income before income taxes. See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for more information regarding our income taxes.
Net
2018 vs. 2017
Sales and other operating revenues and purchased crude oil and products increased 9% and 23%, respectively, in 2018. The increases were mainly due to higher prices for refined petroleum products, crude oil and NGL. The increase in sales and other operating revenues was partially offset by a change in the presentation of excise taxes on sales of refined petroleum products resulting from our adoption of Financial Accounting Standard Board (FASB) Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” on January 1, 2018. As part of our adoption of this ASU, prospectively from January 1, 2018, our presentation of excise taxes on sales of refined petroleum products changed to a net basis from a gross basis. As a result, the “Sales and other operating revenues” and “Taxes other than income attributabletaxes” line items on our consolidated statement of income for the year ended December 31, 2018, are not presented on a comparable basis to noncontrolling interest increased $53 million in 2017, reflecting the contribution of assets to Phillips 66 Partners during 2017 and late 2016.year ended December 31, 2017. See Note 27—Phillips 66 Partners LP,1—Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements, for more information.
2016 vs. 2015
Sales and other operating revenues and purchased crude oil and products both decreased 15 percent in 2016. The decreases were primarily due to lower average prices forfurther information on our presentation of excise taxes on sales of refined petroleum products and crude oil, while average NGL prices were slightly improved during 2016.our adoption of this ASU, respectively.
Equity in earnings of affiliates decreased 10 percent increased 55% in 2016,2018, primarily resulting from decreasedhigher equity in earnings from WRB, CPChem and WRB, partially offset by improved results from DCP Midstream.affiliates in our Midstream segment.
Equity in earnings of CPChem decreased 37 percent, primarily due to lower realized olefins and polyolefins margins.
Equity in earnings of WRB decreased $186increased $483 million, mainly resulting from lower market crack spreads, partially offsetprimarily due to higher realized margins driven by higherimproved feedstock advantage.
Equity in earnings of DCPCPChem increased $312 million, primarily due to commencement of full operations at CPChem’s new U.S. Gulf Coast petrochemicals assets and lower hurricane-related costs and downtime in 2018.
Equity in earnings for our Midstream improved $426segment increased $222 million, primarily due to higher volumes on affiliate pipelines, including the Bakken Pipeline, which operated for a full year in 2018.
Other income decreased $460 million in 2016, primarily driven by goodwill and other asset impairments recorded by DCP Midstream in 2015.
Net2018. We recognized a noncash, pre-tax gain on dispositions decreased $273of $423 million in 2016. In 2015, we recognized a $242 million deferred gainFebruary 2017 related to the saleconsolidation of ICHP.Merey Sweeny. See Note 6—Assets Held for Sale or Sold,Business Combinations, in the Notes to Consolidated Financial Statements, for additional information.
Taxes other than income taxes decreased 97% in 2018. The decrease was primarily attributable to the change in our presentation of excise taxes on sales of refined petroleum products resulting from our adoption of ASU No. 2014-09 on January 1, 2018. See the “Sales and other operating revenues” section above for further discussion.
Interest and debt expense increased 15% in 2018. The increase was due to higher average debt principal balances resulting from our issuance of senior notes totaling $1,500 million in March 2018 and Phillips 66 Partners’ issuance of senior notes totaling $650 million in October 2017.
Income tax expense (benefit) was an expense in 2018, compared with a benefit in 2017. The benefit in 2017 was due to the recognition of a provisional income tax benefit of $2,735 million from the enactment of the Tax Act in December 2017. The benefit from the Tax Act was primarily due to the revaluation of deferred income taxes. Excluding this benefit, income tax expense increased in 2018 due to higher income before income taxes, partially offset by the reduction of the U.S. federal corporate income tax rate from 35% to 21% beginning January 1, 2018, as a result of the Tax Act. See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for more information regarding our income tax expensetaxes.
Net income attributable to noncontrolling interests increased $136 million in 2018, primarily due to the contribution of assets in the fourth quarter of 2017. In October 2017, we contributed to Phillips 66 Partners our 25% ownership interest in both Dakota Access, LLC (Dakota Access) and effective tax rates.Energy Transfer Crude Oil Company, LLC (ETCO), and our 100% ownership interest in Merey Sweeny.
Segment Results
Midstream
| | | | Year Ended December 31 | Year Ended December 31 |
| | 2017 |
| | 2016 |
| | 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| | Millions of Dollars | Millions of Dollars |
| Net Income (Loss) | | | | | | |
| Income (Loss) Before Income Taxes | | | | | | |
| Transportation | $ | 376 |
| | 311 |
| | 335 |
| $ | 946 |
| | 770 |
| | 530 |
|
| NGL and Other | 43 |
| | 2 |
| | 63 |
| 522 |
| | 305 |
| | 32 |
|
| DCP Midstream | 45 |
| | (33 | ) | | (324 | ) | (784 | ) | | 106 |
| | 76 |
|
| Total Midstream | $ | 464 |
| | 280 |
| | 74 |
| $ | 684 |
| | 1,181 |
| | 638 |
|
| | | | Thousands of Barrels Daily | Thousands of Barrels Daily |
| Transportation Volumes | | | | | | | | | | |
| Pipelines* | 3,501 |
| | 3,511 |
| | 3,264 |
| 3,396 |
| | 3,441 |
| | 3,320 |
|
| Terminals | 2,665 |
| | 2,422 |
| | 1,981 |
| 3,315 |
| | 3,153 |
| | 2,665 |
|
| Operating Statistics | | | | | | | | | | |
| NGL fractionated** | 186 |
| | 170 |
| | 112 |
| 224 |
| | 216 |
| | 186 |
|
| NGL extracted*** | 374 |
| | 393 |
| | 410 |
| 417 |
| | 413 |
| | 374 |
|
* Pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment, including our share of equity volumes from Yellowstone Pipe Line Company and Lake Charles Pipe Line Company.segment.
** Excludes DCP Midstream.
*** Represents 100 percentIncludes 100% of DCP Midstream’s volumes.
| | | | Dollars Per Gallon | Dollars Per Gallon |
| Weighted-Average NGL Price* | | | | | | |
Weighted-Average NGL Price* | | | | | | |
| DCP Midstream | $ | 0.62 |
| | 0.46 |
| | 0.45 |
| $ | 0.51 |
| | 0.75 |
| | 0.62 |
|
* Based on index prices from the Mont Belvieu and Conway market hubs thathub, which are weighted by NGL component and location mix.
The Midstream segment provides crude oil and refined productspetroleum product transportation, terminaling and processing services, as well as natural gas NGL and liquefied petroleum gas (LPG)NGL transportation, storage, fractionation, processing and marketing services, mainly in the United States. This segment includes our master limited partnership (MLP), Phillips 66 Partners, as well as our 50 percent50% equity investment in DCP Midstream, which includes the operations of its MLP, DCP Midstream, LP (DCP Partners).
20172019 vs. 20162018
NetPre-tax income from the Midstream segment increased $184decreased $497 million in 2017,2019, compared with 2016, due to improved results across all business lines.
Transportation net income increased $65 million in 2017, compared with 2016. The improvement was2018, mainly driven by increased equity in earnings from affiliates, including our joint ventures that own the Bakken Pipeline, which started commercial operations in June 2017, as well as Rockies Express Pipeline LLC (REX) due to our share of a favorable breach of contract settlement claim. These increases were partially offset by higher operating costs.
Net income from our NGL and Other business increased $41an $853 million in 2017, comparedpre-tax impairment associated with 2016. The increase reflects a full year of operations at the Freeport LPG Export Terminal, the contribution of MSLP to Phillips 66 Partners in October 2017, and higher equity earnings from DCP Sand Hills Pipeline, LLC (Sand Hills), partially offset by lower realized margins.
Net income from our investment in DCP Midstream improved $78 million in 2017, compared with 2016. The increase was primarily due to improved margins driven by higher average NGL and natural gas prices, and improved results from DCP Midstream’s hedging program.
See the “Business Environment and Executive Overview” section for information on market factors impacting 2017 results.
2016 vs. 2015
Net income from the Midstream segment increased $206 million in 2016, compared with 2015. The increase was primarily due to improved resultslower equity earnings from DCP Midstream, partially offset by lower net incomeimproved results from our Transportation and NGL and Other businesses.
Pre-tax income from our Transportation net income decreased $24business increased $176 million in 2016,2019, compared with 2015. Lower net income primarily resulted from higher operating costs and increased depreciation expense due to growth projects. These items were partially offset2018. The increase was mainly driven by higher revenues from increased throughput volumes and higher tariffs.pipeline tariffs from our portfolio of consolidated and joint venture assets.
NetPre-tax income from our NGL and Other business decreased $61increased $217 million in 2016,2019, compared with 2015.2018. The increase was mainly due to improved margins and volumes, primarily at the Sweeny Hub, and higher equity earnings from certain pipeline affiliates driven by higher volumes.
Pre-tax income from our investment in DCP Midstream decreased $890 million in 2019, compared with 2018. The decrease was primarily due to an $853 million pre-tax impairment associated with our investment in DCP Midstream and lower equity earnings driven by lower realized margins,higher goodwill and other asset impairments at DCP Partners in 2019 as welldescribed below.
In the third quarter of 2019, DCP Partners performed goodwill and other asset impairment assessments based on internal discounted cash flow models that reflected various observable and nonobservable factors, such as increased depreciationprices, volumes, expenses and operating expenses associated with the Sweeny Fractionatordiscount rates. As a result of these assessments, DCP Partners recorded goodwill and lateother asset impairments that reduced our equity earnings by $47 million, included in the year,“Equity in earnings of affiliates” line item on our consolidated statement of income.
The fair value of our investment in DCP Midstream at September 30, 2019, depended on the Freeport LPG Export Terminal.market value of DCP Midstream’s general partner interest in DCP Partners and the market value of DCP Partners’ common units. At June 30, 2019, we estimated the fair value of our investment in DCP Midstream was below our book value, but we believed the condition was temporary. The fair value of our investment in DCP Midstream further deteriorated in the third quarter as the market value of DCP Midstream’s general partner interest in DCP Partners and the market value of DCP Partners’ common units declined further. At that time, we concluded the decline in fair value was no longer temporary due to the duration and magnitude of the decline. Accordingly, we recorded an $853 million impairment in the third quarter of 2019. The impairment is included in the “Impairments” line item on our consolidated statement of income and results in our investment in DCP Midstream having a book value of $1,374 million at December 31, 2019.
The majority of the difference between the book value of our investment in DCP Midstream and our 50% share of the net assets reported by DCP Midstream is amortized over a 22-year estimated useful life as an annual increase of approximately $40 million to equity earnings. See Note 7—Investments, Loans and Long-Term Receivables, and Note 16—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on our investment in DCP Midstream.
See the “Executive Overview and Business Environment” section for information on market factors impacting 2019 results.
2018 vs. 2017
Pre-tax income from the Midstream segment increased $543 million in 2018, compared with 2017, due to improved results across all business lines.
Pre-tax income from our Transportation business increased $240 million in 2018, compared with 2017. The increase was mainly driven by higher volumes, tariffs and storage rates from our portfolio of consolidated and joint venture assets. These itemsincreases were partially offset by a decrease in equity earnings from Rockies Express Pipeline LLC (REX) due to a favorable settlement recorded in 2017.
Pre-tax income from our NGL and Other business increased $273 million in 2018, compared with 2017. The increase was primarily due to the contribution of Merey Sweeny to Phillips 66 Partners in October 2017, inventory impacts, improved cargo margins and volumes, and higher fractionated volumes, reflecting the operation of the Sweeny Fractionator for a full year in 2016, and the benefit of the first liquefied petroleum gas cargos exportedequity earnings from the Freeport LPG Export Terminal in late 2016.pipeline affiliates due to increased volumes.
Improved resultsPre-tax income from our investment in DCP Midstream increased our net income by $291$30 million in 2016,2018, compared with 2015. In 2015, DCP Midstream recorded goodwill and other asset impairments, which reduced our net income by $232 million. In addition, favorable contract restructuring efforts, improved asset performance,2017. The increase was primarily due to higher equity in earnings from affiliates as a result of increased volumes, timing of incentive distribution income allocations from DCP Midstream’s equity affiliates, lower operating costsPartners, and higher NGL prices contributed to better results in 2016.favorable hedging results. These improvementsincreases were partially offset by lower natural gashigher asset impairments and crude oil prices.operating costs in 2018.
Chemicals
| | | | Year Ended December 31 | Year Ended December 31 |
| | 2017 |
| | 2016 |
| | 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| | Millions of Dollars | Millions of Dollars |
| | | | | | | | | | | |
| Net Income | $ | 525 |
| | 583 |
| | 962 |
| |
| Income Before Income Taxes | | $ | 879 |
| | 1,025 |
| | 716 |
|
| | | | | | | | | | | |
| | Millions of Pounds | Millions of Pounds |
| CPChem Externally Marketed Sales Volumes* | | | | | | | | | | |
| Olefins and Polyolefins | 15,870 |
| | 16,011 |
| | 16,916 |
| 18,788 |
| | 18,435 |
| | 15,870 |
|
| Specialties, Aromatics and Styrenics | 4,618 |
| | 4,911 |
| | 5,301 |
| 4,281 |
| | 4,931 |
| | 4,618 |
|
| | 20,488 |
| | 20,922 |
| | 22,217 |
| 23,069 |
| | 23,366 |
| | 20,488 |
|
| * Represents 100 percent of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates. | |
| * Represents 100% of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates. | | * Represents 100% of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates. |
| | | | | | | | | | | |
| Olefins and Polyolefins Capacity Utilization (percent)* | 87 | % | | 91 |
| | 92 |
| |
| Olefins and Polyolefins Capacity Utilization (percent) | | 97 | % | | 94 |
| | 87 |
|
The Chemicals segment consists of our 50 percent50% interest in CPChem, which we account for under the equity method. CPChem uses NGL and other feedstocks to produce petrochemicals. These products are then marketed and sold or used as feedstocks to produce plastics and other chemicals. We structure our reporting of CPChem’s operations around two primary business segments:lines: Olefins and Polyolefins (O&P) and Specialties, Aromatics and Styrenics (SA&S). The O&P business segmentline produces and markets ethylene and other olefin products. Ethylene produced is primarily consumed within CPChem for the production of polyethylene, normal alpha olefins and polyethylene pipe. The SA&S business segmentline manufactures and markets aromatics and styrenics products, such as benzene, cyclohexane, styrene paraxylene and cyclohexane, as well as polystyrene. SA&S also manufactures and/or markets a variety of specialty chemical products. Unless otherwise noted, amounts referenced below reflect our net 50 percent50% interest in CPChem.
20172019 vs. 20162018
NetPre-tax income from the Chemicals segment decreased $58$146 million in 2017,2019, compared with 2016.2018. The decrease was primarily driven by higher costs and lower volumesmainly due to Hurricane Harvey, as well as lower margins. These itemspolyethylene margins attributable to additional industry capacity and slower demand growth in Asia. In addition, CPChem recorded lower-of-cost-or-market write-downs of LIFO-valued inventories during 2019, and our portion of the write-downs reduced our equity earnings from CPChem by $65 million, pre-tax. The decreases were partially offset by lower impairment charges, higher equity in earnings from an O&P affiliate due topolyethylene sales volumes and lower turnaround costs and a gain on the sale of CPChem’s K-Resin® styrene-butadiene copolymers business. CPChem recognized impairment charges of $127 million and $177 million in 2017 and 2016, respectively, due to lower demand and margin factors. As a result of these impairments, net income of the Chemicals segment was reduced by $39 million and $89 million in 2017 and 2016, respectively.maintenance activity during 2019.
As a result of Hurricane Harvey, CPChem’s Cedar Bayou facility in Baytown, Texas, experienced severe flooding, which caused it to shut down operations in the third quarter of 2017. This facility restarted in phases during the fourth quarter of 2017. CPChem’s U.S. Gulf Coast Petrochemicals Project, which consists of an ethane cracker at Cedar Bayou and two polyethylene units at Old Ocean, Texas, was also impacted by the flooding. CPChem achieved mechanical completion of its ethane cracker at the Cedar Bayou facility in December 2017, and is expected to complete commissioning of the ethane cracker in the first quarter of 2018, with a transition to full production in the second quarter of 2018.
See the “Business Environment“Executive Overview and Executive Overview”Business Environment” section for information on market factors impacting CPChem’s 2019 results.
2016 vs. 2015
NetPre-tax income from the Chemicals segment decreased $379increased $309 million in 2016,2018, compared with 2015.2017. The decreaseincreased results reflected the commencement of full operations at CPChem’s new U.S. Gulf Coast petrochemicals assets in net income was primarily due to lower realized margins from the O&P business, driven by a declinesecond quarter of 2018, which resulted in higher production and sales prices forof polyethylene and normal alpha olefins (NAO)ethylene, partially offset by lower capitalized interest. Additionally, lower hurricane-related costs and higher feedstock costs,downtime, as well as impacts fromlower impairment charges, contributed to the increased turnaround activity. Lower equity earnings from CPChem’s equity affiliates and lower SA&S volumes further reduced net incomeresults in 2016.2018.
In addition, CPChem recognized a $177 million impairment in 2016 due
Refining
| | | | Year Ended December 31 | Year Ended December 31 |
| | 2017 |
| | 2016 |
| | 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| | Millions of Dollars | Millions of Dollars |
| Net Income (Loss) | | | | | | |
| Income (Loss) Before Income Taxes | | | | | | |
| Atlantic Basin/Europe | $ | 370 |
| | 204 |
| | 569 |
| $ | 608 |
| | 567 |
| | 448 |
|
| Gulf Coast | 512 |
| | 52 |
| | 551 |
| 364 |
| | 1,040 |
| | 809 |
|
| Central Corridor | 477 |
| | 234 |
| | 857 |
| 1,338 |
| | 2,817 |
| | 755 |
|
| West Coast | 45 |
| | (116 | ) | | 578 |
| (324 | ) | | 111 |
| | 64 |
|
| Worldwide | $ | 1,404 |
| | 374 |
| | 2,555 |
| $ | 1,986 |
| | 4,535 |
| | 2,076 |
|
| | | | | | | | | | | |
| | Dollars Per Barrel | Dollars Per Barrel |
| Net Income (Loss) | | | | | | |
| Income (Loss) Before Income Taxes | | | | | | |
| Atlantic Basin/Europe | $ | 1.86 |
| | 0.93 |
| | 2.68 |
| $ | 3.11 |
| | 3.05 |
| | 2.25 |
|
| Gulf Coast | 1.79 |
| | 0.18 |
| | 2.08 |
| 1.24 |
| | 3.55 |
| | 2.83 |
|
| Central Corridor | 5.18 |
| | 2.38 |
| | 8.96 |
| 12.95 |
| | 26.50 |
| | 8.19 |
|
| West Coast | 0.34 |
| | (0.92 | ) | | 4.42 |
| (2.49 | ) | | 0.81 |
| | 0.48 |
|
| Worldwide | 1.97 |
| | 0.51 |
| | 3.63 |
| 2.75 |
| | 6.29 |
| | 2.92 |
|
| | | | | | | | | | | |
| Realized Refining Margins | | | | | | |
| Realized Refining Margins* | | | | | | |
| Atlantic Basin/Europe | $ | 8.25 |
| | 6.26 |
| | 9.39 |
| $ | 9.33 |
| | 10.32 |
| | 8.25 |
|
| Gulf Coast | 7.07 |
| | 5.49 |
| | 9.29 |
| 7.42 |
| | 9.48 |
| | 7.07 |
|
| Central Corridor | 12.44 |
| | 8.70 |
| | 14.88 |
| 14.91 |
| | 22.22 |
| | 12.44 |
|
| West Coast | 10.49 |
| | 9.15 |
| | 16.86 |
| 9.18 |
| | 11.20 |
| | 10.49 |
|
| Worldwide | 9.13 |
| | 6.99 |
| | 11.84 |
| 9.91 |
| | 12.99 |
| | 9.13 |
|
* See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income (loss) before income taxes per barrel.
| | | | Thousands of Barrels Daily | Thousands of Barrels Daily |
| | Year Ended December 31 | Year Ended December 31 |
| | 2017 |
| | 2016 |
| | 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| Operating Statistics | | | | | | | | | | |
| Refining operations* | | | | | | | | | | |
| Atlantic Basin/Europe | | | | | | | | | | |
| Crude oil capacity | 520 |
| | 566 |
| | 588 |
| 537 |
| | 537 |
| | 520 |
|
| Crude oil processed | 494 |
| | 568 |
| | 539 |
| 497 |
| | 477 |
| | 494 |
|
| Capacity utilization (percent) | 95 | % | | 100 |
| | 92 |
| 92 | % | | 89 |
| | 95 |
|
| Refinery production | 553 |
| | 607 |
| | 587 |
| 541 |
| | 514 |
| | 553 |
|
| Gulf Coast | | | | | | | | | | |
| Crude oil capacity | 743 |
| | 743 |
| | 738 |
| 764 |
| | 752 |
| | 743 |
|
| Crude oil processed | 709 |
| | 704 |
| | 654 |
| 725 |
| | 717 |
| | 709 |
|
| Capacity utilization (percent) | 95 | % | | 95 |
| | 89 |
| 95 | % | | 95 |
| | 95 |
|
| Refinery production | 789 |
| | 783 |
| | 733 |
| 804 |
| | 808 |
| | 789 |
|
| Central Corridor | | | | | | | | | | |
| Crude oil capacity | 493 |
| | 493 |
| | 492 |
| 515 |
| | 493 |
| | 493 |
|
| Crude oil processed | 467 |
| | 485 |
| | 465 |
| 498 |
| | 507 |
| | 467 |
|
| Capacity utilization (percent) | 95 | % | | 98 |
| | 95 |
| 97 | % | | 103 |
| | 95 |
|
| Refinery production | 489 |
| | 506 |
| | 486 |
| 518 |
| | 530 |
| | 489 |
|
| West Coast | | | | | | | | | | |
| Crude oil capacity | 360 |
| | 360 |
| | 360 |
| 364 |
| | 364 |
| | 360 |
|
| Crude oil processed | 342 |
| | 318 |
| | 330 |
| 323 |
| | 343 |
| | 342 |
|
| Capacity utilization (percent) | 95 | % | | 88 |
| | 92 |
| 89 | % | | 94 |
| | 95 |
|
| Refinery production | 368 |
| | 345 |
| | 359 |
| 354 |
| | 373 |
| | 368 |
|
| Worldwide | | | | | | | | | | |
| Crude oil capacity | 2,116 |
| | 2,162 |
| | 2,178 |
| 2,180 |
| | 2,146 |
| | 2,116 |
|
| Crude oil processed | 2,012 |
| | 2,075 |
| | 1,988 |
| 2,043 |
| | 2,044 |
| | 2,012 |
|
| Capacity utilization (percent) | 95 | % | | 96 |
| | 91 |
| 94 | % | | 95 |
| | 95 |
|
| Refinery production | 2,199 |
| | 2,241 |
| | 2,165 |
| 2,217 |
| | 2,225 |
| | 2,199 |
|
| * Includes our share of equity affiliates. | | | | | | | | | | |
The Refining segment refines crude oil and other feedstocks into petroleum products, (suchsuch as gasoline, distillates and aviation fuels)fuels, at 13 refineries in the United States and Europe.
20172019 vs. 20162018
NetPre-tax income for the Refining segment increased $1,030decreased $2,549 million in 2017,2019, compared with 2016.2018. The increasedecrease was primarily driven by lower realized refining margins and lower refinery production at certain refineries due to turnaround activities and unplanned downtime. In 2019, the decrease in realized refining margins was primarily due to higher realized refining margins and West Coast volumes, as well as an after-tax gain of $261 million recognized on the consolidation of MSLP, partially offset by higher turnaround expenses, utilities costs and pension settlement expense. The higher realized refining margins primarily resulted from improved market crack spreads and secondary product margins, partially offset by lower feedstock advantage.advantage driven by narrowing heavy crude differentials.
See the “Business Environment“Executive Overview and Executive Overview”Business Environment” section for information on industry crack spreads and other market factors impacting this year’s results. In addition, see Note 5—Business Combinations and Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the consolidation of MSLP in February 2017 and the subsequent contribution of our ownership interest in MSLP to Phillips 66 Partners in October 2017, respectively.
Our worldwide refining crude oil capacity utilization rate was 95 percent94% and 95% in 2017, compared with 96 percent in 2016. The decrease was primarily attributable to higher turnaround activities2019 and unplanned downtime, partially offset by improved market conditions.2018, respectively.
20162018 vs. 20152017
NetPre-tax income for the Refining segment decreased $2,181increased $2,459 million in 2016,2018, compared with 2015. Lower net income in 2016 reflected lower2017. The increase was primarily due to higher realized refining margins, resultingpartially offset by a noncash gain of $423 million recognized from decreasedthe consolidation of Merey Sweeny in February 2017.
The increased realized refining margins were primarily driven by higher feedstock advantage, improved premium coke margins, and increased optimization benefits from using our integrated logistics network to capture market crack spreads, higher costs associated with renewable fuels blending activities, loweropportunities related to widening Bakken, Canadian and other inland crude differentials. Improved clean product differentials and lower feedstock advantage.renewable identification number (RIN) costs also benefited margins. These items were partially offset by higher volumes due to lower turnaround activities and less unplanned downtime.a decline in market crack spreads.
Our worldwide refining crude oil capacity utilization rate was 96 percent95% in 2016, compared with 91 percent in 2015. The increase was primarily attributable to lower turnaround activitiesboth 2018 and less unplanned downtime.2017.
Non-GAAP Reconciliations
Our realized refining margins measure the difference between a) sales and other operating revenues derived from the sale of petroleum products manufactured at our refineries and b) purchase costs of feedstocks, primarily crude oil, used to produce the petroleum products. The margins are adjusted to include our proportional share of our joint-venture refineries’ realized margins, as well as to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized refining margins are converted to a per-barrel basis by dividing them by total refinery processed inputs (primarily crude oil) measured on a barrel basis, including our share of inputs processed by our joint-venture refineries. Our realized refining margin per barrel is intended to be comparable with industry refining margins, which are known as “crack spreads.” As discussed in “Business Environment,” industry crack spreads measure the difference between market prices for refined petroleum products and crude oil. Realized refining margin per barrel calculated on a similar basis as industry crack spreads provides a useful measure of how well we performed relative to benchmark industry margins.
Under generally accepted accounting principles in the United States (GAAP), the performance measure most directly comparable to refining margin per barrel is the Refining segment’s “net income per barrel.” Refining margin per barrel excludes items that are typically included in a manufacturer’s gross margin, such as depreciation and operating expenses, and other items used to determine net income, such as general and administrative expenses and income taxes. It also includes our proportional share of joint-venture refineries’ realized margins and excludes special items. Because refining margin per barrel is calculated in this manner, and because refining margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of net income to realized refining margins:
|
| | | | | | | | | | | |
| | Millions of Dollars, Except as Indicated |
| Realized Refining Margins | Atlantic Basin/Europe |
| Gulf Coast |
| Central Corridor |
| West Coast |
| Worldwide |
|
| | | | | | |
| Year Ended December 31, 2017 | | | | | |
| Net income | $ | 370 |
| 512 |
| 477 |
| 45 |
| 1,404 |
|
| Plus: | | | | | |
| Income tax expense | 78 |
| 297 |
| 278 |
| 19 |
| 672 |
|
| Taxes other than income taxes | 56 |
| 97 |
| 46 |
| 64 |
| 263 |
|
| Depreciation, amortization and impairments | 192 |
| 273 |
| 129 |
| 244 |
| 838 |
|
| Selling, general and administrative expenses | 61 |
| 55 |
| 34 |
| 48 |
| 198 |
|
| Operating expenses | 847 |
| 1,212 |
| 593 |
| 982 |
| 3,634 |
|
| Equity in (earnings) losses of affiliates | 11 |
| (4 | ) | (329 | ) | — |
| (322 | ) |
| Other segment (income) expense, net | (10 | ) | (421 | ) | 13 |
| 5 |
| (413 | ) |
| Proportional share of refining gross margins contributed by equity affiliates | 59 |
| 1 |
| 959 |
| — |
| 1,019 |
|
| Special items: | | | | | |
| Certain tax impacts | (23 | ) | — |
| — |
| — |
| (23 | ) |
| Realized refining margins | $ | 1,641 |
| 2,022 |
| 2,200 |
| 1,407 |
| 7,270 |
|
| | | | | | |
Total processed inputs (thousands of barrels) | 199,068 |
| 285,951 |
| 92,146 |
| 134,089 |
| 711,254 |
|
Adjusted total processed inputs (thousands of barrels)* | 199,068 |
| 285,951 |
| 176,823 |
| 134,089 |
| 795,931 |
|
| | | | | | |
Net income per barrel (dollars per barrel)** | $ | 1.86 |
| 1.79 |
| 5.18 |
| 0.34 |
| 1.97 |
|
Realized refining margins (dollars per barrel)*** | 8.25 |
| 7.07 |
| 12.44 |
| 10.49 |
| 9.13 |
|
| | | | | | |
| Year Ended December 31, 2016 | | | | | |
| Net income (loss) | $ | 204 |
| 52 |
| 234 |
| (116 | ) | 374 |
|
| Plus: | | | | | |
| Income tax expense (benefit) | (17 | ) | 17 |
| 133 |
| (72 | ) | 61 |
|
| Taxes other than income taxes | 58 |
| 73 |
| 42 |
| 80 |
| 253 |
|
| Depreciation, amortization and impairments | 200 |
| 234 |
| 106 |
| 230 |
| 770 |
|
| Selling, general and administrative expenses | 64 |
| 51 |
| 31 |
| 49 |
| 195 |
|
| Operating expenses | 817 |
| 1,234 |
| 465 |
| 979 |
| 3,495 |
|
| Equity in (earnings) losses of affiliates | 8 |
| (50 | ) | (122 | ) | — |
| (164 | ) |
| Other segment (income) expense, net | (11 | ) | 3 |
| (6 | ) | (2 | ) | (16 | ) |
| Proportional share of refining gross margins contributed by equity affiliates | 55 |
| (4 | ) | 705 |
| — |
| 756 |
|
| Special items: | | | | | |
| Pending claims and settlements | — |
| (70 | ) | — |
| — |
| (70 | ) |
| Certain tax impacts | (32 | ) | — |
| — |
| — |
| (32 | ) |
| Railcar lease residual value deficiencies and related costs | 5 |
| 16 |
| 11 |
| 8 |
| 40 |
|
| Recognition of deferred logistics commitments | 30 |
| — |
| — |
| — |
| 30 |
|
| Realized refining margins | $ | 1,381 |
| 1,556 |
| 1,599 |
| 1,156 |
| 5,692 |
|
| | | | | | |
Total processed inputs (thousands of barrels) | 220,519 |
| 283,574 |
| 98,217 |
| 126,329 |
| 728,639 |
|
Adjusted total processed inputs (thousands of barrels)* | 220,519 |
| 283,574 |
| 183,691 |
| 126,329 |
| 814,113 |
|
| | | | | | |
Net income (loss) per barrel (dollars per barrel)** | $ | 0.93 |
| 0.18 |
| 2.38 |
| (0.92 | ) | 0.51 |
|
Realized refining margins (dollars per barrel)*** | 6.26 |
| 5.49 |
| 8.70 |
| 9.15 |
| 6.99 |
|
| * Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. |
| ** Net income (loss) divided by total processed inputs. |
| *** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding. |
|
| | | | | | | | | | | |
| | Millions of Dollars, Except as Indicated |
| Realized Refining Margins | Atlantic Basin/Europe |
| Gulf Coast |
| Central Corridor |
| West Coast |
| Worldwide |
|
| | | | | | |
| Year Ended December 31, 2015 | | | | | |
| Net income | $ | 569 |
| 551 |
| 857 |
| 578 |
| 2,555 |
|
| Plus: | | | | | |
| Income tax expense (benefit) | (15 | ) | 338 |
| 469 |
| 312 |
| 1,104 |
|
| Taxes other than income taxes | 57 |
| 76 |
| 42 |
| 84 |
| 259 |
|
| Depreciation, amortization and impairments | 197 |
| 226 |
| 102 |
| 216 |
| 741 |
|
| Selling, general and administrative expenses | 67 |
| 60 |
| 35 |
| 59 |
| 221 |
|
| Operating expenses | 995 |
| 1,241 |
| 447 |
| 961 |
| 3,644 |
|
| Equity in (earnings) losses of affiliates | 8 |
| (25 | ) | (308 | ) | — |
| (325 | ) |
| Other segment (income) expense, net | 30 |
| 2 |
| 8 |
| (5 | ) | 35 |
|
| Proportional share of refining gross margins contributed by equity affiliates | 89 |
| (9 | ) | 977 |
| — |
| 1,057 |
|
| Realized refining margins | $ | 1,997 |
| 2,460 |
| 2,629 |
| 2,205 |
| 9,291 |
|
| | | | | | |
Total processed inputs (thousands of barrels) | 212,627 |
| 264,874 |
| 95,682 |
| 130,799 |
| 703,982 |
|
Adjusted total processed inputs (thousands of barrels)* | 212,627 |
| 264,874 |
| 176,641 |
| 130,799 |
| 784,941 |
|
| | | | | | |
Net income per barrel (dollars per barrel)** | $ | 2.68 |
| 2.08 |
| 8.96 |
| 4.42 |
| 3.63 |
|
Realized refining margins (dollars per barrel)*** | 9.39 |
| 9.29 |
| 14.88 |
| 16.86 |
| 11.84 |
|
| * Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. |
| ** Net income divided by total processed inputs. |
| *** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding. |
Marketing and Specialties
| | | | Year Ended December 31 | Year Ended December 31 |
| | 2017 |
| | 2016 |
| | 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| | Millions of Dollars | Millions of Dollars |
| Net Income | | | | | | |
| Income Before Income Taxes | | | | | | |
| Marketing and Other | $ | 551 |
| | 747 |
| | 1,004 |
| $ | 1,199 |
| | 1,306 |
| | 808 |
|
| Specialties | 135 |
| | 144 |
| | 183 |
| 234 |
| | 251 |
| | 212 |
|
| Total Marketing and Specialties | $ | 686 |
| | 891 |
| | 1,187 |
| $ | 1,433 |
| | 1,557 |
| | 1,020 |
|
| | | | | | | | | | | |
| | Dollars Per Barrel | Dollars Per Barrel |
| Net Income | | | | | | |
| Income Before Income Taxes | | | | | | |
| U.S. | $ | 0.56 |
| | 0.74 |
| | 0.76 |
| $ | 1.22 |
| | 1.21 |
| | 0.89 |
|
| International | 1.81 |
| | 2.21 |
| | 1.98 |
| 3.58 |
| | 5.00 |
| | 2.23 |
|
| | | | | | | | | | | |
| Realized Marketing Fuel Margins | | | | | | |
| Realized Marketing Fuel Margins* | | | | | | |
| U.S. | $ | 1.48 |
| | 1.64 |
| | 1.65 |
| $ | 1.57 |
| | 1.62 |
| | 1.48 |
|
| International | 4.21 |
| | 4.05 |
| | 4.40 |
| 4.90 |
| | 6.87 |
| | 4.21 |
|
* See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel. | | * See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel. |
| | | | | | | | | | | |
| | Dollars Per Gallon | Dollars Per Gallon |
| U.S. Average Wholesale Prices* | | | | | | | | | | |
| Gasoline | $ | 1.87 |
| | 1.62 |
| | 1.92 |
| $ | 2.12 |
| | 2.20 |
| | 1.87 |
|
| Distillates | 1.85 |
| | 1.48 |
| | 1.77 |
| 2.12 |
| | 2.29 |
| | 1.85 |
|
| * On third-party branded petroleum products sales, excluding excise taxes. | | | | | | |
* On third-party branded refined petroleum product sales, excluding excise taxes. | | | | | | |
| | | | | | | | | | | |
| | Thousands of Barrels Daily | Thousands of Barrels Daily |
| Marketing Petroleum Products Sales | | | | | | |
| Marketing Refined Petroleum Product Sales | | | | | | |
| Gasoline | 1,246 |
| | 1,238 |
| | 1,205 |
| 1,230 |
| | 1,195 |
| | 1,246 |
|
| Distillates | 931 |
| | 947 |
| | 953 |
| 1,104 |
| | 975 |
| | 931 |
|
| Other | 18 |
| | 16 |
| | 16 |
| 18 |
| | 18 |
| | 18 |
|
| | 2,195 |
| | 2,201 |
| | 2,174 |
| 2,352 |
| | 2,188 |
| | 2,195 |
|
The M&S segment purchases for resale and markets refined petroleum products, (suchsuch as gasoline, distillates and aviation fuels),fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, (suchsuch as base oils and lubricants), as well as power generation operations.lubricants.
20172019 vs. 20162018
NetPre-tax income from the M&S segment decreased $205$124 million in 2017,2019, compared with 2016.2018. The decrease was primarily due to lower realized marketing fuel margins, as well as the absence of biofuel tax credits and a favorable income tax adjustment recognized in 2016.mainly driven by international marketing, partially offset by higher sales volumes.
See the “Business Environment“Executive Overview and Executive Overview”Business Environment” section for information on marketing fuel margins and other market factors impacting 20162019 results.
20162018 vs. 20152017
NetPre-tax income from the M&S segment decreased $296increased $537 million in 2016,2018, compared with 2015.2017. The decreaseincrease was primarily due to higher realized marketing fuel margins, mainly attributable todriven by international marketing, benefits from the $242 million deferred gain recognizedretroactive extension of the 2017 U.S. biodiesel blender’s tax incentive in 2015 related to the 2013 ICHP sale. See Note 6—Assets Held for Sale or Sold, in the Notes to Consolidated Financial Statements, for additional information.early 2018, as well as improved specialty product service margins.
Also contributing to the lower net income in 2016 were lower realized marketing margins driven by an upward trend of spot prices during most of 2016, and lower margins and volumes in lubricants. These decreases were partially offset by favorable tax adjustments and higher marketing volumes.
Non-GAAP Reconciliations
Our realized marketing fuel margins measure the difference between a) sales and other operating revenues derived from the sale of fuels in our M&S segment and b) purchase costs of those fuels. These margins are converted to a per-barrel basis by dividing them by sales volumes measured on a barrel basis. Marketing fuel margin per barrel demonstrates the value uplift our marketing operations provide by optimizing the placement and ultimate sale of our refineries’ fuel production.
Within the M&S segment, the GAAP performance measure most directly comparable to marketing fuel margin per barrel is the marketing business’ “net income per barrel.” Marketing fuel margin per barrel excludes items that are typically included in gross margin, such as depreciation and operating expenses, and other items used to determine net income, such as general and administrative expenses and income taxes. Because marketing fuel margin per barrel excludes these items, and because marketing fuel margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of net income to realized marketing fuel margins:
|
| | | | | | | | | | | | | | |
| | Millions of Dollars, Except as Indicated |
| | U.S. | | International |
| | 2017 |
| 2016 |
| 2015 |
| | 2017 |
| 2016 |
| 2015 |
|
| Realized Marketing Fuel Margins | | | | | | | |
| | | | | | | | |
| Net income | $ | 395 |
| 519 |
| 518 |
| | 176 |
| 235 |
| 217 |
|
| Plus: | | | | | | | |
| Income tax expense | 233 |
| 285 |
| 292 |
| | 41 |
| 17 |
| 57 |
|
| Taxes other than income taxes | 5,481 |
| 5,187 |
| 5,208 |
| | 7,579 |
| 8,132 |
| 8,499 |
|
| Depreciation, amortization and impairment | 14 |
| 12 |
| 9 |
| | 67 |
| 63 |
| 62 |
|
| Selling, general and administrative expenses | 751 |
| 708 |
| 732 |
| | 264 |
| 259 |
| 269 |
|
| Equity in earnings of affiliates | (5 | ) | (4 | ) | (4 | ) | | (83 | ) | (75 | ) | (78 | ) |
| Other operating revenues* | (5,815 | ) | (5,558 | ) | (5,614 | ) | | (7,594 | ) | (8,157 | ) | (8,507 | ) |
| Other segment (income) expense, net | (15 | ) | — |
| (15 | ) | | 2 |
| 3 |
| 6 |
|
| Marketing margins | 1,039 |
| 1,149 |
| 1,126 |
| | 452 |
| 477 |
| 525 |
|
| Less: margin for non-fuel related sales | — |
| — |
| — |
| | 42 |
| 45 |
| 44 |
|
| Realized marketing fuel margins | $ | 1,039 |
| 1,149 |
| 1,126 |
|
| 410 |
| 432 |
| 481 |
|
| | | | | | | | |
Total fuel sales volumes (thousands of barrels) | 703,928 |
| 699,111 |
| 684,045 |
| | 97,346 |
| 106,574 |
| 109,332 |
|
| | | | | | | | |
Net income per barrel (dollars per barrel) | $ | 0.56 |
| 0.74 |
| 0.76 |
| | 1.81 |
| 2.21 |
| 1.98 |
|
Realized marketing fuel margins (dollars per barrel)** | 1.48 |
| 1.64 |
| 1.65 |
|
| 4.21 |
| 4.05 |
| 4.40 |
|
* Primarily excise taxes and other non-fuel revenues. |
** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding.
|
Corporate and Other
|
| | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31 |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Net Income (Loss) | | | | | |
| Net interest expense | $ | (266 | ) | | (210 | ) | | (186 | ) |
| Corporate general and administrative expenses | (175 | ) | | (161 | ) | | (157 | ) |
| Technology | (62 | ) | | (58 | ) | | (60 | ) |
| U.S. tax reform | 2,735 |
| | — |
| | — |
|
| Other | (63 | ) | | (55 | ) | | (95 | ) |
| Total Corporate and Other | $ | 2,169 |
| | (484 | ) | | (498 | ) |
|
| | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31 |
| | 2019 |
| | 2018 |
| | 2017 |
|
| Income (Loss) Before Income Taxes | | | | | |
| Net interest expense | $ | (415 | ) | | (459 | ) | | (408 | ) |
| Corporate overhead and other | (389 | ) | | (394 | ) | | (487 | ) |
| Total Corporate and Other | $ | (804 | ) | | (853 | ) | | (895 | ) |
20172019 vs. 20162018
Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Net interest expense increased $56decreased $44 million in 2017,2019, compared with 2016,2018, primarily due to lowerhigher capitalized interest as a result of the Freeport LPG Export Terminal beginning operationsrelated to capital projects under development in late 2016, and higher interest expense driven by higher average debt principal balances, reflecting Phillips 66 Partners’ debt issuances in October 2017 and 2016.
The Tax Act was enacted on December 22, 2017. The material provisions of the Tax Act i) reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent beginning January 1, 2018, ii) imposed a one-time deemed repatriation tax on foreign-sourced earnings that were previously tax deferred, and iii) created a new tax regime on post-2017 foreign-sourced earnings. We have not yet completed our accounting for the income tax effects of the Tax Act as of December 31, 2017, but have made reasonable estimates of those effects on our existing deferred income tax balances and the one-time deemed repatriation tax. We recognized a provisional income tax benefit of $2,735 million, which is included in the “Income tax expense (benefit)” line on our consolidated statement of income. We have included these one-time impacts of the Tax Act in Corporate and Other. Of the provisional income tax benefit recognized, $2,870 million was associated with the revaluation of our existing deferred tax assets and liabilities, and $14 million reflected higher manufacturing deductions, which was an indirect benefit of the Tax Act. These benefits wereMidstream segment, partially offset by the one-time deemed repatriation tax estimate of $149 million. We expect the Tax Act to significantly lower our effective tax rateshigher debt balances in 20182019.
Corporate overhead and future years for both our consolidated operationsother includes general and each of our operating segments. See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for more information.
2016 vs. 2015
Net interest expense increased $24 million in 2016, compared with 2015, mainly due to lower capitalized interest.
The category “Other” includes certain income taxadministrative expenses, technology costs, environmental costs associated with sites no longer in operation, foreign currency transaction gains and losses and other costs not directly associated with an operating segment. The decreaseDuring 2019, Corporate overhead and other decreased $5 million, compared with 2018.
2018 vs. 2017
Net interest expense increased $51 million in other costs2018, compared with 2017, mainly due to higher average debt principal balances from our issuance of senior notes totaling $1,500 million in 2016March 2018 and Phillips 66 Partners’ issuance of senior notes totaling $650 million in October 2017. This increase was primarily attributable to favorable tax impacts and the write-off of certain fixed assets during 2015, partially offset by higher environmental accruals.interest income.
Corporate overhead and other decreased $93 million in 2018, compared with 2017, primarily due to lower environmental-related expenses and higher equity earnings from our share of income tax benefits recorded by equity affiliates due to the enactment of the Tax Act in December 2017.
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
| | | | Millions of Dollars, Except as Indicated | Millions of Dollars, Except as Indicated |
| | 2017 |
| | 2016 |
| | 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | | | | | | |
| Cash and cash equivalents | $ | 3,119 |
| | 2,711 |
| | 3,074 |
| $ | 1,614 |
| | 3,019 |
| | 3,119 |
|
| Net cash provided by operating activities | 3,648 |
| | 2,963 |
| | 5,713 |
| 4,808 |
| | 7,573 |
| | 3,648 |
|
| Short-term debt | 41 |
| | 550 |
| | 44 |
| 547 |
| | 67 |
| | 41 |
|
| Total debt | 10,110 |
| | 10,138 |
| | 8,887 |
| 11,763 |
| | 11,160 |
| | 10,110 |
|
| Total equity | 27,428 |
| | 23,725 |
| | 23,938 |
| 27,169 |
| | 27,153 |
| | 27,428 |
|
| Percent of total debt to capital* | 27 | % | | 30 |
| | 27 |
| 30 | % | | 29 |
| | 27 |
|
| Percent of floating-rate debt to total debt | 11 | % | | 3 |
| | 1 |
| 9 | % | | 11 |
| | 11 |
|
* Capital includes total debt and total equity. |
To meet our short- and long-term liquidity requirements, we look to a variety of funding sources but rely primarily on cash generated from operating activities. Additionally, Phillips 66 Partners raiseshas raised funds for its growth activities through debt and equity financings. During 2017,2019, we generated $3.6$4.8 billion in cash from operations. In addition, Phillips 66 Partners completedhad net debt issuances of $0.5 billion and received $0.4 billion from its joint venture partners to partially fund the private placement of perpetual convertible preferred units and common units and the public offering of senior notes and common units for net proceeds totaling $1.8 billion.Gray Oak Pipeline capital project. We used this available cash primarily for capital expenditures and investments of $1.8$3.9 billion; repurchases of our common stock of $1.6$1.7 billion; and dividend payments on our common stock of $1.4$1.6 billion. During 2017,2019, cash and cash equivalents increased by $0.4decreased $1.4 billion to $3.1$1.6 billion.
In addition to cash flows from operating activities, we rely on our commercial paper and credit facility programs, asset sales and our ability to issue debt securities using our shelf registration statement to support our short- and long-term liquidity requirements. We believe current cash and cash equivalents and cash generated by operations, together with access to external sources of funds as described below under “Significant Sources of Capital,” will be sufficient to meet our funding requirements in the near and long term, including our capital spending, dividend payments, defined benefit plan contributions, debt repaymentrepayments and share repurchases.
Significant Sources of Capital
Operating Activities
During 2017,2019, cash generated by operating activities was $4,808 million, a 37% decrease compared with 2018. The decrease was mainly driven by lower realized refining margins and decreased distributions from our equity affiliates, along with unfavorable working capital impacts, partially offset by improved results from our Transportation and NGL and Other businesses.
During 2018, cash of $3,648$7,573 million was provided by operating activities, a 23 percent108% increase compared with 2016.2017. The increase was primarily attributable to increased operating results due to higher realized refining and marketing margins, andincreased distributions from our equity affiliates. This increase wasaffiliates and lower employee benefit plan contributions. These increases were partially offset by unfavorable working capital changes, reflecting the negative impact of building inventory at higher commodity prices and timing of refining payables payments, as well as lower marketing margins.
During 2016, cash of $2,963 million was provided by operating activities, a 48 percent decrease compared with 2015. The decrease was primarily attributable to lower realized refining margins, as well as a reduction in distributions from our equity affiliates. This decrease was partially offset by positive working capital of $501 million in 2016 compared to a negative working capital impact of $221 million in 2015. The positive working capital impact in 2016 wasimpacts primarily driven by increased refining payables, due to an increasethe effects of changes in feedstock costs at the end of 2016 as compared with 2015,commodity prices and the timing of tax payments and refunds, partially offset by an increase in receivables, resulting from higher commodity prices.collections.
Our short- and long-term operating cash flows are highly dependent upon refining and marketing margins, NGL prices and chemicals margins. Prices and margins in our industry are typically volatile, and are driven by market conditions over which we have little or no control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding change in our operating cash flows.
The level and quality of output from our refineries also impacts our cash flows. Factors such as operating efficiency, maintenance turnarounds, market conditions, feedstock availability and weather conditions can affect output. We actively manage the operations of our refineries, and any variability in their operations typically has not been as significant to cash flows as that caused by margins and prices. Our worldwide refining crude oil capacity utilization was 95 percent94% in 2017, compared with 96 percent2019 and 95% in 2016.both 2018 and 2017.
Equity AffiliatesAffiliate Operating Distributions
Our operating cash flows are also impacted by distribution decisions made by our equity affiliates, including CPChem, DCP Midstream CPChem and WRB. Over the three years ended December 31, 2017,2019, we received aggregate distributions from our equity affiliates of $107$6,097 million, including $280 million from DCP Midstream, $1,854$2,187 million from CPChem and $300$1,380 million from WRB. We cannot control the amount or timing of future distributionsdividends from equity affiliates; therefore, future distributionsdividend payments by these and other equity affiliates are not assured.
Effective January 1, 2017, DCP Midstream and DCP Partners closed a transaction in which DCP Midstream contributed subsidiaries owning all of its operating assets, $424 million of cash and $3.15 billion of debt to DCP Partners, in exchange for DCP Partners units which had an estimated fair value of $1.125 billion at the time of the transaction. We and our co-venturer retained our 50/50 investment in DCP Midstream, and DCP Midstream retained its incentive distribution rights (IDRs) in DCP Partners through its ownership of the general partner of DCP Partners. After the transaction, DCP Midstream held a 36 percent limited partner interest and a 2 percent general partner interest in DCP Partners. DCP Midstream, through its ownership of the general partner, has agreed, if required, to forgo receipt of IDRs up to $100 million annually (100 percent basis) through 2019, to support a minimum distribution coverage ratio for DCP Partners. In connection with the transaction, DCP Midstream terminated its revolving credit agreement, which had previously served to limit distributions to its owners while amounts had been borrowed under the facility. As a result, distributions to the owners of DCP Midstream resumed in 2017.
In 2015, CPChem made a special distribution to its owners, with our share totaling $696 million. CPChem funded the distribution by issuing $1.4 billion of senior notes with maturities ranging from three to five years, with a combination of fixed and floating interest rates. This cash inflow from CPChem was included in operating cash flows, as we had cumulative undistributed equity earnings attributable to CPChem in excess of the amount distributed. We did not receive any distributions from CPChem in the second half of 2017 due to the impacts of Hurricane Harvey on its Gulf Coast operations and its U.S. Gulf Coast Petrochemicals Project. We expect distributions from CPChem to resume in 2018.
Foreign Cash Holdings
With the passage of the Tax Act in December 2017, we are subject to a one-time deemed repatriation tax on foreign-sourced earnings. For a portion of those foreign earnings, we had previously deferred any associated U.S. income taxes. As a result of the Tax Act, we now have the ability to utilize a greater percentage of our worldwide cash and cash equivalents for domestic purposes without incurring additional material U.S. income taxes beyond those imposed by the one-time deemed repatriation tax, thereby improving the flexibility of our worldwide cash management system. We expect a portion of our foreign cash holdings will be reserved exclusively for foreign use in support of those operations and local statutory and regulatory requirements; however, that amount is not expected to materially impact our liquidity. Additionally, we do not expect the payment of the one-time deemed repatriation tax to materially impact our liquidity.
Phillips 66 Partners
In 2013, we formed Phillips 66 Partners, a publicly traded MLP, to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum products,midstream assets.
Ownership and NGL pipelinesRestructuring Transaction
On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to eliminate the incentive distribution rights (IDRs) held by us and terminals, as well as other Midstream assets.
Ownership
At December 31, 2017, we owned a 55 percent limitedto convert our 2% economic general partner interest andinto a 2 percentnoneconomic general partner interest in exchange for 101 million Phillips 66 Partners while its public unitholderscommon units. No distributions were made for the general partner interest after August 1, 2019. At December 31, 2019, we owned a 43 percent170 million Phillips 66 Partners common units, representing 74% of Phillips 66 Partners’ limited partner interest and 13.8 million perpetual convertible preferred units.
We consolidate Phillips 66 Partners as a variable interest entity for financial reporting purposes. See Note 3—Variable Interest Entities,27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on why we consolidate the partnership. As a result of this consolidation, the public common and preferred unitholders’ interests in Phillips 66 Partners are reflected as noncontrolling interests of $2,228 million in our consolidated balance sheet and totaled $2,314 million at December 31, 2017. Generally, drop down transactions to Phillips 66 Partners will eliminate in consolidation, except for third-party debt or third-party equity offerings made by Phillips 66 Partners to finance such transactions. As a result of Phillips 66 Partners’ third-party debt and equity offerings in 2017, primarily2019.
related to the contribution of assets in October 2017, our consolidated cash increased by $1,848 million and consolidated debt increased by $643 million.
Debt and Equity Financings
During the three years ended December 31, 2017,2019, Phillips 66 Partners raised net proceeds of approximately $5.4$3 billion from the following third-party debt and equity offerings:
| |
| • | Phillips 66 Partners has authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. Phillips 66 Partners completed the first two programs in June 2018 and December 2019, respectively, leaving $250 million available under the third program. For the three years ended December 31, 2019, net proceeds of $474 million have been received under these programs. |
In September 2019, Phillips 66 Partners received net proceeds of $892 million from the issuance of $300 million of 2.450% Senior Notes due December 2024 and $600 million of 3.150% Senior Notes due December 2029.
In March 2019, Phillips 66 Partners entered into a senior unsecured term loan facility with a borrowing capacity of $400 million due March 20, 2020. Phillips 66 Partners borrowed an aggregate amount of $400 million under the facility during the first half of 2019, which was repaid in full in September 2019.
In October 2017, Phillips 66 Partners received net proceeds of $643 million from the issuance of $500 million of 3.750% Senior Notes due March 2028 and $150 million of 4.680% Senior Notes due February 2045.
In October 2017, Phillips 66 Partners received net proceeds of $737 million from a private placement of 13,819,791 perpetual convertible preferred units, at a price of $54.27 per unit.
In October 2017, Phillips 66 Partners received net proceeds of $295 million from a private placement of 6,304,204 common units, at a price of $47.59 per unit.
In October 2016, Phillips 66 Partners received net proceeds
In August 2016, Phillips 66 Partners received net proceeds of $299 million from a public offering of 6,000,000 common units, at a price of $50.22 per unit.
In June 2016, Phillips 66 Partners began issuing common units under a continuous offering program, which allows for the offering of up to $250 million of common units. Through December 31, 2017, net proceeds of $192 million had been received under this program.
In May 2016, Phillips 66 Partners received net proceeds of $656 million from a public offering of 12,650,000 common units, at a price of $52.40 per unit.
In February 2015, Phillips 66 Partners received net proceeds of $1,092 million from the issuance of $300 million of 2.646% Senior Notes due 2020, $500 million of 3.605% Senior Notes due 2025, and $300 million of 4.680% Senior Notes due 2045.
In February 2015, Phillips 66 Partners received net proceeds of $384 million from a public offering of 5,250,000 million common units, at a price of $75.50 per unit.
Phillips 66 Partners primarily used these net proceeds to fund the cash portion of acquisitions of assets from Phillips 66.66 and for capital spending and investments. See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on Phillips 66 PartnersPartners.
Transfers of Equity Interests
In December 2018, a third party exercised an option to acquire a 35% interest in Gray Oak Holdings LLC (Holdings LLC), a consolidated subsidiary of Phillips 66 Partners. This transfer did not qualify as a sale under generally accepted accounting principles in the United States (GAAP) because of certain restrictions placed on the acquirer. The contributions received by Holdings LLC from the third party to cover capital calls from Gray Oak Pipeline, LLC are presented as a long-term obligation on our consolidated balance sheet and additional detailsas financing cash inflows on assetsour consolidated statement of cash flows until construction of the Gray Oak Pipeline is fully completed and these restrictions expire. During 2019, the third party contributed an aggregate of $342 million into Holdings LLC, and Holdings LLC used these contributions to the partnership by us during 2017.fund its portion of Gray Oak Pipeline, LLC’s cash calls.
In February 2019, Holdings LLC sold a 10% ownership interest in Gray Oak Pipeline, LLC to a third party that exercised a purchase option, for proceeds of $81 million. The proceeds received from this sale are presented as an investing cash inflow on our consolidated statement of cash flows.
See Note 7—Investments, Loans and Long-Term Receivables and Note 27—Phillips 66 Partners filed a new shelf registration statementLP, in the Notes to Consolidated Financial Statements, for a second continuous offering program that became effective with the Securities and Exchange Commission (SEC) on January 23, 2018, related to the continuous offering of up to an aggregate of $250 million of common units,additional information regarding Phillip 66 Partners’ investment in amounts, at prices and on terms to be determined by the market conditions and other factors at the time of the offerings.Gray Oak Pipeline, LLC.
Credit Facilities and Commercial Paper
Phillips 66 has a $5.0 billion revolving credit facility that extends until October 2021. This facility may be used for direct bank borrowings, as support for issuances of letters of credit, or as support for our commercial paper program. On July 30, 2019, this revolving credit agreement was amended and restated to extend the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $5 billion with an option to increase the overall capacity to $6 billion, subject to certain conditions. The facility is with a broad syndicate of financial institutions and contains covenants that we considerare usual and customary for an agreement of this type for comparable commercial borrowers, including a maximum consolidated net debt-to-capitalization ratio of 60 percent.65%. The agreement has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; violation of covenants; cross-payment default and cross-acceleration (in each case, to indebtedness in excess of a threshold amount); and a change of control. Borrowings under the facility will incur interest at the London Interbank Offered Rate (LIBOR) plus a margin based on the credit rating of our senior unsecured long-term debt as determined from time to time by Standard & Poor’s Financial Services LLC (S&P) Ratings
Services and Moody’s Investors Service.Service, Inc. (Moody’s). The facility also provides for customary fees, including administrative agent fees and commitment fees. At December 31, 2017,2019 and 2018, no amount had been drawn under this revolving credit agreement.
We havePhillips 66 has a $5.0$5 billion commercial paper program for short-term working capital needs that is supported by our revolving credit facility. Commercial paper maturities are generally limited to 90 days. At December 31, 2017, we had2019 and 2018, no borrowings were outstanding under ourthe commercial paper program. At February 21, 2020, there was approximately $650 million in borrowings outstanding under the program.
Phillips 66 Partners has a $750 million revolving credit facility that extends until October 2021. The Phillips 66 Partners facility is with a broad syndicate of financial institutions. The revolving credit facility contains covenants that are usual and customary for an agreement of this type for comparable commercial borrowers. At Phillips 66 Partners’ option, outstanding borrowings under this facility bear interest at either i) the Eurodollar rate plus a margin based on its credit rating; or ii) the base rate (as described in the facility agreement) plus a margin based on its credit rating. Eurodollar rate borrowings are due on the facility’s termination date, while base rate borrowings are due the earlier of the facility’s termination date or the fourteenth business day after such borrowings were made. On July 30, 2019, Phillips 66 Partners amended and restated its revolving credit agreement. The agreement extended the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $750 million with an option to increase the overall capacity to $1 billion, subject to certain conditions. At December 31, 2017,2019, Phillips 66 Partners had no borrowings outstanding under this facility; however, $1 million in letters of credit had been issued that were supported by this facility. There was $125 million outstanding under this facility at December 31, 2018.
We had approximately $5.7 billion and $5.6 billion of total committed capacity available under our revolving credit facilities at December 31, 2019 and 2018, respectively.
Other Debt Issuances and Financings
In April 2017,On March 1, 2018, Phillips 66 completedclosed on a privatepublic offering of $600$1,500 million aggregate principal amount of unsecured notes consisting of $300of:
$500 million of floating-rate Senior Notes due 2019 and $300 million of Notes due 2020.February 2021. Interest on thethese notes is a floating rate equal to the three-month LIBOR plus 0.65%0.60% per annum for the 2019 Notes and three-month LIBOR plus 0.75% per annum for the 2020 Notes. Interest on both series of notes is payable quarterly in arrears on January 15, April 15, JulyFebruary 26, May 26, August 26 and November 26, beginning on May 29, 2018.
$800 million of 3.900% Senior Notes due March 2028. Interest on these notes is payable semiannually on March 15 and OctoberSeptember 15 commencing in July 2017. The 2019of each year, beginning on September 15, 2018.
An additional $200 million of our 4.875% Senior Notes mature on April 15, 2019, and the 2020 Notes mature on April 15, 2020.
Also in April 2017, Phillips 66 entered into term loan facilities with an aggregate borrowing amount of $900 million, consisting of a $450 million 364-day facility and a $450 million three-year facility.due November 2044. Interest on the term loansthese notes is a floating rate basedpayable semiannually on either the Eurodollar rate or the reference rate, plus a margin determined by our long-term credit ratings.May 15 and November 15 of each year, beginning on May 15, 2018.
Phillips 66 used the net proceeds from the issuance of thethese notes together with the proceeds from the term loans, and cash on-handon hand to repay its outstanding 2.950% Seniorcommercial paper borrowings during the first quarter of 2018, and for general corporate purposes. The commercial paper borrowings during the first quarter of 2018, were primarily used to repurchase shares of our common stock. See Note 17—Equity, in the Notes upon maturity in May 2017.to Consolidated Financial Statements, for additional information.
In October 2017, as part of the contribution of assets to Phillips 66 Partners, discussed above, Phillips 66 Partners assumed the $450 million term loan outstanding under the 364-day facility originally issued in April 2017, and subsequently repaid the loan.
In addition, we have capital finance lease obligations primarily related to equipmentconsignment agreements with a domestic retail marketing joint venture and transportation assets, and the use of an oil terminal in the United Kingdom. These leases mature within the next sixteentwenty years. The present value of our minimum capitalfinance lease payments for these obligations as of December 31, 2017,2019, was $192$277 million.
Availability of Debt and Equity Financing
The $6.0 billion of outstanding Senior Notes and $600 million of floating-rate notes issued by Phillips 66 are guaranteed by Phillips 66 Company, a 100-percent-owned subsidiary. Our senior unsecured long-term debt has been rated investment grade by S&P (BBB+) and Moody’s (A3). We do not have any ratings triggers on any of our corporate debt that would cause an automatic default, and thereby impact our access to liquidity, in the event of a downgrade of our credit rating. If our credit rating deteriorated to a level prohibiting us from accessing the commercial paper market, we would expect to be able to access funds under our liquidity facilities mentioned above.
In addition, we have a universal shelf registration statement on file with the SEC under which we, as a well-known seasoned issuer, have the ability to issue and sell an indeterminate amount of various types of debt and equity securities.
Off-Balance Sheet Arrangements
Lease Residual Value Guarantees
Under the operating lease agreement on our headquarters facility in Houston, Texas, we have a residual value guarantee with a maximum future exposure of $554 million.million at December 31, 2019. The operating lease has a term of five yearsends in June 2021 and provides us the option, at the end of the lease term, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale.
We also have residual value guarantees associated with railcar and airplane leases with maximum potential future potential payments of $305 million. For information on our need to perform under the railcar lease guarantee, see the “Capital Requirements” section to follow.
In addition, we have guarantees outstanding related to certain joint-venture debt obligations, whichtotaling $372 million at December 31, 2019. These leases have remaining terms of up to eightfour years.
Dakota Access
In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $2,500 million aggregate principal amount of unsecured senior notes. The net proceeds from the issuance of these notes were used to repay amounts outstanding under existing credit facilities of Dakota Access and ETCO. Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, if Dakota Access receives an unfavorable court ruling related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million. Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU is approximately $631 million.
Gray Oak Pipeline
In June 2019, Gray Oak Pipeline, LLC entered into a third-party term loan facility with an initial borrowing capacity of $1,230 million, which was increased to $1,317 million in July 2019, and $1,379 million in January 2020, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. Phillips 66 Partners and its co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount. Under the agreement, Phillips 66 Partners’ maximum potential amount of future obligations is $583 million, plus any additional accrued interest and associated fees, which would be required if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At December 31, 2019, Gray Oak Pipeline, LLC had outstanding borrowings of $1,170 million, and Phillips 66 Partners’ 42.25% proportionate exposure under the equity contribution agreement was $494 million.
Other Guarantees
At December 31, 2019, we had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations that have remaining terms of up to six years. The maximum potential amount of future payments to third parties under these guarantees iswas approximately $308$263 million. Payment would be required if a joint venture defaults on its obligations.
See Note 13—Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.
Capital Requirements
Capital Expenditures and Investments
For information about our capital expenditures and investments, see the “Capital Spending” section below.
Debt Financing
Our debt balance at December 31, 2017,2019, was $10.1$11.8 billion and our total debt-to-capital ratio was 27 percent. 30%.
See Note 12—Debt, in the Notes to Consolidated Financial Statements, for our annual debt maturities over the next five years.years and more information on debt repayments.
Dividends
On February 7, 2018,5, 2020, our Board of Directors declared a quarterly cash dividend of $0.70$0.90 per common share, payable March 1, 2018,2, 2020, to holders of record at the close of business on February 20, 2018.18, 2020. We forecast that our quarterly dividend will continue to increase in 2020.
Share Repurchases
Since July 2012,On October 4, 2019, our Board of Directors has, at various times, authorized repurchasesapproved a new share repurchase program that authorizes us to repurchase up to $3 billion of our outstanding common stock, whichbringing the total amount of share repurchases authorized by our Board of Directors since July 2012 to an aggregate to a total authorization of up to $12.0$15 billion. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. The shares will beunder these authorizations are repurchased from time to time in the open market at our discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. We are not obligated to acquire any particular amount of common stock and may commence, suspend or discontinue purchases at any time or from time to time without prior notice. Since the inception of our share repurchasesrepurchase programs in 2012 through December 31, 2017,2019, we have repurchased a total of 124,142,530154 million shares at an aggregate cost of $9.0$12 billion. Shares of stock repurchased are held as treasury shares.
On February 13, 2018,Employee Benefit Plan Contributions
For the year ended December 31, 2019, we entered into a Stock Purchasecontributed $57 million to our U.S. employee benefit plans and Sale Agreement (Purchase Agreement) with Berkshire Hathaway Inc. and National Indemnity Company, a wholly owned subsidiary of Berkshire Hathaway,$28 million to repurchase 35our international employee benefit plans. In 2020, we expect to contribute approximately $75 million shares of Phillips 66 common stock for an aggregate purchase price of approximately $3.3 billion. Pursuant to the Purchase Agreement, the purchase price per share of $93.725 was based on the volume-weighted-average price of our common stock on the New York Stock Exchange on February 13, 2018. The transaction closed on February 14, 2018. We funded the repurchase with cash on hand of approximately $1.9 billion and borrowings of approximately $1.4 billion under our commercial paper program. This specific share repurchase transaction was separately authorized by our Board of Directors and therefore does not impact previously announced authorizations which total up to $12.0 billion.those plans.
Railcar and Airplane Leases Residual Value Guarantees
On May 1, 2015, the U.S. Department of Transportation issued a final rule focused on the safe transportation of flammable liquids by rail. The final rule, which is being challenged, subjects new and existing railcars transporting crude oil in high volumes to heightened design standards, including thicker tank walls and heat shields, improved pressure relief valves and enhanced braking systems. We are currently evaluating the impact of the new regulations on our crude oil railcar fleet, which is mostly held under operating leases. The regulations become effective subsequent to the expiration dates of a portion of our leases. Some of our leases require a portion of the leased railcars to be retrofitted. Certain leases are subject to residual value guarantees. Under the lease terms, we have the option to either purchase the railcars or return them to the lessors. If railcars are returned to the lessors, we may be required to make the lessors whole under the residual value guarantees, which are subject to a cap. The current market demand for crude oil railcars is low, which has resulted in a decline in crude oil railcar prices. Based on third-party appraisals of the railcars’ fair value at the end of their lease terms, we estimated a total residual value deficiency of $109 million that would be payable at the end of the lease terms, with approximately one-half paid in late 2017 and the other half due in 2019. During 2017 and 2016, we recognized $73 million of expense related to the residual value deficiency of our leased railcars. In October 2017, upon maturity of one of our railcar leases, $53 million of the total residual value deficiency of $109 million was settled. The residual value deficiency of $36 million remaining at December 31, 2017, will be recognized on a straight-line basis through May 2019. Due to current market uncertainties, changes in the estimated fair values of railcars could occur, which could increase or decrease our currently estimated residual value deficiency. As of December 31, 2017, our maximum future exposure for residual value guarantees associated with our railcar and airplane leases was approximately $305 million. See Note 13—Guarantees, in the Notes to Consolidated Financial Statements.
Contractual Obligations
The following table summarizes our aggregate contractual fixedMarketing and variable obligations as of December 31, 2017:
|
| | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Payments Due by Period |
| | Total |
| | Up to 1 Year |
| | Years 2-3 |
| | Years 4-5 |
| | After 5 Years |
|
| | | | | | | | | | |
| Debt obligations (a) | $ | 10,026 |
| | 25 |
| | 1,375 |
| | 2,050 |
| | 6,576 |
|
| Capital lease obligations | 192 |
| | 16 |
| | 27 |
| | 22 |
| | 127 |
|
| Total debt | 10,218 |
| | 41 |
| | 1,402 |
| | 2,072 |
| | 6,703 |
|
| Interest on debt | 7,371 |
| | 436 |
| | 839 |
| | 765 |
| | 5,331 |
|
| Operating lease obligations | 1,826 |
| | 533 |
| | 726 |
| | 241 |
| | 326 |
|
| Purchase obligations (b) | 77,683 |
| | 32,236 |
| | 9,554 |
| | 6,698 |
| | 29,195 |
|
| Other long-term liabilities (c) | | | | | | | | | |
| Asset retirement obligations | 268 |
| | 7 |
| | 30 |
| | 18 |
| | 213 |
|
| Accrued environmental costs | 458 |
| | 78 |
| | 117 |
| | 72 |
| | 191 |
|
| Unrecognized income tax benefits (d) | 1 |
| | 1 |
| | (d) |
| | (d) |
| | (d) |
|
| Total | $ | 97,825 |
| | 33,332 |
| | 12,668 |
| | 9,866 |
| | 41,959 |
|
| |
(a) | For additional information, see Note 12—Debt, in the Notes to Consolidated Financial Statements. |
| |
(b) | Represents any agreement to purchase goods or services that is enforceable, legally binding and specifies all significant terms. We expect these purchase obligations will be fulfilled by operating cash flows in the applicable maturity period. The majority of the purchase obligations are market-based contracts, including exchanges and futures, for the purchase of products such as crude oil and unfractionated NGL. The products are mostly used to supply our refineries and fractionators, optimize the supply chain, and resell to customers. Product purchase commitments with third parties totaled $35,480 million. In addition, $24,230 million are product purchases from CPChem, mostly for natural gas and NGL over the remaining contractual term of 82 years, and product purchases of $1,652 million from DCP entities for NGL over the remaining contractual term of three years. |
Purchase obligations of $5,097 million are related to agreements to access and utilize the capacity of third-party equipment and facilities, including pipelines and product terminals, to transport, process, treat, and store products. The remainder is primarily our net share of purchase commitments for materials and services for jointly owned facilities where we are the operator.
| |
(c) | Excludes pensions. From 2018 through 2022, we expect to contribute an average of $70 million per year to our qualified and nonqualified pension and other postretirement benefit plans in the United States and an average of $34 million per year to our non-U.S. plans, which are expected to be in excess of required minimums in many cases. The U.S. five-year average consists of $60 million for 2018 and then approximately $75 million per year for the remaining four years. Our minimum funding in 2018 is expected to be $60 million in the United States and $35 million outside the United States. |
| |
(d) | Excludes unrecognized income tax benefits of $33 million because the ultimate disposition and timing of any payments to be made with regard to such amounts are not reasonably estimable or the amounts relate to potential refunds. Also excludes interest and penalties of $8 million. Although unrecognized income tax benefits are not a contractual obligation, they are presented in this table because they represent potential demands on our liquidity. |
Capital SpendingSpecialties
|
| | | | | | | | | | | | |
| | Millions of Dollars |
| | 2018 Budget |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Capital Expenditures and Investments | | | | | | | |
| Midstream | $ | 1,218 |
| | 771 |
| | 1,453 |
| | 4,457 |
|
| Chemicals | — |
| | — |
| | — |
| | — |
|
| Refining | 827 |
| | 853 |
| | 1,149 |
| | 1,069 |
|
| Marketing and Specialties | 140 |
| | 108 |
| | 98 |
| | 122 |
|
| Corporate and Other | 116 |
| | 100 |
| | 144 |
| | 116 |
|
| $ | 2,301 |
| | 1,832 |
| | 2,844 |
| | 5,764 |
|
| | | | | | | | |
| Selected Equity Affiliates* | | | | | | | |
| DCP Midstream | $ | 405 |
| | 268 |
| | 99 |
| | 438 |
|
| CPChem | 398 |
| | 776 |
| | 987 |
| | 1,319 |
|
| WRB | 143 |
| | 126 |
| | 164 |
| | 175 |
|
| | $ | 946 |
| | 1,170 |
| | 1,250 |
| | 1,932 |
|
|
| | | | | | | | | |
| | Year Ended December 31 |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | Millions of Dollars |
| Income Before Income Taxes | | | | | |
| Marketing and Other | $ | 1,199 |
| | 1,306 |
| | 808 |
|
| Specialties | 234 |
| | 251 |
| | 212 |
|
| Total Marketing and Specialties | $ | 1,433 |
| | 1,557 |
| | 1,020 |
|
| | | | | | |
| | Dollars Per Barrel |
| Income Before Income Taxes | | | | | |
| U.S. | $ | 1.22 |
| | 1.21 |
| | 0.89 |
|
| International | 3.58 |
| | 5.00 |
| | 2.23 |
|
| | | | | | |
| Realized Marketing Fuel Margins* | | | | | |
| U.S. | $ | 1.57 |
| | 1.62 |
| | 1.48 |
|
| International | 4.90 |
| | 6.87 |
| | 4.21 |
|
* See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel. |
| | | | | | |
| | Dollars Per Gallon |
| U.S. Average Wholesale Prices* | | | | | |
| Gasoline | $ | 2.12 |
| | 2.20 |
| | 1.87 |
|
| Distillates | 2.12 |
| | 2.29 |
| | 1.85 |
|
* On third-party branded refined petroleum product sales, excluding excise taxes. | | | | | |
| | | | | | |
| | Thousands of Barrels Daily |
| Marketing Refined Petroleum Product Sales | | | | | |
| Gasoline | 1,230 |
| | 1,195 |
| | 1,246 |
|
| Distillates | 1,104 |
| | 975 |
| | 931 |
|
| Other | 18 |
| | 18 |
| | 18 |
|
| | 2,352 |
| | 2,188 |
| | 2,195 |
|
* Our share
The M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, such as base oils and lubricants.
2019 vs. 2018
Pre-tax income from the M&S segment decreased $124 million in 2019, compared with 2018. The decrease was primarily due to lower realized marketing fuel margins, mainly driven by international marketing, partially offset by higher sales volumes.
See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting 2019 results.
2018 vs. 2017
Pre-tax income from the M&S segment increased $537 million in 2018, compared with 2017. The increase was primarily due to higher realized marketing fuel margins, mainly driven by international marketing, benefits from the retroactive extension of the 2017 U.S. biodiesel blender’s tax incentive in early 2018, as well as improved specialty product service margins.
Corporate and Other
|
| | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31 |
| | 2019 |
| | 2018 |
| | 2017 |
|
| Income (Loss) Before Income Taxes | | | | | |
| Net interest expense | $ | (415 | ) | | (459 | ) | | (408 | ) |
| Corporate overhead and other | (389 | ) | | (394 | ) | | (487 | ) |
| Total Corporate and Other | $ | (804 | ) | | (853 | ) | | (895 | ) |
2019 vs. 2018
Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Net interest expense decreased $44 million in 2019, compared with 2018, primarily due to higher capitalized interest related to capital spending.
Midstream
Capital spendingprojects under development in our Midstream segment, during the three-year period ended December 31,partially offset by higher debt balances in 2019.
Corporate overhead and other includes general and administrative expenses, technology costs, environmental costs associated with sites no longer in operation, foreign currency transaction gains and losses and other costs not directly associated with an operating segment. During 2019, Corporate overhead and other decreased $5 million, compared with 2018.
2018 vs. 2017 included:
Construction activities relatedNet interest expense increased $51 million in 2018, compared with 2017, mainly due to higher average debt principal balances from our issuance of senior notes totaling $1,500 million in March 2018 and Phillips 66 Partners’ issuance of senior notes totaling $650 million in October 2017. This increase was partially offset by higher interest income.
Corporate overhead and other decreased $93 million in 2018, compared with 2017, primarily due to lower environmental-related expenses and higher equity earnings from our share of income tax benefits recorded by equity affiliates due to the Sweeny Fractionatorenactment of the Tax Act in December 2017.
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
|
| | | | | | | | | |
| | Millions of Dollars, Except as Indicated |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | |
| Cash and cash equivalents | $ | 1,614 |
| | 3,019 |
| | 3,119 |
|
| Net cash provided by operating activities | 4,808 |
| | 7,573 |
| | 3,648 |
|
| Short-term debt | 547 |
| | 67 |
| | 41 |
|
| Total debt | 11,763 |
| | 11,160 |
| | 10,110 |
|
| Total equity | 27,169 |
| | 27,153 |
| | 27,428 |
|
| Percent of total debt to capital* | 30 | % | | 29 |
| | 27 |
|
| Percent of floating-rate debt to total debt | 9 | % | | 11 |
| | 11 |
|
| * Capital includes total debt and total equity. |
To meet our short- and Freeport LPG Export Terminal projects.
Bakken Pipeline project, developed by our 25-percent-owned joint ventures, Dakota Access, LLC and Energy Transfer Crude Oil Company.
Construction activities relatedlong-term liquidity requirements, we look to increasing storage capacity at our crude oil and petroleum products terminal located near Beaumont, Texas.
Acquisition bya variety of funding sources but rely primarily on cash generated from operating activities. Additionally, Phillips 66 Partners of certain southeast Louisiana NGL logistics assets comprising approximately 500 miles of pipelineshas raised funds for its growth activities through debt and a storage cavern connecting multiple fractionation facilities, refineries and a petrochemical facility.
Development of the Bayou Bridge Pipeline by Phillips 66 Partners’ 40-percent-owned joint venture.
Construction activities by joint ventures ofequity financings. During 2019, we generated $4.8 billion in cash from operations. In addition, Phillips 66 Partners had net debt issuances of $0.5 billion and received $0.4 billion from its joint venture partners to partially fund the Gray Oak Pipeline capital project. We used available cash primarily for capital expenditures and investments of $3.9 billion; repurchases of our common stock of $1.7 billion; and dividend payments on our common stock of $1.6 billion. During 2019, cash and cash equivalents decreased $1.4 billion to $1.6 billion.
In addition to cash flows from operating activities, we rely on our commercial paper and credit facility programs, asset sales and our ability to issue debt securities to support our short- and long-term liquidity requirements. We believe current cash and cash equivalents and cash generated by operations, together with access to external sources of funds as described below under “Significant Sources of Capital,” will be sufficient to meet our funding requirements in the Bakken production areanear and long term, including our capital spending, dividend payments, defined benefit plan contributions, debt repayments and share repurchases.
Significant Sources of North Dakota, including the Palermo Rail Terminal, Sacagawea Crude Pipeline, the New Town injection point, Keene CDP TerminalCapital
Operating Activities
During 2019, cash generated by operating activities was $4,808 million, a 37% decrease compared with 2018. The decrease was mainly driven by lower realized refining margins and Sacagawea Gas Pipeline.
Expansion activities on the Phillips 66 Partners’ 33-percent-owned Sand Hills Pipeline including investment in the transportation of NGLdecreased distributions from the Permian Basin to the Texas Gulf Coast.
Expansion activities on the Phillips 66 Partners’ 50-percent-owned STACK Pipeline joint venture.
Spending associatedour equity affiliates, along with return, reliability and maintenance projects inunfavorable working capital impacts, partially offset by improved results from our Transportation and NGL and Other businesses.
During 2018, cash of $7,573 million was provided by operating activities, a 108% increase compared with 2017. The increase was primarily attributable to higher realized refining and marketing margins, increased distributions from our equity affiliates and lower employee benefit plan contributions. These increases were partially offset by unfavorable working capital impacts primarily driven by the effects of changes in commodity prices and the timing of payments and collections.
Our short- and long-term operating cash flows are highly dependent upon refining and marketing margins, NGL prices and chemicals margins. Prices and margins in our industry are typically volatile, and are driven by market conditions over which we have little or no control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding change in our operating cash flows.
The level and quality of output from our refineries also impacts our cash flows. Factors such as operating efficiency, maintenance turnarounds, market conditions, feedstock availability and weather conditions can affect output. We actively manage the operations of our refineries, and any variability in their operations typically has not been as significant to cash flows as that caused by margins and prices. Our worldwide refining crude oil capacity utilization was 94% in 2019 and 95% in both 2018 and 2017.
Equity Affiliate Operating Distributions
Our operating cash flows are also impacted by distribution decisions made by our equity affiliates, including CPChem, DCP Midstream and WRB. Over the three years ended December 31, 2019, we received aggregate distributions from our equity affiliates of $6,097 million, including $280 million from DCP Midstream, $2,187 million from CPChem and $1,380 million from WRB. We cannot control the amount or timing of future dividends from equity affiliates; therefore, future dividend payments by these and other equity affiliates are not assured.
Phillips 66 Partners
In 2013, we formed Phillips 66 Partners, a publicly traded MLP, to own, operate, develop and acquire primarily fee-based midstream assets.
Ownership and Restructuring Transaction
On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to eliminate the incentive distribution rights (IDRs) held by us and to convert our 2% economic general partner interest into a noneconomic general partner interest in exchange for 101 million Phillips 66 Partners common units. No distributions were made for the general partner interest after August 1, 2019. At December 31, 2019, we owned 170 million Phillips 66 Partners common units, representing 74% of Phillips 66 Partners’ limited partner units.
We consolidate Phillips 66 Partners as a variable interest entity for financial reporting purposes. See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on why we consolidate the partnership. As a result of this consolidation, the public common and preferred unitholders’ interests in Phillips 66 Partners are reflected as noncontrolling interests of $2,228 million in our consolidated balance sheet at December 31, 2019.
Debt and Equity Financings
During the three-year periodthree years ended December 31, 2019, Phillips 66 Partners raised net proceeds of approximately $3 billion from the following third-party debt and equity offerings:
| |
| • | Phillips 66 Partners has authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. Phillips 66 Partners completed the first two programs in June 2018 and December 2019, respectively, leaving $250 million available under the third program. For the three years ended December 31, 2019, net proceeds of $474 million have been received under these programs. |
In September 2019, Phillips 66 Partners received net proceeds of $892 million from the issuance of $300 million of 2.450% Senior Notes due December 2024 and $600 million of 3.150% Senior Notes due December 2029.
In March 2019, Phillips 66 Partners entered into a senior unsecured term loan facility with a borrowing capacity of $400 million due March 20, 2020. Phillips 66 Partners borrowed an aggregate amount of $400 million under the facility during the first half of 2019, which was repaid in full in September 2019.
In October 2017, DCP Midstream’sPhillips 66 Partners received net proceeds of $643 million from the issuance of $500 million of 3.750% Senior Notes due March 2028 and $150 million of 4.680% Senior Notes due February 2045.
In October 2017, Phillips 66 Partners received net proceeds of $737 million from a private placement of 13,819,791 perpetual convertible preferred units, at a price of $54.27 per unit.
In October 2017, Phillips 66 Partners received net proceeds of $295 million from a private placement of 6,304,204 common units, at a price of $47.59 per unit.
Phillips 66 Partners primarily used these net proceeds to fund the cash portion of acquisitions of assets from Phillips 66 and for capital spending and investments. See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on Phillips 66 Partners.
Transfers of Equity Interests
In December 2018, a third party exercised an option to acquire a 35% interest in Gray Oak Holdings LLC (Holdings LLC), a consolidated subsidiary of Phillips 66 Partners. This transfer did not qualify as a sale under generally accepted accounting principles in the United States (GAAP) because of certain restrictions placed on the acquirer. The contributions received by Holdings LLC from the third party to cover capital calls from Gray Oak Pipeline, LLC are presented as a long-term obligation on our consolidated balance sheet and as financing cash inflows on our consolidated statement of cash flows until construction of the Gray Oak Pipeline is fully completed and these restrictions expire. During 2019, the third party contributed an aggregate of $342 million into Holdings LLC, and Holdings LLC used these contributions to fund its portion of Gray Oak Pipeline, LLC’s cash calls.
In February 2019, Holdings LLC sold a 10% ownership interest in Gray Oak Pipeline, LLC to a third party that exercised a purchase option, for proceeds of $81 million. The proceeds received from this sale are presented as an investing cash inflow on our consolidated statement of cash flows.
See Note 7—Investments, Loans and Long-Term Receivables and Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding Phillip 66 Partners’ investment in Gray Oak Pipeline, LLC.
Credit Facilities and Commercial Paper
Phillips 66 has a revolving credit facility that may be used for direct bank borrowings, as support for issuances of letters of credit, or as support for our commercial paper program. On July 30, 2019, this revolving credit agreement was amended and restated to extend the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $5 billion with an option to increase the overall capacity to $6 billion, subject to certain conditions. The facility is with a broad syndicate of financial institutions and contains covenants that are usual and customary for an agreement of this type for comparable commercial borrowers, including a maximum consolidated net debt-to-capitalization ratio of 65%. The agreement has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; violation of covenants; cross-payment default and cross-acceleration (in each case, to indebtedness in excess of a threshold amount); and a change of control. Borrowings under the facility will incur interest at the London Interbank Offered Rate (LIBOR) plus a margin based on the credit rating of our senior unsecured long-term debt as determined from time to time by Standard & Poor’s Financial Services LLC (S&P) and Moody’s Investors Service, Inc. (Moody’s). The facility also provides for customary fees, including administrative agent fees and commitment fees. At December 31, 2019 and 2018, no amount had been drawn under this revolving credit agreement.
Phillips 66 has a $5 billion commercial paper program for short-term working capital needs that is supported by our revolving credit facility. Commercial paper maturities are generally limited to 90 days. At December 31, 2019 and 2018, no borrowings were outstanding under the commercial paper program. At February 21, 2020, there was approximately $650 million in borrowings outstanding under the program.
Phillips 66 Partners has a revolving credit facility with a broad syndicate of financial institutions. The revolving credit facility contains covenants that are usual and customary for an agreement of this type for comparable commercial borrowers. At Phillips 66 Partners’ option, outstanding borrowings under this facility bear interest at either i) the Eurodollar rate plus a margin based on its credit rating; or ii) the base rate (as described in the facility agreement) plus a margin based on its credit rating. Eurodollar rate borrowings are due on the facility’s termination date, while base rate borrowings are due the earlier of the facility’s termination date or the fourteenth business day after such borrowings were made. On July 30, 2019, Phillips 66 Partners amended and restated its revolving credit agreement. The agreement extended the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $750 million with an option to increase the overall capacity to $1 billion, subject to certain conditions. At December 31, 2019, Phillips 66 Partners had no borrowings outstanding under this facility; however, $1 million in letters of credit had been issued that were supported by this facility. There was $125 million outstanding under this facility at December 31, 2018.
We had approximately $5.7 billion and $5.6 billion of total committed capacity available under our revolving credit facilities at December 31, 2019 and 2018, respectively.
Other Debt Issuances and Financings
On March 1, 2018, Phillips 66 closed on a public offering of $1,500 million aggregate principal amount of unsecured notes consisting of:
$500 million of floating-rate Senior Notes due February 2021. Interest on these notes is equal to the three-month LIBOR plus 0.60% per annum and is payable quarterly in arrears on February 26, May 26, August 26 and November 26, beginning on May 29, 2018.
$800 million of 3.900% Senior Notes due March 2028. Interest on these notes is payable semiannually on March 15 and September 15 of each year, beginning on September 15, 2018.
An additional $200 million of our 4.875% Senior Notes due November 2044. Interest on these notes is payable semiannually on May 15 and November 15 of each year, beginning on May 15, 2018.
Phillips 66 used the net proceeds from the issuance of these notes and cash on hand to repay commercial paper borrowings during the first quarter of 2018, and for general corporate purposes. The commercial paper borrowings during the first quarter of 2018, were primarily used to repurchase shares of our common stock. See Note 17—Equity, in the Notes to Consolidated Financial Statements, for additional information.
In addition, we have finance lease obligations primarily related to consignment agreements with a domestic retail marketing joint venture and an oil terminal in the United Kingdom. These leases mature within the next twenty years. The present value of our minimum finance lease payments for these obligations as of December 31, 2019, was $277 million.
Availability of Debt and Equity Financing
Our senior unsecured long-term debt has been rated investment grade by S&P (BBB+) and Moody’s (A3). We do not have any ratings triggers on any of our corporate debt that would cause an automatic default, and thereby impact our access to liquidity, in the event of a downgrade of our credit rating. If our credit rating deteriorated to a level prohibiting us from accessing the commercial paper market, we would expect to be able to access funds under our liquidity facilities mentioned above.
Off-Balance Sheet Arrangements
Lease Residual Value Guarantees
Under the operating lease agreement on our headquarters facility in Houston, Texas, we have a residual value guarantee with a maximum future exposure of $554 million at December 31, 2019. The operating lease term ends in June 2021 and provides us the option, at the end of the lease term, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling $372 million at December 31, 2019. These leases have remaining terms of up to four years.
Dakota Access
In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $2,500 million aggregate principal amount of unsecured senior notes. The net proceeds from the issuance of these notes were used to repay amounts outstanding under existing credit facilities of Dakota Access and ETCO. Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, if Dakota Access receives an unfavorable court ruling related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million. Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU is approximately $631 million.
Gray Oak Pipeline
In June 2019, Gray Oak Pipeline, LLC entered into a third-party term loan facility with an initial borrowing capacity of $1,230 million, which was increased to $1,317 million in July 2019, and $1,379 million in January 2020, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. Phillips 66 Partners and its co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount. Under the agreement, Phillips 66 Partners’ maximum potential amount of future obligations is $583 million, plus any additional accrued interest and associated fees, which would be required if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At December 31, 2019, Gray Oak Pipeline, LLC had outstanding borrowings of $1,170 million, and Phillips 66 Partners’ 42.25% proportionate exposure under the equity contribution agreement was $494 million.
Other Guarantees
At December 31, 2019, we had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations that have remaining terms of up to six years. The maximum potential amount of future payments to third parties under these guarantees was approximately $263 million. Payment would be required if a joint venture defaults on its obligations.
See Note 13—Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.
Capital Requirements
Capital Expenditures and Investments
For information about our capital expenditures and investments, were $1.6see the “Capital Spending” section below.
Debt Financing
Our debt balance at December 31, 2019, was $11.8 billion and our total debt-to-capital ratio was 30%.
See Note 12—Debt, in the Notes to Consolidated Financial Statements, for our annual debt maturities over the next five years and more information on debt repayments.
Dividends
On February 5, 2020, our Board of Directors declared a 100 percent basis. In 2015, we contributed $1.5quarterly cash dividend of $0.90 per common share, payable March 2, 2020, to holders of record at the close of business on February 18, 2020. We forecast that our quarterly dividend will continue to increase in 2020.
Share Repurchases
On October 4, 2019, our Board of Directors approved a new share repurchase program that authorizes us to repurchase up to $3 billion of cashour common stock, bringing the total amount of share repurchases authorized by our Board of Directors since July 2012 to DCP Midstreaman aggregate of $15 billion. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. The shares under these authorizations are repurchased from time to time in the open market at our discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. Since the inception of our co-venturer contributed its interestsshare repurchase programs in certain operating assets2012 through December 31, 2019, we have repurchased 154 million shares at an aggregate cost of equal value, that$12 billion. Shares of stock repurchased are held as equity investments. Upon completion of this transaction, our interest in DCP Midstream remained at 50 percent.treasury shares.
In 2015, REX repaid $450 million of its debt, reducing its long-term debt to approximately $2.6 billion. REX fundedEmployee Benefit Plan Contributions
For the repayment through member cash contributions. Our 25 percent share was approximately $112 million, whichyear ended December 31, 2019, we contributed $57 million to REX in 2015.our U.S. employee benefit plans and $28 million to our international employee benefit plans. In 2020, we expect to contribute approximately $75 million to those plans.
Chemicals
During the three-year period ended December 31, 2017, CPChem had a self-funded capital program, and thus required no new capital infusions from us or our co-venturer. During this period, on a 100 percent basis, CPChem’s capital expenditures and investments were $6.2 billion. In addition, CPChem’s advances to its equity affiliates, primarily used for project construction and start-up activities, were $139 million and its repayments received from equity affiliates were $140 million.
Refining
Capital spending for the Refining segment during the three-year period ended December 31, 2017, was $3.1 billion, primarily for air emission reduction and clean fuels projects to meet new environmental standards, refinery upgrade projects to increase accessibility of advantaged crudes and improve product yields, improvements to the operating integrity of key processing units, and safety-related projects.
Key projects completed during the three-year period included:
Installation of a tail gas treating unit at the Humber Refinery to reduce emissions from the sulfur recovery units.
Installation of facilities to improve clean product yields at the Sweeny, Lake Charles and Ponca City refineries.
Installation of facilities to improve processing of advantaged crudes at the Billings and Ponca City refineries, as well as the jointly owned Wood River Refinery.
Installation of facilities to comply with U.S. Environmental Protection Agency (EPA) Tier 3 gasoline regulations at the Alliance, Lake Charles and Sweeny refineries, as well as the jointly owned Wood River Refinery.
Installation of a crude tank to increase accessibility of waterborne crude at the Los Angeles Refinery.
Major construction activities in progress include:
Installation of facilities to comply with EPA Tier 3 gasoline regulations at the Bayway and Ferndale refineries.
Installation of facilities to improve processing of advantaged crudes at the Lake Charles Refinery.
Installation of facilities to improve clean product yield at the Bayway Refinery, as well as the jointly owned Wood River Refinery.
Generally, our equity affiliates in the Refining segment are intended to have self-funding capital programs. During this three-year period, on a 100 percent basis, WRB’s capital expenditures and investments were $930 million. We expect WRB’s 2018 capital program to be self-funding.
Marketing and Specialties
|
| | | | | | | | | |
| | Year Ended December 31 |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | Millions of Dollars |
| Income Before Income Taxes | | | | | |
| Marketing and Other | $ | 1,199 |
| | 1,306 |
| | 808 |
|
| Specialties | 234 |
| | 251 |
| | 212 |
|
| Total Marketing and Specialties | $ | 1,433 |
| | 1,557 |
| | 1,020 |
|
| | | | | | |
| | Dollars Per Barrel |
| Income Before Income Taxes | | | | | |
| U.S. | $ | 1.22 |
| | 1.21 |
| | 0.89 |
|
| International | 3.58 |
| | 5.00 |
| | 2.23 |
|
| | | | | | |
| Realized Marketing Fuel Margins* | | | | | |
| U.S. | $ | 1.57 |
| | 1.62 |
| | 1.48 |
|
| International | 4.90 |
| | 6.87 |
| | 4.21 |
|
* See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel. |
| | | | | | |
| | Dollars Per Gallon |
| U.S. Average Wholesale Prices* | | | | | |
| Gasoline | $ | 2.12 |
| | 2.20 |
| | 1.87 |
|
| Distillates | 2.12 |
| | 2.29 |
| | 1.85 |
|
* On third-party branded refined petroleum product sales, excluding excise taxes. | | | | | |
| | | | | | |
| | Thousands of Barrels Daily |
| Marketing Refined Petroleum Product Sales | | | | | |
| Gasoline | 1,230 |
| | 1,195 |
| | 1,246 |
|
| Distillates | 1,104 |
| | 975 |
| | 931 |
|
| Other | 18 |
| | 18 |
| | 18 |
|
| | 2,352 |
| | 2,188 |
| | 2,195 |
|
The M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, such as base oils and lubricants.
2019 vs. 2018
Pre-tax income from the M&S segment decreased $124 million in 2019, compared with 2018. The decrease was primarily due to lower realized marketing fuel margins, mainly driven by international marketing, partially offset by higher sales volumes.
See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting 2019 results.
2018 vs. 2017
Pre-tax income from the M&S segment increased $537 million in 2018, compared with 2017. The increase was primarily due to higher realized marketing fuel margins, mainly driven by international marketing, benefits from the retroactive extension of the 2017 U.S. biodiesel blender’s tax incentive in early 2018, as well as improved specialty product service margins.
Corporate and Other
|
| | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31 |
| | 2019 |
| | 2018 |
| | 2017 |
|
| Income (Loss) Before Income Taxes | | | | | |
| Net interest expense | $ | (415 | ) | | (459 | ) | | (408 | ) |
| Corporate overhead and other | (389 | ) | | (394 | ) | | (487 | ) |
| Total Corporate and Other | $ | (804 | ) | | (853 | ) | | (895 | ) |
2019 vs. 2018
Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Net interest expense decreased $44 million in 2019, compared with 2018, primarily due to higher capitalized interest related to capital projects under development in our Midstream segment, partially offset by higher debt balances in 2019.
Corporate overhead and other includes general and administrative expenses, technology costs, environmental costs associated with sites no longer in operation, foreign currency transaction gains and losses and other costs not directly associated with an operating segment. During 2019, Corporate overhead and other decreased $5 million, compared with 2018.
2018 vs. 2017
Net interest expense increased $51 million in 2018, compared with 2017, mainly due to higher average debt principal balances from our issuance of senior notes totaling $1,500 million in March 2018 and Phillips 66 Partners’ issuance of senior notes totaling $650 million in October 2017. This increase was partially offset by higher interest income.
Corporate overhead and other decreased $93 million in 2018, compared with 2017, primarily due to lower environmental-related expenses and higher equity earnings from our share of income tax benefits recorded by equity affiliates due to the enactment of the Tax Act in December 2017.
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
|
| | | | | | | | | |
| | Millions of Dollars, Except as Indicated |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | |
| Cash and cash equivalents | $ | 1,614 |
| | 3,019 |
| | 3,119 |
|
| Net cash provided by operating activities | 4,808 |
| | 7,573 |
| | 3,648 |
|
| Short-term debt | 547 |
| | 67 |
| | 41 |
|
| Total debt | 11,763 |
| | 11,160 |
| | 10,110 |
|
| Total equity | 27,169 |
| | 27,153 |
| | 27,428 |
|
| Percent of total debt to capital* | 30 | % | | 29 |
| | 27 |
|
| Percent of floating-rate debt to total debt | 9 | % | | 11 |
| | 11 |
|
| * Capital includes total debt and total equity. |
To meet our short- and long-term liquidity requirements, we look to a variety of funding sources but rely primarily on cash generated from operating activities. Additionally, Phillips 66 Partners has raised funds for its growth activities through debt and equity financings. During 2019, we generated $4.8 billion in cash from operations. In addition, Phillips 66 Partners had net debt issuances of $0.5 billion and received $0.4 billion from its joint venture partners to partially fund the Gray Oak Pipeline capital project. We used available cash primarily for capital expenditures and investments of $3.9 billion; repurchases of our common stock of $1.7 billion; and dividend payments on our common stock of $1.6 billion. During 2019, cash and cash equivalents decreased $1.4 billion to $1.6 billion.
In addition to cash flows from operating activities, we rely on our commercial paper and credit facility programs, asset sales and our ability to issue debt securities to support our short- and long-term liquidity requirements. We believe current cash and cash equivalents and cash generated by operations, together with access to external sources of funds as described below under “Significant Sources of Capital,” will be sufficient to meet our funding requirements in the near and long term, including our capital spending, dividend payments, defined benefit plan contributions, debt repayments and share repurchases.
Significant Sources of Capital
Operating Activities
During 2019, cash generated by operating activities was $4,808 million, a 37% decrease compared with 2018. The decrease was mainly driven by lower realized refining margins and decreased distributions from our equity affiliates, along with unfavorable working capital impacts, partially offset by improved results from our Transportation and NGL and Other businesses.
During 2018, cash of $7,573 million was provided by operating activities, a 108% increase compared with 2017. The increase was primarily attributable to higher realized refining and marketing margins, increased distributions from our equity affiliates and lower employee benefit plan contributions. These increases were partially offset by unfavorable working capital impacts primarily driven by the effects of changes in commodity prices and the timing of payments and collections.
Our short- and long-term operating cash flows are highly dependent upon refining and marketing margins, NGL prices and chemicals margins. Prices and margins in our industry are typically volatile, and are driven by market conditions over which we have little or no control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding change in our operating cash flows.
The level and quality of output from our refineries also impacts our cash flows. Factors such as operating efficiency, maintenance turnarounds, market conditions, feedstock availability and weather conditions can affect output. We actively manage the operations of our refineries, and any variability in their operations typically has not been as significant to cash flows as that caused by margins and prices. Our worldwide refining crude oil capacity utilization was 94% in 2019 and 95% in both 2018 and 2017.
Equity Affiliate Operating Distributions
Our operating cash flows are also impacted by distribution decisions made by our equity affiliates, including CPChem, DCP Midstream and WRB. Over the three years ended December 31, 2019, we received aggregate distributions from our equity affiliates of $6,097 million, including $280 million from DCP Midstream, $2,187 million from CPChem and $1,380 million from WRB. We cannot control the amount or timing of future dividends from equity affiliates; therefore, future dividend payments by these and other equity affiliates are not assured.
Phillips 66 Partners
In 2013, we formed Phillips 66 Partners, a publicly traded MLP, to own, operate, develop and acquire primarily fee-based midstream assets.
Ownership and Restructuring Transaction
On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to eliminate the incentive distribution rights (IDRs) held by us and to convert our 2% economic general partner interest into a noneconomic general partner interest in exchange for 101 million Phillips 66 Partners common units. No distributions were made for the general partner interest after August 1, 2019. At December 31, 2019, we owned 170 million Phillips 66 Partners common units, representing 74% of Phillips 66 Partners’ limited partner units.
We consolidate Phillips 66 Partners as a variable interest entity for financial reporting purposes. See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on why we consolidate the partnership. As a result of this consolidation, the public common and preferred unitholders’ interests in Phillips 66 Partners are reflected as noncontrolling interests of $2,228 million in our consolidated balance sheet at December 31, 2019.
Debt and Equity Financings
During the three years ended December 31, 2019, Phillips 66 Partners raised net proceeds of approximately $3 billion from the following third-party debt and equity offerings:
| |
| • | Phillips 66 Partners has authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. Phillips 66 Partners completed the first two programs in June 2018 and December 2019, respectively, leaving $250 million available under the third program. For the three years ended December 31, 2019, net proceeds of $474 million have been received under these programs. |
In September 2019, Phillips 66 Partners received net proceeds of $892 million from the issuance of $300 million of 2.450% Senior Notes due December 2024 and $600 million of 3.150% Senior Notes due December 2029.
In March 2019, Phillips 66 Partners entered into a senior unsecured term loan facility with a borrowing capacity of $400 million due March 20, 2020. Phillips 66 Partners borrowed an aggregate amount of $400 million under the facility during the first half of 2019, which was repaid in full in September 2019.
In October 2017, Phillips 66 Partners received net proceeds of $643 million from the issuance of $500 million of 3.750% Senior Notes due March 2028 and $150 million of 4.680% Senior Notes due February 2045.
In October 2017, Phillips 66 Partners received net proceeds of $737 million from a private placement of 13,819,791 perpetual convertible preferred units, at a price of $54.27 per unit.
In October 2017, Phillips 66 Partners received net proceeds of $295 million from a private placement of 6,304,204 common units, at a price of $47.59 per unit.
Phillips 66 Partners primarily used these net proceeds to fund the cash portion of acquisitions of assets from Phillips 66 and for capital spending and investments. See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on Phillips 66 Partners.
Transfers of Equity Interests
In December 2018, a third party exercised an option to acquire a 35% interest in Gray Oak Holdings LLC (Holdings LLC), a consolidated subsidiary of Phillips 66 Partners. This transfer did not qualify as a sale under generally accepted accounting principles in the United States (GAAP) because of certain restrictions placed on the acquirer. The contributions received by Holdings LLC from the third party to cover capital calls from Gray Oak Pipeline, LLC are presented as a long-term obligation on our consolidated balance sheet and as financing cash inflows on our consolidated statement of cash flows until construction of the Gray Oak Pipeline is fully completed and these restrictions expire. During 2019, the third party contributed an aggregate of $342 million into Holdings LLC, and Holdings LLC used these contributions to fund its portion of Gray Oak Pipeline, LLC’s cash calls.
In February 2019, Holdings LLC sold a 10% ownership interest in Gray Oak Pipeline, LLC to a third party that exercised a purchase option, for proceeds of $81 million. The proceeds received from this sale are presented as an investing cash inflow on our consolidated statement of cash flows.
See Note 7—Investments, Loans and Long-Term Receivables and Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding Phillip 66 Partners’ investment in Gray Oak Pipeline, LLC.
Credit Facilities and Commercial Paper
Phillips 66 has a revolving credit facility that may be used for direct bank borrowings, as support for issuances of letters of credit, or as support for our commercial paper program. On July 30, 2019, this revolving credit agreement was amended and restated to extend the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $5 billion with an option to increase the overall capacity to $6 billion, subject to certain conditions. The facility is with a broad syndicate of financial institutions and contains covenants that are usual and customary for an agreement of this type for comparable commercial borrowers, including a maximum consolidated net debt-to-capitalization ratio of 65%. The agreement has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; violation of covenants; cross-payment default and cross-acceleration (in each case, to indebtedness in excess of a threshold amount); and a change of control. Borrowings under the facility will incur interest at the London Interbank Offered Rate (LIBOR) plus a margin based on the credit rating of our senior unsecured long-term debt as determined from time to time by Standard & Poor’s Financial Services LLC (S&P) and Moody’s Investors Service, Inc. (Moody’s). The facility also provides for customary fees, including administrative agent fees and commitment fees. At December 31, 2019 and 2018, no amount had been drawn under this revolving credit agreement.
Phillips 66 has a $5 billion commercial paper program for short-term working capital needs that is supported by our revolving credit facility. Commercial paper maturities are generally limited to 90 days. At December 31, 2019 and 2018, no borrowings were outstanding under the commercial paper program. At February 21, 2020, there was approximately $650 million in borrowings outstanding under the program.
Phillips 66 Partners has a revolving credit facility with a broad syndicate of financial institutions. The revolving credit facility contains covenants that are usual and customary for an agreement of this type for comparable commercial borrowers. At Phillips 66 Partners’ option, outstanding borrowings under this facility bear interest at either i) the Eurodollar rate plus a margin based on its credit rating; or ii) the base rate (as described in the facility agreement) plus a margin based on its credit rating. Eurodollar rate borrowings are due on the facility’s termination date, while base rate borrowings are due the earlier of the facility’s termination date or the fourteenth business day after such borrowings were made. On July 30, 2019, Phillips 66 Partners amended and restated its revolving credit agreement. The agreement extended the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $750 million with an option to increase the overall capacity to $1 billion, subject to certain conditions. At December 31, 2019, Phillips 66 Partners had no borrowings outstanding under this facility; however, $1 million in letters of credit had been issued that were supported by this facility. There was $125 million outstanding under this facility at December 31, 2018.
We had approximately $5.7 billion and $5.6 billion of total committed capacity available under our revolving credit facilities at December 31, 2019 and 2018, respectively.
Other Debt Issuances and Financings
On March 1, 2018, Phillips 66 closed on a public offering of $1,500 million aggregate principal amount of unsecured notes consisting of:
$500 million of floating-rate Senior Notes due February 2021. Interest on these notes is equal to the three-month LIBOR plus 0.60% per annum and is payable quarterly in arrears on February 26, May 26, August 26 and November 26, beginning on May 29, 2018.
$800 million of 3.900% Senior Notes due March 2028. Interest on these notes is payable semiannually on March 15 and September 15 of each year, beginning on September 15, 2018.
An additional $200 million of our 4.875% Senior Notes due November 2044. Interest on these notes is payable semiannually on May 15 and November 15 of each year, beginning on May 15, 2018.
Phillips 66 used the net proceeds from the issuance of these notes and cash on hand to repay commercial paper borrowings during the first quarter of 2018, and for general corporate purposes. The commercial paper borrowings during the first quarter of 2018, were primarily used to repurchase shares of our common stock. See Note 17—Equity, in the Notes to Consolidated Financial Statements, for additional information.
In addition, we have finance lease obligations primarily related to consignment agreements with a domestic retail marketing joint venture and an oil terminal in the United Kingdom. These leases mature within the next twenty years. The present value of our minimum finance lease payments for these obligations as of December 31, 2019, was $277 million.
Availability of Debt and Equity Financing
Our senior unsecured long-term debt has been rated investment grade by S&P (BBB+) and Moody’s (A3). We do not have any ratings triggers on any of our corporate debt that would cause an automatic default, and thereby impact our access to liquidity, in the event of a downgrade of our credit rating. If our credit rating deteriorated to a level prohibiting us from accessing the commercial paper market, we would expect to be able to access funds under our liquidity facilities mentioned above.
Off-Balance Sheet Arrangements
Lease Residual Value Guarantees
Under the operating lease agreement on our headquarters facility in Houston, Texas, we have a residual value guarantee with a maximum future exposure of $554 million at December 31, 2019. The operating lease term ends in June 2021 and provides us the option, at the end of the lease term, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling $372 million at December 31, 2019. These leases have remaining terms of up to four years.
Dakota Access
In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $2,500 million aggregate principal amount of unsecured senior notes. The net proceeds from the issuance of these notes were used to repay amounts outstanding under existing credit facilities of Dakota Access and ETCO. Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, if Dakota Access receives an unfavorable court ruling related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million. Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU is approximately $631 million.
Gray Oak Pipeline
In June 2019, Gray Oak Pipeline, LLC entered into a third-party term loan facility with an initial borrowing capacity of $1,230 million, which was increased to $1,317 million in July 2019, and $1,379 million in January 2020, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. Phillips 66 Partners and its co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount. Under the agreement, Phillips 66 Partners’ maximum potential amount of future obligations is $583 million, plus any additional accrued interest and associated fees, which would be required if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At December 31, 2019, Gray Oak Pipeline, LLC had outstanding borrowings of $1,170 million, and Phillips 66 Partners’ 42.25% proportionate exposure under the equity contribution agreement was $494 million.
Other Guarantees
At December 31, 2019, we had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations that have remaining terms of up to six years. The maximum potential amount of future payments to third parties under these guarantees was approximately $263 million. Payment would be required if a joint venture defaults on its obligations.
See Note 13—Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.
Capital Requirements
Capital Expenditures and Investments
For information about our capital expenditures and investments, see the “Capital Spending” section below.
Debt Financing
Our debt balance at December 31, 2019, was $11.8 billion and our total debt-to-capital ratio was 30%.
See Note 12—Debt, in the Notes to Consolidated Financial Statements, for our annual debt maturities over the next five years and more information on debt repayments.
Dividends
On February 5, 2020, our Board of Directors declared a quarterly cash dividend of $0.90 per common share, payable March 2, 2020, to holders of record at the close of business on February 18, 2020. We forecast that our quarterly dividend will continue to increase in 2020.
Share Repurchases
On October 4, 2019, our Board of Directors approved a new share repurchase program that authorizes us to repurchase up to $3 billion of our common stock, bringing the total amount of share repurchases authorized by our Board of Directors since July 2012 to an aggregate of $15 billion. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. The shares under these authorizations are repurchased from time to time in the open market at our discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. Since the inception of our share repurchase programs in 2012 through December 31, 2019, we have repurchased 154 million shares at an aggregate cost of $12 billion. Shares of stock repurchased are held as treasury shares.
Employee Benefit Plan Contributions
For the year ended December 31, 2019, we contributed $57 million to our U.S. employee benefit plans and $28 million to our international employee benefit plans. In 2020, we expect to contribute approximately $75 million to those plans.
Contractual Obligations
The following table summarizes our aggregate contractual fixed and variable obligations as of December 31, 2019:
|
| | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Payments Due by Period |
| | Total |
| | Up to 1 Year |
| | Years 2-3 |
| | Years 4-5 |
| | After 5 Years |
|
| | | | | | | | | | |
| Debt obligations (a) | $ | 11,576 |
| | 525 |
| | 2,550 |
| | 300 |
| | 8,201 |
|
| Finance lease obligations | 277 |
| | 19 |
| | 30 |
| | 30 |
| | 198 |
|
| Software obligations | 10 |
| | 3 |
| | 5 |
| | 2 |
| | — |
|
| Total debt | 11,863 |
| | 547 |
| | 2,585 |
| | 332 |
| | 8,399 |
|
| Interest on debt | 7,323 |
| | 497 |
| | 914 |
| | 779 |
| | 5,133 |
|
| Operating lease obligations | 1,409 |
| | 488 |
| | 427 |
| | 195 |
| | 299 |
|
| Purchase obligations (b) | 83,449 |
| | 40,666 |
| | 7,519 |
| | 4,382 |
| | 30,882 |
|
| Other long-term liabilities (c) | | | | | | | | | |
| Asset retirement obligations | 280 |
| | 8 |
| | 39 |
| | 25 |
| | 208 |
|
| Accrued environmental costs | 441 |
| | 75 |
| | 118 |
| | 68 |
| | 180 |
|
| Repatriation income tax liability (d) | 90 |
| | 1 |
| | 19 |
| | 41 |
| | 29 |
|
| Total | $ | 104,855 |
| | 42,282 |
| | 11,621 |
| | 5,822 |
| | 45,130 |
|
| |
| (a) | For additional information, see Note 12—Debt, in the Notes to Consolidated Financial Statements. |
| |
| (b) | Represents any agreement to purchase goods or services that is enforceable, legally binding and specifies all significant terms. We expect these purchase obligations will be fulfilled with operating cash flows in the applicable maturity period. The majority of the purchase obligations are market-based contracts, including exchanges and futures, for the purchase of products such as crude oil and raw NGL. The products are used to supply our refineries and fractionators and optimize our supply chain. Product purchase commitments with third parties totaled $36,271 million. In addition, $21,779 million are product purchases from CPChem, mostly for fuel gas and natural gasoline over the remaining contractual term of 80 years, and product purchases of $3,640 million from DCP Midstream for NGL over the remaining contractual term of nine years. |
Purchase obligations of $6,187 million are related to agreements to access and utilize the capacity of third-party equipment and facilities, including pipelines and product terminals, to transport, process, treat, and store products. The remainder is primarily our net share of purchase commitments for materials and services for jointly owned facilities where we are the operator.
| |
| (c) | Excludes pensions and unrecognized income tax benefits. From 2020 through 2024, we expect to contribute an average of $110 million per year to our qualified and nonqualified pension and other postretirement benefit plans in the United States and an average of $25 million per year to our non-U.S. plans. The U.S. five-year average consists of approximately $50 million for 2020 and $120 million per year for the remaining four years. Our minimum funding in 2020 is expected to be $50 million in the United States and $25 million outside the United States. Unrecognized income tax benefits of $40 million and the associated interest and penalties of $10 million were excluded because the ultimate disposition and timing of any payments to be made with regard to such amounts are not reasonably estimable. Although unrecognized income tax benefits are not a contractual obligation, they represent potential demands on our liquidity. |
| |
| (d) | We elected to pay the one-time deemed repatriation income tax on foreign-sourced earnings, recognized as a result of the Tax Act enacted in December 2017, in installments over eight years beginning in 2018. The amount represents the remaining income tax liability. |
Capital Spending
Our capital expenditures and investments represent consolidated capital spending. Our adjusted capital spending is a non-GAAP financial measure that demonstrates our net share of capital spending, and reflects an adjustment for the portion of our consolidated capital spending funded by certain joint venture partners.
|
| | | | | | | | | | | | |
| | Millions of Dollars |
| | 2020
Budget |
| | 2019 |
| | 2018 |
| | 2017 |
|
| Capital Expenditures and Investments | | | | | | | |
| Midstream | $ | 2,390 |
| | 2,292 |
| | 1,548 |
| | 771 |
|
| Chemicals | — |
| | — |
| | — |
| | — |
|
| Refining | 1,035 |
| | 1,001 |
| | 826 |
| | 853 |
|
| Marketing and Specialties | 161 |
| | 374 |
| | 125 |
| | 108 |
|
| Corporate and Other | 204 |
| | 206 |
| | 140 |
| | 100 |
|
| Total Capital Expenditures and Investments | 3,790 |
| | 3,873 |
| | 2,639 |
| | 1,832 |
|
| Less: capital spending funded by certain joint venture partners* | 469 |
| | 423 |
| | — |
| | — |
|
| Adjusted Capital Spending | $ | 3,321 |
| | 3,450 |
| | 2,639 |
| | 1,832 |
|
| | | | | | | | |
| Selected Equity Affiliates** | | | | | | | |
| DCP Midstream | $ | 350 |
| | 472 |
| | 484 |
| | 268 |
|
| CPChem | 656 |
| | 382 |
| | 339 |
| | 776 |
|
| WRB | 215 |
| | 175 |
| | 156 |
| | 126 |
|
| | $ | 1,221 |
| | 1,029 |
| | 979 |
| | 1,170 |
|
* Included in the Midstream segment.
** Our share of joint venture’s self-funded capital spending.
Midstream
Capital spending in our Midstream segment during the three-year period ended December 31, 2019, included:
Construction activities related to additional Gulf Coast fractionation capacity projects.
Contributions to Gray Oak Pipeline, LLC to progress construction of the pipeline system, of which Phillips 66 Partners had a 42.25% effective ownership interest at December 31, 2019. The Gray Oak Pipeline system will transport crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, the Sweeny area, including our Sweeny Refinery, as well as access to the Houston market.
Construction activities related to increasing storage capacity at our crude oil and refined petroleum products terminal located near Beaumont, Texas.
Contributions to Bayou Bridge Pipeline, LLC (Bayou Bridge), a Phillips 66 Partners 40 percent-owned joint venture, for the construction of a pipeline from Nederland, Texas, to Lake Charles, Louisiana, and a pipeline segment from Lake Charles to St. James, Louisiana.
Completion of the construction of Phillips 66 Partners’ new isomerization unit at the Lake Charles Refinery.
Contributions to Dakota Access and ETCO, two Phillips 66 Partners 25 percent-owned joint ventures, for post-construction spending related to Bakken Pipeline.
Construction activities related to Phillips 66 Partners’ new ethane pipeline from the Clemens Caverns to petrochemical facilities in Gregory, Texas, near Corpus Christi (C2G Pipeline).
Construction activities related to increasing capacity on the Sweeny to Pasadena refined petroleum products pipeline.
Contributions to South Texas Gateway Terminal for construction activities related to the marine export terminal that connects to the Gray Oak Pipeline in Corpus Christi, Texas.
Formation of a 50/50 joint venture, Liberty Pipeline LLC, to construct the Liberty Pipeline, which will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma.
Formation of a 50/50 joint venture, Red Oak Pipeline, LLC, to construct the Red Oak Pipeline System, which will transport crude oil from Cushing, Oklahoma, and the Permian to multiple destinations along the Texas Gulf Coast.
Spending associated with other return, reliability and maintenance projects in our Transportation and NGL businesses.
During the three-year period ended December 31, 2019, DCP Midstream’s self-funded capital expenditures and investments were $2.4 billion on a 100% basis. Capital spending during this period was primarily for expansion projects, including construction of the Mewbourn 3 and O’Connor 2 plants, and investments in the expansion of Sand Hills NGL pipeline and the Gulf Coast Express pipeline joint venture, as well as maintenance capital expenditures for existing assets.
Chemicals
During the three-year period ended December 31, 2019, CPChem had a self-funded capital program that totaled $3.0 billion on a 100% basis. The capital spending was primarily for the development of USGC petrochemical projects, debottlenecking projects on existing assets, and the development of a petrochemicals complex in Qatar.
Refining
Capital spending for the Refining segment during the three-year period ended December 31, 2019, was $2.7 billion, primarily for refinery upgrade projects to increase accessibility of advantaged crudes and improve product yields; improvements to the operating integrity of key processing units; and safety-related projects. Our equity affiliates in the Refining segment had self-funding capital programs in 2019. During this three-year period, on a 100% basis, WRB’s capital expenditures and investments were $913 million.
Key projects completed during the three-year period included:
Installation of facilities to improve clean product yield at the Lake Charles, Ponca City, and Bayway refineries, as well as the jointly owned Borger and Wood River refineries.
Installation of facilities to improve processing of advantaged crudes at the Billings and Lake Charles refineries.
Installation of facilities to comply with the U.S. Environmental Protection Agency (EPA) Tier 3 gasoline regulations at the Bayway, Ferndale, and Sweeny refineries.
Major construction activities in progress include:
Installation of facilities to increase production of higher-value petrochemical products and higher-octane gasoline at the Sweeny Refinery.
Installation of facilities to produce biofuels at the Humber Refinery.
Installation of facilities to improve clean product yield at the Bayway and Ponca City refineries, as well as the jointly owned Borger Refinery.
Marketing and Specialties
Capital spending for the M&S segment during the three-year period ended December 31, 2017,2019, was primarily for the investment in a retail joint venture with operations primarily on the U.S. West Coast; acquisition, construction and improvement of our international retail sites; and investments in projects targeted at developing our new international sites. In addition, capital is used forsafety and reliability and maintenance projects at our Lubricantslubricants facilities.
Corporate and Other
Capital spending for Corporate and Other during the three-year period ended December 31, 2017,2019, was primarily for projects related to information technology and facilities.
20182020 Budget
Our 20182020 capital budget is $2.3$3.8 billion, including Phillips 66 Partners’$469 million of capital expected to be funded by prospective joint venture partners. Our projected $3.8 billion capital budget of $0.6 billion. This excludes our portion of planned capital spending by our major joint ventures DCP Midstream, CPChem and WRB totaling $0.9$1.2 billion, all of which is expected to be self-funded. Phillips 66 Partners’ planned capital spending of $962 million, which includes $95 million of capital expected to be funded by joint venture partners, is included in the $3.8 billion capital budget.
The Midstream capital budget of $1.2$2.4 billion, is focused on projects integrated with our existing assetsof which $469 million will be funded by joint venture partners, includes funding for the Liberty and infrastructure, including continued expansionRed Oak crude oil pipeline joint ventures and 450,000 BPD of the Beaumont Terminal, additional Gulf Coast fractionation capacity and investment in pipelines and other terminals.at the Sweeny Hub. The Midstream capital budget also includes growth capital at Phillips 66 Partners’ growthPartners to support organic projects, including expansions of the Sand HillsGray Oak Pipeline, the C2G Pipeline, the South Texas Gateway Terminal, and Bayou Bridge pipelines, and construction of an isomerization unit at our Lake Charles Refinery.the Bakken Pipeline, as well as sustaining capital. Refining’s capital budget of $0.8$1.0 billion is primarily directed toward reliability, safety and
environmental projects, as well as small, high-return quick payout projects to enhance the yield of higher-value products, including upgrades to the fluid catalytic cracking units at the Ponca City and Sweeny refineries, renewable diesel projects and other high-return, quick-payout projects designed to enhance margins. In M&S, our budgeted spending includes approximately $160 million of growth and sustaining capital, primarily to improve clean product yields. In M&S, we plan to invest approximately $0.1 billion, primarily directed towards increasingdevelop and enhance our retail sites in Europe. In Corporate and Other, we plan to fund approximately $0.1 billion$205 million in projects primarily related to information technology and facilities.projects, including an investment in a new enterprise resource planning system.
Contingencies
A number of lawsuits involving a variety of claims that arose in the ordinary course of business have been filed against us or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income-tax-relatedincome tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.
Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.
Legal and Tax Matters
Our legal and tax matters are handled by our legal and tax organizations. These organizations apply their knowledge, experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. We employ a litigation management process to manage and monitor the legal proceedings against us.proceedings. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. In the case of income-tax-relatedincome tax-related contingencies, we monitor tax legislation and court decisions, the status of tax audits and the statute of limitations within which a taxing authority can assert a liability. See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for additional information about income-tax-relatedincome tax-related contingencies.
Environmental
Like other companies in our industry, weWe are subject to numerous international, federal, state and local environmental laws and regulations. Among the most significant of these international and federal environmental laws and regulations are the:
U.S. Federal Clean Air Act, which governs air emissions.
U.S. Federal Clean Water Act, which governs discharges into water bodies.
European Union Regulation for Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), which governs the manufacture, placing on the market orproduction, marketing and use of chemicals.
U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which imposes liability on generators, transporters and arrangers of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur.
U.S. Federal Resource Conservation and Recovery Act (RCRA), which governs the treatment, storage and disposal of solid waste.
U.S. Federal Emergency Planning and Community Right-to-Know Act (EPCRA), which requires facilities to report toxic chemical inventories to local emergency planning committees and response departments.
U.S. Federal Oil Pollution Act of 1990 (OPA90), under which owners and operators of onshore facilities and pipelines as well as owners and operators of vessels are liable for removal costs and damages that result from a discharge of oil into navigable waters of the United States.
European Union Trading Directive resulting in the European Union Emissions Trading Scheme (EU ETS), which uses a market-based mechanism to incentivize the reduction of greenhouse gas (GHG) emissions.
These laws and their implementing regulations set limits on emissions and, in the case of discharges to water, establish water quality limits. They also, in most cases, require permits in association with new or modified operations. These permits can require an applicant to collect substantial information in connection with the application process, which can be expensive and time consuming. In addition, there can be delays associated with notice and comment periods and the agency’s processing of the application. Many of the delays associated with the permitting process are beyond the control of the applicant.
Many states and foreign countries where we operate also have, or are developing, similar environmental laws and regulations governing these same types of activities. While similar, in some cases these regulations may impose additional, or more stringent, requirements that can add to the cost and difficulty of developing infrastructure and marketing and transporting products across state and international borders. For example, in California the South Coast Air Quality Management District (SCAQMD) approved amendments to the Regional Clean Air Incentives Market (RECLAIM) that became effective in 2016, which require a phased reduction of nitrogen oxide emissions through 2022, and potentially affectaffecting refineries in the Los Angeles metropolitan area. In 2017, SCAQMD required additional nitrogen dioxide emissions reductions through 2025 and began evaluating if and howis now promulgating new regulations to replace the RECLAIM program with a traditional command and controlscontrol regulatory regime.
The ultimate financial impact arising from environmental laws and regulations is neither clearly known nor easily determinable as new standards, such as air emission standards, water quality standards and stricter fuel regulations, continue to evolve. However, environmental laws and regulations, including those that may arise to address concerns about global climate change, are expected to continue to have an increasing impact on our operations in the United States and in other countries in which we operate. Notable areas of potential impacts include air emissionemissions compliance and remediation obligations in the United States.
An example of this in the fuels area is the Energy Independence and Security Act of 2007 (EISA). It requires fuel producers and importers to provide additional renewable fuels for transportation motor fuels and stipulates a mix of various typestypes. RINs form the mechanism used by the EPA to be included through 2022.record compliance with the Renewable Fuel Standard. If an obligated party has more RINs than it needs to meet its obligation, it may sell or trade the extra RINs, or instead choose to “bank” them for use the following year. We have met the increasingly stringent requirements to date while establishing implementation, operating and capital strategies, along with advanced technology development, to address projected future requirements. It is uncertain how various future requirements contained in EISA, and the regulations promulgated thereunder, may be implemented and what their full impact may be on our operations. For the 20182020 compliance year, the EPA has set volumes of advanced and total renewable fuel at higher levels than mandated in most previous years (although the 2018 compliance year volumes are roughly equivalent to those required for the 2017 compliance year);years; it is uncertain if these increased obligations will be achievable by fuel producers and shippers without drawing on the Renewable Identification Number (RIN)RIN bank. For compliance years after 2018, we do not know whether the EPA will utilize its authority to reduce statutory volumes. Additionally, we may experience a decrease in demand for refined petroleum products due to the regulatory program as currently promulgated. This program continues to be the subject of possible Congressional review and re-promulgation in revised form, and the EPA’s regulations pertaining to the 2014 through 20172019 compliance years are subject to legal challenge, further creating uncertainty regarding renewable fuel volume requirements and obligations. Additionally,Compliance with the regulation has been further complicated as the market for RINs has been the subject of fraudulent third-party activity, and it is reasonably possible that some RINs that we have purchased may be determined to be invalid. Should that occur, we could incur costs to replace those fraudulent RINs. Although the cost for replacing any fraudulently marketed RINs is not reasonably estimable at this time, we would not expect to incur the full financial impact of fraudulent RINs replacement costs in any single interim or annual period, and would not expect such costs to have a material impact on our results of operations or financial condition.
We also are subject to certain laws and regulations relating to environmental remediation obligations associated with current and past operations. Such laws and regulations include CERCLA and RCRA and their state equivalents. Remediation obligations include cleanup responsibility arising from petroleum releases from underground storage tanks located at numerous previously and currently owned and/or operated petroleum-marketing outlets throughout the United
States. Federal and state laws require contamination caused by such underground storage tank releases be assessed and remediated to meet applicable standards. In addition to other cleanup standards, many states have adopted cleanup criteria for methyl tertiary-butyl ether for both soil and groundwater.
At RCRA-permitted facilities, we are required to assess environmental conditions. If conditions warrant, we may be required to remediate contamination caused by prior operations. In contrast to CERCLA, which is often referred to as “Superfund,” the cost of corrective action activities under RCRA corrective action programs typically is borne solely by us. We anticipate increased expenditures for RCRA remediation activities may be required, but such annual expenditures for the near term are not expected to vary significantly from the range of such expenditures we have experienced over the past few years. Longer-term expenditures are subject to considerable uncertainty and may fluctuate significantly.
We occasionally receive requests for information or notices of potential liability from the EPA and state environmental agencies alleging that we are a potentially responsible party under CERCLA or an equivalent state statute. On occasion, we also have been made a party to cost recovery litigation by those agencies or by private parties. These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically are not owned by us, but allegedly contain wastes attributable to our past operations. As of December 31, 2016,2018, we reported that we had been notified of potential liability under CERCLA and comparable state laws at 3127 sites within the United States. During 2017,2019, there were threeno new sites for which we received notificationnotice of potential liability and threenor were any existing sites were deemed resolved and closed, leaving 3127 unresolved sites with potential liability at December 31, 2017.2019.
For mostthe majority of Superfund sites, our potential liability will be significantly less than the total site remediation costs because the percentage of waste attributable to us, versus that attributable to all other potentially responsible parties, is relatively low. Although liability of those potentially responsible is generally joint and several for federal sites and frequently so for state sites, other potentially responsible parties at sites where we are a party typically have had the financial strength to meet their obligations, and where they have not, or where potentially responsible parties could not be located, our share of liability has not increased materially. Many of the sites for which we are potentially responsible are still under investigation by the EPA or the state agencies concerned. Prior to actual cleanup, those potentially responsible normally assess site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or attain a settlement of liability. Actual cleanup costs generally occur after the parties obtain the EPA or equivalent state agency approval of a remediation plan. There are relatively few sites where we are a major participant, and given the timing and amounts of anticipated expenditures, neither the cost of remediation at those sites nor such costs at all CERCLA sites, in the aggregate, is expected to have a material adverse effect on our competitive or financial condition.
Expensed environmental costs were $690$691 million in 20172019 and are expected to be approximately $670$765 million and $640$760 million in 20182020 and 2019,2021, respectively. Capitalized environmental costs were $159$133 million in 20172019 and are expected to be approximately $185$155 million and $135$180 million, in 20182020 and 2019,2021, respectively. This amount does not include capital expenditures made for another purpose that have an indirect benefit on environmental compliance.
Accrued liabilities for remediation activities are not reduced for potential recoveries from insurers or other third parties and are not discounted (except those assumed in a business combination, which we record on a discounted basis).
Many of these liabilities result from CERCLA, RCRA and similar state laws that require us to undertake certain investigative and remedial activities at sites where we conduct, or once conducted, operations or at sites where our generated waste was disposed. We also have accrued for a number of sites we identified that may require environmental remediation, but which are not currently the subject of CERCLA, RCRA or state enforcement activities. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the future, we may incur significant costs under both CERCLA and RCRA. Remediation activities vary substantially in duration and cost from site to site, depending on the mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies and enforcement policies, and the presence or absence of potentially liable third parties. Therefore, it is difficult to develop reasonable estimates of future site remediation costs.
Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses, environmental costs and liabilities are inherent concerns in certain of our operations and products, and there can be no assurance that materialthose costs and liabilities will not be incurred.material. However, we currently do not expect any material adverse effect on our results of operations or financial position as a result of compliance with current environmental laws and regulations.
Climate Change
There has been a broad range of proposed or promulgated state, national and international laws focusing on greenhouse gas (GHG)GHG emissions reduction, including various regulations proposed or issued by the EPA. These proposed or promulgated laws apply or could apply in states and/or countries where we have interests or may have interests in the future. Laws regulating GHG emissions continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws potentially could have a material impact on our results of operations and financial condition as a result of increasing costs of compliance, lengthening project implementation and agency review items,reviews, or reducing demand for certain hydrocarbon products. Examples of legislation or precursors for possible regulation that do or could affect our operations include:
EU ETS, which is part of the European Union’s policy to combat climate change and is a key tool for reducing industrial greenhouse gasGHG emissions. EU ETS impacts factories, power stations and other installations across all EU member states.
California’s Global Warming Solutions Act,Senate Bill No. 32, which requires the California Air Resources Board to develop regulations and market mechanisms that will target reduction of California’s GHG emissions by 25 percent by 2020 (as well as SB32, which requires further reduction of California's GHG emissions to 40 percent40% below the 1990 emission level by 2030, and the recently-enacted AB398,Assembly Bills 398, which extends the California GHG emission cap-and-trade program through 2030).2030. Other GHG emissions programs in the western U.S. states have been enacted or are under consideration or development, including amendments to California's Low Carbon Fuel Standard, Oregon's Low Carbon Fuel Standard, and Washington's carbon reduction programs.
The U.S. Supreme Court decision in Massachusetts v. EPA, 549 U.S. 497, 127 S. Ct. 1438 (2007), confirming that the EPA has the authority60
| |
| • | The U.S. Supreme Court decision in Massachusetts v. EPA, 549 U.S. 497, 127 S. Ct. 1438 (2007), confirming that the EPA has the authority to regulate carbon dioxide as an “air pollutant” under the Federal Clean Air Act. |
The EPA’s announcement on March 29, 2010 (published as “Interpretation of Regulations that Determine Pollutants Covered by Clean Air Act Permitting Programs,” 75 Fed. Reg. 17004 (April 2, 2010)), and the EPA’s and U.S. Department of Transportation’s joint promulgation of a Final Rule on April 1, 2010, that triggers regulation of GHGs under the Clean Air Act. These collectively may lead to more climate-based claims for damages, and may result in longer agency review time for development projects to determine the extent of potential climate change.
The EPA's 2015 Final Rule regulating GHG emissions from existing fossil fuel-fired electrical generating units under the Federal Clean Air Act, commonly referred to as the Clean Power Plan. The EPA commenced rulemaking in 2017 to rescind the Clean Power Plan and, in August 2018, the EPA proposed the Affordable Clean Energy (ACE) rule as its replacement. The ACE rule has been judicially challenged by environmental organizations and several states and municipalities.
Carbon taxes in certain jurisdictions.
GHG emission cap and trade programs in certain jurisdictions.
In the EU, the first phase of the EU ETS completed at the end of 2007 and Phase II was undertaken from 2008 through to 2012. The current phase (Phase III) runs from 2013 through to 2020, with the main changes being reduced allocation of free allowances and increased auctioning of new allowances. Phillips 66 has assets that are subject to the EU ETS, and the company is actively engaged in minimizing any financial impact from the EU ETS.
From November 30 to December 12, 2015, more than 190 countries, including the United States, participated in the United Nations Climate Change Conference in Paris, France. The conference culminated in what is known as the “Paris Agreement,” which, upon certain conditions being met, entered into force on November 4, 2016. The Paris Agreement establishes a commitment by signatory parties to pursue domestic GHG emission reductions. In 2017, the President of the United States announced his intention to withdraw the United States from the Paris Agreement. On November 4, 2019, the United States submitted formal notification of its withdrawal to the United Nations, triggering a one-year waiting period to final withdrawal.
In the United States, some additional form of regulation is likely to be forthcoming in the future at the state or federal levels with respect to GHG emissions. Such regulation could take any of several forms that may result in the creation of additional costsfinancial burden in the form of taxes, the restriction of output, investments of capital to maintain compliance with laws and regulations, or required acquisition or trading of emission allowances. We are working to continuously improve operational and energy efficiency through resource and energy conservation throughout our operations.
Compliance with changes in laws and regulations that create a GHG emission trading program, GHG reduction requirements or carbon taxes could significantly increase our costs, reduce demand for fossil energy derived products, impact the cost and availability of capital and increase our exposure to litigation. Such laws and regulations could also increase demand for less carbon intensive energy sources.
An example of one such program is California’s cap and trade program, which was promulgated pursuant to the State’s Global Warming Solutions Act. The program had been limited to certain stationary sources, which include our refineries in California, but beginning in January 2015 was expanded to include emissions from transportation fuels distributed in California. Inclusion of transportation fuels in California’s cap and trade program as currently promulgated has increased our cap and trade program compliance costs. The ultimate impact on our financial performance, either positive or negative, from this and similar programs, will depend on a number of factors, including, but not limited to:
Whether and to what extent legislation or regulation is enacted.
The nature of the legislation or regulation, (suchsuch as a cap and trade system or a tax on emissions).emissions.
The GHG reductions required.
The price and availability of offsets.
The demand for, and amount and allocation of allowances.
Technological and scientific developments leading to new products or services.
Any potential significant physical effects of climate change, (suchsuch as increased severe weather events, changes in sea levels and changes in temperature).temperature.
Whether, and the extent to which, increased compliance costs are ultimately reflected in the prices of our products and services.
We consider and take into account anticipated future GHG emissions in designing and developing major facilities and projects, and implement energy efficiency initiatives to reduce GHG emissions. Data on our GHG emissions, legal requirements regulating such emissions, and the possible physical effects of climate change on our coastal assets are incorporated into our planning, investment, and risk management decision-making. We are working to continuously improve operational and energy efficiency through resource and energy conservation throughout our operations.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principlesGAAP requires management to select appropriate accounting policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. See Note 1—Summary of Significant Accounting Policies,, in the Notes to Consolidated Financial Statements, for descriptions of our major accounting policies. CertainSome of these accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts would have been reported under different conditions, or if different assumptions had been used. The following discussion of critical accounting estimates, along with the discussion of contingencies in this report, address all important accounting areas where the nature of accounting estimates or assumptions could be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change.
Impairments
Long-lived assets used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in future expected cash flows is expected.flows. If the sum of the undiscounted expected future pre-tax cash flows of an asset group is less than the carrying value, including applicable liabilities, the carrying value is written down to estimated fair value. Individual assets are grouped for impairment purposes based on a judgmental assessment of the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets (for example, at a refinery complex level). Because there usually is a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined using one or more of the following methods: the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants; a market multiple of earnings for similar assets; or historical market transactions ofincluding similar assets, adjusted using principal market participant assumptions when necessary. The expected future cash flows used for impairment reviews and related fair value calculations are based on judgmental assessments, ofincluding future volumes, commodity prices, operating costs, margins, discount rates and capital project decisions, considering all available information at the date of review.
Investments in nonconsolidated entities accounted for under the equity method are assessed for impairment when there are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the investment’s carrying amount. When it is determined that an indicated impairment is other than temporary, a charge is recognized for the difference between the investment’s carrying value and its estimated fair value.
When determining whether a decline in value is other than temporary, management considers factors such as the length of timeduration and extent of the decline, the investee’s financial condition and near-term prospects, and our ability and intention to retain our investment for a period that allows for recovery. When quoted market prices are not available, the fair value is usually based on the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and aobserved market analysisearnings multiples of comparable assets,companies, if appropriate. DifferingDifferent assumptions could affect the timing and the amount of an impairment of an investment in any period.
Asset Retirement Obligations
Under various contracts, permits and regulations, we have legal obligations to remove tangible equipment and restore the land at the end of operations at certain operational sites. Our largest asset removal obligations involve asbestos abatement at refineries. Estimating the timing and amountcost of payments for future asset removal costsremovals is difficult. Most of these removal obligations are many years, or decades, in the future, and the contracts and regulations often have vague descriptions of what removal practices and criteria must be met when the removal event actually occurs. Asset removal technologies and costs, regulatory and other compliance considerations, expenditure timing, and other inputs into valuation of the obligation, including discount and inflation rates, are also subject to change.
Environmental Costs
In addition to asset retirement obligations discussed above, we have certain obligations to complete environmental-related projects. These projects are primarily related to cleanup at domestic refineries, underground storage sites and non-operatednonoperated sites. Future environmental remediation costs are difficult to estimate because they are subject to change due to such factors as the uncertain magnitude of cleanup costs, timing and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other responsible parties.
Intangible Assets and Goodwill
At December 31, 2017,2019, we had $756$752 million of intangible assets that we have determined to have indefinite useful lives, and therefore aredo not amortized. Thisamortize. The judgmental assessment ofdetermination that an intangible asset has an indefinite useful life must beis continuously evaluated in the future.evaluated. If, due to changes in facts and circumstances, management determines these intangible assets have finite useful lives, amortization will commence at that time on a prospective basis. As long as these intangible assets are judgeddetermined to have indefinite lives, they will be subject to at least annual impairment tests that require management’s judgment of thetheir estimated fair value of these intangible assets.value.
At December 31, 2017,2019, we had $3.3 billion of goodwill recorded in conjunction with past business combinations. Goodwill is not amortized. Instead, goodwill is subject to at least annual reviewstests for impairment at a reporting unit level. The reporting units used to evaluate and measure goodwill for impairment are determined primarily from the manner in which the business is managed. A reporting unit is an operating segment or a component that is one level below an operating segment.segment and they are determined primarily based on the manner in which the business is managed.
Because quoted market prices forWe perform our annual goodwill impairment test using a qualitative assessment and a quantitative assessment, if one is deemed necessary. As part of our qualitative assessment, we evaluate relevant events and circumstances that could affect the fair value of our reporting units, are not available,including macroeconomic conditions, overall industry and market considerations and regulatory changes, as well as company-specific market metrics, performance and events. The evaluation of company-specific events and circumstances includes evaluating changes in our stock price and cost of capital, actual and forecasted financial performance, as well as the effect of significant asset dispositions. If our qualitative assessment indicates it is likely the fair value of a reporting unit has declined below its carrying value (including goodwill), a quantitative assessment is performed.
When a quantitative assessment is performed, management applies judgment in determining the estimated fair values of the reporting units because quoted market prices for purposes of performing the goodwill impairment test.our reporting units are not available. Management uses all available information to make this fair value determination, including estimated future cash flows, cost of capital, observed market earnings multiples of comparable companies, our common stock price and associated total company market capitalization. Sales or dispositions of significant assets within a reporting unit are allocated a portion of that reporting unit’s goodwill, based on relative fair values, which impacts the amount of gain or loss on the sale or disposition.
We completed our annual impairment testqualitative assessment of goodwill as of October 1, 2017,2019, and concluded that the fair value of eachvalues of our reporting units continued to exceed their respective recorded net bookcarrying values (including goodwill) by a significant percentage.percentages. A decline in the estimated fair value of one or more of our reporting units in the future could result in an impairment. For example, a prolonged or significant decline in our stock price or a significant decline in actual or forecasted earnings could provide evidence of a significant decline in fair value and a need to record a material impairment of goodwill for one or more of our reporting units. After we have completed our annual test,As such, we continue to monitor for indicators of impairment indicators, which can lead to further goodwilluntil our next annual impairment testing.test is performed.
Tax Assets and Liabilities
Our operations are subject to various taxes, including federal, state and foreign income taxes, property taxes, and transactional taxes such as excise, sales/use, value-added and payroll taxes. We record tax liabilities based on our assessment of existing tax laws and regulations. The recording of tax liabilities requires significant judgment and estimates. We recognize the financial statement effects of an income tax position when it is more likely than not that the position will be sustained upon examination by a taxing authority. A contingent liability related to a transactional tax claim is recorded if the loss is both probable and reasonably estimable. Actual incurred tax liabilities can vary from our estimates for a variety of reasons, including different interpretations of tax laws and regulations and different assessments of the amount of tax due.
In determining our income tax expense (benefit), we assess the likelihood our deferred tax assets will be recovered through future taxable income. Valuation allowances reduce deferred tax assets to an amount that will, more likely than not, be realized. Judgment is required in estimating the amount of valuation allowance, if any, that should be recorded against our deferred tax assets. Based on our historical taxable income, our expectations for the future, and available tax-planning strategies, we expect the net deferred tax assets will more likely than not be realized as offsets to reversing deferred tax liabilities and as reductions to future taxable income. If our actual results of operations differ from such estimates or our estimates of future taxable income change, the valuation allowance may need to be revised.
New tax laws and regulations, as well as changes to existing tax laws and regulations, are continuously being proposed or promulgated. The implementation of future legislative and regulatory tax initiatives could result in increased income tax liabilities that cannot be predicted at this time. The material provisions of the Tax Act i) reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent beginning January 1, 2018, ii) imposed a one-time deemed repatriation tax on foreign-sourced earnings that were previously tax deferred, and iii) created a new tax regime on post-2017 foreign-sourced earnings. We have not yet completed our accounting for the income tax effects of the Tax Act as of December 31, 2017, but have made reasonable estimates of those effects on our existing deferred income tax balances and the one-time deemed repatriation tax. As more guidelines and interpretations of the Tax Act become available over the next year, the estimates previously made may change, which could increase or decrease our revalued deferred income tax balances and the one-time deemed repatriation tax, with an offset to earnings.
Projected Benefit Obligations
DeterminationCalculation of the projected benefit obligations for our defined benefit pension and postretirement plans impacts the obligations on the balance sheet and the amount of benefit expense in the income statement. The actuarial determinationcalculation of projected benefit obligations and company contribution requirements involves judgment about uncertain future events, including estimated retirement dates, salary levels at retirement, mortality rates, lump-sum election rates, rates of return on plan assets, future interest rates, future health care cost-trend rates, and rates of utilization of health care services by retirees. Due to the specialized nature of these calculations, weWe engage outside actuarial firms to assist in the determinationcalculation of these projected benefit obligations and company contribution requirements. Duerequirements due to differing objectives and requirements betweenthe specialized nature of these calculations. As financial accounting rules and the pension plan funding regulations promulgated by governmental agencies have different objectives and requirements, the actuarial methods and assumptions for the two purposes differ in certain important respects. Ultimately, we will be required to fund all promised benefits under pension and postretirement benefit plans not funded by plan assets or investment returns, but the judgmental assumptions used in the actuarial calculations significantly affect periodic financial statements and funding patterns over time. Benefit expense is particularly sensitive to the discount rate and return on plan assets assumptions. A one percentage-point decrease in the discount rate assumption used for the plan obligation would increase annual benefit expense by an estimated $65$55 million, while a one percentage-point decrease in the return on plan assets assumption would increase annual benefit expense by an estimated $35 million. In determining the discount rate, we use yields on high-quality fixed income investments with payments matched to the estimated distributions of benefits from our plans.
In 2017 and 2016, ourThe expected weighted-average long-term rate of return was approximately 6 percent for our worldwide pension plan assets. Theassets was approximately 6% for both 2019 and 2018, while the actual weighted-average rate of return was 15 percent18% in 2019 and 10 percentnegative 4% in 2017 and 2016, respectively.2018. For the past ten years, our actual weighted-average actual rate of return was 7 percent for worldwide pension plan assets.assets was 9%.
NEW ACCOUNTING STANDARDS
In February 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).” This ASU clarifies the scope and accounting for the sale or transfer of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales. This ASU will eliminate the use of carryover basis for most nonmonetary exchanges, including contributions of assets to equity method joint ventures. These amendments could result in the entity recognizing a gain or loss on the sale or transfer of nonfinancial assets. Public entities should apply the guidance in ASU No. 2017-05 to annual periods beginning after December 15, 2017, including interim periods within those periods. There was no impact on our financial statements from adopting this ASU on January 1, 2018.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amendment provides a screen for determining when a transaction involves an acquisition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset, or a group of similar identifiable assets, then the transaction is not considered an acquisition of a business. If the screen is not met, then the amendment requires that to be considered a business, the operation must include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as business acquisitions. Public business entities should apply the guidance in ASU No. 2017-01 to annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The amendments should be applied prospectively and no disclosures are required at the effective date. There was no impact on our financial statements from adopting this ASU on January 1, 2018.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The new standard amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which may result in earlier recognition of losses. Public business entities should apply the guidance in ASU No. 2016-13 for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption will be permitted for annual periods beginning after December 15, 2018. We are currently evaluating the provisions of ASU No. 2016-13 and assessing the impact on our financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will continue to be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. Public business entities should apply the guidance in ASU No. 2016-02 for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted. Entities are required to adopt the ASU using a modified retrospective approach, subject to certain optional practical expedients, and apply the provisions of ASU No. 2016-02 to leasing arrangements existing at or entered into after the earliest comparative period presented in the financial statements. We are currently evaluating the provisions of ASU No. 2016-02 and assessing its impact on our financial statements. As part of our assessment to-date, we have formed an implementation team, commenced identification of our lease population and selected a lease software package. We expect the adoption of ASU 2016-02 will materially gross up our consolidated balance sheet with the recognition of the ROU assets and operating lease liabilities. The impact to our consolidated statements of income and cash flows is not expected to be material. The new standard will also require additional disclosures for financing and operating leases.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” to meet its objective of providing more decision-useful information about financial instruments. The majority of this ASU’s provisions amend only the presentation or disclosures of financial instruments; however, one provision will also affect net income. Equity investments carried under the cost method or lower of cost or fair value method of accounting, in accordance with current GAAP, will have to be carried at fair value upon adoption of ASU No. 2016-01, with changes in fair value recorded in net income. For equity investments that do not have readily determinable fair values, a company may elect to carry such investments at cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. Public business entities should apply the guidance in ASU No. 2016-01 for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption prohibited. We are currently evaluating the provisions of ASU No. 2016-01. Our initial review indicates that ASU No. 2016-01 will have a limited impact on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU and other related updates are intended to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets and expand disclosure requirements. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Our assessment work primarily included the formation of an implementation work team, training on the new ASU’s revenue recognition model, contract review and documentation and the monitoring of industry interpretative issues. We adopted the standard on January 1, 2018, using the modified retrospective application. Our evaluation of the new ASU is near completion, which includes understanding the impact of adoption on earnings from equity method investments. Based upon our analysis to-date, the primary impact of adoption of the new standard is the netting of sales-based taxes collected from our customers against revenue. Sales-based taxes include excise taxes on sales of petroleum products as noted on our consolidated statement of income. We have not identified any other material impact on our financial statements other than disclosures.
NON-GAAP RECONCILIATIONS
Refining
Our realized refining margins measure the difference between a) sales and other operating revenues derived from the sale of petroleum products manufactured at our refineries and b) purchase costs of feedstocks, primarily crude oil, used to produce the petroleum products. The realized refining margins are adjusted to include our proportional share of our joint venture refineries’ realized margins, as well as to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized refining margins are converted to a per-barrel basis by dividing them by total refinery processed inputs (primarily crude oil) measured on a barrel basis, including our share of inputs processed by our joint venture refineries. Our realized refining margin per barrel is intended to be comparable with industry refining margins, which are known as “crack spreads.” As discussed in “Business Environment,” industry crack spreads measure the difference between market prices for refined petroleum products and crude oil. We believe realized refining margin per barrel calculated on a similar basis as industry crack spreads provides a useful measure of how well we performed relative to benchmark industry refining margins.
The GAAP performance measure most directly comparable to realized refining margin per barrel is the Refining segment’s “income (loss) before income taxes per barrel.” Realized refining margin per barrel excludes items that are typically included in a manufacturer’s gross margin, such as depreciation and operating expenses, and other items used to determine income (loss) before income taxes, such as general and administrative expenses. It also includes our proportional share of joint venture refineries’ realized refining margins and excludes special items. Because realized refining margin per barrel is calculated in this manner, and because realized refining margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of income (loss) before income taxes to realized refining margins:
|
| | | | | | | | | | | |
| | Millions of Dollars, Except as Indicated |
| Realized Refining Margins | Atlantic Basin/Europe |
| Gulf Coast |
| Central Corridor |
| West Coast |
| Worldwide |
|
| | | | | | |
| Year Ended December 31, 2019 | | | | | |
| Income (loss) before income taxes | $ | 608 |
| 364 |
| 1,338 |
| (324 | ) | 1,986 |
|
| Plus: | | | | | |
| Taxes other than income taxes | 52 |
| 73 |
| 40 |
| 85 |
| 250 |
|
| Depreciation, amortization and impairments | 198 |
| 271 |
| 135 |
| 253 |
| 857 |
|
| Selling, general and administrative expenses | 39 |
| 23 |
| 22 |
| 31 |
| 115 |
|
| Operating expenses | 863 |
| 1,449 |
| 550 |
| 1,143 |
| 4,005 |
|
| Equity in (earnings) losses of affiliates | 11 |
| 2 |
| (331 | ) | — |
| (318 | ) |
| Other segment (income) expense, net | (16 | ) | (3 | ) | — |
| 5 |
| (14 | ) |
| Proportional share of refining gross margins contributed by equity affiliates | 69 |
| — |
| 1,073 |
| — |
| 1,142 |
|
| Special items: | | | | | |
| Pending claims and settlements | — |
| — |
| (21 | ) | — |
| (21 | ) |
| Realized refining margins | $ | 1,824 |
| 2,179 |
| 2,806 |
| 1,193 |
| 8,002 |
|
| | | | | | |
Total processed inputs (thousands of barrels) | 195,506 |
| 293,666 |
| 103,294 |
| 130,014 |
| 722,480 |
|
Adjusted total processed inputs (thousands of barrels)* | 195,506 |
| 293,666 |
| 188,045 |
| 130,014 |
| 807,231 |
|
| | | | | | |
Income (loss) before income taxes per barrel (dollars per barrel)** | $ | 3.11 |
| 1.24 |
| 12.95 |
| (2.49 | ) | 2.75 |
|
Realized refining margins (dollars per barrel)*** | 9.33 |
| 7.42 |
| 14.91 |
| 9.18 |
| 9.91 |
|
| | | | | | |
| Year Ended December 31, 2018 | | | | | |
| Income before income taxes | $ | 567 |
| 1,040 |
| 2,817 |
| 111 |
| 4,535 |
|
| Plus: | | | | | |
| Taxes other than income taxes | 56 |
| 88 |
| 43 |
| 100 |
| 287 |
|
| Depreciation, amortization and impairments | 201 |
| 268 |
| 135 |
| 237 |
| 841 |
|
| Selling, general and administrative expenses | 63 |
| 57 |
| 34 |
| 50 |
| 204 |
|
| Operating expenses | 950 |
| 1,312 |
| 488 |
| 1,040 |
| 3,790 |
|
| Equity in (earnings) losses of affiliates | 10 |
| 6 |
| (812 | ) | — |
| (796 | ) |
| Other segment (income) expense, net | (11 | ) | 3 |
| (13 | ) | (9 | ) | (30 | ) |
| Proportional share of refining gross margins contributed by equity affiliates | 87 |
| — |
| 1,565 |
| — |
| 1,652 |
|
| Special items: | | | | |
|
| Certain tax impacts | (5 | ) | — |
| — |
| — |
| (5 | ) |
| Realized refining margins | $ | 1,918 |
| 2,774 |
| 4,257 |
| 1,529 |
| 10,478 |
|
| | | | | | |
Total processed inputs (thousands of barrels) | 186,042 |
| 292,665 |
| 106,299 |
| 136,332 |
| 721,338 |
|
Adjusted total processed inputs (thousands of barrels)* | 186,042 |
| 292,665 |
| 191,561 |
| 136,332 |
| 806,600 |
|
| | | | | | |
Income before income taxes per barrel (dollars per barrel)** | $ | 3.05 |
| 3.55 |
| 26.50 |
| 0.81 |
| 6.29 |
|
Realized refining margins (dollars per barrel)*** | 10.32 |
| 9.48 |
| 22.22 |
| 11.20 |
| 12.99 |
|
| * Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. |
| ** Income (loss) before income taxes divided by total processed inputs. |
| *** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may slightly differ from the presented per barrel amounts. |
|
| | | | | | | | | | | |
| | Millions of Dollars, Except as Indicated |
| Realized Refining Margins | Atlantic Basin/Europe |
| Gulf Coast |
| Central Corridor |
| West Coast |
| Worldwide |
|
| | | | | | |
| Year Ended December 31, 2017 | | | | | |
| Income before income taxes | $ | 448 |
| 809 |
| 755 |
| 64 |
| 2,076 |
|
| Plus: | | | | | |
| Taxes other than income taxes | 56 |
| 97 |
| 46 |
| 64 |
| 263 |
|
| Depreciation, amortization and impairments | 192 |
| 273 |
| 129 |
| 244 |
| 838 |
|
| Selling, general and administrative expenses | 61 |
| 55 |
| 34 |
| 48 |
| 198 |
|
| Operating expenses | 847 |
| 1,212 |
| 593 |
| 982 |
| 3,634 |
|
| Equity in (earnings) losses of affiliates | 11 |
| (4 | ) | (329 | ) | — |
| (322 | ) |
| Other segment (income) expense, net | (10 | ) | (421 | ) | 13 |
| 5 |
| (413 | ) |
| Proportional share of refining gross margins contributed by equity affiliates | 59 |
| 1 |
| 959 |
| — |
| 1,019 |
|
| Special items: | | | | |
|
| Certain tax impacts | (23 | ) | — |
| — |
| — |
| (23 | ) |
| Realized refining margins | $ | 1,641 |
| 2,022 |
| 2,200 |
| 1,407 |
| 7,270 |
|
| | | | | | |
Total processed inputs (thousands of barrels) | 199,068 |
| 285,951 |
| 92,146 |
| 134,089 |
| 711,254 |
|
Adjusted total processed inputs (thousands of barrels)* | 199,068 |
| 285,951 |
| 176,823 |
| 134,089 |
| 795,931 |
|
| | | | | | |
Income before income taxes per barrel (dollars per barrel)** | $ | 2.25 |
| 2.83 |
| 8.19 |
| 0.48 |
| 2.92 |
|
Realized refining margins (dollars per barrel)*** | 8.25 |
| 7.07 |
| 12.44 |
| 10.49 |
| 9.13 |
|
| * Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. |
| ** Income before income taxes divided by total processed inputs. |
| *** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may slightly differ from the presented per barrel amounts. |
Marketing
Our realized marketing fuel margins measure the difference between a) sales and other operating revenues derived from the sale of fuels in our M&S segment and b) purchase costs of those fuels. The realized marketing fuel margins are adjusted to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized marketing fuel margins are converted to a per-barrel basis by dividing them by sales volumes measured on a barrel basis. We believe realized marketing fuel margin per barrel demonstrates the value uplift our marketing operations provide by optimizing the placement and ultimate sale of our refineries’ fuel production.
Within the M&S segment, the GAAP performance measure most directly comparable to realized marketing fuel margin per barrel is the marketing business’ “income before income taxes per barrel.” Realized marketing fuel margin per barrel excludes items that are typically included in gross margin, such as depreciation and operating expenses, and other items used to determine income before income taxes, such as general and administrative expenses. Because realized marketing fuel margin per barrel excludes these items, and because realized marketing fuel margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of income before income taxes to realized marketing fuel margins:
|
| | | | | | | | | | | | | | |
| | Millions of Dollars, Except as Indicated |
| | U.S. | | International |
| | 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
|
| Realized Marketing Fuel Margins | | | | | | | |
| | | | | | | | |
| Income before income taxes | $ | 916 |
| 843 |
| 628 |
| | 380 |
| 505 |
| 217 |
|
| Plus: | | | | | | | |
| Taxes other than income taxes* | 5 |
| (2 | ) | 5,481 |
| | 6 |
| 2 |
| 7,579 |
|
| Depreciation, amortization and impairment | 10 |
| 13 |
| 14 |
| | 65 |
| 71 |
| 67 |
|
| Selling, general and administrative expenses | 743 |
| 763 |
| 751 |
| | 249 |
| 280 |
| 264 |
|
| Equity in earnings of affiliates | (27 | ) | (8 | ) | (5 | ) | | (99 | ) | (91 | ) | (83 | ) |
| Other operating revenues* | (379 | ) | (379 | ) | (5,815 | ) | | (37 | ) | (32 | ) | (7,594 | ) |
| Other segment (income) expense, net | — |
| — |
| (15 | ) | | 1 |
| 2 |
| 2 |
|
| Special items: | | | | | | | |
| Certain tax impacts | (90 | ) | (100 | ) | — |
| | — |
| — |
| — |
|
| Marketing margins | 1,178 |
| 1,130 |
| 1,039 |
|
| 565 |
| 737 |
| 452 |
|
| Less: margin for nonfuel related sales | — |
| — |
| — |
| | 44 |
| 44 |
| 42 |
|
| Realized marketing fuel margins | $ | 1,178 |
| 1,130 |
| 1,039 |
|
| 521 |
| 693 |
| 410 |
|
| | | | | | | | |
Total fuel sales volumes (thousands of barrels) | 752,064 |
| 697,696 |
| 703,928 |
| | 106,263 |
| 100,949 |
| 97,346 |
|
| | | | | | | | |
Income before income taxes per barrel (dollars per barrel) | $ | 1.22 |
| 1.21 |
| 0.89 |
| | 3.58 |
| 5.00 |
| 2.23 |
|
Realized marketing fuel margins (dollars per barrel)** | 1.57 |
| 1.62 |
| 1.48 |
| | 4.90 |
| 6.87 |
| 4.21 |
|
| * Includes excise taxes on sales of refined petroleum products for the year ended December 31, 2017, prior to our adoption of ASU No. 2014-09 on January 1, 2018. See Note 1—Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements, for further information on our adoption of this ASU. Other operating revenues also includes other nonfuel revenues. |
| ** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may slightly differ from the presented per barrel amounts. |
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Instrument Market Risk
We and certain of our subsidiaries hold and issue derivative contracts and financial instruments that expose our cash flows or earningsare exposed to changes in commodity prices, foreign currency exchange rates or interest rates. We may use financial- and commodity-based derivative contracts to manage themarket risks produced by changes in the prices of crude oil, and relatedrefined petroleum products, natural gas, NGL and electric power;power, as well as fluctuations in interest rates and foreign currency exchange rates; or to capture market opportunities.
Our use of derivative instruments is governed by an “Authority Limitations” document approved by our Board of Directors, that prohibits the use of highly leveraged derivatives or derivative instruments without sufficient market liquidity for comparable valuations. The Authority Limitations document also establishes Value at Risk (VaR) limits,rates. We and compliance with these limits is monitored daily. Our Chief Financial Officer monitors risks resulting from foreign currency exchange rates and interest rates. Our Executive Vice President, Marketing and Commercial monitors commodity price risk. The Commercial organization manages our commercial marketing, optimizes our commodity flows and positions, and monitors related riskscertain of our businesses.subsidiaries may hold and use derivative contracts to manage these risks.
Commodity Price Risk
We sell into or receive supply from the worldwide crude oil, refined products, natural gas, NGL, and electric power markets, exposing our revenues, purchases, cost of operating activities, and cash flows to fluctuations in the prices for these commodities. Generally, our policy is to remain exposed to the market prices of commodities. Consistent with this policy, our Commercial organization useswe use derivative contracts to effectively convert our exposure from fixed-price sales or purchase contracts, often requested byspecified in contracts with refined petroleum product customers, back to fluctuatingfloating market prices. Conversely, our Commercial organizationWe also usesuse futures, forwards, swaps and options in various markets to accomplish the following objectivesobjectives:
Balance physical systems or to optimize the value ofmeet our supply chain,refinery requirements and this may reduce our exposure to fluctuations in market prices:
demand. In addition to cash settlement prior to contract expiration, exchange-traded futures contracts may be settled by physical delivery of the underlying commodity. This provides another source of supply to balance physical systems or to meet our refinery requirements and marketing demand.
Manage the risk to our cash flows from price exposures on specific crude oil, refined product, natural gas, NGL, and electric power transactions.
Enable us to use the market knowledge gained from theseour physical commodity market activities to capture market opportunities, such as moving physical commodities to more profitable locations, storing commodities to capture seasonal or time premiums, and blending commodities to capture quality upgrades. Derivatives may be utilized to optimize these activities.
Manage the risk to our cash flows from price exposures on specific crude oil, refined petroleum product, natural gas and NGL transactions.
These objectives optimize the value of our supply chain and may reduce our exposure to fluctuations in market prices.
Our use of derivative instruments is governed by an “Authority Limitations” document approved by our Board of Directors, which prohibits the use of highly leveraged derivatives or derivative instruments without sufficient market liquidity for comparable valuations and establishes Value at Risk (VaR) limits. Compliance with these limits is monitored daily by our global risk group.
We use a VaR model to estimate the loss in fair value that could potentially result on a single day from the effect of adverse changes in market conditions on the derivative financial instruments and derivative commodity instruments held or issued, including commodity purchase and sales contracts recorded on the balance sheet at December 31, 2017, as derivative instruments.issued. Using the Monte Carlo simulation, a 95 percent95% confidence level and a one-day holding period, the VaR for thosederivative commodity instruments issued or held for trading purposes at December 31, 20172019 and 2016,2018, was immaterial to our cash flows and net income. The VaR for instruments held for purposes other than trading at December 31, 2017 and 2016, was also immaterial to our cash flows and net income.
Interest Rate Risk
Our use of fixed- or variable-rate debt directly exposes us to interest rate risk. Fixed-rate debt, such as our senior notes, exposes us to changes in the fair value of our debt due to changes in market interest rates. Fixed-rate debt also exposes us to the risk that we may need to refinance maturing debt with new debt at higher rates, or that we may be obligated to pay rates higher than the current market. Variable-rate debt, such as our floating-rate notes or borrowings under our revolving credit facility, exposes us to short-term changes in market rates that impact our interest expense. The following tables provide information about our debt instruments that are sensitive to changes in U.S. interest rates. These tables present principal cash flows and related weighted-average interest rates by expected maturity dates. Weighted-average variable rates are based on effective rates at theeach reporting date. The carrying amount of our floating-rate debt approximates its fair value. The fair value of the fixed-rate financial instruments is estimated based on observable market prices.
| | | | | Millions of Dollars, Except as Indicated | | Millions of Dollars, Except as Indicated |
| Expected Maturity Date | | Fixed Rate Maturity | | | Average Interest Rate |
| | Floating Rate Maturity | | | Average Interest Rate |
| | Fixed Rate Maturity | | | Average Interest Rate |
| | Floating Rate Maturity | | | Average Interest Rate |
|
| Year-End 2017 | | | | | | | | | |
| 2018 | | $ | — |
| | — | % | | $ | 25 |
| | 1.94 | % | |
| 2019 | | — |
| | — |
| | 300 |
| | 2.01 |
| |
| Year-End 2019 | | | | | | | | | | | |
| 2020 | | 300 |
| | 2.65 |
| | 775 |
| | 2.31 |
| | $ | — |
| | — | % | | $ | 525 |
| | 2.69 | % |
| 2021 | | — |
| | — |
| | 50 |
| | 1.94 |
| | — |
| | — |
| | 550 |
| | 2.46 |
|
| 2022 | | 2,000 |
| | 4.30 |
| | — |
| | — |
| | 2,000 |
| | 4.30 |
| | — |
| | — |
|
| 2023 | | | — |
| | — |
| | — |
| | — |
|
| 2024 | | | 300 |
| | 2.45 |
| | — |
| | — |
|
| Remaining years | | 6,576 |
| | 4.78 |
| | — |
| | — |
| | 8,176 |
| | 4.57 |
| | 25 |
| | 2.39 |
|
| Total | | $ | 8,876 |
| | | | $ | 1,150 |
| | | | $ | 10,476 |
| | | | $ | 1,100 |
| | |
| Fair value | | $ | 9,746 |
| | | | $ | 1,150 |
| | | | $ | 11,813 |
| | | | $ | 1,100 |
| | |
| | | | | Millions of Dollars, Except as Indicated | | Millions of Dollars, Except as Indicated |
| Expected Maturity Date | | Fixed Rate Maturity | | | Average Interest Rate |
| | Floating Rate Maturity | | | Average Interest Rate |
| | Fixed Rate Maturity | | | Average Interest Rate |
| | Floating Rate Maturity | | | Average Interest Rate |
|
| Year-End 2016 | | | | | | | | | |
| 2017 | | $ | 516 |
| | 3.08 | % | | $ | 15 |
| | 1.80 | % | |
| 2018 | | 518 |
| | 2.39 |
| | 12 |
| | 0.80 |
| |
| Year-End 2018 | | | | | | | | | | | |
| 2019 | | 18 |
| | 7.00 |
| | — |
| | — |
| | $ | — |
| | — | % | | $ | 50 |
| | 3.65 | % |
| 2020 | | 816 |
| | 2.76 |
| | 12 |
| | 0.80 |
| | 300 |
| | 2.65 |
| | 525 |
| | 3.21 |
|
| 2021 | | — |
| | — |
| | 221 |
| | 1.86 |
| | — |
| | — |
| | 625 |
| | 3.23 |
|
| 2022 | | | 2,000 |
| | 4.30 |
| | — |
| | — |
|
| 2023 | | | — |
| | — |
| | — |
| | — |
|
| Remaining years | | 7,926 |
| | 4.72 |
| | — |
| | — |
| | 7,576 |
| | 4.69 |
| | — |
| | — |
|
| Total | | $ | 9,794 |
| | | | $ | 260 |
| | | | $ | 9,876 |
| | | | $ | 1,200 |
| | |
| Fair value | | $ | 10,260 |
| | | | $ | 260 |
| | | | $ | 9,727 |
| | | | $ | 1,200 |
| | |
Our Chief Executive Officer and Chief Financial Officer monitor risks resulting from commodity prices, interest rates and foreign currency exchange rates.
For additional information about our use of derivative instruments, see Note 15—Derivatives and Financial Instruments,, in the Notes to Consolidated Financial Statements.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions.
We based the forward-looking statements on our current expectations, estimates and projections about us and the industries in which we operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:
Fluctuations in NGL, crude oil, refined petroleum productsproduct and natural gas prices and refining, marketing and petrochemical margins.
Failure of new products and services to achieve market acceptance.
Unexpected changes in costs or technical requirements for constructing, modifying or operating our facilities or transporting our products.
Unexpected technological or commercial difficulties in manufacturing, refining or transporting our products, including chemicalschemical products.
Lack of, or disruptions in, adequate and reliable transportation for our NGL, crude oil, natural gas and refined petroleum products.
The level and success of drilling and quality of production volumes around DCP Midstream’s assets and its ability to connect supplies to its gathering and processing systems, residue gas and NGL infrastructure.our Midstream assets.
InabilityOur inability to timely obtain or maintain permits, including those necessary for capital projects;projects.
Our inability to comply with government regulations;regulations or make capital expenditures required to maintain compliance.
Failure to complete definitive agreements and feasibility studies for, and to timely complete construction of, announced and future capital projects.projects on time and within budget.
Potential disruption or interruption of our operations due to accidents, weather events, civil unrest, political events, terrorism or cyber attacks.
International monetary conditions and exchange controls.
Substantial investment or reduced demand for products as a result of existing or future environmental rules and regulations.
Liability resulting from litigation or for remedial actions, including removal and reclamation obligations under environmental regulations.
General domestic and international economic and political developments including: armed hostilities; expropriation of assets; changes in governmental policies relating to NGL, crude oil, natural gas or refined productpetroleum products pricing, regulation or taxation; and other political, economic or diplomatic developments.developments, including those caused by public health issues and outbreaks.
Changes in tax, environmental and other laws and regulations (including alternative energy mandates) applicable to our business.
Limited access to capital or significantly higher cost of capital related to changes to our credit profile or illiquidity or uncertainty in the domestic or international financial markets.
The operation, financing and distribution decisions of our joint ventures.
Domestic and foreign supplies of crude oil and other feedstocks.
Domestic and foreign supplies of petrochemicals and refined petroleum products, such as gasoline, diesel, aviation fuel and home heating oil.
Governmental policies relating to exports of crude oil and natural gas.
Overcapacity or undercapacity in the midstream, chemicals and refining industries.
Fluctuations in consumer demand for refined petroleum products.
The factors generally described in Item 1A.—Risk Factors in this report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHILLIPS 66
INDEX TO FINANCIAL STATEMENTS
Report of Management
Management prepared, and is responsible for, the consolidated financial statements and the other information appearing in this annual report.Annual Report. The consolidated financial statements present fairly the company’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States. In preparing its consolidated financial statements, the company includes amounts that are based on estimates and judgments management believes are reasonable under the circumstances. The company’s financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm appointed by the Audit and Finance Committee of the Board of Directors. Management has made available to Ernst & Young LLP all of the company’s financial records and related data, as well as the minutes of stockholders’ and directors’ meetings.
Assessment of Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Phillips 66’s internal control system was designed to provide reasonable assurance to the company’s management and directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2017.2019. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on this assessment, management concluded the company’s internal control over financial reporting was effective as of December 31, 2017.2019.
Ernst & Young LLP has issued an audit report on the company’s internal control over financial reporting as of December 31, 2017,2019, and their report is included herein.
|
| | |
| | | |
| /s/ Greg C. Garland | | /s/ Kevin J. Mitchell |
| | | |
| Greg C. Garland | | Kevin J. Mitchell |
| Chairman of the Board of Directors and | | Executive Vice President, Finance and |
| Chief Executive Officer | | Chief Financial Officer |
| | | |
| | | |
| | | |
Date: February 23, 201821, 2020
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Phillips 66
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetssheet of Phillips 66 (the Company) as of December 31, 20172019 and 2016,2018, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 20172019 and 2016,2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 201821, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2014-09
As discussed in Note 1 to the consolidated financial statements, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” effective January 1, 2018. As a result, for the years ended December 31, 2019 and 2018, the Company changed its presentation of excise taxes collected from customers on sales of refined petroleum products.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
|
| | |
| | Impairment review of equity method investments |
| Description of the Matter | | As discussed in Note 7 to the consolidated financial statements, the Company has investments in nonconsolidated entities accounted for using the equity method, totaling $14.3 billion as of December 31, 2019. The carrying value of each equity method investment is evaluated for impairment when indicators of a loss in value below the carrying value exist, including, a lack of sustained earnings or a deterioration of market conditions, among others. When there are indicators of impairment, the fair value of the equity method investment is estimated. Fair value is determined using various methods, including quoted market prices and market multiples based on market analyses of comparable entities applied to current and forecasted earnings. When the determined fair value is lower than carrying value, the Company considers whether that impairment is other-than-temporary. Auditing the Company’s impairment assessments was complex and judgmental due to the estimation required in determining whether an investment had an indicator of impairment, the determination of fair value of the investment if an impairment was indicated, and to the extent that the estimated fair value is lower than carrying value, whether that impairment was other-than-temporary. |
| How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s equity method impairment review process, including controls over the identification of factors that may indicate an equity method investment is impaired, and as necessary, the subsequent determination of fair value and assessment of whether indicated impairments are other-than-temporary. In order to test whether an impairment was indicated, we tested the Company’s evaluation of quoted market prices, if available, and the investments’ earnings history and sustainability under current and expected market conditions. When impairment indicators were present, we performed audit procedures that included, among others, assessing the methodologies used by management to determine fair value, testing the significant assumptions discussed above and the underlying data used by the Company in its analyses. For example, we compared the estimated cash flows used within the assessment to current operating results and future expected economic trends. We also performed sensitivity analyses of significant assumptions to evaluate the impact of changes in significant assumptions to management’s fair value estimate and recalculated management’s estimate. We involved our valuation specialists to assist us in analyzing management’s determination of the appropriate market multiples used in estimating fair value. Lastly, we evaluated management’s determination as to whether an indicated impairment was other than temporary, considering factors such as the duration and magnitude of the decline in value. |
/s/ Ernst & Young LLP
Houston, Texas
February 23, 201821, 2020
We have served as the Company’s auditor since 2011.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Phillips 66
Opinion on Internal Control over Financial Reporting
We have audited Phillips 66’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Phillips 66 (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172019 and 2016,2018, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2017,2019, and the related notes and our report dated February 23, 201821, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included under the heading “Assessment of Internal Control Over Financial Reporting” in the accompanying “Report of Management.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Houston, Texas
February 23, 201821, 2020
|
| |
| Consolidated Statement of Income | Phillips 66 |
| | | | Millions of Dollars | Millions of Dollars |
| Years Ended December 31 | 2017 |
|
| 2016 |
|
| 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| Revenues and Other Income | | | | | | | | | | |
| Sales and other operating revenues* | $ | 102,354 |
| | 84,279 |
| | 98,975 |
| $ | 107,293 |
| | 111,461 |
| | 102,354 |
|
| Equity in earnings of affiliates | 1,732 |
| | 1,414 |
| | 1,573 |
| 2,127 |
| | 2,676 |
| | 1,732 |
|
| Net gain on dispositions | 15 |
| | 10 |
| | 283 |
| 20 |
| | 19 |
| | 15 |
|
| Other income | 521 |
| | 74 |
| | 118 |
| 119 |
| | 61 |
| | 521 |
|
| Total Revenues and Other Income | 104,622 |
| | 85,777 |
| | 100,949 |
| 109,559 |
| | 114,217 |
| | 104,622 |
|
| | | | | | | | | | | |
| Costs and Expenses | | | | | | | | | | |
| Purchased crude oil and products | 79,409 |
| | 62,468 |
| | 73,399 |
| 95,529 |
| | 97,930 |
| | 79,409 |
|
| Operating expenses | 4,699 |
| | 4,275 |
| | 4,294 |
| 5,074 |
| | 4,880 |
| | 4,699 |
|
| Selling, general and administrative expenses | 1,695 |
| | 1,638 |
| | 1,670 |
| 1,681 |
| | 1,677 |
| | 1,695 |
|
| Depreciation and amortization | 1,318 |
| | 1,168 |
| | 1,078 |
| 1,341 |
| | 1,356 |
| | 1,318 |
|
| Impairments | 24 |
| | 5 |
| | 7 |
| 861 |
| | 8 |
| | 24 |
|
| Taxes other than income taxes* | 13,462 |
| | 13,688 |
| | 14,077 |
| 409 |
| | 425 |
| | 13,462 |
|
| Accretion on discounted liabilities | 22 |
| | 21 |
| | 21 |
| 23 |
| | 23 |
| | 22 |
|
| Interest and debt expense | 438 |
| | 338 |
| | 310 |
| 458 |
| | 504 |
| | 438 |
|
| Foreign currency transaction (gains) losses | — |
| | (15 | ) | | 49 |
| 5 |
| | (31 | ) | | — |
|
| Total Costs and Expenses | 101,067 |
| | 83,586 |
| | 94,905 |
| 105,381 |
| | 106,772 |
| | 101,067 |
|
| Income before income taxes | 3,555 |
| | 2,191 |
| | 6,044 |
| 4,178 |
| | 7,445 |
| | 3,555 |
|
| Income tax expense (benefit) | (1,693 | ) | | 547 |
| | 1,764 |
| 801 |
| | 1,572 |
| | (1,693 | ) |
| Net Income | 5,248 |
| | 1,644 |
| | 4,280 |
| 3,377 |
| | 5,873 |
| | 5,248 |
|
| Less: net income attributable to noncontrolling interests | 142 |
| | 89 |
| | 53 |
| 301 |
| | 278 |
| | 142 |
|
| Net Income Attributable to Phillips 66 | $ | 5,106 |
| | 1,555 |
| | 4,227 |
| $ | 3,076 |
| | 5,595 |
| | 5,106 |
|
| | | | | | | | | | | |
Net Income Attributable to Phillips 66 Per Share of Common Stock (dollars) | | | | | | | | | | |
| Basic | $ | 9.90 |
| | 2.94 |
| | 7.78 |
| $ | 6.80 |
| | 11.87 |
| | 9.90 |
|
| Diluted | 9.85 |
| | 2.92 |
| | 7.73 |
| 6.77 |
| | 11.80 |
| | 9.85 |
|
| | | | | | | | | | | |
Dividends Paid Per Share of Common Stock (dollars) | $ | 2.73 |
| | 2.45 |
| | 2.18 |
| |
| | | | | | | |
Weighted-Average Common Shares Outstanding (thousands) | | | | | | | | | | |
| Basic | 515,090 |
| | 527,531 |
| | 542,355 |
| 451,364 |
| | 470,708 |
| | 515,090 |
|
| Diluted | 518,508 |
| | 530,066 |
| | 546,977 |
| 453,888 |
| | 474,047 |
| | 518,508 |
|
| * Includes excise taxes on sales of petroleum products: | $ | 13,054 |
| | 13,381 |
| | 13,780 |
| |
| * Includes excise taxes on sales of refined petroleum products for the year ended December 31, 2017, prior to the adoption of Accounting Standards Update No. 2014-09 on January 1, 2018: | | | |
|
| | $ | 13,054 |
|
| See Notes to Consolidated Financial Statements. |
|
| |
|
| | |
|
| |
|
| | |
| | | Consolidated Statement of Comprehensive Income | Phillips 66 | | Phillips 66 | |
| | | |
| | Millions of Dollars | Millions of Dollars |
| Years Ended December 31 | 2017 |
| | 2016 |
| | 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | | | | | | |
| Net Income | $ | 5,248 |
| | 1,644 |
| | 4,280 |
| $ | 3,377 |
| | 5,873 |
| | 5,248 |
|
| Other comprehensive income (loss) | | | | | | | | | | |
| Defined benefit plans | | | | | | | | | | |
| Actuarial loss arising during the period | (1 | ) | | (178 | ) | | (138 | ) | |
| Amortization to net income of net actuarial loss and settlements | 176 |
| | 94 |
| | 174 |
| |
| Net actuarial loss arising during the period | | (156 | ) | | (16 | ) | | (1 | ) |
| Prior service credit arising during the period | | 2 |
| | — |
| | — |
|
| Amortization to income of net actuarial loss, net prior service cost (credit) and settlements | | 63 |
| | 148 |
| | 176 |
|
| Curtailment gain | — |
| | 31 |
| | — |
| — |
| | 5 |
| | — |
|
| Plans sponsored by equity affiliates | 10 |
| | (11 | ) | | 11 |
| (21 | ) | | 22 |
| | 10 |
|
| Income taxes on defined benefit plans | (70 | ) | | 13 |
| | (13 | ) | 21 |
| | (33 | ) | | (70 | ) |
| Defined benefit plans, net of tax | 115 |
| | (51 | ) | | 34 |
| |
| Defined benefit plans, net of income taxes | | (91 | ) | | 126 |
|
| 115 |
|
| Foreign currency translation adjustments | 268 |
| | (301 | ) | | (163 | ) | 94 |
| | (205 | ) | | 268 |
|
| Income taxes on foreign currency translation adjustments | (9 | ) | | 5 |
| | 7 |
| 1 |
| | 3 |
| | (9 | ) |
| Foreign currency translation adjustments, net of tax | 259 |
| | (296 | ) | | (156 | ) | |
| Foreign currency translation adjustments, net of income taxes | | 95 |
| | (202 | ) | | 259 |
|
| Cash flow hedges | 6 |
| | 8 |
| | — |
| (15 | ) | | 1 |
| | 6 |
|
| Income taxes on hedging activities | (2 | ) | | (3 | ) | | — |
| 4 |
| | — |
| | (2 | ) |
| Hedging activities, net of tax | 4 |
| | 5 |
| | — |
| |
| Other Comprehensive Income (Loss), Net of Tax | 378 |
| | (342 | ) | | (122 | ) | |
| Hedging activities, net of income taxes | | (11 | ) | | 1 |
| | 4 |
|
| Other Comprehensive Income (Loss), Net of Income Taxes | | (7 | ) | | (75 | ) | | 378 |
|
| Comprehensive Income | 5,626 |
| | 1,302 |
| | 4,158 |
| 3,370 |
| | 5,798 |
| | 5,626 |
|
| Less: comprehensive income attributable to noncontrolling interests | 142 |
| | 89 |
| | 53 |
| 301 |
| | 278 |
| | 142 |
|
| Comprehensive Income Attributable to Phillips 66 | $ | 5,484 |
| | 1,213 |
| | 4,105 |
| $ | 3,069 |
| | 5,520 |
| | 5,484 |
|
See Notes to Consolidated Financial Statements. |
|
| | | | | | |
| Consolidated Balance Sheet | Phillips 66 | |
| | |
| | Millions of Dollars |
| At December 31 | 2017 |
| | 2016 |
|
| Assets | | | |
| Cash and cash equivalents | $ | 3,119 |
| | 2,711 |
|
Accounts and notes receivable (net of allowances of $29 million in 2017 and $34 million in 2016) | 6,424 |
| | 5,485 |
|
| Accounts and notes receivable—related parties | 1,082 |
| | 912 |
|
| Inventories | 3,395 |
| | 3,150 |
|
| Prepaid expenses and other current assets | 370 |
| | 422 |
|
| Total Current Assets | 14,390 |
| | 12,680 |
|
| Investments and long-term receivables | 13,941 |
| | 13,534 |
|
| Net properties, plants and equipment | 21,460 |
| | 20,855 |
|
| Goodwill | 3,270 |
| | 3,270 |
|
| Intangibles | 876 |
| | 888 |
|
| Other assets | 434 |
| | 426 |
|
| Total Assets | $ | 54,371 |
| | 51,653 |
|
| | | | |
| Liabilities | | | |
| Accounts payable | $ | 7,242 |
| | 6,395 |
|
| Accounts payable—related parties | 785 |
| | 666 |
|
| Short-term debt | 41 |
| | 550 |
|
| Accrued income and other taxes | 1,002 |
| | 805 |
|
| Employee benefit obligations | 582 |
| | 527 |
|
| Other accruals | 455 |
| | 520 |
|
| Total Current Liabilities | 10,107 |
| | 9,463 |
|
| Long-term debt | 10,069 |
| | 9,588 |
|
| Asset retirement obligations and accrued environmental costs | 641 |
| | 655 |
|
| Deferred income taxes | 5,008 |
| | 6,743 |
|
| Employee benefit obligations | 884 |
| | 1,216 |
|
| Other liabilities and deferred credits | 234 |
| | 263 |
|
| Total Liabilities | 26,943 |
| | 27,928 |
|
| | | | |
| Equity | | | |
Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2017—643,835,464 shares; 2016—641,593,854 shares) | | | |
| Par value | 6 |
| | 6 |
|
| Capital in excess of par | 19,768 |
| | 19,559 |
|
| Treasury stock (at cost: 2017—141,565,145 shares; 2016—122,827,264 shares) | (10,378 | ) | | (8,788 | ) |
| Retained earnings | 16,306 |
| | 12,608 |
|
| Accumulated other comprehensive loss | (617 | ) | | (995 | ) |
| Total Stockholders’ Equity | 25,085 |
| | 22,390 |
|
| Noncontrolling interests | 2,343 |
| | 1,335 |
|
| Total Equity | 27,428 |
| | 23,725 |
|
| Total Liabilities and Equity | $ | 54,371 |
| | 51,653 |
|
| See Notes to Consolidated Financial Statements. | | | |
|
| | | | | | | | | |
| Consolidated Statement of Cash Flows | Phillips 66 | |
| | |
| | Millions of Dollars |
| Years Ended December 31 | 2017 |
| | 2016 |
| | 2015 |
|
| Cash Flows From Operating Activities | | | | | |
| Net income | $ | 5,248 |
| | 1,644 |
| | 4,280 |
|
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | |
| Depreciation and amortization | 1,318 |
| | 1,168 |
| | 1,078 |
|
| Impairments | 24 |
| | 5 |
| | 7 |
|
| Accretion on discounted liabilities | 22 |
| | 21 |
| | 21 |
|
| Deferred income taxes | (1,886 | ) | | 612 |
| | 529 |
|
| Undistributed equity earnings | (516 | ) | | (815 | ) | | 185 |
|
| Net gain on dispositions | (15 | ) | | (10 | ) | | (283 | ) |
| Gain on consolidation of business | (423 | ) | | — |
| | — |
|
| Other | (186 | ) | | (163 | ) | | 117 |
|
| Working capital adjustments | | | | | |
| Decrease (increase) in accounts and notes receivable | (1,182 | ) | | (1,258 | ) | | 2,129 |
|
| Decrease (increase) in inventories | (176 | ) | | 216 |
| | (144 | ) |
| Decrease (increase) in prepaid expenses and other current assets | 104 |
| | (147 | ) | | 324 |
|
| Increase (decrease) in accounts payable | 1,153 |
| | 1,579 |
| | (2,300 | ) |
| Increase (decrease) in taxes and other accruals | 163 |
| | 111 |
| | (230 | ) |
| Net Cash Provided by Operating Activities | 3,648 |
| | 2,963 |
| | 5,713 |
|
| | | | | | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures and investments | (1,832 | ) | | (2,844 | ) | | (5,764 | ) |
| Proceeds from asset dispositions* | 86 |
| | 156 |
| | 70 |
|
| Advances/loans—related parties | (10 | ) | | (432 | ) | | (50 | ) |
| Collection of advances/loans—related parties | 326 |
| | 108 |
| | 50 |
|
| Restricted cash received from consolidation of business | 318 |
| | — |
| | — |
|
| Other | (34 | ) | | (146 | ) | | (44 | ) |
| Net Cash Used in Investing Activities | (1,146 | ) | | (3,158 | ) | | (5,738 | ) |
| | | | | | |
| Cash Flows From Financing Activities | | | | | |
| Issuance of debt | 3,508 |
| | 2,090 |
| | 1,169 |
|
| Repayment of debt | (3,678 | ) | | (833 | ) | | (926 | ) |
| Issuance of common stock | 35 |
| | 34 |
| | 31 |
|
| Repurchase of common stock | (1,590 | ) | | (1,042 | ) | | (1,512 | ) |
| Dividends paid on common stock | (1,395 | ) | | (1,282 | ) | | (1,172 | ) |
| Distributions to noncontrolling interests | (120 | ) | | (75 | ) | | (46 | ) |
| Net proceeds from issuance of Phillips 66 Partners LP common and preferred units | 1,205 |
| | 972 |
| | 384 |
|
| Other | (76 | ) | | (42 | ) | | (45 | ) |
| Net Cash Used in Financing Activities | (2,111 | ) | | (178 | ) | | (2,117 | ) |
| | | | | | |
| Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | 17 |
| | 10 |
| | 9 |
|
| | | | | | |
| Net Change in Cash, Cash Equivalents and Restricted Cash | 408 |
| | (363 | ) | | (2,133 | ) |
| Cash, cash equivalents and restricted cash at beginning of year | 2,711 |
| | 3,074 |
| | 5,207 |
|
| Cash, Cash Equivalents and Restricted Cash at End of Year | $ | 3,119 |
| | 2,711 |
| | 3,074 |
|
| * Includes return of investments in equity affiliates. |
| See Notes to Consolidated Financial Statements. |
|
| | | | | | | | | | | | | | | |
| Consolidated Statement of Changes in Equity | Phillips 66 | |
| | |
| | Millions of Dollars |
| | Attributable to Phillips 66 | | |
| | Common Stock | | | | |
| | Par Value |
| Capital in Excess of Par |
| Treasury Stock |
| Retained Earnings |
| Accum. Other
Comprehensive
Loss |
| Noncontrolling
Interests |
| Total |
|
| | | | | | | | |
| December 31, 2014 | $ | 6 |
| 19,040 |
| (6,234 | ) | 9,309 |
| (531 | ) | 447 |
| 22,037 |
|
| Net income | — |
| — |
| — |
| 4,227 |
| — |
| 53 |
| 4,280 |
|
| Other comprehensive loss | — |
| — |
| — |
| — |
| (122 | ) | — |
| (122 | ) |
| Cash dividends paid on common stock | — |
| — |
| — |
| (1,172 | ) | — |
| — |
| (1,172 | ) |
| Repurchase of common stock | — |
| — |
| (1,512 | ) | — |
| — |
| — |
| (1,512 | ) |
| Benefit plan activity | — |
| 105 |
| — |
| (16 | ) | — |
| — |
| 89 |
|
| Issuance of Phillips 66 Partners LP common units | — |
| — |
| — |
| — |
| — |
| 384 |
| 384 |
|
| Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (46 | ) | (46 | ) |
| December 31, 2015 | 6 |
| 19,145 |
| (7,746 | ) | 12,348 |
| (653 | ) | 838 |
| 23,938 |
|
| Net income | — |
| — |
| — |
| 1,555 |
| — |
| 89 |
| 1,644 |
|
| Other comprehensive loss | — |
| — |
| — |
| — |
| (342 | ) | — |
| (342 | ) |
| Cash dividends paid on common stock | — |
| — |
| — |
| (1,282 | ) | — |
| — |
| (1,282 | ) |
| Repurchase of common stock | — |
| — |
| (1,042 | ) | — |
| — |
| — |
| (1,042 | ) |
| Benefit plan activity | — |
| 106 |
| — |
| (13 | ) | — |
| — |
| 93 |
|
| Issuance of Phillips 66 Partners LP common units | — |
| 308 |
| — |
| — |
| — |
| 483 |
| 791 |
|
| Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (75 | ) | (75 | ) |
| December 31, 2016 | 6 |
| 19,559 |
| (8,788 | ) | 12,608 |
| (995 | ) | 1,335 |
| 23,725 |
|
| Net income | — |
| — |
| — |
| 5,106 |
| — |
| 142 |
| 5,248 |
|
| Other comprehensive income | — |
| — |
| — |
| — |
| 378 |
| — |
| 378 |
|
| Cash dividends paid on common stock | — |
| — |
| — |
| (1,395 | ) | — |
| — |
| (1,395 | ) |
| Repurchase of common stock | — |
| — |
| (1,590 | ) | — |
| — |
| — |
| (1,590 | ) |
| Benefit plan activity | — |
| 72 |
| — |
| (13 | ) | — |
| — |
| 59 |
|
| Issuance of Phillips 66 Partners LP common and preferred units | — |
| 137 |
| — |
| — |
| — |
| 986 |
| 1,123 |
|
| Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (120 | ) | (120 | ) |
| December 31, 2017 | $ | 6 |
| 19,768 |
| (10,378 | ) | 16,306 |
| (617 | ) | 2,343 |
| 27,428 |
|
|
| | | | | | |
| | | | Shares in Thousands |
| | | | Common Stock Issued |
| Treasury Stock |
|
| December 31, 2014 | | | 637,032 |
| 90,650 |
|
| Repurchase of common stock | | | — |
| 19,276 |
|
| Shares issued—share-based compensation | | | 2,304 |
| — |
|
| December 31, 2015 | | | 639,336 |
| 109,926 |
|
| Repurchase of common stock | | | — |
| 12,901 |
|
| Shares issued—share-based compensation | | | 2,258 |
| — |
|
| December 31, 2016 | | | 641,594 |
| 122,827 |
|
| Repurchase of common stock | | | — |
| 18,738 |
|
| Shares issued—share-based compensation | | | 2,241 |
| — |
|
| December 31, 2017 | | | 643,835 |
| 141,565 |
|
| See Notes to Consolidated Financial Statements. |
|
| | | | | | |
| Consolidated Balance Sheet | Phillips 66 | |
| | |
| | Millions of Dollars |
| At December 31 | 2019 |
| | 2018 |
|
| Assets | | | |
| Cash and cash equivalents | $ | 1,614 |
| | 3,019 |
|
Accounts and notes receivable (net of allowances of $41 million in 2019 and $22 million in 2018) | 7,376 |
| | 5,414 |
|
| Accounts and notes receivable—related parties | 1,134 |
| | 759 |
|
| Inventories | 3,776 |
| | 3,543 |
|
| Prepaid expenses and other current assets | 495 |
| | 474 |
|
| Total Current Assets | 14,395 |
| | 13,209 |
|
| Investments and long-term receivables | 14,571 |
| | 14,421 |
|
| Net properties, plants and equipment | 23,786 |
| | 22,018 |
|
| Goodwill | 3,270 |
| | 3,270 |
|
| Intangibles | 869 |
| | 869 |
|
| Other assets | 1,829 |
| | 515 |
|
| Total Assets | $ | 58,720 |
| | 54,302 |
|
| | | | |
| Liabilities | | | |
| Accounts payable | $ | 8,043 |
| | 6,113 |
|
| Accounts payable—related parties | 532 |
| | 473 |
|
| Short-term debt | 547 |
| | 67 |
|
| Accrued income and other taxes | 979 |
| | 1,116 |
|
| Employee benefit obligations | 710 |
| | 724 |
|
| Other accruals | 835 |
| | 442 |
|
| Total Current Liabilities | 11,646 |
| | 8,935 |
|
| Long-term debt | 11,216 |
| | 11,093 |
|
| Asset retirement obligations and accrued environmental costs | 638 |
| | 624 |
|
| Deferred income taxes | 5,553 |
| | 5,275 |
|
| Employee benefit obligations | 1,044 |
| | 867 |
|
| Other liabilities and deferred credits | 1,454 |
| | 355 |
|
| Total Liabilities | 31,551 |
| | 27,149 |
|
| | | | |
| Equity | | | |
Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2019—647,416,633 shares; 2018—645,691,761 shares) | | | |
| Par value | 6 |
| | 6 |
|
| Capital in excess of par | 20,301 |
| | 19,873 |
|
| Treasury stock (at cost: 2019—206,390,806 shares; 2018—189,526,331 shares) | (16,673 | ) | | (15,023 | ) |
| Retained earnings | 22,064 |
| | 20,489 |
|
| Accumulated other comprehensive loss | (788 | ) | | (692 | ) |
| Total Stockholders’ Equity | 24,910 |
| | 24,653 |
|
| Noncontrolling interests | 2,259 |
| | 2,500 |
|
| Total Equity | 27,169 |
| | 27,153 |
|
| Total Liabilities and Equity | $ | 58,720 |
| | 54,302 |
|
| See Notes to Consolidated Financial Statements. | | | |
|
| | | | | | | | | |
| Consolidated Statement of Cash Flows | Phillips 66 | |
| | |
| | Millions of Dollars |
| Years Ended December 31 | 2019 |
| | 2018 |
| | 2017 |
|
| Cash Flows From Operating Activities | | | | | |
| Net income | $ | 3,377 |
| | 5,873 |
| | 5,248 |
|
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | |
| Depreciation and amortization | 1,341 |
| | 1,356 |
| | 1,318 |
|
| Impairments | 861 |
| | 8 |
| | 24 |
|
| Accretion on discounted liabilities | 23 |
| | 23 |
| | 22 |
|
| Deferred income taxes | 183 |
| | 252 |
| | (1,886 | ) |
| Undistributed equity earnings | (143 | ) | | 221 |
| | (516 | ) |
| Net gain on dispositions | (20 | ) | | (19 | ) | | (15 | ) |
| Gain on consolidation of business | — |
| | — |
| | (423 | ) |
| Other | 16 |
| | 132 |
| | (186 | ) |
| Working capital adjustments | | | | | |
| Accounts and notes receivable | (2,308 | ) | | 1,320 |
| | (1,182 | ) |
| Inventories | (204 | ) | | (202 | ) | | (176 | ) |
| Prepaid expenses and other current assets | (14 | ) | | (113 | ) | | 104 |
|
| Accounts payable | 1,941 |
| | (1,546 | ) | | 1,153 |
|
| Taxes and other accruals | (245 | ) | | 268 |
| | 163 |
|
| Net Cash Provided by Operating Activities | 4,808 |
| | 7,573 |
| | 3,648 |
|
| | | | | | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures and investments | (3,873 | ) | | (2,639 | ) | | (1,832 | ) |
| Proceeds from asset dispositions* | 157 |
| | 57 |
| | 86 |
|
| Advances/loans—related parties | (98 | ) | | (1 | ) | | (10 | ) |
| Collection of advances/loans—related parties | 95 |
| | — |
| | 326 |
|
| Restricted cash received from consolidation of business | — |
| | — |
| | 318 |
|
| Other | 31 |
| | 112 |
| | (34 | ) |
| Net Cash Used in Investing Activities | (3,688 | ) | | (2,471 | ) | | (1,146 | ) |
| | | | | | |
| Cash Flows From Financing Activities | | | | | |
| Issuance of debt | 1,783 |
| | 2,184 |
| | 3,508 |
|
| Repayment of debt | (1,307 | ) | | (1,144 | ) | | (3,678 | ) |
| Issuance of common stock | 32 |
| | 39 |
| | 35 |
|
| Repurchase of common stock | (1,650 | ) | | (4,645 | ) | | (1,590 | ) |
| Dividends paid on common stock | (1,570 | ) | | (1,436 | ) | | (1,395 | ) |
| Distributions to noncontrolling interests | (241 | ) | | (207 | ) | | (120 | ) |
| Net proceeds from issuance of Phillips 66 Partners LP common and preferred units | 173 |
| | 128 |
| | 1,205 |
|
| Other | 269 |
| | (86 | ) | | (76 | ) |
| Net Cash Used in Financing Activities | (2,511 | ) | | (5,167 | ) | | (2,111 | ) |
| | | | | | |
| Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | (14 | ) | | (35 | ) | | 17 |
|
| | | | | | |
| Net Change in Cash, Cash Equivalents and Restricted Cash | (1,405 | ) | | (100 | ) | | 408 |
|
| Cash, cash equivalents and restricted cash at beginning of year | 3,019 |
| | 3,119 |
| | 2,711 |
|
| Cash, Cash Equivalents and Restricted Cash at End of Year | $ | 1,614 |
| | 3,019 |
| | 3,119 |
|
| * Includes return of investments in equity affiliates. |
| See Notes to Consolidated Financial Statements. |
|
| | | | | | | | | | | | | | | |
| Consolidated Statement of Changes in Equity | Phillips 66 | |
| | |
| | Millions of Dollars |
| | Attributable to Phillips 66 | | |
| | Common Stock | | | | |
| | Par Value |
| Capital in Excess of Par |
| Treasury Stock |
| Retained Earnings |
| Accum. Other
Comprehensive
Loss |
| Noncontrolling
Interests |
| Total |
|
| | | | | | | | |
| December 31, 2016 | $ | 6 |
| 19,559 |
| (8,788 | ) | 12,608 |
| (995 | ) | 1,335 |
| 23,725 |
|
| Net income | — |
| — |
| — |
| 5,106 |
| — |
| 142 |
| 5,248 |
|
| Other comprehensive income | — |
| — |
| — |
| — |
| 378 |
| — |
| 378 |
|
| Dividends paid on common stock | — |
| — |
| — |
| (1,395 | ) | — |
| — |
| (1,395 | ) |
| Repurchase of common stock | — |
| — |
| (1,590 | ) | — |
| — |
| — |
| (1,590 | ) |
| Benefit plan activity | — |
| 72 |
| — |
| (13 | ) | — |
| — |
| 59 |
|
| Issuance of Phillips 66 Partners LP common and preferred units | — |
| 137 |
| — |
| — |
| — |
| 986 |
| 1,123 |
|
| Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (120 | ) | (120 | ) |
| December 31, 2017 | 6 |
| 19,768 |
| (10,378 | ) | 16,306 |
| (617 | ) | 2,343 |
| 27,428 |
|
| Cumulative effect of accounting changes | — |
| — |
| — |
| 36 |
| — |
| 13 |
| 49 |
|
| Net income | — |
| — |
| — |
| 5,595 |
| — |
| 278 |
| 5,873 |
|
| Other comprehensive loss | — |
| — |
| — |
| — |
| (75 | ) | — |
| (75 | ) |
| Dividends paid on common stock | — |
| — |
| — |
| (1,436 | ) | — |
| — |
| (1,436 | ) |
| Repurchase of common stock | — |
| — |
| (4,645 | ) | — |
| — |
| — |
| (4,645 | ) |
| Benefit plan activity | — |
| 63 |
| — |
| (12 | ) | — |
| — |
| 51 |
|
| Issuance of Phillips 66 Partners LP common units | — |
| 42 |
| — |
| — |
| — |
| 73 |
| 115 |
|
| Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (207 | ) | (207 | ) |
| December 31, 2018 | 6 |
| 19,873 |
| (15,023 | ) | 20,489 |
| (692 | ) | 2,500 |
| 27,153 |
|
| Cumulative effect of accounting changes | — |
| — |
| — |
| 81 |
| (89 | ) | (1 | ) | (9 | ) |
| Net income | — |
| — |
| — |
| 3,076 |
| — |
| 301 |
| 3,377 |
|
| Other comprehensive loss | — |
| — |
| — |
| — |
| (7 | ) | — |
| (7 | ) |
| Dividends paid on common stock | — |
| — |
| — |
| (1,570 | ) | — |
| — |
| (1,570 | ) |
| Repurchase of common stock | — |
| — |
| (1,650 | ) | — |
| — |
| — |
| (1,650 | ) |
| Benefit plan activity | — |
| 85 |
| — |
| (12 | ) | — |
| — |
| 73 |
|
| Issuance of Phillips 66 Partners LP common units | — |
| 68 |
| — |
| — |
| — |
| 73 |
| 141 |
|
| Impacts from Phillips 66 Partners LP GP/IDR restructuring transaction | — |
| 275 |
| — |
| — |
| — |
| (373 | ) | (98 | ) |
| Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (241 | ) | (241 | ) |
| December 31, 2019 | $ | 6 |
| 20,301 |
| (16,673 | ) | 22,064 |
| (788 | ) | 2,259 |
| 27,169 |
|
|
| | | | | | |
| | | | Shares in Thousands |
| | | | Common Stock Issued |
| Treasury Stock |
|
| | | | | |
| December 31, 2016 | | | 641,594 |
| 122,827 |
|
| Repurchase of common stock | | | — |
| 18,738 |
|
| Shares issued—share-based compensation | | | 2,241 |
| — |
|
| December 31, 2017 | | | 643,835 |
| 141,565 |
|
| Repurchase of common stock | | | — |
| 47,961 |
|
| Shares issued—share-based compensation | | | 1,857 |
| — |
|
| December 31, 2018 | | | 645,692 |
| 189,526 |
|
| Repurchase of common stock | | | — |
| 16,865 |
|
| Shares issued—share-based compensation | | | 1,725 |
| — |
|
| December 31, 2019 | | | 647,417 |
| 206,391 |
|
|
|
| | | | | | |
| | | | Dollars |
| Years Ended December 31 | | | Dividends Paid Per Share of Common Stock |
| | | | |
| 2017 | | | $ | 2.73 | |
| 2018 | | | 3.10 | |
| 2019 | | | 3.50 | |
| See Notes to Consolidated Financial Statements. |
|
| |
| Notes to Consolidated Financial Statements | Phillips 66 |
Note 1—Summary of Significant Accounting Policies
| |
▪• | Consolidation Principles and Investments—Our consolidated financial statements include the accounts of majority-owned, controlled subsidiaries and variable interest entities (VIEs) where we are the primary beneficiary. The equity method is used to account for investments in affiliates in which we have the ability to exert significant influence over the affiliates’ operating and financial policies. When we do not have the ability to exert significant influence, the investment is classified either as available-for-sale if fair value is readily determinable, or as the cost method if fair value is not readily determinable. Undivided interests in pipelines, natural gas plants and terminals are consolidated on a proportionate basis. Other securities and investments are generally carried at cost.See Note 27—Phillips 66 Partners LP, for further discussion on our significant consolidated VIE. |
The equity method is used to account for investments in affiliates in which we have the ability to exert significant influence over the affiliates’ operating and financial policies, including VIEs, of which we are not the primary beneficiary. Other securities and investments are generally carried at fair value, or cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. See Note 7—Investments, Loans and Long-Term Receivables, for further discussion on our significant nonconsolidated VIEs.
| |
▪• | RecastedRecast Financial Information—Certain prior period financial information has been recastedrecast to reflect the current year’s presentation.
|
| |
▪• | Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. |
| |
| • | Foreign Currency Translation—Adjustments resulting from the process of translating financial statements with foreign functional currency financial statementscurrencies into U.S. dollars are included in accumulated other comprehensive income (loss) in stockholders’ equity. Foreign currency transaction gains and losses result from remeasuring monetary assets and liabilities denominated in a foreign currency into the functional currency of our subsidiary holding the asset or liability. We include these transaction gains and losses in current earnings. Most of our foreign operations use their local currency as the functional currency. |
| |
▪• | Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. Actual results could differ from these estimates.
|
| |
▪ | Revenue Recognition—Revenues associated with sales of crude oil, natural gas liquids (NGL), petroleum and chemical products, and other items are recognized when title passes to the customer, which is when the risk of ownership passes to the purchaser and physical delivery of goods occurs, either immediately or within a fixed delivery schedule that is reasonable and customary in the industry.
|
Revenues associated with transactions commonly called buy/sell contracts, in which the purchase and sale of inventory with the same counterparty are entered into in contemplation of one another, are combined and reported in the “Purchased crude oil and products” line on our consolidated statement of income (i.e., these transactions are recorded net).
| |
▪ | Cash Equivalents—Cash equivalents are highly liquid, short-term investments that are readily convertible to known amounts of cash and will mature within 90 days or less from the date of acquisition. We carry these investments at cost plus accrued interest. |
| |
▪• | Shipping and Handling Costs—We record shipping and handling costs in the “Purchased crude oil and products” line on our consolidated statement of income. Freight costs billed to customers are recorded in “Sales and other operating revenues.”
|
| |
▪ | Inventories—We have several valuation methods for our various types of inventories and consistently use the following methods for each type of inventory. Crude oil and petroleum products inventories are valued at the lower of cost or market in the aggregate, primarily on the last-in, first-out (LIFO) basis. Any necessary lower-of-cost-or-market write-downs at year end are recorded as permanent adjustments to the LIFO cost basis. LIFO is used to better match current inventory costs with current revenues and to meet tax-conformity requirements. Costs include both direct and indirect expenditures incurred in bringing an item or product to its existing condition and location. Materials and supplies inventories are valued using the weighted-average-cost method. |
| |
▪• | Fair Value Measurements—We categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability that are used to measure fair value to the extent that relevant observable inputs are not available, and that reflect the assumptions we believe market participants would use when pricing an asset or liability for which there is little, if any, market activity at the measurement date. |
| |
▪• | Derivative Instruments—Derivative instruments are recorded on the balance sheet at fair value. We have master netting agreements with our exchange-cleared instrument counterparties and certain of our counterparties to other commodity instrument contracts (e.g., physical commodity forward contracts). We have elected to net derivative assets and liabilities with the same counterparty on the balance sheet if the legal right of offset exists and certain other criteria are met. We also net collateral payables orand receivables against derivative assets and derivative liabilities, respectively. |
Recognition and classification of the gain or loss that results from recording and adjusting a derivative to fair value depends on the purpose for issuing or holding the derivative. All realized and unrealized gains and losses from derivative instruments for which we do not apply hedge accounting are immediately recognized in our consolidated statement of income. Unrealized gains or losses from derivative instruments that qualify for and are designated as a cash flow hedgehedges are recognized in other comprehensive income (loss) and appear on the balance sheet in accumulated other comprehensive income (loss) until the hedged transaction istransactions are recognized in earnings; however,earnings. However, to the extent the change in the fair value of a derivative instrument exceeds the change in the anticipated cash flows of the hedged transaction, the excess gain or loss is recognized immediately in earnings.
| |
▪• | Capitalized Interest—A portion of interest from external borrowings is capitalized on major projects with an expected construction period of one year or longer. Capitalized interest is added to the cost of the related asset, and is amortized over the useful life of the related asset.
|
| |
▪ | Loans and Long-Term Receivables—We enter into agreements with other parties to pursue business opportunities, which may require us to provide loans or advances to certain affiliated and non-affiliatednonaffiliated companies. Loans are recorded when cash is transferred or seller financing is provided to the affiliated or non-affiliatednonaffiliated company pursuant to a loan agreement. The loan balance will increase as interest is earned on the outstanding loan balance and will decrease as interest and principal payments are received. Interest is earned at the loan agreement’s stated interest rate. Loans and long-term receivables are assessedevaluated for impairment when events indicate the loan balance may not be fully recovered.based on an expected credit loss assessment. |
| |
▪• | Intangible Assets Other Than GoodwillImpairment of Investments in Nonconsolidated Entities—Intangible assets with finite useful livesInvestments in nonconsolidated entities accounted for under the equity method are amortized usingassessed for impairment whenever changes in the straight-line method over their useful lives. Intangible assets with indefinite useful lives are not amortized but are tested at least annually for impairment. Each reporting period, we evaluate the remaining useful lives of intangible assets not being amortized to determine whether eventsfacts and circumstances continue to support indefinite useful lives. Indefinite-lived intangible assets are considered impaired if theirindicate a loss in value has occurred. When indicators exist, the fair value is lowerestimated and compared to the investment carrying value. If any impairment is judgmentally determined to be other than their net booktemporary, the carrying value of the investment is written down to fair value. The fair value of intangible assetsthe impaired investment is determined based on quoted market prices, if available, or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies.
|
| |
| • | Depreciation and Amortization—Depreciation and amortization of properties, plants and equipment (PP&E) are determined by either the individual-unit-straight-line method or the group-straight-line method (for those individual units that are highly integrated with other units). |
| |
| • | Capitalized Interest—A portion of interest from external borrowings is capitalized on major projects with an expected construction period of one year or longer. Capitalized interest is added to the cost of the related asset, and is amortized over the useful life of the related asset. |
| |
| • | Impairment of Properties, Plants and Equipment—PP&E used in active markets, if available.operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in the future cash flows expected to be generated by an asset group. If indicators of potential impairment exist, an undiscounted cash flow test is performed. If the sum of the undiscounted expected future pre-tax cash flows of an asset group is less than the carrying value of the asset group, including applicable liabilities, the carrying value of the PP&E included in the asset group is written down to estimated fair value and the write down is reported in the “Impairments” line item on our consolidated statement of income in the period in which the impairment determination is made. Individual assets are grouped for impairment purposes at the lowest level for which identifiable cash flows are available (for example, at a refinery complex level). Because there is usually a lack of quoted market prices are not available,for long-lived assets, the fair value of intangibleimpaired assets is typically determined based uponusing one or more of the following methods: the present values of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants,participants; a market multiple of earnings for similar assets; or uponhistorical market transactions including similar assets, adjusted using principal market participant assumptions when necessary. Long-lived assets held for sale are accounted for at the lower of amortized cost or fair value, less cost to sell, with fair value determined using a binding negotiated price, if available, estimated replacement cost, ifor present value of expected future cash flows from the intangible asset are not determinable.as previously described. |
The expected future cash flows used for impairment reviews and related fair value calculations are based on estimated future volumes, prices, costs, margins and capital project decisions, considering all available evidence at the date of review.
| |
▪• | Property Dispositions—When complete units of depreciable property are sold, the asset cost and related accumulated depreciation are eliminated, with any gain or loss reflected in the “Net gain (loss) on dispositions” line item on our consolidated statement of income. When less than complete units of depreciable property are disposed of or retired, the difference between asset cost and salvage value is charged or credited to accumulated depreciation. |
| |
| • | Goodwill—Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination. ItGoodwill is not amortized, but is tested for impairment annually and when events or changes in circumstance indicate that the fair value of a reporting unit with goodwill is below its carrying value. The impairment test requires allocating goodwill and other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the book value of the reporting unit. If the fair value of the reporting unit is less than the book value, an impairment is recognized for the amount by which the book value exceeds the reporting unit’s fair value. A goodwill loss cannot exceed the total amount of goodwill allocated to that reporting unit. For purposes of testing goodwill for impairment, we have three3 reporting units with goodwill balances: Transportation, Refining, and Marketing and Specialties. |
| |
▪• | Depreciation and AmortizationIntangible Assets Other Than Goodwill—Depreciation and amortization of properties, plants and equipmentIntangible assets with finite useful lives are determined by eitheramortized using the individual-unit-straight-linestraight-line method or the group-straight-line method (for those individual units thatover their useful lives. Intangible assets with indefinite useful lives are highly integratednot amortized, but are tested at least annually for impairment. Each reporting period, we evaluate intangible assets with other units).
|
| |
▪ | Impairment of Properties, Plants and Equipment—Properties, plants and equipment (PP&E) used in operations are assessed for impairment whenever changes in factsindefinite useful lives to determine whether events and circumstances indicate a possible significant deterioration in the future cash flows expectedcontinue to be generated by an asset group. If indicators of potential impairment exist, an undiscounted cash flow testsupport this classification. Indefinite-lived intangible assets are considered impaired if their fair value is performed. If the sum of the undiscounted pre-tax cash flows is lesslower than the carryingtheir net book value. The fair value of the asset group, including applicable liabilities, the carrying value of the PP&E included in the asset groupintangible assets is written down to estimated fair value through additional amortization or depreciation provisions and reported in the “Impairments” linedetermined based on our consolidated statement of income in the period in which the determination of the impairment is made. Individual assets are grouped for impairment purposes at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets (for example, at a refinery complex level). Because there is usually a lack of quoted market prices for long-lived assets,in active markets, if available. If quoted market prices are not available, the fair value of impairedintangible assets is typically determined using one or more of the following methods:based upon the present values of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants; a market multiple of earnings for similar assets;participants, or historical market transactions of similar assets, adjusted using principal market participant assumptions when necessary. Long-lived assets held for sale are accounted for at the lower of amortizedupon estimated replacement cost, or fair value, less cost to sell, with fair value determined using a binding negotiated price, if available, or present value of expected future cash flows as previously described.from the intangible asset are not determinable.
|
The expected future cash flows used for impairment reviews and related fair value calculations are based on estimated future volumes, prices, costs, margins and capital project decisions, considering all available evidence at the date
| |
▪• | Impairment of Investments in Nonconsolidated Entities—Investments in nonconsolidated entities are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value has occurred. When indicators exist, the fair value is estimated and compared to the investment carrying value. If any impairment is judgmentally determined to be other than temporary, the carrying value of the investment is written down to fair value. The fair value of the impaired investment is based on quoted market prices, if available, or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and a market analysis of comparable assets, if appropriate.
|
| |
▪ | Maintenance and Repairs—Costs of maintenance and repairs, which are not significant improvements, are expensed when incurred. Major refinery maintenance turnarounds are expensed as incurred.
|
| |
▪ | Property Dispositions—When complete units of depreciable property are sold, the asset cost and related accumulated depreciation are eliminated, with any gain or loss reflected in the “Net gain on dispositions” line on our consolidated statement of income. When less than complete units of depreciable property are disposed of or retired, the difference between asset cost and salvage value is charged or credited to accumulated depreciation.
|
| |
▪ | Asset Retirement Obligations and Environmental Costs—The fair valuevalues of legal obligations to retire and remove long-lived assets are recorded in the period in which the obligation arises.obligations arise. When the liability isliabilities are initially recorded, we capitalize this costthese costs by increasing the carrying amount of the related PP&E. Over time, the liability isliabilities are increased for the change in its present value, and the capitalized costcosts in PP&E isare depreciated over the useful life of the related asset.assets. If our estimate of the liability changes after initial recognition, we record an adjustment to the liabilityliabilities and PP&E. |
Environmental expenditures are expensed or capitalized, depending upon their future economic benefit. Expenditures relating to an existing condition caused by past operations, and those having no future economic benefit, are expensed. Liabilities for environmental expenditures are recorded on an undiscounted basis (unless acquired in a business combination) whenWhen environmental assessments or cleanups are probable and the costs can be reasonably estimated.estimated, environmental expenditures are accrued on an undiscounted basis (unless acquired in a business combination). Recoveries of environmental remediation costs from other parties, such as state reimbursement funds, are recorded as assets when their receipt is probable and estimable.a reduction to environmental expenditures.
| |
▪• | Guarantees—The fair value of a guarantee is determined and recorded as a liability at the time the guarantee is given. The initial liability is subsequently reduced as we are released from exposure under the guarantee. We amortize the guarantee liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of guarantee. In cases where the guarantee term is indefinite, we reverse the liability when we have information indicating the liability has essentially been relieved or amortize it over an appropriate time period as the fair value of our guarantee exposure declines over time. We amortize the guarantee liability to the related income statement line item based on the nature of the guarantee. In cases where the guarantee term is indefinite, we reverse the liability when we have information to support the reversal. When itthe performance on the guarantee becomes probable we will have to perform on a guarantee,and the liability can be reasonably estimated, we accrue a separate liability for the excess amount above the guarantee’s book value if it is reasonably estimable, based on the facts and circumstances at that time. We reverse the fair value liability only when there is no further exposure under the guarantee. |
| |
▪• | Treasury Stock—We record treasury stock purchases at cost, which includes incremental direct transaction costs. Amounts are recorded as reductions of stockholders’ equity on the consolidated balance sheet. |
| |
| • | Revenue Recognition—Our revenues are primarily associated with sales of refined petroleum products, crude oil and natural gas liquids (NGL). Each gallon, or other unit of measure of product, is separately identifiable and represents a distinct performance obligation to which a transaction price is allocated. The transaction prices of our contracts with customers are either fixed or variable, with variable pricing based upon various market indices. For our contracts that include variable consideration, we utilize the variable consideration allocation exception, whereby the variable consideration is only allocated to the performance obligations that are satisfied during the period. The related revenue is recognized at a point in time when control passes to the customer, which is when title and the risk of ownership passes to the customer and physical delivery of goods occurs, either immediately or within a fixed delivery schedule that is reasonable and customary in the industry. The payment terms with our customers vary based on the product or service provided, but usually are 30 days or less. |
Revenues associated with pipeline transportation services are recognized at a point in time when the volumes are delivered based on contractual rates. Revenues associated with terminaling and storage services are recognized over time as the services are performed based on throughput volume or capacity utilization at contractual rates.
Revenues associated with transactions commonly called buy/sell contracts, in which the purchase and sale of inventory with the same counterparty are entered into in contemplation of one another, are combined and reported in the “Purchased crude oil and products” line item on our consolidated statement of income (i.e., these transactions are recorded net).
| |
| • | Taxes Collected from Customers and Remitted to Governmental Authorities—Effective for reporting periods ending after our adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” on January 1, 2018, excise taxes on sales of refined petroleum products charged to our customers are presented net of taxes on sales of refined petroleum products payable to governmental authorities in the “Taxes other than income taxes” line item on our consolidated statement of income. For reporting periods ending prior to January 1, 2018, excise taxes on sales of refined petroleum products charged to our customers are presented in the “Sales and other operating revenues” line item on our consolidated statement of income, and excise taxes on sales of refined petroleum products payable to governmental authorities are presented in the “Taxes other than income taxes” line item on our consolidated statement of income. |
Other sales and value-added taxes are recorded net in the “Taxes other than income taxes” line item on our consolidated statement of income.
| |
| • | Shipping and Handling Costs—We have elected to account for shipping and handling costs as fulfillment activities and include these activities in the “Purchased crude oil and products” line item on our consolidated statement of income. Freight costs billed to customers are recorded in “Sales and other operating revenues.” |
| |
| • | Maintenance and Repairs—Costs of maintenance and repairs, which are not significant improvements, are expensed when incurred. Major refinery maintenance turnarounds are expensed as incurred. |
| |
| • | Share-Based Compensation—We recognize share-based compensation expense over the shorter of: (1) the service period (i.e., the stated period of time required to earn the award); or (2) the period beginning at the start of the service period and ending when an employee first becomes eligible for retirement, but not less than six months as this is the minimum period of time required for an award not to be subject to forfeiture. Our equity-classified programs generally provide accelerated vesting (i.e., a waiver of the remaining period of service required to earn an award) for awards held by employees at the time they become eligible for retirement (at age 55 with 5 years of service). We have elected to recognize expense on a straight-line basis over the service period for the entire award, irrespective of whether the award was granted with ratable or cliff vesting, and have elected to recognize forfeiture reversalsforfeitures of awards when they occur. |
| |
▪• | Income Taxes—Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Interest related to unrecognized income tax benefits is reflected in interest expense, and penalties in operating expenses or selling, general and administrative expenses. |
| |
▪ | Taxes Collected from Customers and Remitted to Governmental Authorities—Excise taxes are reported gross within sales and other operating revenues and taxes other than income taxes, while other sales and value-added taxes are recorded net in taxes other than income taxes.
|
| |
▪ | Treasury Stock—We record treasury stock purchases at cost, which includes incremental direct transaction costs. Amounts are recorded as reductions in stockholders’ equity in the consolidated balance sheet.
|
Note 2—Changes in Accounting Principles
Effective January 1, 2017,2019, we early adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)elected to adopt ASU No. 2017-04, “Intangibles—Goodwill and2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other (Topic 350): SimplifyingComprehensive Income.” This ASU permits the Test for Goodwill Impairment,” which eliminated the second stepdeferred income tax effects stranded in accumulated other comprehensive income (AOCI) resulting from the goodwill impairment test. Under the revised test, an entity should perform its goodwill impairment tests by comparing the fair valueU.S. Tax Cuts and Jobs Act (the Tax Act) enacted in December 2017 to be reclassified to retained earnings. As of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU was applied prospectively to goodwill impairment tests performed on or after January 1, 2017.2019, we recorded a cumulative effect adjustment to our opening consolidated balance sheet to reclassify an aggregate income tax benefit of $89 million, primarily related to our pension plans, from accumulated other comprehensive loss to retained earnings.
Effective January 1, 2017,2019, we early adopted ASU No. 2016-18, “Statement2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Cash Flows (Topic 230): Restricted Cash.Credit Losses on Financial Instruments,” using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, and off-balance sheet credit exposures. The update clarified the classification andamendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. We recorded a noncash cumulative effect adjustment to retained earnings of $9 million, net of $3 million of income taxes, on our opening consolidated balance sheet as of January 1, 2019. See Note 4—Credit Losses, for more information on our presentation of changes in restricted cash. The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. Adoption of this ASU on a retrospective basis did not have a material impact on our financial statements. See Note 23—Cash Flow Information for more information.credit losses.
Effective January 1, 2017, we early adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The update clarified how certain cash receipts and cash payments should be presented and classified in the statement of cash flows. In addition, the ASU clarified that when cash receipts and cash
payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. Adoption of this ASU on a retrospective basis did not have a material impact on our financial statements.
Effective January 1, 2017,2019, we adopted ASU No. 2016-09, “Compensation—Stock Compensation2016-02, “Leases (Topic 718): Improvements842),” using the modified retrospective transition method. The new standard establishes a right-of-use (ROU) model that requires a lessee to Employee Share-Based Payment Accounting,” which simplified several aspects of the accounting for share-based payment award transactions, including accounting for income taxesrecord a ROU asset and classification of excess tax benefitsa lease liability on the statementconsolidated balance sheet for all leases with terms longer than 12 months. Leases will continue to be classified as either finance or operating, with classification affecting the pattern of cash flows, forfeituresexpense recognition in the consolidated income statement.
We elected the package of practical expedients that allowed us to carry forward our determination of whether an arrangement contained a lease and minimum statutory tax withholding requirements. Adoption of this ASU on a prospective basis did not materially impact our financial position, results of operations, or cash flows. We account for forfeitures of awards when they occur and excess tax benefits, which were previously reported in cash flows from financing activities, are now reported in cash flows from operating activities.
In June 2014, the FASB issued ASU No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities (VIE) Guidance in Topic 810, Consolidation.” This update removed the definition of a development stage entity from the Master Glossary of the Accounting Standard Codification (ASC) and the related financial reporting requirements specific to development stage entities. This update was intended to reduce cost and complexity of financial reporting for entities that have not commenced planned principal operations. For financial reporting requirements other than the VIE guidance in ASC Topic 810, ASU No. 2014-10 was effective for annual and quarterly reporting periods of public entities beginning after December 15, 2014. For the financial reporting requirements related to VIEs in ASC Topic 810, ASU No. 2014-10 was effective for annual and quarterly reporting periods for public entities beginning after December 15, 2015. We adopted the provisions of this ASU related to the financial reporting requirements other than the VIE guidance effective January 1, 2015. We adopted the remaining provisions effective January 1, 2016.
Note 3—Variable Interest Entities
Consolidated VIEs
In 2013, we formed Phillips 66 Partners LP (Phillips 66 Partners), a master limited partnership, to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum products and NGL pipelines and terminals,lease classification, as well as other midstream assets.our accounting for initial direct costs for existing contracts. We consolidate Phillips 66 Partnersrecorded a noncash cumulative effect adjustment, reflecting an aggregate operating lease ROU asset and corresponding lease liability of $1,415 million and immaterial adjustments to retained earnings and noncontrolling interests, on our opening consolidated balance sheet as we determined that Phillips 66 Partners is a VIE and we are the primary beneficiary. As general partner of Phillips 66 Partners, we have the ability to control its financial interests, as well as the ability to direct the activities of Phillips 66 Partners that most significantly impact its economic performance.January 1, 2019. See Note 27—Phillips 66 Partners LP,18—Leases, for the new lease disclosures required by this ASU.
Note 3—Sales and Other Operating Revenues
Disaggregated Revenues
The following tables present our disaggregated sales and other operating revenues:
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017* |
|
| Product Line and Services | | | | | |
| Refined petroleum products | $ | 87,902 |
| | 87,967 |
| | 85,405 |
|
| Crude oil resales | 14,125 |
| | 16,419 |
| | 11,808 |
|
| NGL | 4,814 |
| | 6,161 |
| | 4,670 |
|
| Services and other** | 452 |
| | 914 |
| | 471 |
|
| Consolidated sales and other operating revenues | $ | 107,293 |
| | 111,461 |
| | 102,354 |
|
| | | | | | |
| Geographic Location*** | | | | | |
| United States | $ | 83,512 |
| | 86,401 |
| | 75,684 |
|
| United Kingdom | 9,863 |
| | 11,054 |
| | 10,626 |
|
| Germany | 4,053 |
| | 4,352 |
| | 6,692 |
|
| Other foreign countries | 9,865 |
| | 9,654 |
| | 9,352 |
|
| Consolidated sales and other operating revenues | $ | 107,293 |
| | 111,461 |
| | 102,354 |
|
* Sales and other operating revenues for the year ended December 31, 2017, are presented in accordance with accounting standards in effect prior to our adoption of ASU No. 2014-09 on January 1, 2018.
** Includes derivatives-related activities. See Note 15—Derivatives and Financial Instruments, for additional information.
*** Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.
The most significant
Contract-Related Assets and Liabilities
At December 31, 2019 and 2018, receivables from contracts with customers were $6,902 million and $4,993 million, respectively. Significant noncustomer balances, such as buy/sell receivables and excise tax receivables, were excluded from these amounts.
Our contract-related assets also include payments we make to our marketing customers related to incentive programs. An incentive payment is initially recognized as an asset and subsequently amortized as a reduction to revenue over the contract term, which generally ranges from 5 to 15 years. At December 31, 2019 and 2018, our asset balances related to such payments were $336 million and $248 million, respectively.
Our contract liabilities represent advances from our customers prior to product or service delivery. At December 31, 2019 and 2018, contract liabilities were 0t material.
Remaining Performance Obligations
Most of Phillips 66 Partners thatour contracts with customers are available to settlespot contracts or term contracts with only its obligations, along with its most significant liabilities for which its creditorsvariable consideration. We do not disclose remaining performance obligations for these contracts as the expected duration is one year or less or because the variable consideration has been allocated entirely to an unsatisfied performance obligation. We also have recoursecertain contracts in our Midstream segment that include minimum volume commitments with fixed pricing, which mostly expire by 2021. At December 31, 2019, the remaining performance obligations related to Phillips 66’s generalthese minimum volume commitment contracts were 0t material.
Note 4—Credit Losses
We are exposed to credit losses primarily through our sales of refined petroleum products, crude oil and NGL. We assess each counterparty’s ability to pay for the products we sell by conducting a credit review. The credit review considers our expected billing exposure and timing for payment and the counterparty’s established credit rating or our assessment of the counterparty’s creditworthiness based on our analysis of their financial statements when a credit rating is not available. We also consider contract terms and conditions, country and political risk, and business strategy in our evaluation. A credit limit is established for each counterparty based on the outcome of this review. We may require collateralized asset support or a prepayment to mitigate credit risk.
We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. Our activities include timely account reconciliations, dispute resolution and payment confirmations. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.
At December 31, 2019, we reported $8,510 million of accounts and notes receivable, net of allowances of $41 million. Changes in the allowance were not material for the year ended December 31, 2019. Based on an aging analysis at December 31, were:2019, 99% of our accounts receivable were outstanding less than 60 days.
|
| | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
|
| | | | |
| Cash and cash equivalents | $ | 185 |
| | 2 |
|
| Equity investments* | 1,932 |
| | 1,142 |
|
| Net properties, plants and equipment | 2,918 |
| | 2,675 |
|
| Long-term debt | 2,920 |
| | 2,396 |
|
* Included in “Investments and long-term receivables” on the Phillips 66 consolidated balance sheet.
Non-Consolidated VIEs
We hold variable interests in VIEs that have not been consolidated because we are not considered the primary beneficiary. Information on our significant non-consolidated VIEs follows.
Merey Sweeny, L.P. (MSLP) is a limited partnership that owns a delayed coker and related facilities at the Sweeny Refinery. Under the agreements that governed the relationships between the former co-venturers in MSLP, certain defaults by Petróleos de Venezuela S.A. (PDVSA) with respect to supply of crude oil to the Sweeny Refinery triggered the right to acquire PDVSA’s 50 percent ownership interest in MSLP. The call right was exercised in August 2009. The exercise of the call right was challenged, and the dispute was arbitrated in our favor and subsequently litigated. Through February 7, 2017, we determined MSLP was a VIE and used the equity method of accounting because the exercise of the call right remained subject to legal challenge. MSLP was a VIE because, in securing lender consents in connection with our separation from ConocoPhillips in 2012 (the Separation), we provided a 100 percent debt guarantee to the lender of MSLP’s 8.85% senior notes. PDVSA did not participate in the debt guarantee. In our VIE assessment, this disproportionate debt guarantee, plus other liquidity support provided jointly by us and PDVSA independently of equity ownership, resulted in MSLP not beingalso exposed to all potential losses. We determined we were not the primary beneficiary while the call exercise was subject to legal challenge, because under the partnership agreement, the co-venturers jointly directed the activitiescredit losses from off-balance sheet exposures, such as guarantees of MSLP that most significantly impacted economic performance. As discussedjoint venture debt and standby letters of credit. See Note 13—Guarantees, and Note 14—Contingencies and Commitments, for more fully in Note 5—Business Combinations, the exercise of the call right ceased to be subject to legal challenge in February 2017. At that point, we no longer considered MSLP a VIE and the entity became a consolidated subsidiary.information on these off-balance sheet exposures.
We own a 25 percent interest in both Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO), which collectively own the Bakken Pipeline. These entities did not have sufficient equity at risk to fully fund the construction of all assets required for principal operations, and thus represented VIEs until operations began. We determined we were not the primary beneficiary because we and our co-venturer at the time jointly directed the activities of Dakota Access and ETCO that most significantly impact economic performance. In June 2017, these entities started commercial operations and were no longer considered VIEs. We use the equity method of accounting for these investments.
Note 4—5—Inventories
Inventories at December 31 consisted of the following:
|
| | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
|
| | | | |
| Crude oil and petroleum products | $ | 3,452 |
| | 3,238 |
|
| Materials and supplies | 324 |
| | 305 |
|
| | $ | 3,776 |
| | 3,543 |
|
|
| | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
|
| | | | |
| Crude oil and petroleum products | $ | 3,106 |
| | 2,883 |
|
| Materials and supplies | 289 |
| | 267 |
|
| | $ | 3,395 |
| | 3,150 |
|
Inventories valued on the LIFO basis totaled $2,980$3,331 million and $2,772$3,123 million at December 31, 20172019 and 2016,2018, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $4.3 billion and $3.3$2.9 billion at December 31, 20172019 and 2016,2018, respectively.
Excluding the disposition of the Whitegate Refinery, which occurred in September 2016, certain planned reductions in inventory caused liquidations of LIFO inventory values during each ofliquidations did 0t have a material impact on net income for the three years ended December 31, 2017. These liquidations increased net income by approximately $13 million in 20172019, 2018 and decreased net income by approximately $68 million and $37 million in 2016 and 2015, respectively.2017.
In conjunction with the Whitegate Refinery disposition, the refinery’s LIFO inventory values were liquidated causing a decrease in net income of $62 million during 2016. This LIFO liquidation impact was included in the net gain recognized on the disposition.
Note 5—6—Business Combinations
MSLPMerey Sweeny LLC, successor to Merey Sweeny, L.P. (both referred to herein as Merey Sweeny), owns a delayed coker and related facilities at the Sweeny Refinery. Prior to August 28, 2009, MSLP was owned 50/50In February 2017, we began accounting for Merey Sweeny as a consolidated subsidiary because the exercise of a call right triggered by ConocoPhillips and PDVSA. Under the agreements that governed the relationships between the partners, certain defaults by PDVSAthe co-venturer, Petróleos de Venezuela S.A. (PDVSA), with respect to supply of crude oil to the Sweeny Refinery triggered the right, exercised in August 2009,ceased to acquire its 50 percentbe subject to legal challenge. The purchase price for PDVSA’s 50% ownership interest in MSLP for a purchase pricewas determined by a contractual formula. As the distributions PDVSA received from MSLPMerey Sweeny exceeded the amounts it contributed to MSLP,Merey Sweeny, the contractual formula required no cash consideration for the acquisition. The exercise was challenged, and the dispute was arbitrated in our favor and subsequently litigated. While the dispute was being arbitrated and litigated, we continued to use the equity method of accounting for our 50 percent interest in MSLP. When the exercise of the call right ceased to be subject to legal challenge on February 7, 2017, we deemed that we had acquired PDVSA’s 50 percent share of MSLP and began accounting for MSLP as a consolidated subsidiary.
Based on a third-party appraisal of the fair value of MSLP’sMerey Sweeny’s net assets, utilizing discounted cash flows and replacement costs, the acquisition of PDVSA’s 50 percent50% interest resulted in our recordingthe recognition of a pre-tax gain of $423 million in the first quarter of 2017. This gain was included in the “Other income” line item on our consolidated statement of income. The fair value of our original equity interest in MSLPMerey Sweeny immediately prior to the deemed acquisition was $145 million. As a result of the transaction, we recorded $318 million of restricted cash, $250 million of PP&E and $238 million of debt, as well as a net $93 million for the elimination of our equity investment in MSLPMerey Sweeny and net intercompany payables. The restrictions on cash were fully removed in May 2017. Our acquisition accounting was finalized duringin the first quarter of 2017.
The results of MSLPMerey Sweeny were included in our Refining segment until October 2017, when we contributed our 100 percent100% interest in MSLPMerey Sweeny to Phillips 66 Partners LP (Phillips 66 Partners), which is included in our Midstream segment. See Note 27—Phillips 66 Partners LP for further discussion regarding the contribution.
In November 2016, Phillips 66 Partners acquired NGL logistics assets located in southeast Louisiana, consisting of approximately 500 miles of pipelines and storage caverns connecting multiple fractionation facilities, refineries and a petrochemical facility. The acquisition provided an opportunity for fee-based growth in the Louisiana market within our Midstream segment. The acquisition was included in the “Capital expenditures and investments” line on our consolidated statement of cash flows. At the acquisition date, we recorded $183 million of PP&E and $3 million of goodwill. Our acquisition accounting was finalized during the first quarter of 2017, with no change to the provisional amounts recorded in 2016.
Note 6—Assets Held for Sale or Sold
In September 2016, we completed the sale of the Whitegate Refinery and related marketing assets, which were included primarily in our Refining segment. The net carrying value of the assets at the time of their disposition was $135 million, which consisted of $127 million of inventory, other working capital, and PP&E; and $8 million of allocated goodwill. An immaterial gain was recognized in 2016 on the disposition.
In February 2015, we completed the sale of the Bantry Bay terminal, which was included in our Refining segment. At the time of the disposition, the terminal had a net carrying value of $68 million, which primarily related to net PP&E. An immaterial gain was recognized in 2015 on this disposition.
In July 2013, we completed the sale of the Immingham Combined Heat and Power Plant (ICHP), which was included in our Marketing and Specialties segment. A gain on this disposal was deferred at the time of the sale due to an indemnity provided to the buyer. We recognized the deferred gain in earnings as our exposure under the indemnity declined, beginning in the third quarter of 2014 and ending in the second quarter of 2015 when the indemnity expired. We recognized $242 million of the deferred gain during the year ended December 31, 2015.
Note 7—Investments, Loans and Long-Term Receivables
Components of investments loans and long-term receivables at December 31 were:
|
| | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
|
| | | | |
| Equity investments | $ | 14,284 |
| | 14,218 |
|
| Other investments | 130 |
| | 106 |
|
| Loans and long-term receivables | 157 |
| | 97 |
|
| | $ | 14,571 |
| | 14,421 |
|
|
| | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
|
| | | | |
| Equity investments | $ | 13,733 |
| | 13,102 |
|
| Loans and long-term receivables | 94 |
| | 334 |
|
| Other investments | 114 |
| | 98 |
|
| | $ | 13,941 |
| | 13,534 |
|
Equity Investments
AffiliatedSignificant affiliated companies in which we had a significantaccounted for under the equity investmentmethod, including nonconsolidated VIEs, at December 31, 2017,2019 and 2018, included:
| |
| • | Chevron Phillips Chemical Company LLC (CPChem)—50 percent-owned joint venture that manufactures and markets petrochemicals and plastics. We have multiple supply and purchase agreements in place with CPChem, ranging in initial terms from one to 99 years, with extension options. These agreements cover sales and purchases of refined petroleum products, solvents, and petrochemical and NGL feedstocks, as well as fuel oils and gases. All products are purchased and sold under specified pricing formulas based on various published pricing indices. At December 31, 2019 and 2018, the book value of our investment in CPChem was $6,229 million and $6,233 million, respectively. |
WRB Refining LP (WRB)—50 percent owned business venture with Cenovus Energy Inc. (Cenovus)—owns the Wood River and Borger refineries.92
DCP Midstream, LLC (DCP Midstream)—50 percent owned joint venture with Spectra Energy Corp, a wholly owned
| |
| • | WRB Refining LP (WRB)—50 percent-owned joint venture that owns the Wood River and Borger refineries located in Roxana, Illinois, and Borger, Texas, respectively, for which we are the operator and managing partner. We have a basis difference for our investment in WRB because the carrying value of our investment is lower than our share of WRB’s recorded net assets. This basis difference was primarily the result of our contribution of these refineries to WRB. On the contribution closing date, a basis difference was created because the fair value of the contributed assets recorded by WRB exceeded our historical book value. The contribution-related basis difference is primarily being amortized and recognized as a benefit to equity earnings over a period of 26 years, which was the estimated remaining useful life of the refineries’ PP&E at the contribution closing date. At December 31, 2019, the aggregate remaining basis difference for this investment was $2,428 million. Equity earnings for the years ended December 31, 2019, 2018 and 2017, were increased by $182 million, $177 million and $186 million, respectively, due to the amortization of our aggregate basis difference. At December 31, 2019 and 2018, the book value of our investment in WRB was $2,183 million and $2,108 million, respectively. |
| |
| • | DCP Midstream, LLC (DCP Midstream)—50 percent-owned joint venture that owns and operates NGL and gas pipelines, gas plants, gathering systems, storage facilities and fractionation plants, through its subsidiary DCP Midstream, LP (DCP Partners). DCP Midstream markets a portion of its NGL to us and our equity affiliates. |
At September 30, 2019, we estimated the fair value of Enbridge Inc.—owns and operates gas plants, gathering systems, storage facilities and fractionation plants, including through itsour investment in DCP Midstream LP (DCP Partners).
Chevron Phillips Chemical Company LLC (CPChem)—50 percent owned joint venture with Chevron U.S.A. Inc., an indirect wholly owned subsidiary of Chevron Corporation—manufactureswas below our book value, and markets petrochemicals and plastics.
Rockies Express Pipeline LLC (REX)—25 percent owned joint venture with Tallgrass Energy Partners L.P.—owns and operates a natural gas pipeline system from Colorado to Ohio.
DCP Sand Hills Pipeline, LLC (Sand Hills)—Phillips 66 Partners’ 33 percent owned joint venture with DCP Partners—owns and operates NGL pipeline systems fromwe concluded the Permian and Eagle Ford basins to Mont Belvieu, Texas.
DCP Southern Hills Pipeline, LLC (Southern Hills)—Phillips 66 Partners’ 33 percent owned joint venture with DCP Partners—owns and operates NGL pipeline systems from the Midcontinent region to Mont Belvieu, Texas.
Dakota Access and ETCO—Phillips 66 Partners’ two 25 percent owned joint ventures with Energy Transfer Partners L.P. (ETP) and MarEn Bakken Company LLC. Dakota Access owns a pipeline system that delivers crude oil from the Bakken/Three Forks production areadecline in North Dakota to Patoka, Illinois, and ETCO owns a connecting crude oil pipeline system from Patoka, Illinois, to Nederland, Texas. Collectively, these two pipeline systems form the Bakken Pipeline, which is operated by ETP.
Summarized 100 percent financial information for all equity method investments in affiliated companies, combined, was:
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
|
| | | | | | |
| Revenues | $ | 35,523 |
| | 30,605 |
| | 33,126 |
|
| Income before income taxes | 3,956 |
| | 3,206 |
| | 3,180 |
|
| Net income | 3,764 |
| | 2,960 |
| | 3,158 |
|
| Current assets | 7,325 |
| | 7,097 |
| | 6,024 |
|
| Noncurrent assets | 49,950 |
| | 50,163 |
| | 46,047 |
|
| Current liabilities | 5,248 |
| | 5,173 |
| | 4,130 |
|
| Noncurrent liabilities | 13,743 |
| | 13,709 |
| | 11,493 |
|
| Noncontrolling interests | 2,549 |
| | 2,260 |
| | 2,404 |
|
At December 31, 2017, retained earnings included approximately $2,320 million relatedfair value was not temporary due to the undistributed earnings of affiliated companies. Dividends received from affiliates were $1,270 million, $616 million,duration and $1,769 million in 2017, 2016 and 2015, respectively.
WRB
WRB’s operating assets consistmagnitude of the Wood River and Borger refineries, located in Roxana, Illinois, and Borger, Texas, respectively, for which we are the operator and managing partner. As a result of our contribution of these two assets to WRB, a basis difference was created becausedecline. At that time, the fair value of our investment in DCP Midstream depended on the contributed assetsmarket value of DCP Midstream’s general partner interest in DCP Partners and the market value of DCP Partners’ common units. Accordingly, we recorded by WRB exceeded their historical book value.an $853 million impairment in the third quarter of 2019. The impairment is included in the “Impairments” line item on our consolidated statement of income. See Note 16—Fair Value Measurements, for additional information on the techniques used to determine the fair value of our investment in DCP Midstream. The impairment resulted in a basis difference for our investment in DCP Midstream because the carrying value of our investment is lower than our share of DCP Midstream’s recorded net assets. The basis difference is primarilybeing amortized and recognized as a benefit evenlyto equity earnings over a period of 2622 years,, which was the estimated remaining useful life of the refineries’DCP Midstream’s PP&E at September 30, 2019. Equity earnings for the closing date. Atyear ended December 31, 2017, the book value of our investment in WRB was $2,269 million, and the basis difference was $2,787 million. Equity earnings in 2017, 2016 and 20152019, were increased by $186$10 million $185 million and $218 million, respectively, due to the amortization of the basis difference.
Indifference in the firstfourth quarter of 2017, we received payment of the $75 million outstanding principal balance of a partner loan we made to WRB in 2016. This cash inflow was included in the “Collection of advances/loans—related parties” line on our consolidated statement of cash flows.
DCP Midstream
DCP Midstream owns and operates gas plants, gathering systems, storage facilities and fractionation plants, primarily through its investment in DCP Partners. DCP Midstream markets a portion of its NGL to us and CPChem under supply agreements, the primary production commitment of which began a ratable wind-down period in December 2014 and expires in January 2019. This purchase commitment is on an “if-produced, will-purchase” basis. NGL is purchased under this agreement at various published market index prices, less transportation and fractionation fees. At December 31, 2017,2019, the aggregate remaining basis difference for this investment was $877 million.
On November 6, 2019, DCP Partners completed a transaction to eliminate all general partner economic interests in DCP Partners and incentive distribution rights (IDRs) in exchange for 65 million newly issued DCP Partners common units. With completion of the transaction, DCP Midstream held a noneconomic general partner interest and approximately 118 million common units, representing approximately 57% of DCP Partners’ outstanding common units.
At December 31, 2019 and 2018, the book value of our investment in DCP Midstream was $2,227$1,374 million and $2,240 million, respectively.
| |
| • | Gray Oak Pipeline, LLC—Phillips 66 Partners’ consolidated subsidiary, Gray Oak Holdings LLC (Holdings LLC), owns a 65% interest in a joint venture formed to develop and construct the Gray Oak Pipeline system that will transport crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, the Sweeny area, including our Sweeny Refinery, as well as access to the Houston market. The pipeline system is expected to reach full service in the second quarter of 2020. In February 2019, Holdings LLC transferred a 10% ownership interest in Gray Oak Pipeline, LLC to a third party that exercised a purchase option, for proceeds of $81 million. This transfer was accounted for as a sale and resulted in a decrease in Holdings LLC’s ownership interest in Gray Oak Pipeline, LLC from 75% to 65% and the recognition of an immaterial gain. The proceeds received from this sale are presented as an investing cash inflow in the “Proceeds from asset dispositions” line item on our consolidated statement of cash flows. At December 31, 2019, Phillips 66 Partners’ effective ownership interest in the Gray Oak Pipeline was 42.25%. See Note 27—Phillips 66 Partners LP, for additional information regarding Phillips 66 Partners’ ownership in Holdings LLC and Gray Oak Pipeline, LLC. |
Phillips 66 Partners accounts for the basis differenceinvestment in Gray Oak Pipeline, LLC under the equity method because it does not have sufficient voting rights over key governance provisions to assert control over Gray Oak Pipeline, LLC. Gray Oak Pipeline, LLC is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. Phillips 66 Partners has determined it is not the primary beneficiary because it and its co-venturers jointly direct the activities of Gray Oak Pipeline, LLC that most significantly impact Gray Oak Pipeline, LLC’s economic performance.
In June 2019, Gray Oak Pipeline, LLC entered into a third-party term loan facility with an initial borrowing capacity of $1,230 million, which was $54increased to $1,317 million in July 2019, and $1,379 million in January 2020, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. Phillips 66 Partners and its co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount. Under the agreement, Phillips 66 Partners’ maximum potential amount of future obligations is $583 million, plus any additional accrued interest and associated fees, which would be required if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At December 31, 2019, Gray Oak Pipeline, LLC had outstanding borrowings of $1,170 million, and Phillips 66 Partners’ 42.25% proportionate exposure under the equity contribution agreement was $494 million.
In 2015, we contributed $1.5 billion The net proceeds from the term loan were used by Gray Oak Pipeline, LLC for construction of the Gray Oak Pipeline and repayment of amounts borrowed under a related party loan agreement that Phillips 66 Partners and its co-venturers executed in March 2019 and terminated upon the repayment by Gray Oak Pipeline, LLC in June 2019. The total related party loan to and repayment from Gray Oak Pipeline, LLC was $95 million. These cash to DCP Midstream as a capital contribution. Our co-venturer contributed its interests in Sand Hills and Southern Hills as a capital contribution equal in value to ours. Our capital contribution wasflows are included in the “Capital expenditures“Advances/loans—related parties” and investments”“Collection of advances/loans—related parties” line items on our consolidated statement of cash flows.
CPChem
CPChem manufactures and markets petrochemicals and plastics. We have multiple supply and purchase agreements in place with CPChem, ranging in initial terms from one to 99 years, with extension options. These agreements cover sales and purchases of refined products, solvents, and petrochemical and NGL feedstocks, as well as fuel oils and gases. All products are purchased and sold under specified pricing formulas based on various published pricing indices. At December 31, 2017,2019, Phillips 66 Partners’ maximum exposure to loss was $1,253 million, which represented the book value of our equity methodthe investment in CPChem was $6,222 million.
REX
REX owns a natural gas pipeline that runs from Meeker, Colorado, to Clarington, Ohio. At December 31, 2017, the book valueGray Oak Pipeline, LLC of our equity method investment in REX was $445$759 million and the basis difference was $376term loan guarantee of $494 million. The basis difference was created by historical impairment charges we recorded to our investment.
In 2015, we contributed $112 million to REX to cover our 25 percent share of a $450 million debt repayment. Our capital contribution was included in the “Capital expenditures and investments” line on our consolidated statement of cash flows.
Sand Hills
The Sand Hills pipeline is a fee-based pipeline that transports NGL from the Permian Basin and Eagle Ford Shale to facilities along the Texas Gulf Coast and the Mont Belvieu market hub. At December 31, 2017, the book value of Phillips 66 Partners’ equity investment in Sand Hills was $515 million.
Southern Hills
The Southern Hills pipeline is a fee-based pipeline that transports NGL from the Midcontinent to facilities along the Texas Gulf Coast and the Mont Belvieu market hub. At December 31, 2017,2018, the book value of Phillips 66 Partners’ investment in Southern HillsGray Oak Pipeline, LLC was $209$288 million.
| |
| • | DCP Sand Hills Pipeline, LLC (Sand Hills)—Phillips 66 Partners’ 33 percent-owned joint venture that owns an NGL pipeline system that extends from the Permian Basin and Eagle Ford to facilities on the Texas Gulf Coast and to the Mont Belvieu, Texas market hub. The Sand Hills Pipeline system is operated by DCP Partners. At December 31, 2019 and 2018, the book value of Phillips 66 Partners’ investment in Sand Hills was $595 million and $601 million, respectively. |
| |
| • | Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)—NaN Phillips 66 Partners 25 percent-owned joint ventures. Dakota Access owns a pipeline system that transports crude oil from the Bakken/Three Forks production area in North Dakota to Patoka, Illinois, and ETCO owns a connecting crude oil pipeline system from Patoka, Illinois, to Nederland, Texas. These 2 pipeline systems collectively form the Bakken Pipeline system, which is operated by a co-venturer. The Bakken Pipeline system went into service in June 2017. |
In March 2019, a wholly owned subsidiary of Dakota Access closed on an offering of $2,500 million andaggregate principal amount of unsecured senior notes. The net proceeds from the basis difference was $94 million.
repay amounts outstanding under existing credit facilities of Dakota Access and ETCO
TheETCO. Dakota Access and ETCO joint ventures were created to construct pipeline systems that collectively formhave guaranteed repayment of the Bakken Pipeline. The Bakken Pipeline went into commercial service in June 2017, and delivers crude oil produced in the Bakken/Three Forks production area of North Dakota to market centers in the Midwest and the Gulf Coast.notes. In October 2017, these investments were contributed toaddition, Phillips 66 Partners as discussed furtherand its co-venturers in Note 27—Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, if Dakota Access receives an unfavorable court ruling related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million. Phillips 66 Partners LP.Partners’ share of the maximum potential equity contributions under the CECU is approximately $631 million. At December 31, 2017,2019 and 2018, the aggregate book value of Phillips 66 Partners’ investments in Dakota Access and ETCO was $621$592 million and $608 million, respectively.
| |
| • | Rockies Express Pipeline LLC (REX)—25 percent-owned joint venture that owns a natural gas pipeline system that extends from Wyoming and Colorado to Ohio with a bidirectional section that extends from Ohio to Illinois. The REX Pipeline system is operated by our co-venturer. In July 2018, we contributed $138 million to REX to cover our 25% share of a $550 million debt repayment. Our capital contribution was included in the “Capital expenditures and investments” line item on our consolidated statement of cash flows. |
We have a basis difference for our investment in REX because the carrying value of our investment is lower than our share of REX’s recorded net assets. This basis difference was $53created by historical impairment charges we recorded for this investment and is being amortized and recognized as a benefit to equity earnings over a period of 25 years, which was the estimated remaining useful life of REX’s PP&E when the impairment charges were recorded. At December 31, 2019, the remaining basis difference for this investment was $338 million. Equity earnings for each of the years ended December 31, 2019, 2018 and 2017, were increased by $19 million due to the amortization of our basis difference. At December 31, 2019 and 2018, the book value of our investment in REX was $590 million and $600 million, respectively.
| |
| • | Bayou Bridge Pipeline, LLC (Bayou Bridge)—Phillips 66 Partners’ 40 percent-owned joint venture that owns a pipeline that transports crude oil from Nederland, Texas, to St. James, Louisiana. A segment of the pipeline from Lake Charles to St. James, Louisiana, was completed on April 1, 2019. The Bayou Bridge Pipeline is operated by our co-venturer. At December 31, 2019 and 2018, the book value of Phillips 66 Partners’ investment in Bayou Bridge was $294 million and $277 million, respectively. |
| |
| • | CF United LLC (United)—In the fourth quarter of 2019, we acquired a 50% voting interest and a 48% economic interest in United, a retail marketing joint venture with operations primarily on the U.S. West Coast. United is considered a VIE, because our co-venturer has an option to sell its interest to us based on a fixed multiple. The put option is viewed as a variable interest as the purchase price on the exercise date may not represent the then-current fair value of United. We have determined that we are not the primary beneficiary because we and our co-venturer jointly direct the activities of United that most significantly impact economic performance. At December 31, 2019, our maximum exposure was comprised of our $265 million investment in United and any potential loss resulting from the put option. |
| |
| • | DCP Southern Hills Pipeline, LLC (Southern Hills)—Phillips 66 Partners’ 33 percent-owned joint venture that owns an NGL pipeline system that extends from the Midcontinent region to the Mont Belvieu, Texas market hub. The Southern Hills Pipeline system is operated by DCP Partners. At December 31, 2019 and 2018, the book value of Phillips 66 Partners’ investment in Southern Hills was $215 million and $206 million, respectively. |
| |
| • | OnCue Holdings, LLC (OnCue)—50 percent-owned joint venture that owns and operates retail convenience stores. We fully guaranteed various debt agreements of OnCue, and our co-venturer did not participate in the guarantees. This entity is considered a VIE because our debt guarantees resulted in OnCue not being exposed to all potential losses. We have determined we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact economic performance. At December 31, 2019, our maximum exposure to loss was $144 million, which represented the book value of our investment in OnCue of $77 million and guaranteed debt obligations of $67 million. At December 31, 2018, the book value of our investment in OnCue was $69 million. |
| |
| • | Liberty Pipeline LLC (Liberty)—We hold a 50% interest in a joint venture formed to develop and construct the Liberty Pipeline system which, upon completion, will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. Liberty is supported by long-term shipper commitments, and service is expected in the first half of 2021. Liberty is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We have determined we are not the primary beneficiary because we and our co-venturer jointly direct the activities of Liberty that most significantly impact economic performance. At December 31, 2019, our maximum exposure to loss was $184 million, which represented the book value of our investment in Liberty of $33 million and a vendor guarantee of $151 million. |
| |
| • | Red Oak Pipeline LLC (Red Oak)—We hold a 50% interest in a joint venture formed to develop and construct the Red Oak Pipeline system which, upon completion, will transport crude oil from Cushing, Oklahoma, and the Permian to multiple destinations along the Texas Gulf Coast, including Corpus Christi, Ingleside, Houston, and Beaumont, Texas. Red Oak is supported by long-term shipper commitments, and initial service is expected in the first half of 2021. Red Oak is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We have determined we are not the primary beneficiary because we and our co-venturer jointly direct the activities of Red Oak that most significantly impact economic performance. At December 31, 2019, our maximum exposure to loss was $23 million, which represented the book value of our investment in Red Oak of $20 million and a member loan of $3 million. |
Total distributions received from affiliates were $2,055 million, $2,942 million, and $1,270 million for the years ended December 31, 2019, 2018 and 2017, respectively. In addition, at December 31, 2019, retained earnings included approximately $2,360 million related to the undistributed earnings of affiliated companies.
In May 2016,2017, we and our co-venturer atreceived payment of the time, executed agreements under which we and our co-venturer would loan$250 million outstanding sponsor loans to the Dakota Access and ETCO upjoint ventures. We also received payment of the $75 million partner loan we made to a maximum of $2,256 million and $227 million, respectively, with the amounts loaned by us and our co-venturer being proportionate to our ownership interests (Sponsor Loans). In August 2016, Dakota Access and ETCO secured a $2.5 billion facility (Facility) with a syndicate of financial institutions on a limited recourse basis with certain guarantees, and the outstanding Sponsor Loans were repaid. Allowable draws under the Facility were initially reduced and finally suspendedWRB in September 2016 pending resolution of permitting delays. As a result, Dakota Access and ETCO resumed making draws under the Sponsor Loans. The maximum amounts that could be loaned under the Sponsor Loans were reduced in September 2016, to $1,411 million for Dakota Access and $76 million for ETCO. At December 31, 2016, Dakota Access and ETCO had $976 million and $22 million, respectively, outstanding under the Sponsor Loans. Our 25 percent share of those loans was $244 million and $6 million, respectively. In February 2017, the Sponsor Loans were repaid in their entirety when draws resumed under the Facility.2016. These cash inflows, weretotaling $325 million, are included in the “Collection of advances/loans—related parties” line item on our consolidated statement of cash flows.
Summarized 100% financial information for all affiliated companies accounted for under the equity method, on a combined basis, was:
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | |
| Revenues | $ | 38,156 |
| | 43,627 |
| | 35,523 |
|
| Income before income taxes | 4,976 |
| | 6,066 |
| | 3,956 |
|
| Net income | 4,787 |
| | 5,926 |
| | 3,764 |
|
| Current assets | 6,654 |
| | 6,791 |
| | 7,325 |
|
| Noncurrent assets | 56,163 |
| | 52,649 |
| | 49,950 |
|
| Current liabilities | 6,094 |
| | 8,047 |
| | 5,248 |
|
| Noncurrent liabilities | 15,740 |
| | 10,695 |
| | 13,743 |
|
| Noncontrolling interests | 2,145 |
| | 2,550 |
| | 2,549 |
|
Note 8—Properties, Plants and Equipment
Our investment in PP&E is recorded at cost. Investments in refining and processing facilities are generally depreciated on a straight-line basis over a 25-year25-year life, pipeline assets over a 45-year45-year life and terminal assets over a 33-year life. The company’s investment in PP&E, with the associated accumulated depreciation and amortization (Accum. D&A), at December 31 was:
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | 2019 | | 2018 |
| | Gross PP&E |
| | Accum. D&A |
| | Net PP&E |
| | Gross PP&E |
| | Accum. D&A |
| | Net PP&E |
|
| | | | | | | | | | | | |
| Midstream | $ | 11,221 |
| | 2,391 |
| | 8,830 |
| | 9,663 |
| | 2,100 |
| | 7,563 |
|
| Chemicals | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Refining | 23,692 |
| | 10,336 |
| | 13,356 |
| | 22,640 |
| | 9,531 |
| | 13,109 |
|
| Marketing and Specialties | 1,847 |
| | 959 |
| | 888 |
| | 1,671 |
| | 926 |
| | 745 |
|
| Corporate and Other | 1,311 |
| | 599 |
| | 712 |
| | 1,223 |
| | 622 |
| | 601 |
|
| | $ | 38,071 |
| | 14,285 |
| | 23,786 |
|
| 35,197 |
|
| 13,179 |
| | 22,018 |
|
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | 2017 | | 2016 |
| | Gross PP&E |
| | Accum. D&A |
| | Net PP&E |
| | Gross PP&E |
| | Accum. D&A |
| | Net PP&E |
|
| | | | | | | | | | | | |
| Midstream | $ | 8,849 |
| | 1,853 |
| | 6,996 |
| | 8,179 |
| | 1,579 |
| | 6,600 |
|
| Chemicals | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Refining | 22,144 |
| | 8,987 |
| | 13,157 |
| | 21,152 |
| | 8,197 |
| | 12,955 |
|
| Marketing and Specialties | 1,658 |
| | 909 |
| | 749 |
| | 1,451 |
| | 776 |
| | 675 |
|
| Corporate and Other | 1,091 |
| | 533 |
| | 558 |
| | 1,207 |
| | 582 |
| | 625 |
|
| | $ | 33,742 |
| | 12,282 |
| | 21,460 |
|
| 31,989 |
|
| 11,134 |
| | 20,855 |
|
Note 9—Goodwill and Intangibles
Goodwill
The carrying amount of goodwill by segment at December 31 was:
|
| | | | | | | | | | | | |
| | Millions of Dollars |
| | Midstream |
| | Refining |
| | Marketing and Specialties |
| | Total |
|
| | | | | | | | |
| Balance at January 1, 2018 | $ | 626 |
| | 1,805 |
| | 839 |
| | 3,270 |
|
| Adjustments | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2018 | 626 |
| | 1,805 |
| | 839 |
| | 3,270 |
|
| Adjustments | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2019 | $ | 626 |
| | 1,805 |
| | 839 |
| | 3,270 |
|
|
| | | | | | | | | | | | |
| | Millions of Dollars |
| | Midstream |
| | Refining |
| | Marketing and Specialties |
| | Total |
|
| | | | | | | | |
| Balance at January 1, 2016 | $ | 623 |
| | 1,813 |
| | 839 |
| | 3,275 |
|
| Goodwill assigned to acquisitions | 3 |
| | — |
| | — |
| | 3 |
|
| Goodwill allocated to dispositions | — |
| | (8 | ) | | — |
| | (8 | ) |
| Balance at December 31, 2016 | 626 |
| | 1,805 |
| | 839 |
| | 3,270 |
|
| Adjustments | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2017 | $ | 626 |
| | 1,805 |
| | 839 |
| | 3,270 |
|
Intangible Assets
The gross carrying value of indefinite-lived intangible assets at December 31 consisted of the following:
|
| | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
|
| | | | |
| Trade names and trademarks | $ | 503 |
| | 503 |
|
| Refinery air and operating permits | 249 |
| | 250 |
|
| | $ | 752 |
| | 753 |
|
|
| | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
|
| | | | |
| Trade names and trademarks | $ | 503 |
| | 503 |
|
| Refinery air and operating permits | 252 |
| | 260 |
|
| Other | 1 |
| | 1 |
|
| | $ | 756 |
| | 764 |
|
At December 31, 2017, theThe net book value of our amortized intangible assets was $120$117 million which included accumulated amortization of $173 million. Atand $116 million at December 31, 2016, the net book value2019 and 2018, respectively. Acquisitions of our amortized intangible assets was $124 million, which included accumulatedwere not material in 2019 and 2018. For the years ended December 31, 2019, 2018 and 2017, amortization of $152 million. Amortization expense was $21$17 million, $18$14 million and $13$21 million, in 2017, 2016 and 2015, respectively, and is expected to be less than $20 million per year in future years.
Note 10—Asset Retirement Obligations and Accrued Environmental Costs
Asset retirement obligations and accrued environmental costs at December 31 were:
| | | | Millions of Dollars | Millions of Dollars |
| | 2017 |
| | 2016 |
| 2019 |
| | 2018 |
|
| | | | | | | |
| Asset retirement obligations | $ | 268 |
| | 244 |
| $ | 280 |
| | 261 |
|
| Accrued environmental costs | 458 |
| | 496 |
| 441 |
| | 447 |
|
| Total asset retirement obligations and accrued environmental costs | 726 |
| | 740 |
| 721 |
| | 708 |
|
| Asset retirement obligations and accrued environmental costs due within one year* | (85 | ) | | (85 | ) | (83 | ) | | (84 | ) |
| Long-term asset retirement obligations and accrued environmental costs | $ | 641 |
| | 655 |
| $ | 638 |
| | 624 |
|
* Classified as a current liability on the consolidated balance sheet, under the caption “Other accruals.”
Asset Retirement Obligations
We have asset retirement obligations that we are required to perform under law or contract once an asset is permanently taken out of service. Most of these obligations are not expected to be paid until many years in the future and are expected to be funded from general company resources at the time of removal. Our largest individual obligations involve asbestos abatement at refineries.
During 2017the years ended December 31, 2019 and 2016,2018, our overall asset retirement obligation changed as follows:
|
| | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
|
| | | | |
| Balance at January 1 | $ | 261 |
| | 268 |
|
| Accretion of discount | 10 |
| | 10 |
|
| Changes in estimates of existing obligations | 31 |
| | 3 |
|
| Spending on existing obligations | (22 | ) | | (15 | ) |
| Foreign currency translation | — |
| | (5 | ) |
| Balance at December 31 | $ | 280 |
| | 261 |
|
|
| | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
|
| | | | |
| Balance at January 1 | $ | 244 |
| | 251 |
|
| Accretion of discount | 10 |
| | 9 |
|
| Changes in estimates of existing obligations | 17 |
| | 10 |
|
| Spending on existing obligations | (14 | ) | | (15 | ) |
| Property dispositions | — |
| | (5 | ) |
| Foreign currency translation | 11 |
| | (6 | ) |
| Balance at December 31 | $ | 268 |
| | 244 |
|
Accrued Environmental Costs
The $38For the year ended December 31, 2019, the $6 million decrease in total accrued environmental costs in 2017 was due to payments and settlements during the year, which exceeded new accruals, accrual adjustments and accretion.
Of our total accrued environmental costs at December 31, 2017, $2222019, $240 million was primarily related to cleanup at domestic refineries and underground storage tanks at U.S. service stations; $187$147 million was associated with nonoperator sites; and $49$54 million was related to sites at which we have been named a potentially responsible party under federal or state laws. A large portion of our expected environmental expenditures have been discounted as these obligations were acquired in various business combinations. Expected expenditures for acquired environmental obligations were discounted using a weighted-average 5 percent discount factor, resulting in anrate of approximately 5%. At December 31, 2019, the accrued balance for acquired environmental liabilities of $268 million at December 31, 2017.was $246 million. The expected future undiscounted payments related to the portion of the accrued environmental costs that have been discounted are: $18 million in 2018, $46 million in 2019, $30$26 million in 2020, $24 million in 2021, $23 million in 2022, $19 million in 2023, $16 million in 2021, $162024, and $206 million in 2022, and $216 millionthe aggregate for all future years after 2022.2024.
Note 11—Earnings Per Share
The numerator of basic earnings per share (EPS) is net income attributable to Phillips 66, reduced by noncancelable dividends paid on unvested share-based employee awards during the vesting period (participating securities). The denominator of basic EPS is the sum of the daily weighted-average number of common shares outstanding during the periods presented and fully vested stock and unit awards that have not yet been issued as common stock. The numerator of diluted EPS is also based on net income attributable to Phillips 66, which is reduced only by dividend equivalents paid on participating securities for which the dividends are more dilutive than the participation of the awards in the earnings of the periods presented. To the extent unvested stock, unit or option awards and vested unexercised stock options are dilutive, they are included with the weighted-average common shares outstanding in the denominator. Treasury stock is excluded from the denominator in both basic and diluted EPS.
|
| | | | | | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | Basic |
| Diluted |
| | Basic |
| Diluted |
| | Basic |
| Diluted |
|
Amounts Attributed to Phillips 66 Common Stockholders (millions): | | | | | | | | |
| Net income attributable to Phillips 66 | $ | 3,076 |
| 3,076 |
| | 5,595 |
| 5,595 |
| | 5,106 |
| 5,106 |
|
| Income allocated to participating securities | (6 | ) | (2 | ) | | (6 | ) | — |
| | (6 | ) | — |
|
| Net income available to common stockholders | $ | 3,070 |
| 3,074 |
|
| 5,589 |
| 5,595 |
|
| 5,100 |
| 5,106 |
|
| | | | | | | | | |
Weighted-average common shares outstanding (thousands): | 448,787 |
| 451,364 |
| | 467,483 |
| 470,708 |
| | 511,268 |
| 515,090 |
|
| Effect of share-based compensation | 2,577 |
| 2,524 |
| | 3,225 |
| 3,339 |
| | 3,822 |
| 3,418 |
|
| Weighted-average common shares outstanding—EPS | 451,364 |
| 453,888 |
| | 470,708 |
| 474,047 |
| | 515,090 |
| 518,508 |
|
| | | | | | | | | |
Earnings Per Share of Common Stock (dollars) | $ | 6.80 |
| 6.77 |
| | 11.87 |
| 11.80 |
| | 9.90 |
| 9.85 |
|
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | Basic |
| Diluted |
| | Basic |
| Diluted |
| | Basic |
| Diluted |
|
Amounts Attributed to Phillips 66 Common Stockholders (millions): | | | | | | | | |
| Net income attributable to Phillips 66 | $ | 5,106 |
| 5,106 |
| | 1,555 |
| 1,555 |
| | 4,227 |
| 4,227 |
|
| Income allocated to participating securities | (6 | ) | — |
| | (6 | ) | (5 | ) | | (6 | ) | — |
|
| Net income available to common stockholders | $ | 5,100 |
| 5,106 |
| | 1,549 |
| 1,550 |
| | 4,221 |
| 4,227 |
|
| | | | | | | | | |
Weighted-average common shares outstanding (thousands): | 511,268 |
| 515,090 |
| | 523,250 |
| 527,531 |
| | 537,602 |
| 542,355 |
|
| Effect of share-based compensation | 3,822 |
| 3,418 |
| | 4,281 |
| 2,535 |
| | 4,753 |
| 4,622 |
|
| Weighted-average common shares outstanding—EPS | 515,090 |
| 518,508 |
| | 527,531 |
| 530,066 |
| | 542,355 |
| 546,977 |
|
| | | | | | | | | |
Earnings Per Share of Common Stock (dollars) | $ | 9.90 |
| 9.85 |
| | 2.94 |
| 2.92 |
| | 7.78 |
| 7.73 |
|
Note 12—Debt
Long-termShort-term and long-term debt at December 31 was:
|
| | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
|
| Phillips 66 | | | |
| 4.300% Senior Notes due April 2022 | $ | 2,000 |
| | 2,000 |
|
| 3.900% Senior Notes due March 2028 | 800 |
| | 800 |
|
| 4.650% Senior Notes due November 2034 | 1,000 |
| | 1,000 |
|
| 5.875% Senior Notes due May 2042 | 1,500 |
| | 1,500 |
|
| 4.875% Senior Notes due November 2044 | 1,700 |
| | 1,700 |
|
| Floating-rate notes due April 2020 at 2.751% and 3.186% at year-end 2019 and 2018, respectively | 300 |
| | 300 |
|
| Term loan due April 2020 at 2.699% and 3.422% at year-end 2019 and 2018, respectively | 200 |
| | 200 |
|
| Floating-rate Senior Notes due February 2021 at 2.517% and 3.289% at year-end 2019 and 2018, respectively | 500 |
| | 500 |
|
| Floating-rate Advance Term Loan due December 2034 at 2.392%—related party | 25 |
| | — |
|
| Other | 1 |
| | 1 |
|
| | | | |
| Phillips 66 Partners | | | |
| 2.646% Senior Notes due February 2020 | — |
| | 300 |
|
| 2.450% Senior Notes due December 2024 | 300 |
| | — |
|
| 3.605% Senior Notes due February 2025 | 500 |
| | 500 |
|
| 3.550% Senior Notes due October 2026 | 500 |
| | 500 |
|
| 3.750% Senior Notes due March 2028 | 500 |
| | 500 |
|
| 3.150% Senior Notes due December 2029 | 600 |
| | — |
|
| 4.680% Senior Notes due February 2045 | 450 |
| | 450 |
|
| 4.900% Senior Notes due October 2046 | 625 |
| | 625 |
|
| Tax-exempt bonds due April 2020 and April 2021 at 1.850% and 1.885% at year-end 2019 and 2018, respectively | 75 |
| | 75 |
|
| Revolving credit facility due January 2019 and October 2021 at weighted-average rate of 3.669% at year-end 2018 | — |
| | 125 |
|
| Debt at face value | 11,576 |
| | 11,076 |
|
| Finance leases | 277 |
| | 184 |
|
| Software obligations | 10 |
| | — |
|
| Net unamortized discounts and debt issuance costs | (100 | ) | | (100 | ) |
| Total debt | 11,763 |
| | 11,160 |
|
| Short-term debt | (547 | ) | | (67 | ) |
| Long-term debt | $ | 11,216 |
| | 11,093 |
|
|
| | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
|
| | | | |
| 2.950% Senior Notes due 2017 | $ | — |
| | 1,500 |
|
| 4.300% Senior Notes due 2022 | 2,000 |
| | 2,000 |
|
| 4.650% Senior Notes due 2034 | 1,000 |
| | 1,000 |
|
| 5.875% Senior Notes due 2042 | 1,500 |
| | 1,500 |
|
| 4.875% Senior Notes due 2044 | 1,500 |
| | 1,500 |
|
| Phillips 66 Partners 2.646% Senior Notes due 2020 | 300 |
| | 300 |
|
| Phillips 66 Partners 3.605% Senior Notes due 2025 | 500 |
| | 500 |
|
| Phillips 66 Partners 3.550% Senior Notes due 2026 | 500 |
| | 500 |
|
| Phillips 66 Partners 3.750% Senior Notes due 2028 | 500 |
| | — |
|
| Phillips 66 Partners 4.680% Senior Notes due 2045 | 450 |
| | 300 |
|
| Phillips 66 Partners 4.900% Senior Notes due 2046 | 625 |
| | 625 |
|
| Floating-rate notes due 2019 at 2.009% at year-end 2017 | 300 |
| | — |
|
Floating-rate notes due 2020 at 2.109% at year-end 2017
| 300 |
| | — |
|
| Term loan due 2020 at 2.469% at year-end 2017 | 450 |
| | — |
|
| Note payable to MSLP due 2020 at 7.00%* | — |
| | 68 |
|
| Industrial Development Bonds due 2018 through 2021 at 0.80%-2.09% at year-end 2017 and 0.57%-0.81% at year-end 2016* | 100 |
| | 50 |
|
| Phillips 66 Partners revolving credit facility due 2021 at 1.98% at year-end 2016 | — |
| | 210 |
|
| Other | 1 |
| | 1 |
|
| Debt at face value | 10,026 |
| | 10,054 |
|
| Capitalized leases | 192 |
| | 188 |
|
| Net unamortized discounts and debt issuance costs | (108 | ) | | (104 | ) |
| Total debt | 10,110 |
| | 10,138 |
|
| Short-term debt | (41 | ) | | (550 | ) |
| Long-term debt | $ | 10,069 |
| | 9,588 |
|
| * In February 2017, MSLP became a consolidated subsidiary, see Note 5—Business Combinations. |
Maturities of borrowings outstanding at December 31, 2017,2019, inclusive of net unamortized discounts and debt issuance costs, for each of the years from 20182020 through 20222024 are $41$547 million, $314$568 million, $1,084$2,012 million, $62$17 million and $2,003$312 million, respectively.
During the year ended December 31, 2019, our debt at face value increased $500 million due to:
Phillips 66 Partners’ issuance of $900 million of Senior Notes due December 2024 and December 2029.
Phillips 66 Partners’ repayment of the $300 million outstanding principal balance of its 2.646% Senior Notes due February 2020.
Phillips 66 Partners’ repayment of the $125 million outstanding under its revolving credit facility.
Borrowing of $25 million under our floating-rate Advance Term Loan due December 2034.
2019 Debt Issuances and Repayments
InOn October 2017,15, 2019, Phillips 66 Partners repaid the aggregate $300 million outstanding principal balance of its 2.646% Senior Notes due February 2020.
On September 13, 2019, Phillips 66 Partners repaid the aggregate $400 million outstanding principal balance of the senior unsecured term loan facility that was drawn during the first half of 2019.
On September 6, 2019, Phillips 66 Partners closed on a public offering of $650 million aggregate principal amount of senior notes, consisting of $500 million of 3.750% Senior Notes due 2028 and $150 million of 4.680% Senior Notes due 2045. Interest on the 3.750% Senior Notes due 2028 is payable semiannually in arrears on March 1 and September 1 of each year, commencing on March 1, 2018. Interest on the 4.680% Senior Notes due 2045 is payable semiannually in arrears on February 15 and August 15 of each year.
In April 2017, Phillips 66 completed a private offering of $600$900 million aggregate principal amount of unsecured notes consisting of:
$300 million aggregate principal amount of 2.450% Senior Notes due December 15, 2024.
$600 million aggregate principal amount of 3.150% Senior Notes due December 15, 2029.
Interest on each series of senior notes is payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. Net proceeds from the Senior Notes offering were used for the September 13, 2019 and October 15, 2019 debt repayments noted above and general business purposes.
On March 22, 2019, Phillips 66 Partners entered into a senior unsecured term loan facility with a borrowing capacity of $400 million due March 20, 2020. Phillips 66 Partners borrowed an aggregate amount of $400 million under the facility during the first half of 2019. Net proceeds from the term loan facility were used for the repayment of the outstanding balance under the Phillips 66 Partners’ revolving credit facility and general business purposes.
2018 Debt Issuances and Repayments
In December 2018, Phillips 66 repaid the $300 million floating-rate notes due April 2019.
In June 2018, Phillips 66 repaid $250 million of the $450 million outstanding under its three-year term loan facility due April 2020.
On March 1, 2018, Phillips 66 closed on a public offering of $1,500 million aggregate principal amount of unsecured notes consisting of:
$500 million of floating-rate Senior Notes due 2019 and $300 million of Notes due 2020.February 2021. Interest on these notes is a floating rate equal to the three-month London Interbank Offered Rate (LIBOR) plus 0.65%0.60% per annum for the 2019 Notes and three-month LIBOR plus 0.75% per annum for the 2020 Notes. Interest on both series of notes is payable quarterly in arrears on January 15, April 15, JulyFebruary 26, May 26, August 26 and November 26, beginning on May 29, 2018.
$800 million of 3.900% Senior Notes due March 2028. Interest on these notes is payable semiannually on March 15 and OctoberSeptember 15 commencing in July 2017. The 2019of each year, beginning on September 15, 2018.
An additional $200 million of our 4.875% Senior Notes maturedue November 2044. Interest on Aprilthese notes is payable semiannually on May 15 2019, and the 2020 Notes matureNovember 15 of each year, beginning on AprilMay 15, 2020. The2018.
These notes are guaranteed by Phillips 66 Company, a 100-percent-ownedwholly owned subsidiary.
Also in April 2017, Phillips 66 entered into term loan facilities with an aggregate borrowing amountused the net proceeds from the issuance of $900 million, consisting of a $450 million 364-day facilitythese notes and a $450 million three-year facility. Interestcash on hand to repay commercial paper borrowings during the term loans is a floating rate based on either the Eurodollar rate or the reference rate, plus a margin determined by our long-term credit ratings.
In February 2017, as part of the consolidation of MSLP, Phillips 66 assumed $135 million of 8.85% Senior Notes due in 2019 and $100 million of tax-exempt bonds due betweenthree months ended March 31, 2018, and 2021.for general corporate purposes. The commercial paper borrowings during the three months ended March 31, 2018, were primarily used to repurchase shares of our common stock. See Note 5—Business Combinations for additional information regarding the consolidation of MSLP.
Debt Repayments
In October 2017, as part of a contribution of assets to Phillips 66 Partners, Phillips 66 Partners assumed the $450 million term loan outstanding under the 364-day facility originally issued in April 2017, and subsequently repaid the loan. See Note 27—Phillips 66 Partners LP17—Equity, for additional information.
In May 2017, we repaid $1,500 million of 2.950% Senior Notes upon maturity with the funding from the April 2017 debt issuances discussed above. In addition, we repaid $135 million of MSLP 8.85% Senior Notes due in 2019 originally recorded in February 2017 as part of the consolidation of MSLP. See Note 5—Business Combinations for additional information regarding MSLP.
During 2017, Phillips 66 Partners repaid all outstanding borrowings under its $750 million revolving credit facility.
Credit Facilities and Commercial Paper
Phillips 66 has a $5.0 billion revolving credit facility that extends until October 2021. This facility may be used for direct bank borrowings, as support for issuances of letters of credit, or as support for our commercial paper program. On July 30, 2019, this revolving credit agreement was amended and restated to extend the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $5 billion with an option to increase the overall capacity to $6 billion, subject to certain conditions. The facility is with a broad syndicate of financial institutions and contains covenants that we considerare usual and customary for an agreement of this type for comparable commercial borrowers, including a maximum consolidated net debt-to-capitalization ratio of 60 percent.65%. The agreement has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; violation of covenants; cross-payment default and cross-acceleration (in each case, to indebtedness in excess of a threshold amount); and a change of control. Borrowings under the facility will incur interest at the LIBOR plus a margin based on the credit rating of our senior unsecured long-term debt as determined from time to time by Standard & Poor’s RatingsFinancial Services LLC and Moody’s Investors Service.Service, Inc. The facility also provides for customary fees, including administrative agent fees and commitment fees. At December 31, 2017, no2019 and 2018, 0 amount had been drawn under this revolving credit agreement.
We havePhillips 66 has a $5.0$5 billion commercial paper program for short-term working capital needs that is supported by our revolving credit facility. Commercial paper maturities are generally limited to 90 days. At December 31, 2017, we had no2019 and 2018, 0 borrowings were outstanding under ourthe commercial paper program. At February 21, 2020, there was approximately $650 million in borrowings outstanding under the program.
Phillips 66 Partners has a $750 million revolving credit facility that extends until October 2021. The Phillips 66 Partners facility is with a broad syndicate of financial institutions. The revolving credit facility contains covenants that are usual and customary for an agreement of this type for comparable commercial borrowers. At Phillips 66 Partners’ option, outstanding borrowings under this facility bear interest at either i) the Eurodollar rate plus a margin based on its credit rating; or ii) the base rate (as described in the facility agreement) plus a margin based on its credit rating. Eurodollar rate borrowings are due on the facility’s termination date, while base rate borrowings are due the earlier of the facility’s termination date or the fourteenth business day after such borrowings were made. On July 30, 2019, Phillips 66 Partners amended and restated its revolving credit agreement. The agreement extended the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $750 million with an option to increase the overall capacity to $1 billion, subject to certain conditions. At December 31, 2017,2019, Phillips 66 Partners had no0 borrowings outstanding under this facility; however, $1 million in letters of credit had been issued that were supported by this facility. There was $125 million outstanding under this facility at December 31, 2018.
We had approximately $5.7 billion and $5.6 billion of total committed capacity available under our revolving credit facilities at December 31, 2019 and 2018, respectively.
Note 13—Guarantees
At December 31, 2017,2019, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability either because the guarantees were issued prior to December 31, 2002, or because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guaranteeguarantees and expect future performance to be either immaterial or have only a remote chance of occurrence.
Guarantees of Joint-Venture Debt
In December 2016, as part of the restructuring within DCP Midstream, we issued a guarantee, effective January 1, 2017, to support the debt DCP Midstream issued in the first quarter of 2017. At December 31, 2017, the maximum potential amount of future payments to third parties under the guarantee is estimated to be $175 million. Payment would be required if DCP Midstream defaults on this debt obligation, which matures in 2019.
At December 31, 2017, we had other guarantees outstanding for our portion of certain joint-venture debt obligations, which have remaining terms of up to 8 years. The maximum potential amount of future payments to third parties under these guarantees is approximately $133 million. Payment would be required if a joint venture defaults on its debt obligations.
OtherLease Residual Value Guarantees
Under the operating lease agreement on our headquarters facility in Houston, Texas, we have a residual value guarantee with a maximum future exposure of $554 million.million at December 31, 2019. The operating lease has a term of five yearsends in June 2021 and provides us the option, at the end of the lease term, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale.
We also have residual value guarantees associated with railcar and airplane leases with maximum potential future exposurespayments totaling $305$372 million. BasedThese leases have remaining terms of up to four years. For the years ended December 31, 2019, 2018 and 2017, we recognized incremental operating lease rental expense of $1 million, $20 million and $45 million, respectively, for residual value deficiencies for certain aircraft and railcar leases based on third-partythird‑party appraisals of the railcars’expected fair value at the end of theirthe lease terms, we estimated a totalterms. The railcar leases were amended in November 2018 and October 2017 resulting in residual value deficiency settlement payments of $109$40 million and recognized $28$53 million, as expense in 2016. During 2017,respectively. At December 31, 2019 and 2018, we recognized an additional $45 million of expense related to thedid not have any liabilities recorded for residual value deficiency. In October 2017, upon maturity of one ofdeficiencies under our railcar leases, $53 millionleases.
Contingent Equity Contribution Undertaking
In March 2019, Phillips 66 Partners and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking in conjunction with an unsecured senior notes offering. See Note 7—Investments, Loans and Long-Term Receivables, for additional information on Dakota Access.
Guarantees of the total residual value deficiencyJoint Venture Obligations
In June 2019, Phillips 66 Partners issued a guarantee through an equity contribution agreement for 42.25% of $109 million was settled. The remaining residual value deficiency of $36 million remainingGray Oak Pipeline, LLC’s third-party term loan facility. See Note 7—Investments, Loans and Long-Term Receivables, for additional information on Gray Oak Pipeline, LLC.
In addition, at December 31, 2017, will2019, we had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations that have remaining terms of up to six years. The maximum potential amount of future payments to third parties under these guarantees was approximately $263 million. Payment would be recognizedrequired if a joint venture defaults on a straight-line basis through May 2019.its obligations.
Indemnifications
Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to indemnification. Agreements associated with these sales include indemnifications for taxes, litigation, environmental liabilities, permits and licenses and employee claims, as well as real estate indemnity against tenant defaults. The provisions of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, which generally have indefinite terms and potentially unlimited exposure. TheAt December 31, 2019 and 2018, the carrying amount of recorded for indemnifications at December 31, 2017, was $193 million.$153 million and $171 million, respectively.
We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have information to support that the liability was essentially relieved or amortize the liability over an appropriate time period as the fair value of our indemnification exposure declines.reversal. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments. Included in the recorded carrying amount were $104 million ofAt December 31, 2019 and 2018, environmental accruals for known contamination at December 31, 2017.of $105 million and $101 million, respectively, were included in the carrying amount of the recorded indemnifications noted above. These environmental accruals were primarily included in the “Asset retirement obligations and accrued environmental costs” line item on our consolidated balance sheet. For additional information about environmental liabilities, see Note 10—Asset Retirement Obligations and Accrued Environmental Costs and Note 14—Contingencies and Commitments.
Indemnification and Release Agreement
In 2012, in connection with the Separation,our separation from ConocoPhillips (the Separation), we entered into the Indemnification and Release Agreement with ConocoPhillips.Agreement. This agreement governs the treatment between ConocoPhillips and us of matters relating to indemnification, insurance, litigation responsibility and management, and litigation document sharing and cooperation arising in connection with the Separation. Generally, the agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of ConocoPhillips’ business with ConocoPhillips. The agreement also establishes procedures for handling claims subject to indemnification and related matters.
Note 14—Contingencies and Commitments
A number of lawsuits involving a variety of claims that arose in the ordinary course of business have been filed against us or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income-tax-relatedincome tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain. See Note 21—Income Taxes,, for additional information about income-tax-relatedincome tax-related contingencies.
Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.
Environmental
We are subject to international, federal, state and local environmental laws and regulations. When we prepare our consolidated financial statements, we record accruals for environmental liabilities based on management’s best estimates, using all information available at the time. We measure estimates and base contingent liabilities on currently available facts, existing technology and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring contingent environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency (EPA) or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.
Although liability for environmental remediation costs is generally joint and several for federal sites and frequently so for state sites, we are usually only one of many companies alleged to have liability at a particular site. Due to such joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been designated as a potentially responsible party. We have been successful to date in sharing cleanup costs with other financially sound companies. Many of the sites at which we are potentially responsible are still under investigation by the EPA or the state agencies concerned. Prior to actual cleanup, those potentially responsible normally assess the site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or may attain a settlement of liability. Where it appears that other potentially responsible parties may be financially unable to bear their proportional share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly. As a result of various acquisitions in the past, we assumed certain environmental obligations. Some of these environmental obligations are mitigated by indemnifications made by others for our benefit, although some of the indemnifications are subject to dollar and time limits.
We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those pertaining to sites acquired in a business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings. See Note 10—Asset Retirement Obligations and Accrued Environmental Costs,, for a summary of our accrued environmental liabilities.
Legal Proceedings
Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required.
Other Contingencies
We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized.
At December 31, 2017,2019, we had performance obligations secured by letters of credit and bank guarantees of $773$1,111 million related to various purchase and other commitments incident to the ordinary conduct of business.
Long-Term Throughput Agreements and Take-or-Pay Agreements
We have certain throughput agreements and take-or-pay agreements in support of third-party financing arrangements. The agreements typically provide for crude oil transportation to be used in the ordinary course of our business. TheAt December 31, 2019, the estimated aggregate amounts of estimatedfuture payments under these various agreements are $327were $321 million annuallyper year for each ofyear from 2020 through 2024 and $1,983 million in aggregate for all years after 2024. For the years fromended December 31, 2019, 2018 through 2022 and $2,644 million in the aggregate for years 2023 and thereafter. Total2017, total payments under thethese agreements were $321 million, $323 million in 2017, $325and $323 million, in 2016 and $328 million in 2015.respectively.
Note 15—Derivatives and Financial Instruments
Derivative Instruments
We use financial and commodity-based derivative contracts to manage exposures to fluctuations in commodity prices, interest rates and foreign currency exchange rates, or to capture market opportunities. Because we do not apply hedge accounting for commodity derivative contracts, all realized and unrealized gains and losses from commodity derivative contracts are recognized in our consolidated statement of income. Gains and losses from derivative contracts held for trading not directly related to our physical business are reported net in the “Other income” line item on our consolidated statement of income. Cash flows from all our derivative activity for the periods presented appear in the operating section on our consolidated statement of cash flows.
Purchase and sales contracts with firm minimum notional volumes for commodities that are readily convertible to cash are recorded on our consolidated balance sheet as derivatives unless the contracts are eligible for, and we elect, the normal purchases and normal sales exception, whereby the contracts are recorded on an accrual basis. We generally apply the normal purchases and normal sales exception to eligible crude oil, refined products,petroleum product, NGL, natural gas and power commodity contracts to purchase or sell quantities we expect to use or sell in the normal course of business. All other derivative instruments are recorded at fair value on our consolidated balance sheet. For further information on the fair value of derivatives, see Note 16—Fair Value Measurements.
Commodity Derivative Contracts—We sell into or receive supply from the worldwide crude oil, refined products,petroleum product, NGL, natural gas and electric power markets, exposing our revenues, purchases, cost of operating activities and cash flows to fluctuations in the prices for these commodities. Generally, our policy is to remain exposed to the market prices of commodities; however, we use futures, forwards, swaps and options in various markets to balance physical systems, meet customer needs, manage price exposures on specific transactions, and do a limited immaterial amount of trading not directly related to our physical business, all of which may reduce our exposure to fluctuations in market prices. We also use the market knowledge gained from these activities to capture market opportunities such as moving physical commodities to more profitable locations, storing commodities to capture seasonal or time premiums, and blending commodities to capture quality upgrades.
The following table indicates the consolidated balance sheet line items that include the fair values of commodity derivative assets and liabilities. The balances in the following table are presented on a gross basis, before the effects of counterparty and collateral netting. However, we have elected to present our commodity derivative assets and liabilities with the same counterparty on a net basis on our consolidated balance sheet when the legal right of setoffoffset exists.
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | December 31, 2019 | | December 31, 2018 |
| | Commodity Derivatives | Effect of Collateral Netting |
| Net Carrying Value Presented on the Balance Sheet |
| | Commodity Derivatives | Effect of Collateral Netting |
| Net Carrying Value Presented on the Balance Sheet |
|
| | Assets |
| Liabilities |
| Assets |
| Liabilities |
|
| Assets | | | | | | | | | |
| Prepaid expenses and other current assets | $ | 23 |
| — |
| — |
| 23 |
| | 1,257 |
| (1,070 | ) | (89 | ) | 98 |
|
| Other assets | 3 |
| — |
| — |
| 3 |
| | 2 |
| — |
| — |
| 2 |
|
| Liabilities | | | |
|
| | | | | |
| Other accruals | 1,188 |
| (1,281 | ) | 80 |
| (13 | ) | | — |
| (23 | ) | — |
| (23 | ) |
| Other liabilities and deferred credits | — |
| (1 | ) | — |
| (1 | ) | | 5 |
| (7 | ) | — |
| (2 | ) |
| Total | $ | 1,214 |
| (1,282 | ) | 80 |
| 12 |
|
| 1,264 |
| (1,100 | ) | (89 | ) | 75 |
|
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | December 31, 2017 | | December 31, 2016 |
| | Commodity Derivatives | Effect of Collateral Netting |
| Net Carrying Value Presented on the Balance Sheet |
| | Commodity Derivatives | Effect of Collateral Netting |
| Net Carrying Value Presented on the Balance Sheet |
|
| | Assets |
| Liabilities |
| Assets |
| Liabilities |
|
| Assets | | | | | | | | | |
| Prepaid expenses and other current assets | $ | 43 |
| (19 | ) | — |
| 24 |
| | 267 |
| (154 | ) | — |
| 113 |
|
| Other assets | 7 |
| (3 | ) | — |
| 4 |
| | 5 |
| (1 | ) | — |
| 4 |
|
| Liabilities | | | |
|
| | | | | |
| Other accruals | 699 |
| (746 | ) | 21 |
| (26 | ) | | 474 |
| (612 | ) | 73 |
| (65 | ) |
| Other liabilities and deferred credits | — |
| (1 | ) | — |
| (1 | ) | | — |
| (1 | ) | — |
| (1 | ) |
| Total | $ | 749 |
| (769 | ) | 21 |
| 1 |
|
| 746 |
| (768 | ) | 73 |
| 51 |
|
At December 31, 20172019 and 2016,2018, there was no material cash collateral received or paid that was not offset on our consolidated balance sheet.
The realized and unrealized gains (losses) incurred from commodity derivatives, and the line items where they appear on our consolidated statement of income, were:
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | |
| Sales and other operating revenues | $ | (150 | ) | | 192 |
| | (247 | ) |
| Other income | 33 |
| | (15 | ) | | 27 |
|
| Purchased crude oil and products | (161 | ) | | (64 | ) | | (18 | ) |
| Net gain (loss) from commodity derivative activity | $ | (278 | ) | | 113 |
| | (238 | ) |
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
|
| | | | | | |
| Sales and other operating revenues | $ | (247 | ) | | (451 | ) | | 162 |
|
| Other income | 27 |
| | 29 |
| | 58 |
|
| Purchased crude oil and products | (18 | ) | | (62 | ) | | 121 |
|
| Net gain (loss) from commodity derivative activity | $ | (238 | ) | | (484 | ) | | 341 |
|
The following table summarizes our material net exposures resulting from outstanding commodity derivative contracts. These financial and physical derivative contracts are primarily used to manage price exposure on our underlying operations. The underlying exposures may be from non-derivativenonderivative positions such as inventory volumes. Financial derivative contracts may also offset physical derivative contracts, such as forward purchase and sales contracts. The percentage of our derivative contract volumes expiring within the next 12 months was at least 98 percent98% at December 31, 20172019 and 2016.2018.
|
| | | | | |
| | Open Position Long / (Short) |
| | 2019 |
| | 2018 |
|
| Commodity | | | |
Crude oil, refined petroleum products and NGL (millions of barrels) | (16 | ) | | (17 | ) |
|
| | | | | |
| | Open Position Long / (Short) |
| | 2017 |
| | 2016 |
|
| Commodity | | | |
Crude oil, refined products and NGL (millions of barrels) | (11 | ) | | (18 | ) |
Interest Rate Derivative Contracts—In 2016, we entered into interest rate swaps to hedge the variability of anticipated lease payments on our new headquarters.headquarters facility. These monthly lease payments will vary based on monthly changes in the one-month LIBOR and changes, if any, in our credit rating over the five-year term of the lease. The pay-fixed, receive-floating interest rate swaps have an aggregate notional value of $650 million and end onin April 25, 2021. They qualify for and areWe have designated these swaps as cash-flowcash flow hedges.
The aggregate net fair value of these swaps, which is included in the “Prepaid expenses and other current assets,” “Other assets” and “Other accruals” lines ofassets” line items on our consolidated balance sheet, totaled $14$1 million and $8$15 million at December 31, 20172019 and 2016,2018, respectively.
We report the effective portion of the mark-to-market gaingains or losslosses on our interest rate swaps designated as cash-flowhighly effective cash flow hedges as a component of other comprehensive income (loss), and reclassify such gains and losses into earnings in the same period during which the hedged forecasted transaction affects earnings. Gains and losses due to ineffectiveness are recognized in general and administrative expenses. We did not have any material hedge ineffectiveness gain or loss for the years ended December 31, 2017 and 2016. Net realized gains and losses from settlements of the swaps were immaterial for the years ended December 31, 20172019 and 2016.2018.
We currently estimate that pre-tax gains of $2$1 million will be reclassified from accumulated other comprehensive income (loss)loss into general and administrative expenses during the next twelve12 months as the hedged transactions settle; however, the actual amounts that will be reclassified will vary based on changes in interest rates throughout 2018.rates.
Credit Risk from Derivative Instruments
Financial instruments potentially exposed to concentrations of credit risk consist primarily of over-the-counter (OTC)trade receivables and derivative contractscontracts.
Our trade receivables result primarily from the sale of products from, or related to, our refinery operations and trade receivables.reflect a broad national and international customer base, which limits our exposure to concentrations of credit risk. The majority of these receivables have payment terms of 30 days or less. We continually monitor this exposure and the creditworthiness of the counterparties and recognize bad debt expense based on a probability assessment of credit loss. Generally, we do not require collateral to limit the exposure to loss; however, we will sometimes use letters of credit, prepayments or master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us to others to be offset against amounts owed to us.
The credit risk from our OTC derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because these trades are cleared with an exchange clearinghouse and subject to mandatory margin requirements, typically on a daily basis, until settled. However, we are exposed to the credit risk of those exchange brokers for receivables arising from daily margin cash calls, as well as for cash deposited to meet initial margin requirements.
Our trade receivables result primarily from the sale of products from, or related to, our refinery operations and reflect a broad national and international customer base, which limits our exposure to concentrations of credit risk. The majority of these receivables have payment terms of 30 days or less. We continually monitor this exposure and the creditworthiness of the counterparties and recognize bad debt expense based on historical write-off experience or specific counterparty collectability. Generally, we do not require collateral to limit the exposure to loss; however, we will sometimes use letters of credit, prepayments or master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us or owed to others to be offset against amounts due to us.
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if our credit ratings fall below investment grade. Cash is the primary collateral in all contracts; however, many contracts also permit us to post letters of credit as collateral.
The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were not materialimmaterial at December 31, 20172019 and 2016.2018.
Note 16—Fair Value Measurements
Recurring Fair Value Measurements
We carry certain assets and liabilities at fair value, which we measure at the reporting date using an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability)liability (i.e., an exit price), and disclose the quality of these fair values based on the valuation inputs used in these measurements under the following hierarchy:
Level 1: Fair value measured with unadjusted quoted prices from an active market for identical assets or liabilities.
Level 2: Fair value measured either with: (1) adjusted quoted prices from an active market for similar assets or liabilities; or (2) other valuation inputs that are directly or indirectly observable.
Level 3: Fair value measured with unobservable inputs that are significant to the measurement.
We classify the fair value of an asset or liability based on the significance of its observable or unobservable inputs to the measurement. However, the fair value of an asset or liability initially reported as Level 3 will be subsequently reported as Level 2 if the unobservable inputs become inconsequential to its measurement or corroborating market data becomes available. Conversely, an asset or liability initially reported as Level 2 will be subsequently reported as Level 3 if corroborating market data becomes unavailable. For the year ended December 31, 2017, derivative assets with an aggregate value of $131 million and derivative liabilities with an aggregate value of $134 million were transferred to Level 1 from Level 2, as measured from the beginning of the reporting period. The measurements were reclassified within the fair value hierarchy due to the availability of unadjusted quoted prices from an active market.
We used the following methods and assumptions to estimate the fair value of financial instruments:
| |
| • | Cash and cash equivalents—The carrying amount reported on our consolidated balance sheet approximates fair value. |
| |
| • | Accounts and notes receivable—The carrying amount reported on our consolidated balance sheet approximates fair value. |
| |
| • | Derivative instruments—We fair value our exchange-traded contracts based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange or other exchanges, and classify them as Level 1 in the fair value hierarchy. When exchange-cleared contracts lack sufficient liquidity, or are valued using either adjusted exchange-provided prices or nonexchange quotes, we classify those contracts as Level 2. |
Cash and cash equivalents—The carrying amount reported on our consolidated balance sheet approximates fair value.
Accounts and notes receivable—The carrying amount reported on our consolidated balance sheet approximates fair value.
Derivative instruments—We fair value our exchange-traded contracts based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange or other exchanges, and classify them as Level 1 in the fair value hierarchy. When exchange-cleared contracts lack sufficient liquidity or are valued using either adjusted exchange-provided prices or non-exchange quotes, we classify those contracts as Level 2.
OTC financial swaps and physicalPhysical commodity forward purchase and sales contracts and over-the-counter (OTC) financial swaps are generally valued using forward quotes provided by brokers and price index developers, such as Platts and Oil Price Information Service. We corroborate these quotes with market data and classify the resulting fair values as Level 2. When forward market prices are not available, we estimate fair value using the forward price of a similar commodity, adjusted for the difference in quality or location. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, OTC swaps and physical commodity purchase and sales contracts and OTC swaps are valued using internally developed methodologies that consider historical relationships among various commodities that result in management’s best estimate of fair value. We classify these contracts as Level 3. FinancialPhysical and OTC and physical commodity options are valued using industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and contractual prices for the underlying instruments, as well as other relevant economic measures. The degree to which these inputs are observable in the forward markets determines whether the options are classified as Level 2 or 3. We use a mid-marketmidmarket pricing convention (the mid-pointmidpoint between bid and ask prices). When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.
We determine the fair value of our interest rate swaps based on observed market valuations for interest rate swaps that have notionals,notional amounts, terms and pay and reset frequencies similar to ours.
| |
| • | Rabbi trust assets—These deferred compensation investments are measured at fair value using unadjusted quoted prices available from national securities exchanges and are therefore categorized as Level 1 in the fair value hierarchy. |
| |
| • | Debt—The carrying amount of our floating-rate debt approximates fair value. The fair value of our fixed-rate debt is estimated based on observable market prices. |
Rabbi trust assets—These deferred compensation investments are measured at fair value using unadjusted quoted prices available from national securities exchanges and are therefore categorized as Level 1 in the fair value hierarchy.110
Debt—The carrying amount of our floating-rate debt approximates fair value. The fair value of our fixed-rate debt is estimated based on observable market prices.
The following tables display the fair value hierarchy for our material financial assets and liabilities either accounted for or disclosed at fair value on a recurring basis. These values are determined by treating each contract as the fundamental unit of account; therefore, derivative assets and liabilities with the same counterparty are shown on a gross basis in the hierarchy sections of these tables, before the effects of counterparty and collateral netting. These tables also show that our Level 3 activity was not material.
We have master netting agreements for all of our exchange-cleared derivative instruments, the majority of our OTC derivative instruments, and certain physical commodity forward contracts (primarily pipeline crude oil deliveries). The following tables showalso reflect the impacteffect of these contracts innetting derivative assets and liabilities with the column “Effectsame counterparty for which we have the legal right of Counterparty Netting.”offset and collateral netting.
The carrying values and fair values by hierarchy of our material financial instrumentsassets and commodity forward contracts,liabilities, either carried or disclosed at fair value, including any effects of netting derivative assets with liabilitiescounterparty and netting collateral due to right of setoff or master netting, agreements, were:
101 |
| | | | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | December 31, 2019 |
| | Fair Value Hierarchy | | Total Fair Value of Gross Assets & Liabilities |
| Effect of Counterparty Netting |
| Effect of Collateral Netting |
| Difference in Carrying Value and Fair Value |
| Net Carrying Value Presented on the Balance Sheet |
|
| | Level 1 |
| | Level 2 |
| | Level 3 |
|
| Commodity Derivative Assets | | | | | | | | | | | |
| Exchange-cleared instruments | $ | 820 |
| | 368 |
| | — |
| | 1,188 |
| (1,188 | ) | — |
| — |
| — |
|
| Physical forward contracts | — |
| | 26 |
| | — |
| | 26 |
| — |
| — |
| — |
| 26 |
|
| Interest rate derivatives | — |
| | 1 |
| | — |
| | 1 |
| — |
| — |
| — |
| 1 |
|
| Rabbi trust assets | 127 |
| | — |
| | — |
| | 127 |
| N/A |
| N/A |
| — |
| 127 |
|
| | $ | 947 |
| | 395 |
| | — |
| | 1,342 |
| (1,188 | ) | — |
| — |
| 154 |
|
| | | | | | | | | | | | |
| Commodity Derivative Liabilities | | | | | | | | | | | |
| Exchange-cleared instruments | $ | 884 |
| | 385 |
| | — |
| | 1,269 |
| (1,188 | ) | (80 | ) | — |
| 1 |
|
| OTC instruments | — |
| | 1 |
| | — |
| | 1 |
| — |
| — |
| — |
| 1 |
|
| Physical forward contracts | — |
| | 12 |
| | — |
| | 12 |
| — |
| — |
| — |
| 12 |
|
| Floating-rate debt | — |
| | 1,100 |
| | — |
| | 1,100 |
| N/A |
| N/A |
| — |
| 1,100 |
|
| Fixed-rate debt, excluding finance leases | — |
| | 11,813 |
| | — |
| | 11,813 |
| N/A |
| N/A |
| (1,438 | ) | 10,375 |
|
| | $ | 884 |
| | 13,311 |
| | — |
| | 14,195 |
| (1,188 | ) | (80 | ) | (1,438 | ) | 11,489 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | December 31, 2018 |
| | Fair Value Hierarchy | | Total Fair Value of Gross Assets & Liabilities |
| Effect of Counterparty Netting |
| Effect of Collateral Netting |
| Difference in Carrying Value and Fair Value |
| Net Carrying Value Presented on the Balance Sheet |
|
| | Level 1 |
| | Level 2 |
| | Level 3 |
| |
| Commodity Derivative Assets | | | | | | | | | | | |
| Exchange-cleared instruments | $ | 674 |
| | 547 |
| | — |
| | 1,221 |
| (1,075 | ) | (89 | ) | — |
| 57 |
|
| Physical forward contracts | — |
| | 39 |
| | 4 |
| | 43 |
| — |
| — |
| — |
| 43 |
|
| Interest rate derivatives | — |
| | 15 |
| | — |
| | 15 |
| — |
| — |
| — |
| 15 |
|
| Rabbi trust assets | 104 |
| | — |
| | — |
| | 104 |
| N/A |
| N/A |
| — |
| 104 |
|
| | $ | 778 |
| | 601 |
| | 4 |
| | 1,383 |
| (1,075 | ) | (89 | ) | — |
| 219 |
|
| | | | | | | | | | | | |
| Commodity Derivative Liabilities | | | | | | | | | | | |
| Exchange-cleared instruments | $ | 605 |
| | 472 |
| | — |
| | 1,077 |
| (1,075 | ) | — |
| — |
| 2 |
|
| Physical forward contracts | — |
| | 20 |
| | — |
| | 20 |
| — |
| — |
| — |
| 20 |
|
| OTC instruments | — |
| | 3 |
| | — |
| | 3 |
| — |
| — |
| — |
| 3 |
|
| Floating-rate debt | — |
| | 1,200 |
| | — |
| | 1,200 |
| N/A |
| N/A |
| — |
| 1,200 |
|
| Fixed-rate debt, excluding finance leases | — |
| | 9,727 |
| | — |
| | 9,727 |
| N/A |
| N/A |
| 49 |
| 9,776 |
|
| | $ | 605 |
| | 11,422 |
| | — |
| | 12,027 |
| (1,075 | ) | — |
| 49 |
| 11,001 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | December 31, 2017 |
| | Fair Value Hierarchy | | Total Fair Value of Gross Assets & Liabilities |
| Effect of Counterparty Netting |
| Effect of Collateral Netting |
| Difference in Carrying Value and Fair Value |
| Net Carrying Value Presented on the Balance Sheet |
|
| | Level 1 |
| | Level 2 |
| | Level 3 |
|
| Commodity Derivative Assets | | | | | | | | | | | |
| Exchange-cleared instruments | $ | 333 |
| | 395 |
| | — |
| | 728 |
| (721 | ) | — |
| — |
| 7 |
|
| Physical forward contracts | — |
| | 20 |
| | 1 |
| | 21 |
| — |
| — |
| — |
| 21 |
|
| Interest rate derivatives | — |
|
| 14 |
|
| — |
|
| 14 |
| — |
| — |
| — |
| 14 |
|
| Rabbi trust assets | 112 |
| | — |
| | — |
| | 112 |
| N/A |
| N/A |
| — |
| 112 |
|
| | $ | 445 |
| | 429 |
| | 1 |
| | 875 |
| (721 | ) | — |
| — |
| 154 |
|
| | | | | | | | | | | | |
| Commodity Derivative Liabilities | | | | | | | | | | | |
| Exchange-cleared instruments | $ | 369 |
| | 373 |
| | — |
| | 742 |
| (721 | ) | (21 | ) | — |
| — |
|
| Physical forward contracts | — |
| | 23 |
| | 4 |
| | 27 |
| — |
| — |
| — |
| 27 |
|
| Floating-rate debt | — |
| | 1,150 |
| | — |
| | 1,150 |
| N/A |
| N/A |
| — |
| 1,150 |
|
| Fixed-rate debt, excluding capital leases | — |
| | 9,746 |
| | — |
| | 9,746 |
| N/A |
| N/A |
| (978 | ) | 8,768 |
|
| | $ | 369 |
| | 11,292 |
| | 4 |
| | 11,665 |
| (721 | ) | (21 | ) | (978 | ) | 9,945 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | December 31, 2016 |
| | Fair Value Hierarchy | | Total Fair Value of Gross Assets & Liabilities |
| Effect of Counterparty Netting |
| Effect of Collateral Netting |
| Difference in Carrying Value and Fair Value |
| Net Carrying Value Presented on the Balance Sheet |
|
| | Level 1 |
| | Level 2 |
| | Level 3 |
| |
| Commodity Derivative Assets | | | | | | | | | | | |
| Exchange-cleared instruments | $ | 273 |
| | 371 |
| | — |
| | 644 |
| (628 | ) | — |
| — |
| 16 |
|
| OTC instruments | — |
| | 6 |
| | — |
| | 6 |
| (1 | ) | — |
| — |
| 5 |
|
| Physical forward contracts | — |
| | 94 |
| | 2 |
| | 96 |
| — |
| — |
| — |
| 96 |
|
| Interest rate derivatives | — |
| | 8 |
| | — |
| | 8 |
| — |
| — |
| — |
| 8 |
|
| Rabbi trust assets | 97 |
| | — |
| | — |
| | 97 |
| N/A |
| N/A |
| — |
| 97 |
|
| | $ | 370 |
| | 479 |
| | 2 |
| | 851 |
| (629 | ) | — |
| — |
| 222 |
|
| | | | | | | | | | | | |
| Commodity Derivative Liabilities | | | | | | | | | | | |
| Exchange-cleared instruments | $ | 249 |
| | 452 |
| | — |
| | 701 |
| (628 | ) | (73 | ) | — |
| — |
|
| OTC instruments | — |
| | 1 |
| | — |
| | 1 |
| (1 | ) | — |
| — |
| — |
|
| Physical forward contracts | — |
| | 61 |
| | 5 |
| | 66 |
| — |
| — |
| — |
| 66 |
|
| Floating-rate debt | — |
| | 260 |
| | — |
| | 260 |
| N/A |
| N/A |
| — |
| 260 |
|
| Fixed-rate debt, excluding capital leases | — |
| | 10,260 |
| | — |
| | 10,260 |
| N/A |
| N/A |
| (570 | ) | 9,690 |
|
| | $ | 249 |
| | 11,034 |
| | 5 |
| | 11,288 |
| (629 | ) | (73 | ) | (570 | ) | 10,016 |
|
The rabbi trust assets are recorded in the “Investments and long-term receivables” line item, and floating-rate and fixed-rate debt are recorded in the “Short-term debt” and “Long-term debt” linesline items on our consolidated balance sheet. ForSee Note 15—Derivatives and Financial Instruments, for information regarding where the location ofassets and liabilities related to our commodity derivative assets and liabilitiesinterest rate derivatives are recorded on our consolidated balance sheet, see the first table in Note 15—Derivatives and Financial Instruments.sheet.
Nonrecurring Fair Value Measurements
The nonrecurring fair value measurement used to record an impairment of our DCP Midstream investment in 2019 consisted of two valuations:
The fair value of our share of DCP Midstream’s limited partner interest in DCP Partners was estimated based on an average market price of DCP Partners’ common units for a 20-day trading period encompassing September 30, 2019.
The fair value of our share of DCP Midstream’s general partner interest in DCP Partners was estimated using two primary inputs: 1) estimated future cash distributions from DCP Partners attributable to the IDRs, and 2) a multiple of those cash flows based on internal estimates and observation of IDR conversion transactions by other master limited partnerships.
Taken together, we concluded the two valuations above resulted in an overall Level 3 nonrecurring fair value measurement. See Note 5—Business Combinations7—Investments, Loans and Long-Term Receivables, for additional information on the remeasurement of our investment in MSLP to fair value. Duringimpairment.
For the yearsyear ended December 31, 2017, and 2016,2018, there were no other material nonrecurring fair value remeasurementsmeasurements of assets subsequent to their initial recognition.
Note 17—Equity
Preferred Stock
We have 500 million shares of preferred stock authorized, with a par value of $0.01$0.01 per share, noneNaN of which have been issued.
Treasury Stock
Since July 2012, our Board of Directors has, at various times, authorized repurchases of our outstanding common stock which aggregate to a total authorization of up to $12.0 billion.under our share repurchase programs. The shares will beare repurchased from time to time in the open market at the company’s discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. We are not obligated to acquire any particular amount of common stock and may commence, suspend or discontinue purchases at any time or from time to time without prior notice.
On October 4, 2019, our Board of Directors approved a new share repurchase program that authorizes us to repurchase up to $3 billion of our common stock, bringing the total amount of share repurchases authorized by our Board of Directors since July 2012 to an aggregate of $15 billion. Since the inception of our share repurchasesrepurchase programs in 2012 through December 31, 2017,2019, we have repurchased a total of 124,142,530153,968,191 shares at an aggregate cost of $9.0$12 billion. Shares
In February 2018, we entered into a Stock Purchase and Sale Agreement (Purchase Agreement) with Berkshire Hathaway Inc. and National Indemnity Company, a wholly owned subsidiary of Berkshire Hathaway, to repurchase 35,000,000 shares of Phillips 66 common stock repurchased are held as treasury shares.for an aggregate purchase price of $3,280 million. Pursuant to the Purchase Agreement, the purchase price per share of $93.725 was based on the volume-weighted-average price of our common stock on the New York Stock Exchange on February 13, 2018. The transaction closed in February 2018. We funded the repurchase with cash of $1,880 million and borrowings of $1,400 million under our commercial paper program. These borrowings were subsequently refinanced through a public offering of senior notes. This specific share repurchase transaction was separately authorized by our Board of Directors and therefore did not impact previously announced authorizations under our share repurchase programs.
In 2014, we completed the exchange of our flow improver business for shares of Phillips 66 common stock owned by the other party to the transaction. We received 17,422,615 shares of our common stock with a fair value at the time of the exchange of $1.35 billion.$1,350 million. This specific share repurchase transaction was also separately authorized by our Board of Directors and therefore did not impact previously announced authorizations under our share repurchase programs.
Common Stock Dividends
On February 7, 2018,5, 2020, our Board of Directors declared a quarterly cash dividend of $0.70$0.90 per common share, payable March 1, 2018,2, 2020, to holders of record at the close of business on February 20, 2018.18, 2020.
Noncontrolling Interests
Our noncontrolling interests primarily represent issuances of common and preferred units to the public by Phillips 66 Partners. See Note 27—Phillips 66 Partners LP, for information on Phillips 66 Partners.
Note 18—Leases
We lease ocean transportmarine vessels, tugboats, barges, pipelines, storage tanks, railcars, service station sites, computers, office buildings, corporate aircraft, land and other facilities and equipment. In determining whether an agreement contains a lease, we consider our ability to control the asset and whether third-party participation or vendor substitution rights limit our control. Certain leases include escalation clauses for adjusting rental payments to reflect changes in price indices, as well as renewal options and/or options to purchase the leased property. Renewal options have been included only when reasonably certain of exercise. There are no significant restrictions imposed on us by the leasingin our lease agreements with regardregards to dividends,dividend payments, asset dispositions or borrowing ability. Our capitalCertain leases have residual value guarantees, which may require additional payments at the end of the lease term if future fair values decline below contractual lease balances.
In our implementation of ASU No. 2016-02, we elected to discount lease obligations using our incremental borrowing rate. Furthermore, we elected to separate costs for lease and service components for contracts involving the following asset types: marine vessels, tugboats, barges and consignment service stations. For these contracts, we allocate the consideration payable between the lease and service components using the relative standalone prices of each component. For contracts involving all other asset types, we elected the practical expedient to account for the lease and service components on a combined basis. Our right of way agreements in effect prior to January 1, 2019, were not accounted for as leases as they were not initially determined to be leases at their commencement dates. However, modifications to these agreements or new agreements will be assessed and accounted for accordingly under ASU No. 2016-02. For short-term leases, which are leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that is reasonably certain to exercise, we elected to not recognize the ROU asset and corresponding lease liability on our consolidated balance sheet.
The following table indicates the consolidated balance sheet line items that include the ROU assets and lease liabilities for our finance and operating leases:
|
| | | | | | |
| | Millions of Dollars |
| | December 31, 2019 |
| | Finance Leases |
| | Operating Leases |
|
| Right-of-Use Assets | | | |
| Net properties, plants and equipment | $ | 284 |
| | — |
|
| Other assets | — |
| | 1,312 |
|
| Total right-of-use assets | $ | 284 |
| | 1,312 |
|
| | | | |
| Lease Liabilities | | | |
| Short-term debt | $ | 18 |
| | — |
|
| Other accruals | — |
| | 455 |
|
| Long-term debt | 259 |
| | — |
|
| Other liabilities and deferred credits | — |
| | 806 |
|
| Total lease liabilities | $ | 277 |
| | 1,261 |
|
Future minimum lease payments at December 31, 2019, for finance and operating lease liabilities were:
|
| | | | | | |
| | Millions of Dollars |
| | Finance Leases |
| | Operating Leases |
|
| | | | |
| 2020 | $ | 26 |
| | 488 |
|
| 2021 | 25 |
| | 260 |
|
| 2022 | 23 |
| | 167 |
|
| 2023 | 23 |
| | 111 |
|
| 2024 | 23 |
| | 84 |
|
| Remaining years | 243 |
| | 299 |
|
| Future minimum lease payments | 363 |
| | 1,409 |
|
| Amount representing interest or discounts | (86 | ) | | (148 | ) |
| Total lease liabilities | $ | 277 |
| | 1,261 |
|
Our finance lease liabilities relate primarily to the lease ofconsignment agreements with United and an oil terminal in the United Kingdom. The lease obligationliability for the oil terminal finance lease is subject to foreign currency translation adjustments each reporting period. The total
Components of net PP&E recordedlease cost for capital leases was $210 million and $208 million atthe year ended December 31, 20172019, were:
|
| | | |
| | Millions of Dollars |
|
| | |
| Finance lease cost | |
| Amortization of right-of-use assets | $ | 20 |
|
| Interest on lease liabilities | 6 |
|
| Total finance lease cost | 26 |
|
| Operating lease cost | 531 |
|
| Short-term lease cost | 118 |
|
| Variable lease cost | 12 |
|
| Sublease income | (16 | ) |
| Total net lease cost | $ | 671 |
|
Cash paid for amounts included in the measurement of our lease liabilities for the year ended December 31, 2019, was:
|
| | | |
| | Millions of Dollars |
|
| | |
| Operating cash outflows—finance leases | $ | 6 |
|
| Operating cash outflows—operating leases | 553 |
|
| Financing cash outflows—finance leases | 21 |
|
During the year ended December 31, 2019, we recorded additional noncash ROU assets and 2016, respectively.corresponding operating lease liabilities totaling $342 million related to new and modified lease agreements.
Future minimum lease payments at At December 31, 2017,2019, the weighted-average remaining lease terms and discount rates for operating and capitalour lease obligationsliabilities were:
|
| | |
| Weighted-average remaining lease term—finance leases (years) | 11.1 |
|
| Weighted-average remaining lease term—operating leases (years) | 5.6 |
|
| |
| Weighted-average discount rate—finance leases | 3.1 | % |
| Weighted-average discount rate—operating leases | 3.8 | % |
|
| | | | | | |
| | Millions of Dollars |
| | Capital Lease Obligations |
| | Operating Lease Obligations* |
|
| | | | |
| 2018 | $ | 22 |
| | 533 |
|
| 2019 | 22 |
| | 420 |
|
| 2020 | 18 |
| | 306 |
|
| 2021 | 18 |
| | 141 |
|
| 2022 | 15 |
| | 100 |
|
| Remaining years | 148 |
| | 326 |
|
| Total | 243 |
| | 1,826 |
|
| Less: income from subleases | — |
| | 71 |
|
| Net minimum lease payments | $ | 243 |
| | 1,755 |
|
| Less: amount representing interest | 51 |
| | |
| Capital lease obligations | $ | 192 |
| | |
| * Includes the remaining residual value deficiency on our railcar leases. See Note 13—Guarantees, for additional information. |
Operating lease rental expense for the years ended December 31 was:
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
|
| | | | | | |
| Minimum rentals* | $ | 680 |
| | 669 |
| | 641 |
|
| Contingent rentals | 6 |
| | 6 |
| | 6 |
|
| Less: sublease rental income | 73 |
| | 95 |
| | 136 |
|
| | $ | 613 |
| | 580 |
| | 511 |
|
| * Includes expenses related to the residual value deficiency on our railcar leases. See Note 13—Guarantees, for additional information. |
Note 19—Pension and Postretirement Plans
The following table provides a reconciliation of the projected benefit obligations and plan assets for our pension plans and accumulated benefit obligations for our other postretirement benefit plans:
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
| | 2019 | | 2018 | | 2019 |
| | 2018 |
|
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | |
| Change in Benefit Obligations | | | | | | | | | | | |
| Benefit obligations at January 1 | $ | 2,730 |
| | 1,007 |
| | 3,043 |
| | 1,209 |
| | 220 |
| | 232 |
|
| Service cost | 127 |
| | 23 |
| | 136 |
| | 29 |
| | 5 |
| | 6 |
|
| Interest cost | 109 |
| | 26 |
| | 104 |
| | 28 |
| | 9 |
| | 7 |
|
| Plan participant contributions | — |
| | 2 |
| | — |
| | 2 |
| | 5 |
| | 4 |
|
| Plan amendments | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
|
| Net actuarial loss (gain) | 380 |
| | 186 |
| | (167 | ) | | (165 | ) | | 6 |
| | (9 | ) |
| Benefits paid | (198 | ) | | (31 | ) | | (386 | ) | | (27 | ) | | (17 | ) | | (20 | ) |
| Curtailment gain | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
|
| Foreign currency exchange rate change | — |
| | 15 |
| | — |
| | (64 | ) | | — |
| | — |
|
| Benefit obligations at December 31 | $ | 3,148 |
| | 1,228 |
| | 2,730 |
| | 1,007 |
| | 226 |
| | 220 |
|
| | | | | | | | | | | | |
| Change in Fair Value of Plan Assets | | | | | | | | | | | |
| Fair value of plan assets at January 1 | $ | 2,377 |
| | 902 |
| | 2,751 |
| | 972 |
| | — |
| | — |
|
| Actual return on plan assets | 478 |
| | 121 |
| | (122 | ) | | (29 | ) | | — |
| | — |
|
| Company contributions | 45 |
| | 28 |
| | 134 |
| | 34 |
| | 12 |
| | 16 |
|
| Plan participant contributions | — |
| | 2 |
| | — |
| | 2 |
| | 5 |
| | 4 |
|
| Benefits paid | (198 | ) | | (31 | ) | | (386 | ) | | (27 | ) | | (17 | ) | | (20 | ) |
| Foreign currency exchange rate change | — |
| | 24 |
| | — |
| | (50 | ) | | — |
| | — |
|
| Fair value of plan assets at December 31 | $ | 2,702 |
| | 1,046 |
| | 2,377 |
| | 902 |
| | — |
| | — |
|
| | | | | | | | | | | | |
| Funded Status at December 31 | $ | (446 | ) | | (182 | ) | | (353 | ) | | (105 | ) | | (226 | ) | | (220 | ) |
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 |
| | 2016 |
|
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | |
| Change in Benefit Obligation | | | | | | | | | | | |
| Benefit obligation at January 1 | $ | 2,881 |
| | 1,055 |
| | 2,791 |
| | 912 |
| | 225 |
| | 219 |
|
| Service cost | 132 |
| | 32 |
| | 127 |
| | 32 |
| | 6 |
| | 7 |
|
| Interest cost | 108 |
| | 27 |
| | 116 |
| | 28 |
| | 8 |
| | 8 |
|
| Plan participant contributions | — |
| | 2 |
| | — |
| | 3 |
| | 3 |
| | 2 |
|
| Actuarial loss (gain) | 267 |
| | (5 | ) | | 62 |
| | 237 |
| | 6 |
| | (6 | ) |
| Benefits paid | (345 | ) | | (20 | ) | | (215 | ) | | (19 | ) | | (16 | ) | | (13 | ) |
| Curtailment gain | — |
| | — |
| | — |
| | (31 | ) | | — |
| | — |
|
| Acquisition of a business | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
|
| Foreign currency exchange rate change | — |
| | 118 |
| | — |
| | (107 | ) | | — |
| | — |
|
| Benefit obligation at December 31 | $ | 3,043 |
| | 1,209 |
| | 2,881 |
| | 1,055 |
| | 232 |
| | 225 |
|
| | | | | | | | | | | | |
| Change in Fair Value of Plan Assets | | | | | | | | | | | |
| Fair value of plan assets at January 1 | $ | 2,274 |
| | 796 |
| | 2,023 |
| | 742 |
| | — |
| | — |
|
| Actual return on plan assets | 399 |
| | 71 |
| | 136 |
| | 148 |
| | — |
| | — |
|
| Company contributions | 423 |
| | 35 |
| | 330 |
| | 40 |
| | 13 |
| | 11 |
|
| Plan participant contributions | — |
| | 2 |
| | — |
| | 3 |
| | 3 |
| | 2 |
|
| Benefits paid | (345 | ) | | (20 | ) | | (215 | ) | | (19 | ) | | (16 | ) | | (13 | ) |
| Foreign currency exchange rate change | — |
| | 88 |
| | — |
| | (118 | ) | | — |
| | — |
|
| Fair value of plan assets at December 31 | $ | 2,751 |
| | 972 |
| | 2,274 |
| | 796 |
| | — |
| | — |
|
| | | | | | | | | | | | |
| Funded Status at December 31 | $ | (292 | ) | | (237 | ) | | (607 | ) | | (259 | ) | | (232 | ) | | (225 | ) |
Amounts recognized in the consolidated balance sheet for our pension and other postretirement benefit plans at December 31 2017 and 2016, include:
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
| | 2019 | | 2018 | | 2019 |
| | 2018 |
|
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | |
| Amounts Recognized in the Consolidated Balance Sheet | | | | | | | | | | | |
| Noncurrent assets | $ | — |
| | 29 |
| | — |
| | 78 |
| | — |
| | — |
|
| Current liabilities | (25 | ) | | — |
| | (25 | ) | | — |
| | (15 | ) | | (16 | ) |
| Noncurrent liabilities | (421 | ) | | (211 | ) | | (328 | ) | | (183 | ) | | (211 | ) | | (204 | ) |
| Total recognized | $ | (446 | ) | | (182 | ) | | (353 | ) | | (105 | ) | | (226 | ) | | (220 | ) |
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 |
| | 2016 |
|
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | |
| Amounts Recognized in the Consolidated Balance Sheet at December 31 | | | | | | | | | | | |
| Current liabilities | $ | (25 | ) | | — |
| | (10 | ) | | — |
| | (16 | ) | | (10 | ) |
| Noncurrent liabilities | (267 | ) | | (237 | ) | | (597 | ) | | (259 | ) | | (216 | ) | | (215 | ) |
| Total recognized | $ | (292 | ) | | (237 | ) | | (607 | ) | | (259 | ) | | (232 | ) | | (225 | ) |
Included in accumulated other comprehensive income (loss)loss at December 31 were the following before-taxpre-tax amounts that had not been recognized in net periodic benefit cost:
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
| | 2019 | | 2018 | | 2019 |
| | 2018 |
|
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | |
| | | | | | | | | | | | |
| Unrecognized net actuarial loss (gain) | $ | 523 |
| | 164 |
| | 539 |
| | 64 |
| | — |
| | (8 | ) |
| Unrecognized prior service credit | — |
| | (2 | ) | | — |
| | (3 | ) | | (6 | ) | | (6 | ) |
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 |
| | 2016 |
|
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | |
| | | | | | | | | | | | |
| Unrecognized net actuarial loss (gain) | $ | 545 |
| | 190 |
| | 684 |
| | 227 |
| | 1 |
| | (5 | ) |
| Unrecognized prior service cost (credit) | — |
| | (4 | ) | | 3 |
| | (5 | ) | | (7 | ) | | (9 | ) |
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
| | 2019 | | 2018 | | 2019 |
| | 2018 |
|
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | |
| Sources of Change in Other Comprehensive Income (Loss) | | | | | | | | | | | |
| Net actuarial gain (loss) arising during the period | $ | (45 | ) | | (106 | ) | | (125 | ) | | 102 |
| | (7 | ) | | 9 |
|
| Curtailment gain | — |
| | — |
| | — |
| | 5 |
| | — |
| | — |
|
| Amortization of net actuarial loss (gain) and settlements | 61 |
| | 6 |
| | 131 |
| | 19 |
| | (1 | ) | | — |
|
| Prior service credit arising during the period | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
|
| Amortization of prior service credit | — |
| | (1 | ) | | — |
| | (1 | ) | | (2 | ) | | (1 | ) |
| Total recognized in other comprehensive income (loss) | $ | 16 |
| | (101 | ) | | 6 |
| | 125 |
| | (8 | ) | | 8 |
|
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 |
| | 2016 |
|
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | |
| Sources of Change in Other Comprehensive Income (Loss) | | | | | | | | | | | |
| Net gain (loss) arising during the period | $ | (14 | ) | | 14 |
| | (54 | ) | | (129 | ) | | (6 | ) | | 7 |
|
| Curtailment gain | — |
| | — |
| | — |
| | 31 |
| | — |
| | — |
|
| Amortization of loss and settlements included in income | 153 |
| | 23 |
| | 80 |
| | 14 |
| | — |
| | — |
|
| Net change in unrecognized net actuarial loss (gain) during the period | $ | 139 |
| | 37 |
| | 26 |
| | (84 | ) | | (6 | ) | | 7 |
|
| | | | | | | | | | | | |
| Prior service cost arising during the period | $ | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Amortization of prior service cost (credit) included in income | 3 |
| | (1 | ) | | 3 |
| | (1 | ) | | (2 | ) | | (1 | ) |
| Net change in unrecognized prior service cost (credit) during the period | $ | 3 |
| | (1 | ) | | 3 |
| | (1 | ) | | (2 | ) | | (1 | ) |
The accumulated benefit obligations for all U.S. and international pension plans were $2,743$2,855 million and $1,006$1,068 million, respectively, at December 31, 2017,2019, and $2,601$2,466 million and $880$878 million, respectively, at December 31, 2016.2018.
Information for U.S. and international pension plans with an accumulated benefit obligation in excess of plan assets at December 31 were:
|
| | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits |
| | 2019 | | 2018 |
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
|
| | | | | | | | |
| Accumulated benefit obligations | $ | 2,855 |
| | 396 |
| | 123 |
| | 345 |
|
| Fair value of plan assets | 2,702 |
| | 207 |
| | — |
| | 182 |
|
|
| | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits |
| | 2017 | | 2016 |
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
|
| | | | | | | | |
| Projected benefit obligations | $ | 172 |
| | 389 |
| | 2,881 |
| | 355 |
|
| Accumulated benefit obligations | 143 |
| | 368 |
| | 2,601 |
| | 334 |
|
| Fair value of plan assets | — |
| | 196 |
| | 2,274 |
| | 166 |
|
Information for U.S. and international pension plans with a projected benefit obligation in excess of plan assets at December 31 were:
106 |
| | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits |
| | 2019 | | 2018 |
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
|
| | | | | | | | |
| Projected benefit obligations | $ | 3,148 |
| | 419 |
| | 2,730 |
| | 365 |
|
| Fair value of plan assets | 2,702 |
| | 207 |
| | 2,377 |
| | 182 |
|
Components of net periodic benefit cost for all defined benefit plans are presented in the table below:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
| | 2019 | | 2018 | | 2017 | | 2019 |
| | 2018 |
| | 2017 |
|
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | | | |
| Components of Net Periodic Benefit Cost | | | | | | | | | | | | | | | | | |
| Service cost | $ | 127 |
| | 23 |
| | 136 |
| | 29 |
| | 132 |
| | 32 |
| | 5 |
| | 6 |
| | 6 |
|
| Interest cost | 109 |
| | 26 |
| | 104 |
| | 28 |
| | 108 |
| | 27 |
| | 9 |
| | 7 |
| | 8 |
|
| Expected return on plan assets | (143 | ) | | (44 | ) | | (169 | ) | | (46 | ) | | (146 | ) | | (40 | ) | | — |
| | — |
| | — |
|
| Amortization of prior service cost (credit) | — |
| | (1 | ) | | — |
| | (1 | ) | | 3 |
| | (1 | ) | | (2 | ) | | (1 | ) | | (2 | ) |
| Amortization of net actuarial loss (gain) | 53 |
| | 6 |
| | 59 |
| | 19 |
| | 70 |
| | 23 |
| | (1 | ) | | — |
| | — |
|
| Settlements | 8 |
| | — |
| | 72 |
| | — |
| | 83 |
| | — |
| | — |
| | — |
| | — |
|
| Total net periodic benefit cost* | $ | 154 |
| | 10 |
| | 202 |
| | 29 |
| | 250 |
| | 41 |
| | 11 |
| | 12 |
| | 12 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2015 | | 2017 |
| | 2016 |
| | 2015 |
|
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | | | |
| Components of Net Periodic Benefit Cost | | | | | | | | | | | | | | | | | |
| Service cost | $ | 132 |
| | 32 |
| | 127 |
| | 32 |
| | 124 |
| | 38 |
| | 6 |
| | 7 |
| | 7 |
|
| Interest cost | 108 |
| | 27 |
| | 116 |
| | 28 |
| | 109 |
| | 28 |
| | 8 |
| | 8 |
| | 7 |
|
| Expected return on plan assets | (146 | ) | | (40 | ) | | (128 | ) | | (38 | ) | | (138 | ) | | (37 | ) | | — |
| | — |
| | — |
|
| Amortization of prior service cost (credit) | 3 |
| | (1 | ) | | 3 |
| | (1 | ) | | 3 |
| | (1 | ) | | (2 | ) | | (1 | ) | | (2 | ) |
| Recognized net actuarial loss (gain) | 70 |
| | 23 |
| | 72 |
| | 14 |
| | 75 |
| | 15 |
| | — |
| | — |
| | (1 | ) |
| Settlements | 83 |
| | — |
| | 8 |
| | — |
| | 80 |
| | — |
| | — |
| | — |
| | — |
|
| Total net periodic benefit cost | $ | 250 |
| | 41 |
| | 198 |
| | 35 |
| | 253 |
| | 43 |
| | 12 |
| | 14 |
| | 11 |
|
In determining net periodic benefit cost, we amortize prior service costs on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan. For net actuarial gains and losses, we amortize 10 percent10% of the unamortized balance each year. The amount subject to amortization is determined on a plan-by-plan basis. Amounts included in accumulated other comprehensive income (loss) at December 31, 2017, that are expected to be amortized into net periodic benefit cost during 2018 are provided below:
|
| | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
|
| | U.S. |
| | Int’l. |
| | |
| | | | | | |
| Unrecognized net actuarial loss | $ | 59 |
| | 19 |
| | — |
|
| Unrecognized prior service credit | — |
| | (1 | ) | | (1 | ) |
The following weighted-average assumptions were used to determine benefit obligations and net periodic benefit costs for years ended December 31:
|
| | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | U.S. |
| | Int’l. | | U.S. | | Int’l. | | | | |
| Assumptions Used to Determine Benefit Obligations: | | | | | | | | | | | |
| Discount rate | 3.30 | % | | 1.81 | | 4.30 | | 2.59 | | 3.05 | | 4.15 |
| Rate of compensation increase | 4.00 |
| | 3.34 | | 4.00 | | 3.34 | | — | | — |
| Interest crediting rate on cash balance plan | 2.70 |
| | — | | 3.25 | | — | | — | | — |
| | | | | | | | | | | | |
| Assumptions Used to Determine Net Periodic Benefit Cost: | | | | | | | | | | | |
| Discount rate | 4.30 | % | | 2.59 | | 3.60 | | 2.36 | | 4.15 | | 3.35 |
| Expected return on plan assets | 6.50 |
| | 4.93 | | 6.50 | | 4.78 | | — | | — |
| Rate of compensation increase | 4.00 |
| | 3.34 | | 4.00 | | 3.74 | | — | | — |
| Interest crediting rate on cash balance plan | 3.25 |
| | — | | 3.00 | | — | | — | | — |
|
| | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | U.S. |
| | Int’l. | | U.S. | | Int’l. | | | | |
| Assumptions Used to Determine Benefit Obligations: | | | | | | | | | | | |
| Discount rate | 3.60 | % | | 2.36 | | 3.95 | | 2.42 | | 3.35 | | 3.65 |
| Rate of compensation increase | 4.00 |
| | 3.74 | | 4.00 | | 3.78 | | — | | — |
| | | | | | | | | | | | |
| Assumptions Used to Determine Net Periodic Benefit Cost: | | | | | | | | | | | |
| Discount rate | 3.95 | % | | 2.46 | | 4.35 | | 3.35 | | 3.65 | | 4.00 |
| Expected return on plan assets | 6.75 |
| | 4.74 | | 6.75 | | 5.31 | | — | | — |
| Rate of compensation increase | 4.00 |
| | 3.78 | | 4.00 | | 3.65 | | — | | — |
For both U.S. and international pension plans, the overall expected long-term rate of return is developed from the expected future return of each asset class, weighted by the expected allocation of pension assets to that asset class. We rely on a variety of independent market forecasts in developing the expected rate of return for each class of assets.
For the year ended December 31, 2019, actuarial losses resulted in increases in our U.S. and international pension benefit obligations of $380 million and $186 million, respectively. The primary drivers for the actuarial losses were decreases in the discount rates and changes to the census data demographics. For the year ended December 31, 2018, actuarial gains resulted in decreases in our U.S. and international pension benefit obligations of $167 million and $165 million, respectively. The primary drivers for the actuarial gains were increases in the discount rates and changes to the census data demographics.
For the year ended December 31, 2019, the weighted-average actual return on plan assets for our U.S. pension plans was 20%, which resulted in a $478 million increase in plan assets. For the year ended December 31, 2018, the weighted-average actual return on plan assets for our U.S. pension plans was negative 4%, which resulted in a $122 million reduction in plan assets. The primary driver of the return on plan assets in 2019 and 2018 was fluctuations in the equity and fixed income markets.
Our other postretirement benefit plans for health insurance are contributory. Effective December 31, 2012, we terminated the subsidy for retiree medical plans. Since January 1, 2013, eligible employees have been able to utilize notional amounts credited to an account during their period of service with the company to pay all, or a portion, of their cost to participate in postretirement health insurance through the company. In general, employees hired after December 31, 2012, will not receive credits to an account, but will have unsubsidized access to health insurance through the plan. The cost of health insurance will be adjusted annually by the company’s actuary to reflect actual experience and expected health care cost trends. The measurement of the accumulated benefit obligation assumes a health care cost trend rate of 6.25 percent6.75% in 20182020 that declines to 5.00 percent5.00% by 2023. A one percentage-point change in the assumed health care cost trend rate would be immaterial2027.
Plan Assets
The investment strategy for managing pension plan assets is to seek a reasonable rate of return relative to an appropriate level of risk and provide adequate liquidity for benefit payments and portfolio management. We follow a policy of diversifying pension plan assets across asset classes, investment managers, and individual holdings. As a result, our plan assets have no significant concentrations of credit risk. Asset classes that are considered appropriate include equities, fixed income, cash, real estate, infrastructure and insurance contracts. Plan fiduciaries may consider and add other asset classes to the investment program from time to time. The target allocations for plan assets are approximately 57 percent43% equity securities, 41 percent41% debt securities, 8% real estate investments and 2 percent8% in all other types of investments.investments as of December 31, 2019. Generally, the investments in the plans are publicly traded, therefore minimizing the liquidity risk in the portfolio.
The following is a description of the valuation methodologies used for the pension plan assets.
Fair values of equity securities and government debt securities are based on quoted market prices.
Fair values of mutual fundscorporate debt securities are valued based on quotedestimated using recently executed transactions and market prices, which representprice quotations. If there have been no market transactions in a particular fixed income security, its fair value is calculated by pricing models that benchmark the net asset value of shares held.security against other securities with actual market prices.
Cash and cash equivalents are valued at cost, which approximates fair value.
Fair values of insurance contracts are valued at the present value of the future benefit payments owed by the insurance company to the plans’ participants.
Fair values of real estate investments are valued using real estate valuation techniques and other methods that include reference to third-party sources and sales comparables where available.
Fair values of investments in common/collective trusts and real estate funds are valued at the net asset value (NAV) as determineda practical expedient. The NAV is based on the underlying net assets owned by the issuerfund and the relative interest of each fund. Certain investments that are measured at fair value using the NAV value per share (or its equivalent) practical expedient have not been classifiedparticipating investor in the fair value hierarchy.of the underlying assets. These investments valued at NAV are not classified within the fair value hierarchy, but are presented in the fair value table to permit reconciliation of total plan assets to the amounts presented in the notes to consolidated financial statements.
The fair values of our pension plan assets at December 31, by asset class, were:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | U.S. | | International |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
| 2019 | | | | | | | | | | | | | | | |
| Equity securities | $ | 437 |
| | — |
| | — |
| | 437 |
| | — |
| | — |
| | — |
| | — |
|
| Government debt securities | 475 |
| | — |
| | — |
| | 475 |
| | — |
| | — |
| | — |
| | — |
|
| Corporate debt securities | — |
| | 134 |
| | — |
| | 134 |
| | — |
| | — |
| | — |
| | — |
|
| Cash and cash equivalents | 136 |
| | — |
| | — |
| | 136 |
| | 4 |
| | — |
| | — |
| | 4 |
|
| Insurance contracts | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | 14 |
|
| Total assets in the fair value hierarchy | 1,048 |
| | 134 |
| | — |
| | 1,182 |
| | 4 |
| | — |
| | 14 |
| | 18 |
|
| Common/collective trusts measured at NAV |
| |
| |
| | 1,364 |
| |
| |
| |
| | 938 |
|
| Real estate funds measured at NAV |
| |
| |
| | 156 |
| | | | | | | | 90 |
|
| Total | $ | 1,048 |
| | 134 |
| | — |
| | 2,702 |
| | 4 |
| | — |
| | 14 |
| | 1,046 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | U.S. | | International |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
| 2017 | | | | | | | | | | | | | | | |
| Equity securities | $ | 589 |
| | — |
| | — |
| | 589 |
| | — |
| | — |
| | — |
| | — |
|
| Government debt securities | 632 |
| | — |
| | — |
| | 632 |
| | — |
| | — |
| | — |
| | — |
|
| Mutual funds | 129 |
| | — |
| | — |
| | 129 |
| | — |
| | — |
| | — |
| | — |
|
| Cash and cash equivalents | 90 |
| | — |
| | — |
| | 90 |
| | 6 |
| | — |
| | — |
| | 6 |
|
| Insurance contracts | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | 14 |
|
| Real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | 8 |
|
| Total assets in the fair value hierarchy | 1,440 |
| | — |
| | — |
| | 1,440 |
| | 6 |
| | — |
| | 22 |
| | 28 |
|
| Common/collective trusts measured at NAV |
| |
| |
| | 1,311 |
| |
| |
| |
| | 944 |
|
| Total | $ | 1,440 |
| | — |
| | — |
| | 2,751 |
| | 6 |
| | — |
| | 22 |
| | 972 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | U.S. | | International |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
| 2016 | | | | | | | | | | | | | | | |
| Equity securities | $ | 533 |
| | — |
| | — |
| | 533 |
| | — |
| | — |
| | — |
| | — |
|
| Mutual funds | 47 |
| | — |
| | — |
| | 47 |
| | — |
| | — |
| | — |
| | — |
|
| Cash and cash equivalents | 21 |
| | — |
| | — |
| | 21 |
| | 5 |
| | — |
| | — |
| | 5 |
|
| Insurance contracts | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13 |
| | 13 |
|
| Real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6 |
| | 6 |
|
| Total assets in the fair value hierarchy | 601 |
| | — |
| | — |
| | 601 |
| | 5 |
| | — |
| | 19 |
| | 24 |
|
| Common/collective trusts measured at NAV | | | | | | | 1,673 |
| | | | | | | | 772 |
|
| Total | $ | 601 |
| | — |
| | — |
| | 2,274 |
| | 5 |
| | — |
| | 19 |
| | 796 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | U.S. | | International |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
| | Level 1 |
| | Level 2 |
| | Level 3 |
| | Total |
|
| 2018 | | | | | | | | | | | | | | | |
| Equity securities | $ | 421 |
| | — |
| | — |
| | 421 |
| | — |
| | — |
| | — |
| | — |
|
| Government debt securities | 610 |
| | — |
| | — |
| | 610 |
| | — |
| | — |
| | — |
| | — |
|
| Corporate debt securities | — |
| | 129 |
| | — |
| | 129 |
| | — |
| | — |
| | — |
| | — |
|
| Cash and cash equivalents | 50 |
| | — |
| | — |
| | 50 |
| | 7 |
| | — |
| | — |
| | 7 |
|
| Insurance contracts | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | 14 |
|
| Total assets in the fair value hierarchy | 1,081 |
| | 129 |
| | — |
| | 1,210 |
| | 7 |
| | — |
| | 14 |
| | 21 |
|
| Common/collective trusts measured at NAV | | | | | | | 1,048 |
| | | | | | | | 873 |
|
| Real estate funds measured at NAV | | | | | | | 119 |
| | | | | | | | 8 |
|
| Total | $ | 1,081 |
| | 129 |
| | — |
| | 2,377 |
| | 7 |
| | — |
| | 14 |
| | 902 |
|
As reflected in the table above, Level 3 activity was not material.
Our funding policy for U.S. plans is to contribute at least the minimum required by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986, as amended. Contributions to international plans are subject to local laws and tax regulations. Actual contribution amounts are dependent upon plan asset returns, changes in pension obligations, regulatory environments, and other economic factors. In 2018,2020, we expect to contribute approximately $60$50 million to our U.S. pension plans and other postretirement benefit plans and $35$25 million to our international pension plans.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by usto plan participants in the years indicated:
|
| | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
|
| | U.S. |
| | Int’l. |
| | |
| | | | | | |
| 2020 | $ | 538 |
| | 21 |
| | 26 |
|
| 2021 | 309 |
| | 23 |
| | 27 |
|
| 2022 | 320 |
| | 25 |
| | 27 |
|
| 2023 | 284 |
| | 27 |
| | 26 |
|
| 2024 | 289 |
| | 29 |
| | 24 |
|
| 2025-2029 | 1,198 |
| | 176 |
| | 96 |
|
|
| | | | | | | | | |
| | Millions of Dollars |
| | Pension Benefits | | Other Benefits |
|
| | U.S. |
| | Int’l. |
| | |
| | | | | | |
| 2018 | $ | 329 |
| | 22 |
| | 27 |
|
| 2019 | 302 |
| | 22 |
| | 28 |
|
| 2020 | 294 |
| | 24 |
| | 27 |
|
| 2021 | 290 |
| | 26 |
| | 26 |
|
| 2022 | 292 |
| | 27 |
| | 24 |
|
| 2023-2026 | 1,298 |
| | 162 |
| | 101 |
|
Defined Contribution Plans
Most U.S. employees are eligible to participate in the Phillips 66 Savings Plan (Savings Plan). Employees can contribute up to 75 percent75% of their eligible pay, subject to certain statutory limits, in the thrift feature of the Savings Plan to a choice of investment funds. Phillips 66 provides a company match of participant thrift contributions up to 5 percent6% of eligible pay. Prior to January 1, 2019, the match was up to 5% of eligible pay. In addition, eligible participants who contribute at least 1 percentreceive an additional discretionary Success Share contribution from the company. The target for the Success Share contribution is 2% of eligible pay, but the Success Share contribution can range from 0% to 6% based on management discretion.
For the years ended December 31, 2019, 2018 and 2017, we recorded expense of $192 million, $178 million and $101 million, respectively, related to our contributions to the Savings Plan are eligible for “Success Share,” a semi-annual discretionary company contribution to the Savings Plan that can range from 0 to 6 percent of eligible pay, with a target of 2 percent. The total expense related to participants in the Savings Plan was $101 million, $99 million and $134 million in 2017, 2016 and 2015, respectively.Plan.
Note 20—Share-Based Compensation Plans
In accordance with the Employee Matters Agreement related to the Separation, compensation awards based on ConocoPhillips stock and granted before April 30, 2012 (the Separation Date) were converted to compensation awards based on both ConocoPhillips and Phillips 66 stock if, on the Separation Date, the awards were: (1) options outstanding and exercisable; or (2) restricted stock or restricted stock units (RSUs) awarded for completed performance periods under the ConocoPhillips Performance Share Program. Phillips 66 restricted stock, RSUs and options issued in this conversion became subject to the “Omnibus Stock and Performance Incentive Plan of Phillips 66” (the 2012 Plan) on the Separation Date, whether held by grantees working for Phillips 66 or grantees that remained employees of ConocoPhillips. Some of these awards based on Phillips 66 stock and held by employees of ConocoPhillips are outstanding and appear in the activity tables for the Stock Option and the Performance Share Programs presented later in this footnote.
In May 2013, shareholders approved the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66 (the P66 Omnibus Plan). Subsequent to this approval, all new share-based awards are granted under the P66 Omnibus Plan, which authorizes the Human Resources and Compensation Committee (HRCC) of our Board of Directors to grant stock options, stock appreciation rights, stock awards (including restricted stock and RSU awards), cash awards, and performance awards to our employees, non-employeenonemployee directors and other plan participants. The number of new shares that may be issued under the P66 Omnibus Plan to settle share-based awards may not exceed 45 million.
We recognize share-based compensation expense over the shorter of: (1) the service period (i.e., the stated period of time required to earn the award); or (2) the period beginning at the start of the service period and ending when an employee first becomes eligible for retirement, but not less than six months as this is the minimum period of time required for an award not to be subject to forfeiture. Our equity-classified programs generally provide accelerated vesting (i.e., a waiver of the remaining period of service required to earn an award) for awards held by employees at the time they become eligible for retirement (at age 55 with 5 years of service). We have elected to recognize expense on a straight-line basis over the service period for the entire award, irrespective of whether the award was granted with ratable or cliff vesting, and have elected to recognize forfeitures of awards when they occur.
Total share-based compensation expense recognized in income and the associated income tax benefit for the years ended December 31 were:
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | |
| Share-based compensation expense | $ | 169 |
| | 100 |
| | 142 |
|
| Income tax benefit | (53 | ) | | (45 | ) | | (74 | ) |
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
|
| | | | | | |
| Share-based compensation expense | $ | 142 |
| | 156 |
| | 144 |
|
| Income tax benefit | (74 | ) | | (59 | ) | | (54 | ) |
Stock Options
Stock options granted under the provisions of the P66 Omnibus Plan and earlier plans permit purchases of our common stock at exercise prices equivalent to the average of the high and low market price of our stock on the date the options were granted. The options have terms of 10 years and vest ratably, with one-third of the options becoming exercisable on each anniversary date for the three years following the date of grant. Options awarded to employees eligible for retirement are not subject to forfeiture six months after the grant date.
The following table summarizes our stock option activity from January 1, 2017,2019, to December 31, 2017:2019:
|
| | | | | | | | | | | | | | |
| | | | | | | | Millions of Dollars |
|
| | Options |
| | Weighted- Average Exercise Price |
| | Weighted-Average Grant-Date Fair Value |
| | Aggregate
Intrinsic Value |
|
| | | | | | | | |
| Outstanding at January 1, 2019 | 4,752,808 |
| | $ | 63.11 |
| | | | |
| Granted | 830,900 |
| | 94.97 |
| | $ | 17.58 |
| | |
| Forfeited | (553 | ) | | 94.85 |
| | | | |
| Exercised | (803,751 | ) | | 39.90 |
| | | | $ | 51 |
|
| Outstanding at December 31, 2019 | 4,779,404 |
| | $ | 72.55 |
| | | | |
| | | | | | | | |
| Vested at December 31, 2019 | 3,603,296 |
| | $ | 65.69 |
| |
| | $ | 162 |
|
| | | | | | | | |
| Exercisable at December 31, 2019 | 3,267,111 |
| | $ | 63.57 |
| |
| | $ | 154 |
|
|
| | | | | | | | | | | | | | |
| | | | | | | | Millions of Dollars |
|
| | Options |
| | Weighted- Average Exercise Price |
| | Weighted-Average Grant-Date Fair Value |
| | Aggregate
Intrinsic Value |
|
| | | | | | | | |
| Outstanding at January 1, 2017 | 5,103,130 |
| | $ | 49.48 |
| |
|
| |
|
| Granted | 864,100 |
| | 78.48 |
| | $ | 16.95 |
| |
|
| Forfeited | (32,500 | ) | | 78.48 |
| |
| |
|
|
| Exercised | (1,095,875 | ) | | 32.38 |
| |
| | $ | 62 |
|
| Outstanding at December 31, 2017 | 4,838,855 |
| | $ | 58.34 |
| |
| |
|
| | | | | | | | |
| Vested at December 31, 2017 | 4,191,679 |
| | $ | 55.25 |
| |
| | $ | 195 |
|
| | | | | | | | |
| Exercisable at December 31, 2017 | 3,258,015 |
| | $ | 48.79 |
| |
| | $ | 172 |
|
The weighted-average remaining contractual terms of vested options and exercisable options at December 31, 2017,2019, were 5.484.83 years and 4.624.49 years, respectively. During 2017,2019, we received $35$32 million in cash and realized an income tax benefit of $9$6 million from the exercise of options. At December 31, 2017,2019, the remaining unrecognized compensation expense from unvested options was $6 million, which will be recognized over a weighted-average period of 2021 months, the longest period being 2725 months. The calculations of realized income tax benefits and weighted-average periods include awards based on both Phillips 66 and ConocoPhillips stock held by Phillips 66 employees.
During 20162018 and 2015,2017, we granted options with a weighted-average grant-date fair value of $16.94$20.69 and $18.84,$16.95, respectively. During 20162018 and 2015,2017, employees exercised options with an aggregate intrinsic value of $58$37 million and $60$62 million, respectively.
The following table provides the significant assumptions used to calculate the grant dategrant-date fair values of options granted over the years shown below, as calculated using the Black-Scholes-Merton option-pricing model:
|
| | | | | | |
| | 2019 |
| | 2018 | | 2017 |
| | | | | | |
| Risk-free interest rate | 2.68 | % | | 2.81 | | 2.28 |
| Dividend yield | 3.70 | % | | 2.80 | | 2.90 |
| Volatility factor | 25.61 | % | | 25.41 | | 26.91 |
| Expected life (years) | 7.06 |
| | 7.18 | | 7.22 |
|
| | | | | | |
| | 2017 |
| | 2016 | | 2015 |
| | | | | | |
| Risk-free interest rate | 2.28 | % | | 1.71 | | 1.60 |
| Dividend yield | 2.90 | % | | 3.00 | | 3.00 |
| Volatility factor | 26.91 | % | | 28.68 | | 34.17 |
| Expected life (years) | 7.22 |
| | 7.08 | | 6.66 |
After the Separation and through 2015, we calculatedWe calculate the volatility of options granted using a formula that adjusts the pre-Separation historical volatility of ConocoPhillips by the ratio of Phillips 66 implied market volatility on the grant date divided by the pre-Separation implied market volatility of ConocoPhillips. In 2016, we began calculating the volatilityfactor using historical Phillips 66 end-of-week closing stock prices fromsince the Separation date.
Date. We useperiodically calculate the average period of time elapsed between grant dates and exercise dates of past grants to estimate the expected life of new option grants.
Restricted Stock Units
Generally, RSUs are granted annually under the provisions of the P66 Omnibus Plan and cliff vest at the end of three years. The grant date fair value is equal to the average of the high and low market price of our stock on the grant date. The recipients receive a quarterly dividend equivalent cash payment of a dividend equivalent until the RSU is settled by issuing one1 share of our common stock for each RSU at the end of the service period. RSUs granted to retirement eligibleretirement-eligible employees are not subject to forfeiture six months after the grant date. Special RSUs are granted to attract or retain key personnel and the terms and conditions may vary by award.
The following table summarizes our RSU activity from January 1, 2017,2019, to December 31, 2017:2019:
|
| | | | | | | | | | |
| | | | | | Millions of Dollars |
|
| | Stock Units |
| | Weighted-Average Grant-Date Fair Value |
| | Total Fair Value |
|
| | | | | | |
| Outstanding at January 1, 2019 | 2,259,829 |
| | $ | 84.52 |
| | |
| Granted | 1,001,899 |
| | 95.16 |
| | |
| Forfeited | (50,192 | ) | | 95.21 |
| | |
| Issued | (836,952 | ) | | 79.73 |
| | $ | 80 |
|
| Outstanding at December 31, 2019 | 2,374,584 |
| | $ | 90.47 |
| | |
| | | | | | |
| Not Vested at December 31, 2019 | 1,619,720 |
| | $ | 91.04 |
| | |
|
| | | | | | | | | | |
| | | | | | Millions of Dollars |
|
| | Stock Units |
| | Weighted-Average Grant-Date Fair Value |
| | Total Fair Value |
|
| | | | | | |
| Outstanding at January 1, 2017 | 2,643,139 |
| | $ | 71.28 |
| |
|
| Granted | 975,164 |
| | 78.49 |
| |
|
| Forfeited | (58,171 | ) | | 77.18 |
| |
|
| Issued | (1,063,707 | ) | | 63.67 |
| | $ | 85 |
|
| Outstanding at December 31, 2017 | 2,496,425 |
| | $ | 77.20 |
| |
|
| | | | | | |
| Not Vested at December 31, 2017 | 1,615,668 |
| | $ | 77.32 |
| |
|
At December 31, 2017,2019, the remaining unrecognized compensation cost from the unvested RSU awards was $50$64 million, which will be recognized over a weighted-average period of 2022 months, the longest period being 3735 months.
During 20162018 and 2015,2017, we granted RSUs with a weighted-average grant-date fair value of $78.56$96.16 and $74.09,$78.49, respectively. During 20162018 and 2015,2017, we issued shares with an aggregate fair value of $109$102 million and $107$85 million, respectively, to settle RSUs.
Performance Share Units
Under the P66 Omnibus Plan, we annually grant to senior management restricted performance share units (PSUs) with three-year performance periods that vest: (1) with respect to awards for performance periods beginning before 2009,vest when the employee becomes eligible for retirement; or (2) with respect to awards forHRCC approves the three-year performance periods beginning in 2009, the shorter of: (a) the participant’s retirement eligibility date; or (b) five years after the grant date of the award; or (3) with respect to awards for performance periods beginning in 2013 or later, at the end of the performance periodresults on the grant date.
For PSU PSUs granted under the P66 Omnibus Plan are classified as liability awards with performance periods beginning before 2013, we recognizeand compensation expense is recognized beginning on the date authorized and ending on the vest date. Since PSU awards with performance periods beginning in 2013 or later vest on the grant date, we recognize compensation expense beginning on the date of authorization and ending on the grant date for all employees.
We settle each PSU with performance periods beginning before 2013 by issuing one share of our common stock and recipients receive a quarterly cash payment of a dividend equivalent beginning on the grant date and ending on the settlementvesting date.
PSUs with performance periods beginning in 2013 or latergranted under the P66 Omnibus Plan are settled by paying cash payments equal to the fair value of the awards, which is based on the average of the high and low market prices of our stock near the end of the performance periods. The HRCC must approve the three-year performance results prior to payout. Dividend equivalents are not paid on these awards.
PSUs granted under prior incentive compensation plans were classified as equity awards. These equity awards are settled upon an employee’s retirement by issuing 1 share of our common stock for each PSU held. Dividend equivalents are paid on these awards.
The following table summarizes our PSU activity from January 1, 2017,2019, to December 31, 2017:2019:
|
| | | | | | | | | | |
| | | | | | Millions of Dollars |
|
| | Performance Share Units |
| | Weighted-Average Grant-Date Fair Value |
| | Total Fair Value |
|
| | | | | | |
| Outstanding at January 1, 2019 | 1,902,502 |
| | $ | 49.52 |
| |
|
| Granted | 287,914 |
| | 87.42 |
| |
|
| Forfeited | — |
| | — |
| |
|
| Issued | (461,942 | ) | | 59.12 |
| | $ | 44 |
|
| Cash settled | (287,914 | ) | | 87.42 |
| | 25 |
|
| Outstanding at December 31, 2019 | 1,440,560 |
| | $ | 46.44 |
| | |
| | | | | | |
| Not Vested at December 31, 2019 | 73,271 |
| | $ | 69.63 |
| | |
|
| | | | | | | | | | |
| | | | | | Millions of Dollars |
|
| | Performance Share Units |
| | Weighted-Average Grant-Date Fair Value |
| | Total Fair Value |
|
| | | | | | |
| Outstanding at January 1, 2017 | 3,239,497 |
| | $ | 50.12 |
| |
|
| Granted | 642,212 |
| | 86.88 |
| |
|
| Issued | (681,219 | ) | | 42.85 |
| | $ | 54 |
|
| Cash settled | (642,212 | ) | | 86.88 |
| | 56 |
|
| Outstanding at December 31, 2017 | 2,558,278 |
| | $ | 52.06 |
| |
|
| | | | | | |
| Not Vested at December 31, 2017 | 286,031 |
| | $ | 66.65 |
| |
|
At December 31, 2017,2019, the remaining unrecognized compensation cost from unvested PSU awards held by employees of Phillips 66 was $4$0.1 million, which will be recognized over a weighted-average period of 2313 months, with the longest period being 93 years. The calculations of unamortized expense and weighted-average periods include awards based on both Phillips 66 and ConocoPhillips stock held by Phillips 66 employees.
During 20162018 and 2015,2017, we granted PSUs with a weighted-average grant-date fair value of $78.62$99.74 and $74.14,$86.88, respectively. During 20162018 and 2015,2017, we issued shares with an aggregate fair value of $26$70 million and $37$54 million, respectively, to settle PSUs. WeDuring 2018 and 2017, we cash settled PSUs with an aggregate fair value of $60$49 million in 2016. No PSUs were cash settled in 2015.and $56 million, respectively.
Note 21—Income Taxes
OnIn December 22, 2017, the U.S. government enacted comprehensive income tax legislation, referred to as the Tax Cuts and Jobs Act (the Tax Act). The material provisions of the Tax Act i) reduced the U.S. federal corporate income tax rate from 35 percent35% to 21 percent21% beginning January 1, 2018, ii) required companies to reflect on their 2017 corporate income tax return a liability for a one-time deemed repatriation tax on foreign-sourced earnings that were previously tax deferred, and iii) created a new tax regime for post-2017 foreign-sourced earnings.
To account for the reduction in the U.S. federal corporate income tax rate, we remeasured our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, generally 21 percent,21%, which resulted in the recognition of a provisional deferred tax benefit of $2,870 million.million in the year ended December 31, 2017. To account for the one-time deemed repatriation income tax, we calculated our provisional liability in accordance with the Tax Act and considered previously accrued current and deferred tax liabilities on undistributed earnings of our foreign subsidiaries and foreign joint ventures. The effects of the one-time deemed repatriation tax resulted in the recognition of a provisional income tax expense of $149 million.
The provisionsmillion in the Tax Act are broad and complex. We have not yet completedyear ended December 31, 2017.
During the year ended December 31, 2018, we recorded adjustments to finalize our accounting for the income tax effects of the Tax Act, aswhich increased our income tax expense by $36 million. The adjustments were primarily due to the revision of December 31, 2017, but have made reasonable estimates of those effects on our existingestimated deferred income tax balances in conjunction with the filing of our 2017 income tax return and the issuance of additional guidance by the U.S. Internal Revenue Service related to the calculation of the one-time deemed repatriation tax.
During the year ended December 31, 2019, we recorded adjustments to the one-time deemed repatriation tax, which decreased our income tax expense by $42 million. The final financial statement impact of the Tax Act may differ from the above estimates, possibly materially,adjustments were due to among other things, changes in interpretationsthe issuance of additional guidance by the Tax Act, any legislative actionU.S. Internal Revenue Service.
Components of income tax expense (benefit) were:
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017 |
|
| Income Tax Expense (Benefit) | | | | | |
| Federal | | | | | |
| Current | $ | 354 |
| | 739 |
| | 9 |
|
| Deferred | 177 |
| | 257 |
| | (1,960 | ) |
| Foreign | | | | | |
| Current | 204 |
| | 326 |
| | 126 |
|
| Deferred | (50 | ) | | 53 |
| | 3 |
|
| State and local | | | | | |
| Current | 61 |
| | 255 |
| | 61 |
|
| Deferred | 55 |
| | (58 | ) | | 68 |
|
| | $ | 801 |
| | 1,572 |
| | (1,693 | ) |
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Income Tax Expense (Benefit) | | | | | |
| Federal | | | | | |
| Current | $ | 9 |
| | (105 | ) | | 1,128 |
|
| Deferred | (1,960 | ) | | 645 |
| | 444 |
|
| Foreign | | | | | |
| Current | 126 |
| | 66 |
| | (74 | ) |
| Deferred | 3 |
| | (84 | ) | | 42 |
|
| State and local | | | | | |
| Current | 61 |
| | (24 | ) | | 227 |
|
| Deferred | 68 |
| | 49 |
| | (3 | ) |
| | $ | (1,693 | ) | | 547 |
| | 1,764 |
|
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax liabilities and assets at December 31 were:
|
| | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
|
| Deferred Tax Liabilities | | | |
| Properties, plants and equipment, and intangibles | $ | 3,297 |
| | 3,074 |
|
| Investment in joint ventures | 2,137 |
| | 2,041 |
|
| Investment in subsidiaries | 794 |
| | 602 |
|
| Inventory | — |
| | 66 |
|
| Other | 263 |
| | 14 |
|
| Total deferred tax liabilities | 6,491 |
| | 5,797 |
|
| | | | |
| Deferred Tax Assets | | | |
| Benefit plan accruals | 460 |
| | 395 |
|
| Asset retirement obligations and accrued environmental costs | 115 |
| | 109 |
|
| Loss and credit carryforwards | 54 |
| | 59 |
|
| Other financial accruals and deferrals | 70 |
| | 16 |
|
| Inventory | 28 |
| | — |
|
| Other | 281 |
| | — |
|
| Total deferred tax assets | 1,008 |
| | 579 |
|
| Less: valuation allowance | 22 |
| | 8 |
|
| Net deferred tax assets | 986 |
| | 571 |
|
| Net deferred tax liabilities | $ | 5,505 |
| | 5,226 |
|
|
| | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
|
| Deferred Tax Liabilities | | | |
| Properties, plants and equipment, and intangibles | $ | 2,942 |
| | 4,525 |
|
| Investment in joint ventures | 1,923 |
| | 2,442 |
|
| Investment in subsidiaries | 594 |
| | 803 |
|
| Inventory | — |
| | 154 |
|
| Other | 18 |
| | 19 |
|
| Total deferred tax liabilities | 5,477 |
| | 7,943 |
|
| Deferred Tax Assets | | | |
| Benefit plan accruals | 314 |
| | 669 |
|
| Inventory | 10 |
| | — |
|
| Asset retirement obligations and accrued environmental costs | 121 |
| | 211 |
|
| Other financial accruals and deferrals | 44 |
| | 188 |
|
| Loss and credit carryforwards | 96 |
| | 261 |
|
| Other | 3 |
| | 1 |
|
| Total deferred tax assets | 588 |
| | 1,330 |
|
| Less: valuation allowance | 28 |
| | 38 |
|
| Net deferred tax assets | 560 |
| | 1,292 |
|
| Net deferred tax liabilities | $ | 4,917 |
| | 6,651 |
|
TheAt December 31, 2019, the loss and credit carryforwardscarryforward deferred tax assets arewere primarily related to a German interest deduction carryforward of $77$33 million, a U.S. alternative minimumforeign tax credit carryforward in the United States of $10$15 million, and a capital loss and net operating loss carryforwardcarryforwards in the United Kingdom of $7$5 million. All losses may be carried forward indefinitelyForeign tax credit carryforwards, which have a full valuation allowance against them, expire in 2029. The other loss and the alternative minimum credit carryforwards, all of $10 million, if not utilized sooner, will become refundable with the filingwhich relate to foreign operations, have indefinite lives.
Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During 2017,the year ended December 31, 2019, our total valuation allowances decreasedallowance balance increased by a total of $10$14 million. Based on our historical taxable income, expectations for the future and available tax planning strategies, management expects the remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and the tax consequences of future taxable income.
At December 31, 2017, all undistributed earnings of our foreign subsidiaries and foreign joint ventures have beenwere included in our provisional computation of the one-time deemed repatriation tax associated with the enactment of the Tax Act. After consideringEarnings of our foreign subsidiaries and foreign joint ventures after December 31, 2017, are generally not subject to incremental income taxes in the effectsUnited States or withholding taxes in foreign countries upon repatriation. As such, we only assert that the earnings of one of our foreign subsidiaries are permanently reinvested. At December 31, 2019 and 2018, the Tax Act described above, we have not provided aunrecorded deferred tax liability related to any remaining difference in the book and tax investment in ourundistributed earnings of this foreign subsidiaries or foreign joint ventures because such differences are essentially permanent in duration. Based on our preliminary analysis, which is not yet complete, the temporary difference and associated unrecorded deferred tax liability aresubsidiary was not material.
As a result of the Separation and pursuant to the Tax Sharing Agreement with ConocoPhillips, the unrecognized income tax benefits related to our operations for the periods for which ConocoPhillips was the taxpayer remain the responsibility of ConocoPhillips, and we have indemnified ConocoPhillips for such amounts. FollowingWe file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Unrecognized tax benefits reflect the difference between positions taken on income tax returns and the amounts recognized in the financial statements. The following table is a reconciliation of the changes in our unrecognized income tax benefits balance:
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | |
| Balance at January 1 | $ | 23 |
| | 34 |
| | 70 |
|
| Additions for tax positions of current year | 2 |
| | — |
| | — |
|
| Additions for tax positions of prior years | 29 |
| | 1 |
| | 1 |
|
| Reductions for tax positions of prior years | (14 | ) | | (2 | ) | | (5 | ) |
| Settlements | — |
| | (10 | ) | | (32 | ) |
| Balance at December 31 | $ | 40 |
| | 23 |
| | 34 |
|
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
|
| | | | | | |
| Balance at January 1 | $ | 70 |
| | 82 |
| | 142 |
|
| Additions for tax positions of prior years | 1 |
| | 5 |
| | 6 |
|
| Reductions for tax positions of prior years | (5 | ) | | (17 | ) | | (17 | ) |
| Settlements | (32 | ) | | — |
| | (49 | ) |
| Balance at December 31 | $ | 34 |
| | 70 |
| | 82 |
|
Included in the balance of unrecognized income tax benefits forat December 31, 2019, 2018 and 2017 2016 and 2015 were $5$15 million, $13$1 million and $34$5 million, respectively, which, if recognized, would affect our effective income tax rate. With respect to various unrecognized income tax benefits and the related accrued liability, approximately $2 million mayliabilities, we do not expect any to be recognized or paid within the next twelve months due to completion of audits.months.
At December 31, 2017, 20162019, 2018 and 2015,2017, accrued liabilities for interest and penalties, net of accrued income taxes, totaled $8$10 million, $12$5 million and $19$8 million, respectively. As a result of reversing certain of these accruals, earningsnet income decreased by $3 million for the year ended December 31, 2019, and increased by $1 million $7 million and $3 million in 2017, 2016 and 2015, respectively.for the year ended December 31, 2017.
We file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Audits in significant jurisdictions are generally complete as follows: United Kingdom (2014)(2017), Germany (2011)(2014) and United States (2010)(2013). Certain issues remain in dispute for audited years, and unrecognized income tax benefits for years still subject to or currently undergoing an audit are subject to change. As a consequence, the balance in unrecognized income tax benefits can be expected to fluctuate from period to period. Although it is reasonably possible such changes could be significant when compared with our total unrecognized income tax benefits, the amount of change is not estimable.
The amounts of U.S. and foreign income before income taxes, with a reconciliation of income tax at the federal statutory rate to the recorded income tax expense (benefit), were:
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars | | Percentage of Income Before Income Taxes |
| | 2019 |
| | 2018 |
| | 2017 |
| | 2019 |
| | 2018 |
| | 2017 |
|
| Income before income taxes | | | | | | | | | | | |
| United States | $ | 3,267 |
| | 5,716 |
| | 2,799 |
| | 78.2 | % | | 76.8 |
| | 78.7 |
|
| Foreign | 911 |
| | 1,729 |
| | 756 |
| | 21.8 |
| | 23.2 |
| | 21.3 |
|
| | $ | 4,178 |
| | 7,445 |
| | 3,555 |
| | 100.0 | % | | 100.0 |
| | 100.0 |
|
| | | | | | | | | | | | |
| Federal statutory income tax | $ | 877 |
| | 1,563 |
| | 1,244 |
| | 21.0 | % | | 21.0 |
| | 35.0 |
|
| State income tax, net of federal benefit | 92 |
| | 155 |
| | 79 |
| | 2.2 |
| | 2.1 |
| | 2.2 |
|
| Tax Cuts and Jobs Act | (42 | ) | | 36 |
| | (2,721 | ) | | (1.0 | ) | | 0.5 |
| | (76.5 | ) |
| Foreign rate differential | (31 | ) | | (3 | ) | | (137 | ) | | (0.7 | ) | | — |
| | (3.9 | ) |
| Noncontrolling interests | (61 | ) | | (58 | ) | | (46 | ) | | (1.5 | ) | | (0.8 | ) | | (1.3 | ) |
| Change in valuation allowance | 14 |
| | (20 | ) | | (4 | ) | | 0.3 |
| | (0.3 | ) | | (0.1 | ) |
| Other* | (48 | ) | | (101 | ) | | (108 | ) | | (1.1 | ) | | (1.4 | ) | | (3.0 | ) |
| | $ | 801 |
| | 1,572 |
| | (1,693 | ) | | 19.2 | % | | 21.1 |
| | (47.6 | ) |
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars | | Percentage of Income Before Income Taxes |
| | 2017 |
| | 2016 |
| | 2015 |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Income before income taxes | | | | | | | | | | | |
| United States | $ | 2,799 |
| | 1,713 |
| | 4,983 |
| | 78.7 | % | | 78.2 |
| | 82.4 |
|
| Foreign | 756 |
| | 478 |
| | 1,061 |
| | 21.3 |
| | 21.8 |
| | 17.6 |
|
| | $ | 3,555 |
| | 2,191 |
| | 6,044 |
| | 100.0 | % | | 100.0 |
| | 100.0 |
|
| | | | | | | | | | | | |
| Federal statutory income tax | $ | 1,244 |
| | 767 |
| | 2,115 |
| | 35.0 | % |
| 35.0 |
| | 35.0 |
|
| State income tax, net of federal benefit | 79 |
| | 12 |
| | 150 |
| | 2.2 |
|
| 0.6 |
| | 2.5 |
|
| Tax Cuts and Jobs Act | (2,721 | ) | | — |
| | — |
| | (76.5 | ) | | — |
| | — |
|
| Foreign rate differential | (210 | ) | | (152 | ) | | (239 | ) | | (5.9 | ) |
| (6.9 | ) | | (3.9 | ) |
| Noncontrolling interests | (46 | ) | | (26 | ) | | (13 | ) | | (1.3 | ) | | (1.2 | ) | | (0.2 | ) |
| Federal manufacturing deduction | (18 | ) | | — |
| | (77 | ) | | (0.5 | ) |
| — |
| | (1.3 | ) |
| Change in valuation allowance | (4 | ) | | (81 | ) | | (17 | ) | | (0.1 | ) |
| (3.7 | ) | | (0.2 | ) |
| Goodwill allocated to assets sold | — |
| | — |
| | 41 |
| | — |
|
| — |
| | 0.7 |
|
| German tax legislation | — |
| | — |
| | (103 | ) | | — |
|
| — |
| | (1.7 | ) |
| Sale of foreign subsidiaries | — |
| | — |
| | (125 | ) | | — |
|
| — |
| | (2.1 | ) |
| Other | (17 | ) | | 27 |
| | 32 |
| | (0.5 | ) |
| 1.2 |
| | 0.4 |
|
| | $ | (1,693 | ) | | 547 |
| | 1,764 |
| | (47.6 | )% |
| 25.0 |
| | 29.2 |
|
Included in the line item “Sale of foreign subsidiaries”* Other includes individually immaterial items but is a $72 million income tax benefit realized in 2015primarily attributable to the nontaxable gain from the sale of ICHP.foreign operations.
Income tax expense of $123 million, $13 million and $81 million for the years ended December 31, 2019, 2018 and $150 million in 2017, and 2016, respectively, and an income tax benefit of $34 million in 2015 areis reflected in the “Capital in Excess of Par” column on our consolidated statement of changes in equity.
Note 22—Accumulated Other Comprehensive Income (Loss)Loss
Changes in the balances of each component of accumulated other comprehensive income (loss)loss were as follows:
|
| | | | | | | | | | | | |
| | Millions of Dollars |
| | Defined Benefit Plans |
| | Foreign Currency Translation |
| | Hedging |
| | Accumulated Other Comprehensive Loss |
|
| | | | | | | | |
| December 31, 2016 | $ | (713 | ) | | (285 | ) | | 3 |
| | (995 | ) |
| Other comprehensive income before reclassifications | 3 |
| | 259 |
| | 4 |
| | 266 |
|
| Amounts reclassified from accumulated other comprehensive loss* | | | | | | | |
| Defined benefit plans** | | | | | | | |
| Amortization of net actuarial loss, prior service cost (credit) and settlements | 112 |
| | — |
| | — |
| | 112 |
|
| Net current period other comprehensive income | 115 |
| | 259 |
| | 4 |
| | 378 |
|
| December 31, 2017 | (598 | ) | | (26 | ) | | 7 |
| | (617 | ) |
| Other comprehensive income (loss) before reclassifications | 14 |
| | (192 | ) | | 4 |
| | (174 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | | | | | | |
| Defined benefit plans** | | | | | | | |
| Amortization of net actuarial loss, prior service credit and settlements | 112 |
| | — |
| | — |
| | 112 |
|
| Foreign currency translation | — |
| | (10 | ) | | — |
| | (10 | ) |
| Hedging | — |
| | — |
| | (3 | ) | | (3 | ) |
| Net current period other comprehensive income (loss) | 126 |
| | (202 | ) | | 1 |
| | (75 | ) |
| December 31, 2018 | (472 | ) | | (228 | ) | | 8 |
| | (692 | ) |
| Other comprehensive income (loss) before reclassifications | (140 | ) | | 95 |
| | (5 | ) | | (50 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | | | | | | |
| Defined benefit plans** | | | | | | | |
| Amortization of net actuarial loss, prior service credit and settlements | 49 |
| | — |
| | — |
| | 49 |
|
| Foreign currency translation | — |
| | — |
| | — |
| | — |
|
| Hedging | — |
| | — |
| | (6 | ) | | (6 | ) |
| Net current period other comprehensive income (loss) | (91 | ) | | 95 |
| | (11 | ) | | (7 | ) |
| Income taxes reclassified to retained earnings*** | (93 | ) | | 2 |
| | 2 |
| | (89 | ) |
| December 31, 2019 | $ | (656 | ) | | (131 | ) | | (1 | ) | | (788 | ) |
|
| | | | | | | | | | | | |
| | Millions of Dollars |
| | Defined Benefit Plans |
| | Foreign Currency Translation |
| | Hedging |
| | Accumulated Other Comprehensive Loss |
|
| | | | | | | | |
| December 31, 2014 | $ | (696 | ) | | 167 |
| | (2 | ) | | (531 | ) |
| Other comprehensive loss before reclassification | (78 | ) | | (156 | ) | | — |
| | (234 | ) |
| Amounts reclassified from accumulated other comprehensive loss* |
|
| |
|
| |
|
| |
|
|
| Amortization of defined benefit plan items** |
|
| |
|
| |
|
| |
|
|
| Actuarial losses and settlements | 112 |
| | — |
| | — |
| | 112 |
|
| Net current period other comprehensive income (loss) | 34 |
| | (156 | ) | | — |
| | (122 | ) |
| December 31, 2015 | (662 | ) | | 11 |
| | (2 | ) | | (653 | ) |
| Other comprehensive income (loss) before reclassifications | (112 | ) | | (296 | ) | | 5 |
| | (403 | ) |
| Amounts reclassified from accumulated other comprehensive loss* |
|
| |
|
| |
|
| |
|
|
| Amortization of defined benefit plan items** |
|
| |
|
| |
|
| |
|
|
| Actuarial losses and settlements | 61 |
| | — |
| | — |
| | 61 |
|
| Net current period other comprehensive income (loss) | (51 | ) | | (296 | ) | | 5 |
| | (342 | ) |
| December 31, 2016 | (713 | ) | | (285 | ) | | 3 |
| | (995 | ) |
| Other comprehensive income before reclassifications | 3 |
| | 259 |
| | 4 |
| | 266 |
|
| Amounts reclassified from accumulated other comprehensive loss* |
|
| |
|
| |
|
| |
|
|
| Amortization of defined benefit plan items** |
|
| |
|
| |
|
| |
|
|
| Actuarial losses and settlements | 112 |
| | — |
| | — |
| | 112 |
|
| Net current period other comprehensive income | 115 |
| | 259 |
| | 4 |
| | 378 |
|
| December 31, 2017 | $ | (598 | ) | | (26 | ) | | 7 |
| | (617 | ) |
* There were no significant reclassifications related to foreign currency translation or hedging.hedging in the year ended December 31, 2017.
** Included in the computation of net periodic benefit cost. See Note 19—Pension and Postretirement Plans, for additional information.
*** As of January 1, 2019, stranded income taxes related to the enactment of the Tax Act in December 2017 were reclassified to retained earnings upon adoption of ASU No. 2018-02. See Note 2—Changes in Accounting Principles, for additional information on our adoption of this ASU.
Note 23—Cash Flow Information
Supplemental Cash Flow Information
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017 |
|
| Cash Payments (Receipts) | | | | | |
| Interest | $ | 426 |
| | 465 |
| | 421 |
|
| Income taxes* | 955 |
| | 984 |
| | (257 | ) |
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Cash Payments (Receipts) | | | | | |
| Interest | $ | 421 |
| | 311 |
| | 275 |
|
| Income taxes* | (257 | ) | | (375 | ) | | 1,560 |
|
* 2017 and 2016 reflected a net cash refund position; cash payments for income taxes were $102 million and $385 million in 2017 and 2016, respectively.2017.
Restricted Cash
At December 31, 20172019, 2018 and 2016,2017, the company did not0t have any restricted cash. The restrictions on the cash acquired in February 2017, as a result of the consolidation of MSLP,Merey Sweeny, were fully removed in May 2017 when MSLP’sMerey Sweeny’s outstanding debt that contained lender restrictions on the use of cash was paid in full. See Note 5—6—Business Combinations, and Note 12—Debt for additional information regarding MSLP.our consolidation of Merey Sweeny.
Note 24—Other Financial Information
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017 |
|
| Interest and Debt Expense | | | | | |
| Incurred | | | | | |
| Debt | $ | 504 |
| | 493 |
| | 432 |
|
| Other | 31 |
| | 28 |
| | 21 |
|
| | 535 |
| | 521 |
| | 453 |
|
| Capitalized | (77 | ) | | (17 | ) | | (15 | ) |
| Expensed | $ | 458 |
| | 504 |
| | 438 |
|
| | | | | | |
| Other Income | | | | | |
| Interest income | $ | 43 |
| | 45 |
| | 31 |
|
| Gain on consolidation of business* | — |
| | — |
| | 423 |
|
| Other, net** | 76 |
| | 16 |
| | 67 |
|
| | $ | 119 |
| | 61 |
| | 521 |
|
| * See Note 6—Business Combinations, for more information regarding the gain recognized in 2017. |
| ** Includes derivatives-related activities. See Note 15—Derivatives and Financial Instruments, for additional information. |
| | | | | | |
| Research and Development Expenses | $ | 54 |
| | 55 |
| | 60 |
|
| | | | | | |
| Advertising Expenses | $ | 63 |
| | 68 |
| | 76 |
|
| | | | | | |
| Foreign Currency Transaction (Gains) Losses | | | | | |
| Midstream | $ | — |
| | — |
| | — |
|
| Chemicals | — |
| | — |
| | — |
|
| Refining | — |
| | (24 | ) | | (2 | ) |
| Marketing and Specialties | — |
| | 1 |
| | 1 |
|
| Corporate and Other | 5 |
| | (8 | ) | | 1 |
|
| | $ | 5 |
| | (31 | ) | | — |
|
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Interest and Debt Expense | | | | | |
| Incurred | | | | | |
| Debt | $ | 432 |
| | 402 |
| | 389 |
|
| Other | 21 |
| | 17 |
| | 27 |
|
| | 453 |
| | 419 |
| | 416 |
|
| Capitalized | (15 | ) | | (81 | ) | | (106 | ) |
| Expensed | $ | 438 |
| | 338 |
| | 310 |
|
| | | | | | |
| Other Income | | | | | |
| Interest income | $ | 31 |
| | 18 |
| | 27 |
|
| Gain on consolidation of business* | 423 |
| | — |
| | — |
|
| Other, net** | 67 |
| | 56 |
| | 91 |
|
| | $ | 521 |
| | 74 |
| | 118 |
|
| * See Note 5—Business Combinations regarding the gain recognized in 2017. |
| ** Includes derivatives-related activities. |
| | | | | | |
Research and Development Expenditures—expensed | $ | 60 |
| | 60 |
| | 65 |
|
| | | | | | |
| Advertising Expenses | $ | 76 |
| | 80 |
| | 73 |
|
| | | | | | |
Foreign Currency Transaction (Gains) Losses—after-tax | | | | | |
| Midstream | $ | — |
| | — |
| | — |
|
| Chemicals | — |
| | — |
| | — |
|
| Refining | (1 | ) | | (10 | ) | | 34 |
|
| Marketing and Specialties | 1 |
| | 1 |
| | 4 |
|
| Corporate and Other | — |
| | (2 | ) | | — |
|
| | $ | — |
| | (11 | ) | | 38 |
|
Note 25—Related Party Transactions
Significant transactions with related parties were:
| | | | Millions of Dollars | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | | | | | | |
| Operating revenues and other income (a) | $ | 2,596 |
| | 2,174 |
| | 2,452 |
| $ | 2,977 |
| | 3,514 |
| | 2,596 |
|
| Purchases (b) | 10,468 |
| | 8,109 |
| | 8,142 |
| 11,726 |
| | 12,755 |
| | 10,468 |
|
Operating expenses and selling, general and administrative expenses (c) | 79 |
| | 125 |
| | 129 |
| 96 |
| | 59 |
| | 79 |
|
As discussed more fully in Note 5—Business Combinations, in February 2017, we began accounting for MSLP as a consolidated subsidiary. Accordingly, the table above only includes processing fees paid to MSLP through the consolidation date.
| |
| (a) | We sold NGL, and other petrochemical feedstocks along withand solvents to CPChem, NGL and we soldcertain feedstocks to DCP Midstream, gas oil and hydrogen feedstocks to Excel Paralubes (Excel). We sold, refined petroleum products to our OnCue Holdings, LLC joint venture.and United. We also sold certain feedstocks and intermediate products to WRB and also acted as agent for WRB in supplying crude oil and other feedstocks for a fee. In addition, we charged several of our affiliates, including CPChem, for the use of common facilities, such as steam generators, waste and water treaters and warehouse facilities. |
| |
| (b) | We purchased crude oil, refined petroleum products and refined productsNGL from WRB and also acted as agent for WRB in distributing solvents. We also purchased natural gas and NGL from DCP Midstream and CPChem, as well as other feedstocks from various affiliates, for use in our refinery and fractionation processes. In addition, we purchased base oils and fuel products from Excel for use in our specialty and refining businesses. We paid NGL fractionation fees to CPChem. We also paid fees to various pipeline equity companiesaffiliates for transporting crude oil, refined petroleum products and NGL. We purchased base oils and fuel products from Excel for use in our refining and specialty businesses. |
| |
| (c) | We paid consignment fees to United, and utility and processing fees to various affiliates. |
As discussed more fully in Note 6—Business Combinations, in February 2017, we began accounting for Merey Sweeny as a consolidated subsidiary. Accordingly, the table above only includes processing fees paid to Merey Sweeny through the consolidation date.
Note 26—Segment Disclosures and Related Information
Our operating segments are:
| |
| 1) | Midstream—Provides crude oil and refined productspetroleum product transportation, terminaling and processing services, as well as natural gas NGL and liquefied petroleum gas (LPG)NGL transportation, storage, fractionation, processing and marketing services, mainly in the United States. The Midstream segment includes our master limited partnership (MLP), Phillips 66 Partners, as well as our 50 percent50% equity investment in DCP Midstream. |
| |
| 2) | Chemicals—Consists of our 50 percent50% equity investment in CPChem, which manufactures and markets petrochemicals and plastics on a worldwide basis. |
| |
| 3) | Refining—Refines crude oil and other feedstocks into petroleum products, (suchsuch as gasoline, distillates and aviation fuels)fuels, at 13 refineries in the United States and Europe. |
| |
| 4) | Marketing and Specialties—Purchases for resale and markets refined petroleum products, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, as well as power generation operations.products. |
Corporate and Other includes general corporate overhead, interest expense, our investmentsinvestment in new technologies and various other corporate activities. Corporate assets include all cash, cash equivalents and cash equivalents. In addition, Corporate and Other includes the provisional income tax benefit from the enactment of the Tax Act on December 22, 2017. See Note 21—Income Taxes for further discussion.tax-related assets.
During the fourth quarter of 2017, the segment performance measure used by our chief executive officer to assess performance and allocate resources was changed from “net income attributable to Phillips 66” to “net income.” This change reflects the recognition that management does not differentiate between those earnings attributable to Phillips 66 and those attributable to noncontrolling interests when making operating and resource allocation decisions impacting segment performance. Prior period segment information has been recast to conform to the current presentation. Intersegment sales are at prices that we believe approximate market.
Analysis of Results by Operating Segment
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017* |
|
| Sales and Other Operating Revenues** | | | | | |
| Midstream | | | | | |
| Total sales | $ | 7,103 |
| | 8,293 |
| | 6,620 |
|
| Intersegment eliminations | (2,122 | ) | | (2,176 | ) | | (1,842 | ) |
| Total Midstream | 4,981 |
| | 6,117 |
| | 4,778 |
|
| Chemicals | 3 |
| | 5 |
| | 5 |
|
| Refining | | | | | |
| Total sales | 76,792 |
| | 83,140 |
| | 65,494 |
|
| Intersegment eliminations | (45,871 | ) | | (49,343 | ) | | (40,284 | ) |
| Total Refining | 30,921 |
| | 33,797 |
| | 25,210 |
|
| Marketing and Specialties | | | | | |
| Total sales | 73,616 |
| | 73,414 |
| | 73,565 |
|
| Intersegment eliminations | (2,256 | ) | | (1,899 | ) | | (1,233 | ) |
| Total Marketing and Specialties | 71,360 |
| | 71,515 |
| | 72,332 |
|
| Corporate and Other | 28 |
| | 27 |
| | 29 |
|
| Consolidated sales and other operating revenues | $ | 107,293 |
| | 111,461 |
| | 102,354 |
|
| * Sales and other operating revenues for the year ended December 31, 2017, are presented in accordance with accounting standards in effect prior to our adoption of ASU No. 2014-09 on January 1, 2018. See Note 1—Summary of Significant Accounting Policies, for further discussion regarding our adoption of ASU No. 2014-09. |
| ** See Note 3—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues. |
| | | | | | |
| Equity in Earnings of Affiliates | | | | | |
| Midstream | $ | 754 |
| | 676 |
| | 454 |
|
| Chemicals | 870 |
| | 1,025 |
| | 713 |
|
| Refining | 318 |
| | 796 |
| | 322 |
|
| Marketing and Specialties | 185 |
| | 164 |
| | 243 |
|
| Corporate and Other | — |
| | 15 |
| | — |
|
| Consolidated equity in earnings of affiliates | $ | 2,127 |
| | 2,676 |
| | 1,732 |
|
| | | | | | |
| Depreciation, Amortization and Impairments | | | | | |
| Midstream | $ | 1,162 |
| | 326 |
| | 299 |
|
| Chemicals | — |
| | — |
| | — |
|
| Refining | 857 |
| | 841 |
| | 838 |
|
| Marketing and Specialties | 103 |
| | 114 |
| | 116 |
|
| Corporate and Other | 80 |
| | 83 |
| | 89 |
|
| Consolidated depreciation, amortization and impairments | $ | 2,202 |
| | 1,364 |
| | 1,342 |
|
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Sales and Other Operating Revenues | | | | | |
| Midstream | | | | | |
| Total sales | $ | 6,620 |
| | 4,226 |
| | 3,676 |
|
| Intersegment eliminations | (1,842 | ) | | (1,299 | ) | | (1,034 | ) |
| Total Midstream | 4,778 |
| | 2,927 |
| | 2,642 |
|
| Chemicals | 5 |
| | 5 |
| | 5 |
|
| Refining | | | | | |
| Total sales | 65,494 |
| | 52,068 |
| | 63,470 |
|
| Intersegment eliminations | (40,284 | ) | | (34,120 | ) | | (40,317 | ) |
| Total Refining | 25,210 |
| | 17,948 |
| | 23,153 |
|
| Marketing and Specialties | | | | | |
| Total sales | 73,565 |
| | 64,476 |
| | 74,591 |
|
| Intersegment eliminations | (1,233 | ) | | (1,109 | ) | | (1,446 | ) |
| Total Marketing and Specialties | 72,332 |
| | 63,367 |
| | 73,145 |
|
| Corporate and Other | 29 |
| | 32 |
| | 30 |
|
| Consolidated sales and other operating revenues | $ | 102,354 |
| | 84,279 |
| | 98,975 |
|
| | | | | | |
| Depreciation, Amortization and Impairments | | | | | |
| Midstream | $ | 299 |
| | 218 |
| | 128 |
|
| Chemicals | — |
| | — |
| | — |
|
| Refining | 838 |
| | 770 |
| | 741 |
|
| Marketing and Specialties | 116 |
| | 107 |
| | 100 |
|
| Corporate and Other | 89 |
| | 78 |
| | 116 |
|
| Consolidated depreciation, amortization and impairments | $ | 1,342 |
| | 1,173 |
| | 1,085 |
|
| | | | Millions of Dollars | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
| 2019 |
| | 2018 |
| | 2017 |
|
| Equity in Earnings of Affiliates | | | | | | |
| Interest Income and Expense | | | | | | |
| Interest income | | | | | | |
| Midstream | $ | 454 |
| | 184 |
| | (268 | ) | $ | — |
| | — |
| | 1 |
|
| Chemicals | 713 |
| | 834 |
| | 1,316 |
| — |
| | — |
| | — |
|
| Refining | 322 |
| | 164 |
| | 325 |
| — |
| | — |
| | — |
|
| Marketing and Specialties | 243 |
| | 232 |
| | 207 |
| — |
| | — |
| | — |
|
| Corporate and Other | — |
| | — |
| | (7 | ) | 43 |
| | 45 |
| | 30 |
|
| Consolidated equity in earnings of affiliates | $ | 1,732 |
| | 1,414 |
| | 1,573 |
| |
| Consolidated interest income | | $ | 43 |
| | 45 |
| | 31 |
|
| | | | | | | | | | | |
| Income Tax Expense (Benefit) | | | | | | |
| Interest and debt expense | | | | | | |
| Corporate and Other | | $ | 458 |
| | 504 |
| | 438 |
|
| | | | | | | |
| Income (Loss) Before Income Taxes | | | | | | |
| Midstream | $ | 174 |
| | 123 |
| | 73 |
| $ | 684 |
| | 1,181 |
| | 638 |
|
| Chemicals | 191 |
| | 256 |
| | 353 |
| 879 |
| | 1,025 |
| | 716 |
|
| Refining | 672 |
| | 61 |
| | 1,104 |
| 1,986 |
| | 4,535 |
| | 2,076 |
|
| Marketing and Specialties | 334 |
| | 370 |
| | 466 |
| 1,433 |
| | 1,557 |
| | 1,020 |
|
| Corporate and Other | (3,064 | ) | | (263 | ) | | (232 | ) | (804 | ) | | (853 | ) | | (895 | ) |
| Consolidated income tax expense (benefit) | $ | (1,693 | ) | | 547 |
| | 1,764 |
| |
| Consolidated income before income taxes | | $ | 4,178 |
| | 7,445 |
| | 3,555 |
|
| | | | | | | | | | | |
| Net Income (Loss) | | | | | | |
| Investments In and Advances To Affiliates | | | | | | |
| Midstream | $ | 464 |
| | 280 |
| | 74 |
| $ | 5,131 |
| | 5,423 |
| | 4,734 |
|
| Chemicals | 525 |
| | 583 |
| | 962 |
| 6,229 |
| | 6,233 |
| | 6,222 |
|
| Refining | 1,404 |
| | 374 |
| | 2,555 |
| 2,290 |
| | 2,226 |
| | 2,398 |
|
| Marketing and Specialties | 686 |
| | 891 |
| | 1,187 |
| 650 |
| | 349 |
| | 390 |
|
| Corporate and Other | 2,169 |
| | (484 | ) | | (498 | ) | — |
| | — |
| | — |
|
| Consolidated net income | $ | 5,248 |
| | 1,644 |
| | 4,280 |
| |
| Consolidated investments in and advances to affiliates | | $ | 14,300 |
| | 14,231 |
| | 13,744 |
|
| | | | | | | |
| Total Assets* | | | | | | |
| Midstream | | $ | 15,716 |
| | 14,329 |
| | 13,231 |
|
| Chemicals | | 6,249 |
| | 6,235 |
| | 6,226 |
|
| Refining | | 25,150 |
| | 23,230 |
| | 23,780 |
|
| Marketing and Specialties | | 8,659 |
| | 6,572 |
| | 7,052 |
|
| Corporate and Other | | 2,946 |
| | 3,936 |
| | 4,082 |
|
| Consolidated total assets | | $ | 58,720 |
| | 54,302 |
| | 54,371 |
|
| * 2017 segment information has been recast to include all income tax-related assets in Corporate and Other. | | * 2017 segment information has been recast to include all income tax-related assets in Corporate and Other. |
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017 |
|
| Capital Expenditures and Investments | | | | | |
| Midstream | $ | 2,292 |
| | 1,548 |
| | 771 |
|
| Chemicals | — |
| | — |
| | — |
|
| Refining | 1,001 |
| | 826 |
| | 853 |
|
| Marketing and Specialties | 374 |
| | 125 |
| | 108 |
|
| Corporate and Other | 206 |
| | 140 |
| | 100 |
|
| Consolidated capital expenditures and investments | $ | 3,873 |
| | 2,639 |
| | 1,832 |
|
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2017 |
| | 2016 |
| | 2015 |
|
| Investments In and Advances To Affiliates | | | | | |
| Midstream | $ | 4,734 |
| | 4,769 |
| | 4,198 |
|
| Chemicals | 6,222 |
| | 5,773 |
| | 5,177 |
|
| Refining | 2,398 |
| | 2,420 |
| | 2,262 |
|
| Marketing and Specialties | 390 |
| | 391 |
| | 342 |
|
| Corporate and Other | — |
| | 1 |
| | 1 |
|
| Consolidated investments in and advances to affiliates | $ | 13,744 |
| | 13,354 |
| | 11,980 |
|
| | | | | | |
| Total Assets | | | | | |
| Midstream | $ | 13,231 |
| | 12,832 |
| | 11,043 |
|
| Chemicals | 6,226 |
| | 5,802 |
| | 5,237 |
|
| Refining | 23,820 |
| | 22,825 |
| | 21,993 |
|
| Marketing and Specialties | 7,103 |
| | 6,227 |
| | 5,631 |
|
| Corporate and Other | 3,991 |
| | 3,967 |
| | 4,676 |
|
| Consolidated total assets | $ | 54,371 |
| | 51,653 |
| | 48,580 |
|
| | | | | | |
| Capital Expenditures and Investments | | | | | |
| Midstream | $ | 771 |
| | 1,453 |
| | 4,457 |
|
| Chemicals | — |
| | — |
| | — |
|
| Refining | 853 |
| | 1,149 |
| | 1,069 |
|
| Marketing and Specialties | 108 |
| | 98 |
| | 122 |
|
| Corporate and Other | 100 |
| | 144 |
| | 116 |
|
| Consolidated capital expenditures and investments | $ | 1,832 |
| | 2,844 |
| | 5,764 |
|
| | | | | | |
| Interest Income and Expense | | | | | |
| Interest income | | | | | |
| Midstream | $ | 1 |
| | 2 |
| | — |
|
| Marketing and Specialties | — |
| | — |
| | 2 |
|
| Corporate and Other | 30 |
| | 16 |
| | 25 |
|
| Consolidated interest income | $ | 31 |
| | 18 |
| | 27 |
|
| | | | | | |
| Interest and debt expense | | | | | |
| Corporate and Other | $ | 438 |
| | 338 |
| | 310 |
|
Geographic Information
Long-lived assets, defined as net PP&E plus investments and long-term receivables, by geographic location at December 31 were:
|
| | | | | | | | | |
| | Millions of Dollars |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | |
| United States | $ | 36,407 |
| | 34,587 |
| | 33,457 |
|
| United Kingdom | 1,256 |
| | 1,191 |
| | 1,254 |
|
| Germany | 601 |
| | 570 |
| | 593 |
|
| Other foreign countries | 93 |
| | 91 |
| | 97 |
|
| Worldwide consolidated | $ | 38,357 |
| | 36,439 |
| | 35,401 |
|
|
| | | | | | | | | |
| Sales and Other Operating Revenues by Product Line | | | | | |
| Refined products | $ | 85,405 |
| | 73,385 |
| | 86,249 |
|
| Crude oil resales | 11,808 |
| | 7,594 |
| | 8,993 |
|
| NGL | 4,670 |
| | 3,107 |
| | 2,998 |
|
| Other | 471 |
| | 193 |
| | 735 |
|
| Consolidated sales and other operating revenues by product line | $ | 102,354 |
| | 84,279 |
| | 98,975 |
|
Geographic Information
|
| | | | | | | | | | | | | | | | | | |
| | Millions of Dollars |
| | Sales and Other Operating Revenues* | | Long-Lived Assets** |
| | 2017 |
| | 2016 |
| | 2015 |
| | 2017 |
| | 2016 |
| | 2015 |
|
| | | | | | | | | | | | |
| United States | $ | 75,684 |
| | 59,742 |
| | 69,578 |
| | 33,264 |
| | 32,442 |
| | 29,624 |
|
| United Kingdom | 10,626 |
| | 9,895 |
| | 12,120 |
| | 1,254 |
| | 1,177 |
| | 1,459 |
|
| Germany | 6,692 |
| | 6,128 |
| | 6,584 |
| | 591 |
| | 503 |
| | 502 |
|
| Other foreign countries | 9,352 |
| | 8,514 |
| | 10,693 |
| | 95 |
| | 87 |
| | 116 |
|
| Worldwide consolidated | $ | 102,354 |
| | 84,279 |
| | 98,975 |
| | 35,204 |
| | 34,209 |
| | 31,701 |
|
* Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.
** Defined as net properties, plants and equipment plus investments in and advances to affiliated companies.
Note 27—Phillips 66 Partners LP
Phillips 66 Partners, headquartered in Houston, Texas, is a publicly traded master limited partnershipMLP formed in 2013 to own, operate, develop and acquire primarily fee-based midstream assets. Phillips 66 Partners’ operations currently consist of crude oil, refined petroleum product and NGL pipelines and terminals, as well as other midstream assets. Headquartered in Houston, Texas, Phillips 66 Partners’ assets currently consist of crude oil, refined petroleum products and NGL transportation, fractionation, processing, terminaling and storage systems, as well as crude oilassets.
On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to eliminate the IDRs held by us and NGL processing facilities.convert our 2% economic general partner interest into a noneconomic general partner interest in exchange for 101 million Phillips 66 Partners common units. As a result of the restructuring transaction, the balance of “Noncontrolling interests” in our consolidated balance sheet decreased $373 million, with a $275 million increase to “Capital in excess of par,” a $91 million increase in “Deferred income taxes” and $7 million of transaction costs. No distributions were made for the general partner interest after August 1, 2019.
At December 31, 2019, we owned 170 million Phillips 66 Partners common units, representing a 74% limited partner interest in Phillips 66 Partners, while the public owned a 26% limited partner interest and 13.8 million perpetual convertible preferred units. Holders of the preferred units are entitled to receive cumulative quarterly distributions equal to $0.678375 per unit. Beginning in October 2020, holders will be entitled to receive quarterly distributions equal to the greater of $0.678375 per unit or the per-unit distribution paid to common unitholders.
We consolidate Phillips 66 Partners because we determined it is a VIE of which we are the primary beneficiary. As general partner of Phillips 66 Partners, we have the ability to control its financial interests, as a variable interest entity for financial reporting purposes. See Note 3—Variable Interest Entities for additional information on why we consolidatewell as the partnership.ability to direct the activities that most significantly impact its economic performance. As a result of this consolidation, the public common and perpetual convertible preferred unitholders’ ownership interests in Phillips 66 Partners are reflected as noncontrolling interests of $2,314$2,228 million and $1,306$2,469 million on our consolidated balance sheet as ofat December 31, 2017,2019 and 2016,2018, respectively. Generally, drop down transactions towith Phillips 66 Partners will eliminate in consolidation, except for third-party debt and third-party equity offerings made by Phillips 66 Partners to finance such transactions.
At December 31, 2017, we owned a 55 percent limited partner interest and a 2 percent general partner interest inThe most significant assets of Phillips 66 Partners while the public owned a 43 percent limited partner interest and 13.8 million perpetual convertible preferred units.
2017 Activities
In October 2017, we contributedthat are available to settle only its obligations, along with its most significant liabilities for which its creditors do not have recourse to Phillips 66 Partners our 25 percent interests66’s general credit, were:
|
| | | | | | |
| | Millions of Dollars |
| | December 31
2019 |
| | December 31
2018 |
|
| | | | |
| Cash and cash equivalents | $ | 286 |
| | 1 |
|
| Equity investments* | 2,961 |
| | 2,448 |
|
| Net properties, plants and equipment | 3,349 |
| | 3,052 |
|
| Short-term debt | 25 |
| | 50 |
|
| Long-term debt | 3,491 |
| | 2,998 |
|
* Included in both Dakota Access“Investments and ETCO and our 100 percent interest in MSLP. Total consideration forlong-term receivables” line item on the transaction was $1.65 billion, which consisted of $372 million in cash at closing, the assumption of $588 million of promissory notes payable to us, the assumption of a $450 million term loan payable to a third party, and the issuance to us of common and general partner units with a fair value of $240 million. Shortly after closing, Phillips 66 Partners repaid the $588 million of promissory notes payable to us, resulting in total cash received by us for the transaction of $960 million.consolidated balance sheet.
Phillips 66 Partners financed the consideration paid with the proceeds from the following third-party equity and debt offerings:
Net proceeds of $737 million from a private placement of 13,819,791 perpetual convertible preferred units, at a price of $54.27 per unit. Holders of the preferred units are entitled to receive cumulative quarterly distributions equal to $0.678375 per unit. Beginning in October 2020, holders are entitled to receive quarterly distributions equal to the greater of $0.678375 per unit or the per-unit distribution paid to common unitholders.
Net proceeds of $295 million from a private placement of 6,304,204 common units, at a price of $47.59 per unit.
A portion of the $643 million of net proceeds from a public offering of $650 million of Senior Notes. See Note 12—Debt for additional information on the Senior Notes.
In June 2016, Phillips 66 Partners began issuing common units under a continuous offering program, which allows for the issuance of up tohas authorized an aggregate of $750 million under 3 $250 million continuous offerings of Phillips 66 Partners’ common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of the offerings (such continuous offering program, or at-the-market program, is referred to as(ATM) programs. The first two programs concluded in June 2018 and December 2019, respectively, leaving $250 million available under the ATM program).third program. For yearthe years ended December 31, 2019, 2018 and 2017, on a settlement-date basis, Phillips 66 Partners issued 3,372,716 common units under the ATM program, which generated net proceeds of $173 million. Frommillion, $128 million and $173 million, respectively, from common units issued under the ATM programs. Since inception in June 2016 and through December 31, 2017, Phillips 66 Partners has issued an aggregate of 3,718,868 common units under2019, the ATM program, whichprograms have generated net proceeds of $192$492 million.
Phillips 66 Partners filed a new shelf registration statement for Phillips 66 Partners’ second continuous offering program that became effective with the SEC on January 23, 2018, which allows for the issuance of up to an aggregate of $250 million of Phillips 66 Partners’ common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of the offerings.
Note 28—New Accounting Standards
In February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).” This ASU clarifies the scope and accounting for the sale or transfer of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales. This ASU will eliminate the use of carryover basis for most nonmonetary exchanges, including contributions of assets to equity method joint ventures. These amendments could result in the entity recognizing a gain or loss on the sale or transfer of nonfinancial assets. Public entities should apply the guidance in ASU No. 2017-05 to annual periods beginning after December 15, 2017, including interim periods within those periods. There was no impact on our financial statements from adopting this ASU on January 1, 2018.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amendment provides a screen for determining when a transaction involves an acquisition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset, or a group of similar identifiable assets, then the transaction is not considered an acquisition of a business. If the screen is not met, then the amendment requires that to be considered a business, the operation must include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as business acquisitions. Public business entities should apply the guidance in ASU No. 2017-01 to annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The amendments should be applied prospectively and no disclosures are required at the effective date. There was no impact on our financial statements from adopting this ASU on January 1, 2018.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The new standard amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which may result in earlier recognition of losses. Public business entities should apply the guidance in ASU No. 2016-13 for annual periods beginning after December 15, 2019, including interim periods within those annual periods. Early adoption will be permitted for annual periods beginning after December 15, 2018. We are currently evaluating the provisions of ASU No. 2016-13 and assessing the impact on our financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will continue to be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Similarly, lessors will be required to classify leases as sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. Public business entities should apply the guidance in ASU No. 2016-02 for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted. Entities are required to adopt the ASU using a modified retrospective approach, subject to certain optional practical expedients, and apply the provisions of ASU No. 2016-02 to leasing arrangements existing at or entered into
after the earliest comparative period presentedPhillips 66 Partners’ investment in the Gray Oak Pipeline development is held through Holdings LLC. In December 2018, a third party exercised its option to acquire a 35% interest in Holdings LLC. Because Holdings LLC’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which is considered a financial statements. We are currently evaluatingasset, and because certain restrictions were placed on the provisionsthird party’s ability to transfer or sell its interest in Holdings LLC during the construction of ASU No. 2016-02the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP. As such, the contributions the third party is making to Holdings LLC to cover its share of previously incurred and assessing its impactfuture construction costs plus a premium to Phillips 66 Partners will be reflected as a long-term obligation in the “Other liabilities and deferred credits” line item on our financial statements. As part of our assessment to-date, we have formed an implementation team, commenced identification of our lease population and selected a lease software package. We expect the adoption of ASU 2016-02 will materially gross up our consolidated balance sheet withand financing cash inflows in the recognition of the ROU assets and operating lease liabilities. The impact to our consolidated statements of income and cash flows is not expected to be material. The new standard will also require additional disclosures for financing and operating leases.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” to meet its objective of providing more decision-useful information about financial instruments. The majority of this ASU’s provisions amend only the presentation or disclosures of financial instruments; however, one provision will also affect net income. Equity investments carried under the cost method or lower of cost or fair value method of accounting, in accordance with current GAAP, will have to be carried at fair value upon adoption of ASU No. 2016-01, with changes in fair value recorded in net income. For equity investments that do not have readily determinable fair values, a company may elect to carry such investments at cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. Public business entities should apply the guidance in ASU No. 2016-01 for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption prohibited. We are currently evaluating the provisions of ASU No. 2016-01. Our initial review indicates that ASU No. 2016-01 will have a limited impact on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU and other related updates are intended to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets and expand disclosure requirements. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Our assessment work primarily included the formation of an implementation work team, training on the new ASU’s revenue recognition model, contract review and documentation and the monitoring of industry interpretative issues. We adopted the standard on January 1, 2018, using the modified retrospective application. Our evaluation of the new ASU is near completion, which includes understanding the impact of adoption on earnings from equity method investments. Based upon our analysis to-date, the primary impact of adoption of the new standard is the netting of sales-based taxes collected from our customers against revenue. Sales-based taxes include excise taxes on sales of petroleum products as noted“Other” line item on our consolidated statement of cash flows. After construction of the Gray Oak Pipeline is fully completed, these restrictions expire, and the sale will be recognized under GAAP. Phillips 66 Partners will continue to control and consolidate Holdings LLC after sale recognition, and therefore the third party’s 35% interest will be recharacterized from a long-term obligation to a noncontrolling interest in our consolidated balance sheet at that time. Also at that time, the premium paid will be recharacterized from a long-term obligation to a gain in our consolidated statement of income. We have not identified any other material impact on our financial statements other than disclosures.For the year ended December 31, 2019, the third party contributed an aggregate of $342 million to Holdings LLC, and Holdings LLC used these contributions to fund its portion of Gray Oak Pipeline, LLC’s cash calls. See Note 7—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillip 66 Partners’ investment in Gray Oak Pipeline, LLC.
Note 29—28—Condensed Consolidating Financial Information
Phillips 66 has $6.0 billion of senior notes outstanding, the payment obligations of which are fully and unconditionally guaranteed by Phillips 66 Company, a 100-percent-owned percent-owned subsidiary. The following condensed consolidating financial information presents the results of operations, financial position and cash flows for:
Phillips 66 and Phillips 66 Company (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting).
All other nonguarantor subsidiaries.
The consolidating adjustments necessary to present Phillips 66’s results on a consolidated basis.
This condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and notes.
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2019 |
| Statement of Income | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Revenues and Other Income | | | | | |
| Sales and other operating revenues | $ | — |
| 82,857 |
| 24,436 |
| — |
| 107,293 |
|
| Equity in earnings of affiliates | 3,342 |
| 2,163 |
| 738 |
| (4,116 | ) | 2,127 |
|
| Net gain on dispositions | — |
| — |
| 20 |
| — |
| 20 |
|
| Other income | — |
| 76 |
| 43 |
| — |
| 119 |
|
| Intercompany revenues | — |
| 3,804 |
| 14,370 |
| (18,174 | ) | — |
|
| Total Revenues and Other Income | 3,342 |
| 88,900 |
| 39,607 |
| (22,290 | ) | 109,559 |
|
| | | | | | |
| Costs and Expenses | | | | | |
| Purchased crude oil and products | — |
| 78,244 |
| 35,067 |
| (17,782 | ) | 95,529 |
|
| Operating expenses | — |
| 4,005 |
| 1,141 |
| (72 | ) | 5,074 |
|
| Selling, general and administrative expenses | 6 |
| 1,299 |
| 386 |
| (10 | ) | 1,681 |
|
| Depreciation and amortization | — |
| 918 |
| 423 |
| — |
| 1,341 |
|
| Impairments | — |
| 3 |
| 858 |
| — |
| 861 |
|
| Taxes other than income taxes | — |
| 293 |
| 116 |
| — |
| 409 |
|
| Accretion on discounted liabilities | — |
| 18 |
| 5 |
| — |
| 23 |
|
| Interest and debt expense | 347 |
| 145 |
| 276 |
| (310 | ) | 458 |
|
| Foreign currency transaction losses | — |
| — |
| 5 |
| — |
| 5 |
|
| Total Costs and Expenses | 353 |
| 84,925 |
| 38,277 |
| (18,174 | ) | 105,381 |
|
| Income before income taxes | 2,989 |
| 3,975 |
| 1,330 |
| (4,116 | ) | 4,178 |
|
| Income tax expense (benefit) | (87 | ) | 633 |
| 255 |
| — |
| 801 |
|
| Net Income | 3,076 |
| 3,342 |
| 1,075 |
| (4,116 | ) | 3,377 |
|
| Less: net income attributable to noncontrolling interests | — |
| — |
| 301 |
| — |
| 301 |
|
| Net Income Attributable to Phillips 66 | $ | 3,076 |
| 3,342 |
| 774 |
| (4,116 | ) | 3,076 |
|
| | | | | |
|
| Comprehensive Income | $ | 3,069 |
| 3,335 |
| 1,098 |
| (4,132 | ) | 3,370 |
|
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2018 |
| Statement of Income | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Revenues and Other Income | | | | | |
| Sales and other operating revenues | $ | — |
| 85,486 |
| 25,975 |
| — |
| 111,461 |
|
| Equity in earnings of affiliates | 5,918 |
| 4,030 |
| 747 |
| (8,019 | ) | 2,676 |
|
| Net gain on dispositions | — |
| 8 |
| 11 |
| — |
| 19 |
|
| Other income | — |
| 33 |
| 28 |
| — |
| 61 |
|
| Intercompany revenues | — |
| 3,493 |
| 14,085 |
| (17,578 | ) | — |
|
| Total Revenues and Other Income | 5,918 |
| 93,050 |
| 40,846 |
| (25,597 | ) | 114,217 |
|
| | | | | | |
| Costs and Expenses | | | | | |
| Purchased crude oil and products | — |
| 79,559 |
| 35,563 |
| (17,192 | ) | 97,930 |
|
| Operating expenses | — |
| 3,769 |
| 1,193 |
| (82 | ) | 4,880 |
|
| Selling, general and administrative expenses | 7 |
| 1,297 |
| 383 |
| (10 | ) | 1,677 |
|
| Depreciation and amortization | — |
| 926 |
| 430 |
| — |
| 1,356 |
|
| Impairments | — |
| 3 |
| 5 |
| — |
| 8 |
|
| Taxes other than income taxes | — |
| 321 |
| 104 |
| — |
| 425 |
|
| Accretion on discounted liabilities | — |
| 18 |
| 5 |
| — |
| 23 |
|
| Interest and debt expense | 402 |
| 146 |
| 250 |
| (294 | ) | 504 |
|
| Foreign currency transaction gains | — |
| — |
| (31 | ) | — |
| (31 | ) |
| Total Costs and Expenses | 409 |
| 86,039 |
| 37,902 |
| (17,578 | ) | 106,772 |
|
| Income before income taxes | 5,509 |
| 7,011 |
| 2,944 |
| (8,019 | ) | 7,445 |
|
| Income tax expense (benefit) | (86 | ) | 1,093 |
| 565 |
| — |
| 1,572 |
|
| Net Income | 5,595 |
| 5,918 |
| 2,379 |
| (8,019 | ) | 5,873 |
|
| Less: net income attributable to noncontrolling interests | — |
| — |
| 278 |
| — |
| 278 |
|
| Net Income Attributable to Phillips 66 | $ | 5,595 |
| 5,918 |
| 2,101 |
| (8,019 | ) | 5,595 |
|
| | | | | | |
| Comprehensive Income | $ | 5,520 |
| 5,843 |
| 2,291 |
| (7,856 | ) | 5,798 |
|
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2017 |
| Statement of Income | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Revenues and Other Income | | | | | |
| Sales and other operating revenues | $ | — |
| 74,640 |
| 27,714 |
| — |
| 102,354 |
|
| Equity in earnings of affiliates | 5,336 |
| 3,256 |
| 559 |
| (7,419 | ) | 1,732 |
|
| Net gain on dispositions | — |
| 1 |
| 14 |
| — |
| 15 |
|
| Other income | 3 |
| 471 |
| 47 |
| — |
| 521 |
|
| Intercompany revenues | — |
| 1,610 |
| 13,457 |
| (15,067 | ) | — |
|
| Total Revenues and Other Income | 5,339 |
| 79,978 |
| 41,791 |
| (22,486 | ) | 104,622 |
|
| | | | | | |
| Costs and Expenses | | | | | |
| Purchased crude oil and products | — |
| 63,812 |
| 30,379 |
| (14,782 | ) | 79,409 |
|
| Operating expenses | — |
| 3,672 |
| 1,085 |
| (58 | ) | 4,699 |
|
| Selling, general and administrative expenses | 7 |
| 1,300 |
| 399 |
| (11 | ) | 1,695 |
|
| Depreciation and amortization | — |
| 892 |
| 426 |
| — |
| 1,318 |
|
| Impairments | — |
| 20 |
| 4 |
| — |
| 24 |
|
| Taxes other than income taxes | — |
| 5,784 |
| 7,678 |
| — |
| 13,462 |
|
| Accretion on discounted liabilities | — |
| 17 |
| 5 |
| — |
| 22 |
|
| Interest and debt expense | 348 |
| 70 |
| 236 |
| (216 | ) | 438 |
|
| Total Costs and Expenses | 355 |
| 75,567 |
| 40,212 |
| (15,067 | ) | 101,067 |
|
| Income before income taxes | 4,984 |
| 4,411 |
| 1,579 |
| (7,419 | ) | 3,555 |
|
| Income tax benefit | (122 | ) | (925 | ) | (646 | ) | — |
| (1,693 | ) |
| Net Income | 5,106 |
| 5,336 |
| 2,225 |
| (7,419 | ) | 5,248 |
|
| Less: net income attributable to noncontrolling interests | — |
| — |
| 142 |
| — |
| 142 |
|
| Net Income Attributable to Phillips 66 | $ | 5,106 |
| 5,336 |
| 2,083 |
| (7,419 | ) | 5,106 |
|
| | | | | | |
| Comprehensive Income | $ | 5,484 |
| 5,714 |
| 2,498 |
| (8,070 | ) | 5,626 |
|
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2016 |
| Statement of Income | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Revenues and Other Income | | | | | |
| Sales and other operating revenues | $ | — |
| 58,822 |
| 25,457 |
| — |
| 84,279 |
|
| Equity in earnings of affiliates | 1,797 |
| 1,839 |
| 296 |
| (2,518 | ) | 1,414 |
|
| Net gain (loss) on dispositions | — |
| (9 | ) | 19 |
| — |
| 10 |
|
| Other income | — |
| 42 |
| 32 |
| — |
| 74 |
|
| Intercompany revenues | — |
| 864 |
| 9,160 |
| (10,024 | ) | — |
|
| Total Revenues and Other Income | 1,797 |
| 61,558 |
| 34,964 |
| (12,542 | ) | 85,777 |
|
| | | | | | |
| Costs and Expenses | | | | | |
| Purchased crude oil and products | — |
| 48,171 |
| 24,102 |
| (9,805 | ) | 62,468 |
|
| Operating expenses | — |
| 3,465 |
| 846 |
| (36 | ) | 4,275 |
|
| Selling, general and administrative expenses | 6 |
| 1,236 |
| 406 |
| (10 | ) | 1,638 |
|
| Depreciation and amortization | — |
| 821 |
| 347 |
| — |
| 1,168 |
|
| Impairments | — |
| 1 |
| 4 |
| — |
| 5 |
|
| Taxes other than income taxes | — |
| 5,477 |
| 8,211 |
| — |
| 13,688 |
|
| Accretion on discounted liabilities | — |
| 16 |
| 5 |
| — |
| 21 |
|
| Interest and debt expense | 366 |
| 21 |
| 124 |
| (173 | ) | 338 |
|
| Foreign currency transaction gains | — |
| — |
| (15 | ) | — |
| (15 | ) |
| Total Costs and Expenses | 372 |
| 59,208 |
| 34,030 |
| (10,024 | ) | 83,586 |
|
| Income before income taxes | 1,425 |
| 2,350 |
| 934 |
| (2,518 | ) | 2,191 |
|
| Income tax expense (benefit) | (130 | ) | 553 |
| 124 |
| — |
| 547 |
|
| Net Income | 1,555 |
| 1,797 |
| 810 |
| (2,518 | ) | 1,644 |
|
| Less: net income attributable to noncontrolling interests | — |
| — |
| 89 |
| — |
| 89 |
|
| Net Income Attributable to Phillips 66 | $ | 1,555 |
| 1,797 |
| 721 |
| (2,518 | ) | 1,555 |
|
| | | | | | |
| Comprehensive Income | $ | 1,213 |
| 1,455 |
| 451 |
| (1,817 | ) | 1,302 |
|
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2019 |
| Balance Sheet | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Assets | | | | | |
| Cash and cash equivalents | $ | — |
| 136 |
| 1,478 |
| — |
| 1,614 |
|
| Accounts and notes receivable | 86 |
| 6,334 |
| 4,148 |
| (2,058 | ) | 8,510 |
|
| Inventories | — |
| 2,594 |
| 1,182 |
| — |
| 3,776 |
|
| Prepaid expenses and other current assets | 2 |
| 362 |
| 131 |
| — |
| 495 |
|
| Total Current Assets | 88 |
| 9,426 |
| 6,939 |
| (2,058 | ) | 14,395 |
|
| Investments and long-term receivables | 33,082 |
| 25,039 |
| 10,989 |
| (54,539 | ) | 14,571 |
|
| Net properties, plants and equipment | — |
| 13,676 |
| 10,110 |
| — |
| 23,786 |
|
| Goodwill | — |
| 2,853 |
| 417 |
| — |
| 3,270 |
|
| Intangibles | — |
| 732 |
| 137 |
| — |
| 869 |
|
| Other assets | 14 |
| 4,290 |
| 714 |
| (3,189 | ) | 1,829 |
|
| Total Assets | $ | 33,184 |
| 56,016 |
| 29,306 |
| (59,786 | ) | 58,720 |
|
| | | | | | |
| Liabilities and Equity | | | | | |
| Accounts payable | $ | — |
| 7,024 |
| 3,609 |
| (2,058 | ) | 8,575 |
|
| Short-term debt | 500 |
| 16 |
| 31 |
| — |
| 547 |
|
| Accrued income and other taxes | — |
| 386 |
| 593 |
| — |
| 979 |
|
| Employee benefit obligations | — |
| 648 |
| 62 |
| — |
| 710 |
|
| Other accruals | 65 |
| 850 |
| 249 |
| (329 | ) | 835 |
|
| Total Current Liabilities | 565 |
| 8,924 |
| 4,544 |
| (2,387 | ) | 11,646 |
|
| Long-term debt | 7,434 |
| 155 |
| 3,627 |
| — |
| 11,216 |
|
| Asset retirement obligations and accrued environmental costs | — |
| 460 |
| 178 |
| — |
| 638 |
|
| Deferred income taxes | — |
| 3,727 |
| 1,828 |
| (2 | ) | 5,553 |
|
| Employee benefit obligations | — |
| 825 |
| 219 |
| — |
| 1,044 |
|
| Other liabilities and deferred credits | 245 |
| 8,975 |
| 5,465 |
| (13,231 | ) | 1,454 |
|
| Total Liabilities | 8,244 |
| 23,066 |
| 15,861 |
| (15,620 | ) | 31,551 |
|
| Common stock | 3,634 |
| 25,838 |
| 9,516 |
| (35,354 | ) | 3,634 |
|
| Retained earnings | 22,094 |
| 7,900 |
| 1,940 |
| (9,870 | ) | 22,064 |
|
| Accumulated other comprehensive loss | (788 | ) | (788 | ) | (270 | ) | 1,058 |
| (788 | ) |
| Noncontrolling interests | — |
| — |
| 2,259 |
| — |
| 2,259 |
|
| Total Liabilities and Equity | $ | 33,184 |
| 56,016 |
| 29,306 |
| (59,786 | ) | 58,720 |
|
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2018 |
| Balance Sheet | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Assets | | | | | |
| Cash and cash equivalents | $ | — |
| 1,648 |
| 1,371 |
| — |
| 3,019 |
|
| Accounts and notes receivable | 9 |
| 4,255 |
| 3,202 |
| (1,293 | ) | 6,173 |
|
| Inventories | — |
| 2,489 |
| 1,054 |
| — |
| 3,543 |
|
| Prepaid expenses and other current assets | 2 |
| 373 |
| 99 |
| — |
| 474 |
|
| Total Current Assets | 11 |
| 8,765 |
| 5,726 |
| (1,293 | ) | 13,209 |
|
| Investments and long-term receivables | 32,712 |
| 22,799 |
| 9,829 |
| (50,919 | ) | 14,421 |
|
| Net properties, plants and equipment | — |
| 13,218 |
| 8,800 |
| — |
| 22,018 |
|
| Goodwill | — |
| 2,853 |
| 417 |
| — |
| 3,270 |
|
| Intangibles | — |
| 726 |
| 143 |
| — |
| 869 |
|
| Other assets | 9 |
| 335 |
| 173 |
| (2 | ) | 515 |
|
| Total Assets | $ | 32,732 |
| 48,696 |
| 25,088 |
| (52,214 | ) | 54,302 |
|
| | | | | | |
| Liabilities and Equity | | | | | |
| Accounts payable | $ | — |
| 5,415 |
| 2,464 |
| (1,293 | ) | 6,586 |
|
| Short-term debt | — |
| 11 |
| 56 |
| — |
| 67 |
|
| Accrued income and other taxes | — |
| 458 |
| 658 |
| — |
| 1,116 |
|
| Employee benefit obligations | — |
| 663 |
| 61 |
| — |
| 724 |
|
| Other accruals | 66 |
| 227 |
| 149 |
| — |
| 442 |
|
| Total Current Liabilities | 66 |
| 6,774 |
| 3,388 |
| (1,293 | ) | 8,935 |
|
| Long-term debt | 7,928 |
| 54 |
| 3,111 |
| — |
| 11,093 |
|
| Asset retirement obligations and accrued environmental costs | — |
| 458 |
| 166 |
| — |
| 624 |
|
| Deferred income taxes | 1 |
| 3,541 |
| 1,735 |
| (2 | ) | 5,275 |
|
| Employee benefit obligations | — |
| 676 |
| 191 |
| — |
| 867 |
|
| Other liabilities and deferred credits | 55 |
| 4,611 |
| 4,287 |
| (8,598 | ) | 355 |
|
| Total Liabilities | 8,050 |
| 16,114 |
| 12,878 |
| (9,893 | ) | 27,149 |
|
| Common stock | 4,856 |
| 24,960 |
| 8,754 |
| (33,714 | ) | 4,856 |
|
| Retained earnings | 20,518 |
| 8,314 |
| 1,249 |
| (9,592 | ) | 20,489 |
|
| Accumulated other comprehensive loss | (692 | ) | (692 | ) | (293 | ) | 985 |
| (692 | ) |
| Noncontrolling interests | — |
| — |
| 2,500 |
| — |
| 2,500 |
|
| Total Liabilities and Equity | $ | 32,732 |
| 48,696 |
| 25,088 |
| (52,214 | ) | 54,302 |
|
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2015 |
| Statement of Income | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Revenues and Other Income | | | | | |
| Sales and other operating revenues | $ | — |
| 68,478 |
| 30,497 |
| — |
| 98,975 |
|
| Equity in earnings (losses) of affiliates | 4,470 |
| 2,812 |
| (134 | ) | (5,575 | ) | 1,573 |
|
| Net gain (loss) on dispositions | — |
| (115 | ) | 398 |
| — |
| 283 |
|
| Other income | — |
| 81 |
| 37 |
| — |
| 118 |
|
| Intercompany revenues | — |
| 1,071 |
| 9,845 |
| (10,916 | ) | — |
|
| Total Revenues and Other Income | 4,470 |
| 72,327 |
| 40,643 |
| (16,491 | ) | 100,949 |
|
| | | | | | |
| Costs and Expenses | | | | | |
| Purchased crude oil and products | — |
| 54,925 |
| 29,221 |
| (10,747 | ) | 73,399 |
|
| Operating expenses | 4 |
| 3,412 |
| 917 |
| (39 | ) | 4,294 |
|
| Selling, general and administrative expenses | 5 |
| 1,265 |
| 416 |
| (16 | ) | 1,670 |
|
| Depreciation and amortization | — |
| 818 |
| 260 |
| — |
| 1,078 |
|
| Impairments | — |
| 4 |
| 3 |
| — |
| 7 |
|
| Taxes other than income taxes | — |
| 5,505 |
| 8,572 |
| — |
| 14,077 |
|
| Accretion on discounted liabilities | — |
| 16 |
| 5 |
| — |
| 21 |
|
| Interest and debt expense | 365 |
| 25 |
| 34 |
| (114 | ) | 310 |
|
| Foreign currency transaction losses | — |
| 1 |
| 48 |
| — |
| 49 |
|
| Total Costs and Expenses | 374 |
| 65,971 |
| 39,476 |
| (10,916 | ) | 94,905 |
|
| Income before income taxes | 4,096 |
| 6,356 |
| 1,167 |
| (5,575 | ) | 6,044 |
|
| Income tax expense (benefit) | (131 | ) | 1,886 |
| 9 |
| — |
| 1,764 |
|
| Net Income | 4,227 |
| 4,470 |
| 1,158 |
| (5,575 | ) | 4,280 |
|
| Less: net income attributable to noncontrolling interests | — |
| — |
| 53 |
| — |
| 53 |
|
| Net Income Attributable to Phillips 66 | $ | 4,227 |
| 4,470 |
| 1,105 |
| (5,575 | ) | 4,227 |
|
| | | | | | |
| Comprehensive Income | $ | 4,105 |
| 4,348 |
| 1,032 |
| (5,327 | ) | 4,158 |
|
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | At December 31, 2017 |
| Balance Sheet | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Assets | | | | | |
| Cash and cash equivalents | $ | — |
| 1,411 |
| 1,708 |
| — |
| 3,119 |
|
| Accounts and notes receivable | 10 |
| 5,317 |
| 4,476 |
| (2,297 | ) | 7,506 |
|
| Inventories | — |
| 2,386 |
| 1,009 |
| — |
| 3,395 |
|
| Prepaid expenses and other current assets | 2 |
| 276 |
| 92 |
| — |
| 370 |
|
| Total Current Assets | 12 |
| 9,390 |
| 7,285 |
| (2,297 | ) | 14,390 |
|
| Investments and long-term receivables | 32,125 |
| 23,483 |
| 9,959 |
| (51,626 | ) | 13,941 |
|
| Net properties, plants and equipment | — |
| 13,117 |
| 8,343 |
| — |
| 21,460 |
|
| Goodwill | — |
| 2,853 |
| 417 |
| — |
| 3,270 |
|
| Intangibles | — |
| 722 |
| 154 |
| — |
| 876 |
|
| Other assets | 12 |
| 266 |
| 158 |
| (2 | ) | 434 |
|
| Total Assets | $ | 32,149 |
| 49,831 |
| 26,316 |
| (53,925 | ) | 54,371 |
|
| | | | | | |
| Liabilities and Equity | | | | | |
| Accounts payable | $ | — |
| 7,272 |
| 3,052 |
| (2,297 | ) | 8,027 |
|
| Short-term debt | — |
| 9 |
| 32 |
| — |
| 41 |
|
| Accrued income and other taxes | — |
| 451 |
| 551 |
| — |
| 1,002 |
|
| Employee benefit obligations | — |
| 513 |
| 69 |
| — |
| 582 |
|
| Other accruals | 55 |
| 298 |
| 102 |
| — |
| 455 |
|
| Total Current Liabilities | 55 |
| 8,543 |
| 3,806 |
| (2,297 | ) | 10,107 |
|
| Long-term debt | 6,972 |
| 50 |
| 3,047 |
| — |
| 10,069 |
|
| Asset retirement obligations and accrued environmental costs | — |
| 467 |
| 174 |
| — |
| 641 |
|
| Deferred income taxes | — |
| 3,349 |
| 1,661 |
| (2 | ) | 5,008 |
|
| Employee benefit obligations | — |
| 639 |
| 245 |
| — |
| 884 |
|
| Other liabilities and deferred credits | 8 |
| 4,700 |
| 3,814 |
| (8,288 | ) | 234 |
|
| Total Liabilities | 7,035 |
| 17,748 |
| 12,747 |
| (10,587 | ) | 26,943 |
|
| Common stock | 9,396 |
| 24,952 |
| 10,125 |
| (35,077 | ) | 9,396 |
|
| Retained earnings | 16,335 |
| 7,748 |
| 1,306 |
| (9,083 | ) | 16,306 |
|
| Accumulated other comprehensive loss | (617 | ) | (617 | ) | (205 | ) | 822 |
| (617 | ) |
| Noncontrolling interests | — |
| — |
| 2,343 |
| — |
| 2,343 |
|
| Total Liabilities and Equity | $ | 32,149 |
| 49,831 |
| 26,316 |
| (53,925 | ) | 54,371 |
|
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2019 |
| Statement of Cash Flows | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Cash Flows From Operating Activities | | | | | |
| Net Cash Provided by Operating Activities | $ | 3,541 |
| 2,923 |
| 2,298 |
| (3,954 | ) | 4,808 |
|
| | | | | | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures and investments* | — |
| (1,493 | ) | (2,640 | ) | 260 |
| (3,873 | ) |
| Proceeds from asset dispositions** | — |
| 354 |
| 153 |
| (350 | ) | 157 |
|
| Intercompany lending activities | (297 | ) | 567 |
| (270 | ) | — |
| — |
|
| Advances/loans—related parties | — |
| — |
| (98 | ) | — |
| (98 | ) |
| Collection of advances/loans—related parties | — |
| — |
| 95 |
| — |
| 95 |
|
| Other | — |
| (8 | ) | 39 |
| — |
| 31 |
|
| Net Cash Used in Investing Activities | (297 | ) | (580 | ) | (2,721 | ) | (90 | ) | (3,688 | ) |
| | | | | | |
| Cash Flows From Financing Activities | | | | | |
| Issuance of debt | — |
| — |
| 1,783 |
| — |
| 1,783 |
|
| Repayment of debt | — |
| (15 | ) | (1,292 | ) | — |
| (1,307 | ) |
| Issuance of common stock | 32 |
| — |
| — |
| — |
| 32 |
|
| Repurchase of common stock | (1,650 | ) | — |
| — |
| — |
| (1,650 | ) |
| Dividends paid on common stock | (1,570 | ) | (3,836 | ) | (118 | ) | 3,954 |
| (1,570 | ) |
| Distributions to noncontrolling interests | — |
| — |
| (241 | ) | — |
| (241 | ) |
| Net proceeds from issuance of Phillips 66 Partners LP common units | — |
| — |
| 173 |
| — |
| 173 |
|
| Other* | (56 | ) | (4 | ) | 239 |
| 90 |
| 269 |
|
| Net Cash Provided by (Used in) Financing Activities | (3,244 | ) | (3,855 | ) | 544 |
| 4,044 |
| (2,511 | ) |
| | | | | | |
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | — |
| — |
| (14 | ) | — |
| (14 | ) |
| | | | | | |
| Net Change in Cash and Cash Equivalents | — |
| (1,512 | ) | 107 |
| — |
| (1,405 | ) |
| Cash and cash equivalents at beginning of period | — |
| 1,648 |
| 1,371 |
| — |
| 3,019 |
|
| Cash and Cash Equivalents at End of Period | $ | — |
| 136 |
| 1,478 |
| — |
| 1,614 |
|
| * Includes intercompany capital contributions. |
| ** Includes return of investments in equity affiliates. |
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | At December 31, 2016 |
| Balance Sheet | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Assets | | | | | |
| Cash and cash equivalents | $ | — |
| 854 |
| 1,857 |
| — |
| 2,711 |
|
| Accounts and notes receivable | 13 |
| 4,336 |
| 3,276 |
| (1,228 | ) | 6,397 |
|
| Inventories | — |
| 2,198 |
| 952 |
| — |
| 3,150 |
|
| Prepaid expenses and other current assets | 2 |
| 317 |
| 103 |
| — |
| 422 |
|
| Total Current Assets | 15 |
| 7,705 |
| 6,188 |
| (1,228 | ) | 12,680 |
|
| Investments and long-term receivables | 31,165 |
| 22,733 |
| 8,588 |
| (48,952 | ) | 13,534 |
|
| Net properties, plants and equipment | — |
| 13,044 |
| 7,811 |
| — |
| 20,855 |
|
| Goodwill | — |
| 2,853 |
| 417 |
| — |
| 3,270 |
|
| Intangibles | — |
| 719 |
| 169 |
| — |
| 888 |
|
| Other assets | 15 |
| 245 |
| 168 |
| (2 | ) | 426 |
|
| Total Assets | $ | 31,195 |
| 47,299 |
| 23,341 |
| (50,182 | ) | 51,653 |
|
| | | | | | |
| Liabilities and Equity | | | | | |
| Accounts payable | $ | — |
| 5,626 |
| 2,663 |
| (1,228 | ) | 7,061 |
|
| Short-term debt | 500 |
| 30 |
| 20 |
| — |
| 550 |
|
| Accrued income and other taxes | — |
| 348 |
| 457 |
| — |
| 805 |
|
| Employee benefit obligations | — |
| 475 |
| 52 |
| — |
| 527 |
|
| Other accruals | 59 |
| 371 |
| 90 |
| — |
| 520 |
|
| Total Current Liabilities | 559 |
| 6,850 |
| 3,282 |
| (1,228 | ) | 9,463 |
|
| Long-term debt | 6,920 |
| 150 |
| 2,518 |
| — |
| 9,588 |
|
| Asset retirement obligations and accrued environmental costs | — |
| 501 |
| 154 |
| — |
| 655 |
|
| Deferred income taxes | — |
| 4,391 |
| 2,354 |
| (2 | ) | 6,743 |
|
| Employee benefit obligations | — |
| 948 |
| 268 |
| — |
| 1,216 |
|
| Other liabilities and deferred credits | 1,297 |
| 3,337 |
| 4,060 |
| (8,431 | ) | 263 |
|
| Total Liabilities | 8,776 |
| 16,177 |
| 12,636 |
| (9,661 | ) | 27,928 |
|
| Common stock | 10,777 |
| 25,403 |
| 10,117 |
| (35,520 | ) | 10,777 |
|
| Retained earnings | 12,637 |
| 6,714 |
| (269 | ) | (6,474 | ) | 12,608 |
|
| Accumulated other comprehensive loss | (995 | ) | (995 | ) | (478 | ) | 1,473 |
| (995 | ) |
| Noncontrolling interests | — |
| — |
| 1,335 |
| — |
| 1,335 |
|
| Total Liabilities and Equity | $ | 31,195 |
| 47,299 |
| 23,341 |
| (50,182 | ) | 51,653 |
|
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2018 |
| Statement of Cash Flows | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Cash Flows From Operating Activities | | | | | |
| Net Cash Provided by Operating Activities | $ | 2,955 |
| 6,962 |
| 2,642 |
| (4,986 | ) | 7,573 |
|
| | | | | | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures and investments | — |
| (998 | ) | (1,641 | ) | — |
| (2,639 | ) |
| Proceeds from asset dispositions* | — |
| 462 |
| 50 |
| (455 | ) | 57 |
|
| Intercompany lending activities | 2,214 |
| (3,031 | ) | 817 |
| — |
| — |
|
| Advances/loans—related parties | — |
| — |
| (1 | ) | — |
| (1 | ) |
| Other | — |
| 27 |
| 85 |
| — |
| 112 |
|
| Net Cash Provided by (Used in) Investing Activities | 2,214 |
| (3,540 | ) | (690 | ) | (455 | ) | (2,471 | ) |
| | | | | | |
| Cash Flows From Financing Activities | | | | | |
| Issuance of debt | 1,509 |
| — |
| 675 |
| — |
| 2,184 |
|
| Repayment of debt | (550 | ) | (11 | ) | (583 | ) | — |
| (1,144 | ) |
| Issuance of common stock | 39 |
| — |
| — |
| — |
| 39 |
|
| Repurchase of common stock | (4,645 | ) | — |
| — |
| — |
| (4,645 | ) |
| Dividends paid on common stock | (1,436 | ) | (3,174 | ) | (1,812 | ) | 4,986 |
| (1,436 | ) |
| Distributions to noncontrolling interests | — |
| — |
| (207 | ) | — |
| (207 | ) |
| Net proceeds from issuance of Phillips 66 Partners LP common units | — |
| — |
| 128 |
| — |
| 128 |
|
| Other | (86 | ) | — |
| (455 | ) | 455 |
| (86 | ) |
| Net Cash Used in Financing Activities | (5,169 | ) | (3,185 | ) | (2,254 | ) | 5,441 |
| (5,167 | ) |
| | | | | | |
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | — |
| — |
| (35 | ) | — |
| (35 | ) |
| | | | | | |
| Net Change in Cash and Cash Equivalents | — |
| 237 |
| (337 | ) | — |
| (100 | ) |
| Cash and cash equivalents at beginning of period | — |
| 1,411 |
| 1,708 |
| — |
| 3,119 |
|
| Cash and Cash Equivalents at End of Period | $ | — |
| 1,648 |
| 1,371 |
| — |
| 3,019 |
|
| * Includes return of investments in equity affiliates. |
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2017 |
| Statement of Cash Flows | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Cash Flows From Operating Activities | | | | | |
| Net Cash Provided by Operating Activities | $ | 2,619 |
| 2,702 |
| 1,747 |
| (3,420 | ) | 3,648 |
|
| | | | | | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures and investments* | — |
| (1,133 | ) | (839 | ) | 140 |
| (1,832 | ) |
| Proceeds from asset dispositions** | — |
| 265 |
| 84 |
| (263 | ) | 86 |
|
| Intercompany lending activities | 401 |
| 1,453 |
| (1,854 | ) | — |
| — |
|
| Advances/loans—related parties | — |
| (10 | ) | — |
| — |
| (10 | ) |
| Collection of advances/loans—related parties | — |
| 75 |
| 251 |
| — |
| 326 |
|
| Restricted cash from consolidation of business | — |
| — |
| 318 |
| — |
| 318 |
|
| Other | — |
| (26 | ) | (8 | ) | — |
| (34 | ) |
| Net Cash Provided by (Used in) Investing Activities | 401 |
| 624 |
| (2,048 | ) | (123 | ) | (1,146 | ) |
| | | | | | |
| Cash Flows From Financing Activities | | | | | |
| Issuance of debt | 1,500 |
| — |
| 2,008 |
| — |
| 3,508 |
|
| Repayment of debt | (1,500 | ) | (17 | ) | (2,161 | ) | — |
| (3,678 | ) |
| Issuance of common stock | 35 |
| — |
| — |
| — |
| 35 |
|
| Repurchase of common stock | (1,590 | ) | — |
| — |
| — |
| (1,590 | ) |
| Dividends paid on common stock | (1,395 | ) | (2,752 | ) | (668 | ) | 3,420 |
| (1,395 | ) |
| Distributions to noncontrolling interests | — |
| — |
| (120 | ) | — |
| (120 | ) |
| Net proceeds from issuance of Phillips 66 Partners LP common and preferred units | — |
| — |
| 1,205 |
| — |
| 1,205 |
|
| Other* | (70 | ) | — |
| (129 | ) | 123 |
| (76 | ) |
| Net Cash Provided by (Used in) Financing Activities | (3,020 | ) | (2,769 | ) | 135 |
| 3,543 |
| (2,111 | ) |
| | | | | | |
| Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | — |
| — |
| 17 |
| — |
| 17 |
|
| | | | | | |
| Net Change in Cash, Cash Equivalents and Restricted Cash | — |
| 557 |
| (149 | ) | — |
| 408 |
|
| Cash, cash equivalents and restricted cash at beginning of period | — |
| 854 |
| 1,857 |
| — |
| 2,711 |
|
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | — |
| 1,411 |
| 1,708 |
| — |
| 3,119 |
|
| * Includes intercompany capital contributions. |
| ** Includes return of investments in equity affiliates. |
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2017 |
| Statement of Cash Flows | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Cash Flows From Operating Activities | | | | | |
| Net Cash Provided by Operating Activities | $ | 2,619 |
| 2,702 |
| 1,747 |
| (3,420 | ) | 3,648 |
|
| | | | | | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures and investments* | — |
| (1,133 | ) | (839 | ) | 140 |
| (1,832 | ) |
| Proceeds from asset dispositions** | — |
| 265 |
| 84 |
| (263 | ) | 86 |
|
| Intercompany lending activities | 401 |
| 1,453 |
| (1,854 | ) | — |
| — |
|
| Advances/loans—related parties | — |
| (10 | ) | — |
| — |
| (10 | ) |
| Collection of advances/loans—related parties | — |
| 75 |
| 251 |
| — |
| 326 |
|
| Restricted cash received from consolidation of business | — |
| — |
| 318 |
| — |
| 318 |
|
| Other | — |
| (26 | ) | (8 | ) | — |
| (34 | ) |
| Net Cash Provided by (Used in) Investing Activities | 401 |
| 624 |
| (2,048 | ) | (123 | ) | (1,146 | ) |
| | | | | | |
| Cash Flows From Financing Activities | | | | | |
| Issuance of debt | 1,500 |
| — |
| 2,008 |
| — |
| 3,508 |
|
| Repayment of debt | (1,500 | ) | (17 | ) | (2,161 | ) | — |
| (3,678 | ) |
| Issuance of common stock | 35 |
| — |
| — |
| — |
| 35 |
|
| Repurchase of common stock | (1,590 | ) | — |
| — |
| — |
| (1,590 | ) |
| Dividends paid on common stock | (1,395 | ) | (2,752 | ) | (668 | ) | 3,420 |
| (1,395 | ) |
| Distributions to noncontrolling interests | — |
| — |
| (120 | ) | — |
| (120 | ) |
| Net proceeds from issuance of Phillips 66 Partners LP common and preferred units | — |
| — |
| 1,205 |
| — |
| 1,205 |
|
| Other* | (70 | ) | — |
| (129 | ) | 123 |
| (76 | ) |
| Net Cash Provided by (Used in) Financing Activities | (3,020 | ) | (2,769 | ) | 135 |
| 3,543 |
| (2,111 | ) |
| | | | | | |
| Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | — |
| — |
| 17 |
| — |
| 17 |
|
| | | | | | |
| Net Change in Cash, Cash Equivalents and Restricted Cash | — |
| 557 |
| (149 | ) | — |
| 408 |
|
| Cash, cash equivalents and restricted cash at beginning of period | — |
| 854 |
| 1,857 |
| — |
| 2,711 |
|
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | — |
| 1,411 |
| 1,708 |
| — |
| 3,119 |
|
| * Includes intercompany capital contributions. |
| ** Includes return of investments in equity affiliates. |
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2016 |
| Statement of Cash Flows | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries* |
| Consolidating Adjustments |
| Total Consolidated |
|
| Cash Flows From Operating Activities | | | | | |
| Net Cash Provided by Operating Activities | $ | 3,491 |
| 2,307 |
| 1,552 |
| (4,387 | ) | 2,963 |
|
| | | | | | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures and investments** | — |
| (1,425 | ) | (1,457 | ) | 38 |
| (2,844 | ) |
| Proceeds from asset dispositions*** | — |
| 1,007 |
| 156 |
| (1,007 | ) | 156 |
|
| Intercompany lending activities | (1,139 | ) | 2,046 |
| (907 | ) | — |
| — |
|
| Advances/loans—related parties | — |
| (75 | ) | (357 | ) | — |
| (432 | ) |
| Collection of advances/loans—related parties | — |
| — |
| 108 |
| — |
| 108 |
|
| Other | — |
| 18 |
| (164 | ) | — |
| (146 | ) |
| Net Cash Provided by (Used in) Investing Activities | (1,139 | ) | 1,571 |
| (2,621 | ) | (969 | ) | (3,158 | ) |
| | | | | | |
| Cash Flows From Financing Activities | | | | | |
| Issuance of debt | — |
| — |
| 2,090 |
| — |
| 2,090 |
|
| Repayment of debt | — |
| (26 | ) | (807 | ) | — |
| (833 | ) |
| Issuance of common stock | 34 |
| — |
| — |
| — |
| 34 |
|
| Repurchase of common stock | (1,042 | ) | — |
| — |
| — |
| (1,042 | ) |
| Dividends paid on common stock | (1,282 | ) | (3,604 | ) | (783 | ) | 4,387 |
| (1,282 | ) |
| Distributions to noncontrolling interests | — |
| — |
| (75 | ) | — |
| (75 | ) |
| Net proceeds from issuance of Phillips 66 Partners LP common units | — |
| — |
| 972 |
| — |
| 972 |
|
| Other** | (62 | ) | 31 |
| (980 | ) | 969 |
| (42 | ) |
| Net Cash Provided by (Used in) Financing Activities | (2,352 | ) | (3,599 | ) | 417 |
| 5,356 |
| (178 | ) |
| | | | | | |
| Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | — |
| — |
| 10 |
| — |
| 10 |
|
| | | | | | |
| Net Change in Cash, Cash Equivalents and Restricted Cash | — |
| 279 |
| (642 | ) | — |
| (363 | ) |
| Cash, cash equivalents and restricted cash at beginning of period | — |
| 575 |
| 2,499 |
| — |
| 3,074 |
|
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | — |
| 854 |
| 1,857 |
| — |
| 2,711 |
|
| * Revised to eliminate a purchase and sale transaction between two entities consolidated within the column. This revision increased net cash provided by operating activities by $1,049 million, with an offsetting decrease of $1,049 million in net cash provided by financing activities. The revision did not impact any issuer or guarantor column, nor did it impact our consolidated cash flows. |
| ** Includes intercompany capital contributions. |
| *** Includes return of investments in equity affiliates. |
|
| | | | | | | | | | | |
| | Millions of Dollars |
| | Year Ended December 31, 2015 |
| Statement of Cash Flows | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
| Cash Flows From Operating Activities | | | | | |
| Net Cash Provided by Operating Activities | $ | 1,060 |
| 4,879 |
| 2,564 |
| (2,790 | ) | 5,713 |
|
| | | | | | |
| Cash Flows From Investing Activities | | | | | |
| Capital expenditures and investments* | — |
| (2,815 | ) | (5,283 | ) | 2,334 |
| (5,764 | ) |
| Proceeds from asset dispositions** | — |
| 774 |
| 178 |
| (882 | ) | 70 |
|
| Intercompany lending activities | 2,461 |
| (3,153 | ) | 692 |
| — |
| — |
|
| Advances/loans—related parties | — |
| (50 | ) | — |
| — |
| (50 | ) |
| Collection of advances/loans—related parties | — |
| 50 |
| — |
| — |
| 50 |
|
| Other | — |
| 6 |
| (50 | ) | — |
| (44 | ) |
| Net Cash Provided by (Used in) Investing Activities | 2,461 |
| (5,188 | ) | (4,463 | ) | 1,452 |
| (5,738 | ) |
| | | | | | |
| Cash Flows From Financing Activities | | | | | |
| Issuance of debt | — |
| — |
| 1,169 |
| — |
| 1,169 |
|
| Repayment of debt | (800 | ) | (23 | ) | (103 | ) | — |
| (926 | ) |
| Issuance of common stock | 31 |
| — |
| — |
| — |
| 31 |
|
| Repurchase of common stock | (1,512 | ) | — |
| — |
| — |
| (1,512 | ) |
| Dividends paid on common stock | (1,172 | ) | (1,172 | ) | (1,576 | ) | 2,748 |
| (1,172 | ) |
| Distributions to controlling interests | — |
| — |
| (186 | ) | 186 |
| — |
|
| Distributions to noncontrolling interests | — |
| — |
| (46 | ) | — |
| (46 | ) |
| Net proceeds from issuance of Phillips 66 Partners LP common units | — |
| — |
| 384 |
| — |
| 384 |
|
| Other* | (68 | ) | 34 |
| 1,585 |
| (1,596 | ) | (45 | ) |
| Net Cash Provided by (Used in) Financing Activities | (3,521 | ) | (1,161 | ) | 1,227 |
| 1,338 |
| (2,117 | ) |
| | | | | | |
| Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash | — |
| — |
| 9 |
| — |
| 9 |
|
| | | | | | |
| Net Change in Cash, Cash Equivalents and Restricted Cash | — |
| (1,470 | ) | (663 | ) | — |
| (2,133 | ) |
| Cash, cash equivalents and restricted cash at beginning of period | — |
| 2,045 |
| 3,162 |
| — |
| 5,207 |
|
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | — |
| 575 |
| 2,499 |
| — |
| 3,074 |
|
| * Includes intercompany capital contributions. |
| ** Includes return of investments in equity affiliates. |
Note 30—Subsequent Event
On February 13, 2018, we entered into a Stock Purchase and Sale Agreement (Purchase Agreement) with Berkshire Hathaway Inc. and National Indemnity Company, a wholly owned subsidiary of Berkshire Hathaway, to repurchase 35 million shares of Phillips 66 common stock for an aggregate purchase price of approximately $3.3 billion. Pursuant to the Purchase Agreement, the purchase price per share of $93.725 was based on the volume-weighted-average price of our common stock on the New York Stock Exchange on February 13, 2018. The transaction closed on February 14, 2018. We funded the repurchase with cash on hand of approximately $1.9 billion and borrowings of approximately $1.4 billion under our commercial paper program. This specific share repurchase transaction was separately authorized by our Board of Directors and therefore does not impact previously announced authorizations which total up to $12.0 billion.
|
| | | | |
| Selected Quarterly Financial Data (Unaudited) |
|
| | | | | | | | | | | | | | |
| | Millions of Dollars | | Per Share of Common Stock |
| | Sales and Other Operating Revenues |
| Income Before Income Taxes |
| Net Income |
| Net Income Attributable to Phillips 66 |
| | Net Income Attributable to Phillips 66 |
| | | Basic |
| Diluted |
|
| 2019 | | | | | | | |
| First | $ | 23,103 |
| 340 |
| 270 |
| 204 |
| | 0.44 |
| 0.44 |
|
| Second | 27,847 |
| 1,829 |
| 1,504 |
| 1,424 |
| | 3.13 |
| 3.12 |
|
| Third | 27,218 |
| 943 |
| 793 |
| 712 |
| | 1.58 |
| 1.58 |
|
| Fourth | 29,125 |
| 1,066 |
| 810 |
| 736 |
| | 1.65 |
| 1.64 |
|
| | | | | | | | |
| 2018 | | | | | | | |
| First | $ | 23,595 |
| 717 |
| 585 |
| 524 |
| | 1.07 |
| 1.07 |
|
| Second | 28,980 |
| 1,835 |
| 1,404 |
| 1,339 |
| | 2.86 |
| 2.84 |
|
| Third | 29,788 |
| 1,975 |
| 1,568 |
| 1,492 |
| | 3.20 |
| 3.18 |
|
| Fourth | 29,098 |
| 2,918 |
| 2,316 |
| 2,240 |
| | 4.85 |
| 4.82 |
|
|
| | | | | | | | | | | | | | |
| | Millions of Dollars | | Per Share of Common Stock |
| | Sales and Other Operating Revenues* |
| Income Before Income Taxes |
| Net Income |
| Net Income Attributable to Phillips 66 |
| | Net Income Attributable to Phillips 66 |
| | | Basic |
| Diluted |
|
| 2017 | | | | | | | |
| First | $ | 22,894 |
| 797 |
| 563 |
| 535 |
| | 1.02 |
| 1.02 |
|
| Second | 24,087 |
| 848 |
| 581 |
| 550 |
| | 1.06 |
| 1.06 |
|
| Third | 25,627 |
| 1,256 |
| 849 |
| 823 |
| | 1.60 |
| 1.60 |
|
| Fourth** | 29,746 |
| 654 |
| 3,255 |
| 3,198 |
| | 6.29 |
| 6.25 |
|
| | | | | | | | |
| 2016 | | | | | | | |
| First | $ | 17,409 |
| 596 |
| 398 |
| 385 |
| | 0.72 |
| 0.72 |
|
| Second | 21,849 |
| 720 |
| 516 |
| 496 |
| | 0.94 |
| 0.93 |
|
| Third | 21,624 |
| 813 |
| 536 |
| 511 |
| | 0.97 |
| 0.96 |
|
| Fourth | 23,397 |
| 62 |
| 194 |
| 163 |
| | 0.31 |
| 0.31 |
|
* Includes excise taxes on sales of petroleum products.
** Includes a $2,721 million provisional income tax benefit from the enactment of the U.S. Tax Cuts and Jobs Act on December 22, 2017.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2017,2019, with the participation of management, our Chairman and Chief Executive Officer and our Executive Vice President, Finance and Chief Financial Officer carried out an evaluation, pursuant to Rule 13a-15(b) of the Act, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our Chairman and Chief Executive Officer and our Executive Vice President, Finance and Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of December 31, 2017.2019.
Effective October 1, 2019, we began a phased, multiyear implementation of an updated enterprise resource planning (ERP) system. As a result, changes were made to our business processes and information systems. To maintain adequate controls over these updated business processes and information systems, we evaluated and updated applicable internal controls over financial reporting accordingly. There have been no other changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the quarterly period ended December 31, 2017,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
This report is included in Item 8 and is incorporated herein by reference.
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
This report is included in Item 8 and is incorporated herein by reference.
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our executive officers appears in Part I of this report.
The remaining information required by Item 10 of Part III is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Stockholders to be held on May 9, 2018,6, 2020, which will be filed within 120 days after December 31, 2017 (20182019 (2020 Definitive Proxy Statement).*
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Part III is incorporated herein by reference from our 20182020 Definitive Proxy Statement.*
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 of Part III is incorporated herein by reference from our 20182020 Definitive Proxy Statement.*
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 of Part III is incorporated herein by reference from our 20182020 Definitive Proxy Statement.*
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 of Part III is incorporated herein by reference from our 20182020 Definitive Proxy Statement.*
_________________________
* Except for information or data specifically incorporated herein by reference under Items 10 through 14, other information and data appearing in our 20182020 Definitive Proxy Statement are not deemed to be a part of this Annual Report on Form 10-K or deemed to be filed with the Commission as a part of this report.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
| | |
| (a) | 1. | Financial Statements and Supplementary Data The financial statements and supplementary information listed in the Index to Financial Statements, which appears on page 70,73, are filed as part of this Annual Report on Form 10-K. |
| | | |
| | 2. | Financial Statement Schedules All financial statement schedules are omitted because they are not required, not significant, not applicable, or the information is shown in the financial statements or notes thereto. |
| | | |
| | 3. | Exhibits The exhibits listed in the Index to Exhibits, which appears on pages 138150 to 141,153, are filed as part of this Annual Report on Form 10-K. |
| | | |
| (c) | | Pursuant to Rule 3-09 of Regulation S-X, the financial statements of Chevron Phillips Chemical Company LLC as of December 31, 20172019 and 2016,2018, and for each of the three years ended December 31, 2017,2019, are included as an exhibit to this Annual Report on Form 10-K. |
Item 16. FORM 10-K SUMMARY
None.
PHILLIPS 66
INDEX TO EXHIBITS
|
| | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Form | Exhibit Number |
| Filing Date | SEC File No. |
| | | | | | | |
| | | 8-K | 2.1 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 8-K | 3.1 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 8-K | 3.1 |
| 02/09/2017 | 001-35349 |
| | | | | | | |
| | Indenture, dated as of March 12, 2012, among Phillips 66, as issuer, Phillips 66 Company, as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee, in respect of senior debt securities of Phillips 66. | 10 | 4.3 |
| 04/05/2012 | 001-35349 |
| | | | | | | |
| | | As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the company has not filed with this Annual Report on Form 10-K certain instruments defining the rights of holders of long-term debt of the company and its subsidiaries because the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the company and its subsidiaries on a consolidated basis. The company agrees to furnish a copy of such agreements to the Commission upon request. | | | | |
| | | | | | | |
| | | 10 | 4.1 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.1 |
| 05/01/2014 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.3 |
| 02/20/2015 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.4 |
| 02/17/2017 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.14 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | | | | |
| | | | | | | |
| | | 10 | 10.12 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
|
| | | | | | | |
| | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Form | Exhibit Number |
| Filing Date | SEC File No. |
| | | | | | | |
| | | 8-K | 2.1 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 8-K | 3.1 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 8-K | 3.1 |
| 02/09/2017 | 001-35349 |
| | | | | | | |
| | | | | | |
| | | | | | | |
| | | As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the company has not filed with this Annual Report on Form 10-K certain instruments defining the rights of holders of long-term debt of the company and its subsidiaries because the total amount of securities authorized thereunder does not exceed 10% of the total assets of the company and its subsidiaries on a consolidated basis. The company agrees to furnish a copy of such agreements to the Commission upon request. | | | | |
| | | | | | | |
| | | 8-K | 10.1 |
| 08/01/2019 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.14 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.6 |
| 02/23/2018 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.1 |
| 07/27/2018 | 001-35349 |
| | | | | | | |
| | | 10 | 10.12 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
| | | 10 | 10.13 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
| | | | | | | |
|
| | | | | | | |
| | | | Incorporated by Reference |
Exhibit
Number | | Exhibit Description | Form | Exhibit
Number |
| Filing
Date | SEC
File No. |
| | | | | | | |
| | | 10 | 10.13 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
| | | 10 | 10.14 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
| | | 10 | 10.15 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
| | | 10 | 10.16 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.1 |
| 10/30/2014 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.1 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.2 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.3 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.4 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.1 |
| 05/02/2013 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.5 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | DEF14A | App. A |
| 03/27/2013 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.15 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
|
| | | | | | | |
| | | | Incorporated by Reference |
Exhibit
Number | | Exhibit Description | Form | Exhibit
Number |
| Filing
Date | SEC
File No. |
| | | | | | | |
| | | 10 | 10.14 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
| | | 10 | 10.15 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
| | | 10 | 10.16 |
| 03/01/2012 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.1 |
| 10/30/2014 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.1 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.2 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.3 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.4 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.1 |
| 05/02/2013 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.5 |
| 05/01/2012 | 001-35349 |
| | | | | | | |
| | | DEF14A | App. A |
| 03/27/2013 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.15 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.18 |
| 02/22/2013 | 001-35349 |
| | | | | | | |
| | | | | | | |
|
| | | | | | | |
| | | | Incorporated by Reference |
Exhibit
Number | | Exhibit Description | Form | Exhibit
Number |
| Filing
Date | SEC
File No. |
| | | | | | | |
| | | 10-K | 10.18 |
| 02/22/2013 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.1 |
| 07/29/2016 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.17 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.18 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.19 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.24 |
| 02/22/2013 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.20 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.26 |
| 02/22/2013 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.27 |
| 02/22/2013 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.1 |
| 11/08/2013 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.23 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.29 |
| 02/22/2013 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.30 |
| 02/22/2013 | 001-35349 |
| | | | | | |
| | | 10-K | 10.31 |
| 02/22/2013 | 001-35349 |
| | | | | | |
| | | | | | |
| | | | | | | |
| | | | | | |
| | | | | | | |
| | | | | | |
| | | | | | | |
| | | | | | |
| | | | | | | |
| | | | | | |
| | | | | | | |
| | | | | | |
| | | | | | | |
| | | | | | |
| | | | | | | |
|
| | | | | | | |
| | | | Incorporated by Reference |
Exhibit
Number | | Exhibit Description | Form | Exhibit
Number |
| Filing
Date | SEC
File No. |
| | | | | | | |
| | | 10-Q | 10.1 |
| 07/29/2016 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.17 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.18 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.19 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.24 |
| 02/22/2013 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.20 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.26 |
| 02/22/2013 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.1 |
| 04/30/2019 | 001-35349 |
| | | | | | | |
| | | 10-K | 10.27 |
| 02/22/2013 | 001-35349 |
| | | | | | | |
| | | 8-K | 10.1 |
| 11/08/2013 | 001-35349 |
| | | | | | | |
| | | 10-Q | 10.23 |
| 08/03/2012 | 001-35349 |
| | | | | | | |
| | | | | | |
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| | | | Incorporated by Reference |
Exhibit
Number | | Exhibit Description | Form | Exhibit
Number |
| Filing
Date | SEC
File No. |
| | | | | | | |
| | | | | | |
| | | | | | | |
| 101.INS* | | Inline XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | |
| | | | | | | |
| 101.SCH* | | Inline XBRL Schema Document. | | | | |
| | | | | | | |
| 101.CAL* | | Inline XBRL Calculation Linkbase Document. | | | | |
| | | | | | | |
| 101.LAB* | | Inline XBRL Labels Linkbase Document. | | | | |
| | | | | | | |
| 101.PRE* | | Inline XBRL Presentation Linkbase Document. | | | | |
| | | | | | | |
| 101.DEF* | | Inline XBRL Definition Linkbase Document. | | | | |
| | | | | | |
| 104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | |
| | | | | | | |
* Filed herewith.
** Management contracts and compensatory plans or arrangements.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | |
| | | PHILLIPS 66 |
| | | |
| | | |
| | | |
| Date: | February 23, 201821, 2020 | /s/ Greg C. Garland |
| | | Greg C. Garland Chairman of the Board of Directors and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below, as of February 23, 2018,21, 2020, by the following persons on behalf of the registrant and in the capacities indicated.
|
| | |
| Signature | | Title |
| | | |
| | | |
| | | |
| /s/ Greg C. Garland | | Chairman of the Board of Directors |
| Greg C. Garland | | and Chief Executive Officer |
| | | (Principal executive officer) |
| | | |
| | | |
| /s/ Kevin J. Mitchell | | Executive Vice President, Finance |
| Kevin J. Mitchell | | and Chief Financial Officer |
| | | (Principal financial officer) |
| | | |
| | | |
| /s/ Chukwuemeka A. Oyolu | | Vice President and Controller |
| Chukwuemeka A. Oyolu | | (Principal accounting officer) |
| | | |
|
| | |
| | | |
| | | |
| /s/ Gary K. Adams | | Director |
| Gary K. Adams | | |
| | | |
| | | |
| /s/ J. Brian Ferguson | | Director |
| J. Brian Ferguson | | |
| | | |
| | | |
/s/ William R. Loomis Jr.Charles M. Holley | | Director |
William R. Loomis Jr.Charles M. Holley | | |
| | | |
| | | |
| /s/ John E. Lowe | | Director |
| John E. Lowe | | |
| | | |
| | | |
| /s/ Harold W. McGraw III | | Director |
| Harold W. McGraw III | | |
| | | |
| | | |
| /s/ Denise L. Ramos | | Director |
| Denise L. Ramos | | |
| | | |
| | | |
| /s/ Glenn F. Tilton | | Director |
| Glenn F. Tilton | | |
| | | |
| | | |
| /s/ Victoria J. Tschinkel | | Director |
| Victoria J. Tschinkel | | |
| | | |
| | | |
| /s/ Marna C. Whittington | | Director |
| Marna C. Whittington | | |