~~2020~~2021


			UNITED STATES
			SECURITIES AND EXCHANGE COMMISSION
			Washington, D.C. 20549

FORM 10-K


(Mark One)
☒			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended			December 31, ~~2020~~2021
			OR
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number: 001-35349


			Phillips 66
			(Exact name of registrant as specified in its charter)

Delaware

45-3779385

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

2331 CityWest Blvd., Houston, Texas 77042

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 281-293-6600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

PSX

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☒

Yes

☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

☐

Yes

☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒

Yes

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒

Yes

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

☐

Yes

☒

The aggregate market value of common stock held by non-affiliates of the registrant on June 30, ~~2020,~~2021, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price on that date of ~~$71.90,~~$85.82, was ~~$31.3~~$37.5 billion. The registrant, solely for the purpose of this required presentation, had deemed its Board of Directors and executive officers to be affiliates, and deducted their stockholdings in determining the aggregate market value.

The registrant had ~~436,926,058~~438,461,584 shares of common stock outstanding at January ~~29, 2021.~~31, 2022.

Documents incorporated by reference:

Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May ~~12, 2021~~11, 2022 (Part III).

Table of Contents

Index to Financial Statements

TABLE OF CONTENTS


Item			Page

PART I

1 and 2. Business and Properties			1
Corporate Structure			1
~~Segmen~~tSegment and Geographic Information			2
Midstream			2
Chemicals			11
Refining			13
Marketing and Specialties			17

Energy Research & Innovation			18
Human Capital			19
Competition			20
General			2021
1A. Risk Factors			2122
1B. Unresolved Staff Comments			3235
3. Legal Proceedings			3235
4. Mine Safety Disclosures			3235
Information About Our Executive Officers			3336

PART II

5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			3437
6. ~~[Removed and Reserved]~~[Reserved]			3537
7. Management's Discussion and Analysis of Financial Condition and Results of Operations			3638
7A. Quantitative and Qualitative Disclosures About Market Risk			7475
Cautionary Statement for the Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995			7677
8. Financial Statements and Supplementary Data			7879
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			147
9A. Controls and Procedures			147
9B. Other Information			147
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections			147

PART III

10. Directors, Executive Officers and Corporate Governance			148
11. Executive Compensation			148
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			148
13. Certain Relationships and Related Transactions, and Director Independence			148
14. Principal Accountant Fees and Services			148

PART IV

15. Exhibit and Financial Statement Schedules			149
16. Form 10-K Summary			149
Signatures			154

Table of Contents

Index to Financial Statements

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.

This Annual Report on Form 10-K contains forward-looking statements including, without limitation, statements relating to our 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 often identify forward-looking statements, but the absence of these words does not mean a statement is not forward-looking. The company does not undertake to update, revise or correct any 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 headings “Risk Factors” and “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.”

PART I

Items 1 and 2. BUSINESS AND PROPERTIES

CORPORATE STRUCTURE

Phillips 66, headquartered in Houston, Texas, was incorporated in Delaware in 2011 in connection with, and in anticipation of, a restructuring of ConocoPhillips that separated its downstream businesses into an independent, publicly traded company named Phillips 66. The two companies were separated by ConocoPhillips distributing to its stockholders all the shares of common stock of Phillips 66 after the market closed on April 30, 2012 (the separation). Phillips 66 stock trades on the New York Stock Exchange under the “PSX” stock symbol.

Our business is organized into four operating segments:

1)Midstream—Provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and natural gas liquids (NGL) transportation, storage, fractionation, processing and marketing services, mainly in the United States. This segment includes our master limited partnership (MLP), Phillips 66 Partners LP (Phillips 66 Partners), ~~as well as~~ our 50% equity investment in DCP Midstream, LLC (DCP Midstream)., and our 16% investment in NOVONIX Limited (NOVONIX), a company that develops technology and supplies materials for lithium-ion batteries.

2)Chemicals—Consists of our 50% equity investment in Chevron Phillips Chemical Company LLC (CPChem), which manufactures and markets petrochemicals and plastics on a worldwide basis.

3)Refining—Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, at 1312 refineries in the United States and Europe.

4)Marketing and Specialties (M&S)—Purchases for resale and markets refined petroleum products and renewable 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.

Corporate and Other includes general corporate overhead, interest expense, our investment in new technologies and various other corporate activities. Corporate assets include all cash, cash equivalents and income tax-related assets.

Table of Contents

Index to Financial Statements

SEGMENT AND GEOGRAPHIC INFORMATION

MIDSTREAM

The Midstream segment consists of three business lines:

•Transportation—Transports crude oil and other feedstocks to our refineries and other locations, delivers refined petroleum products to market, and provides terminaling and storage services for crude oil and refined petroleum products.

•NGL and Other—Transports, stores, fractionates, exports and markets NGL, ~~and~~ provides other fee-based processing services. It also includes our 16% investment in NOVONIX.

•DCP Midstream—Gathers, processes, transports and markets natural gas and transports, fractionates and markets NGL.

Phillips 66 Partners

Phillips 66 Partners, headquartered in Houston, Texas, is a publicly traded MLP formed in 2013, ~~to own, operate, develop~~which owns and ~~acquire~~operates primarily fee-based midstream assets. At December 31, ~~2020,~~2021, we owned a noneconomic general partner interest and 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~~13.5 million perpetual convertible preferred units. ~~We also own a noneconomic general partner interest.~~

Phillips 66 Partners’ operations consist of crude oil, refined petroleum product and NGL transportation, terminaling, fractionation, processing and storage assets that are geographically dispersed throughout the United States. The majority of Phillips 66 Partners’ assets are associated with, and integral to, Phillips 66 operated refineries.

The results of operations of Phillips 66 Partners are included in Midstream’s Transportation and NGL and Other business lines, based on the nature of the activity within the partnership.

On October 26, 2021, we entered into a definitive merger agreement with Phillips 66 Partners to acquire all of the limited partner interests in Phillips 66 Partners not already owned by us on the closing date of the transaction. The agreement provides for an all-stock transaction in which each outstanding Phillips 66 Partners common unitholder would receive 0.50 shares of Phillips 66 common stock for each Phillips 66 Partners common unit. Phillips 66 Partners’ perpetual convertible preferred units would be converted into common units at a premium to the original issuance price prior to exchange for Phillips 66 common stock. This merger is expected to close in March 2022, subject to customary closing conditions. Upon closing, Phillips 66 Partners will become a wholly owned subsidiary of Phillips 66 and will no longer be a publicly traded partnership.

Table of Contents

Index to Financial Statements

Transportation

We own or lease various assets to provide transportation, terminaling and storage services. These assets include crude oil, refined petroleum product, NGL, and natural gas pipeline systems; crude oil, refined petroleum product and NGL terminals; a petroleum coke handling facility; marine vessels; railcars and trucks.

Pipelines and Terminals

At December 31, ~~2020,~~2021, our Transportation business was comprised of over 22,000 miles of crude oil, refined petroleum product, NGL and natural gas pipeline systems in the United States, including those partially owned or operated by our affiliates. We owned or operated 39 refined petroleum product terminals, 20 crude oil terminals, 5 NGL terminals, a petroleum coke exporting facility and various other storage and loading facilities.

The Beaumont Terminal in Nederland, Texas, is the largest terminal in the Phillips 66 portfolio. In the fourth quarter of 2020, we completed construction of a new 200,000 barrels per day (BPD) dock at the Beaumont Terminal, bringing the terminal’s total dock capacity to 800,000 BPD. At December 31, 2020, the terminal had total crude oil and refined petroleum product storage capacity of 16.8 million barrels.

The Gray Oak Pipeline transports up to 900,000 BPD of crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, Texas, and the Sweeny area, including our Sweeny Refinery. The pipeline made its first commercial delivery in November 2019 and commenced full operations in the second quarter of 2020. Phillips 66 Partners has a 42.25% effective ownership interest in the pipeline.

~~Table of Contents~~

~~Index to Financial Statements~~

Phillips 66 Partners owns a 25% interest in the South Texas Gateway Terminal, which connects to the Gray Oak Pipeline in Corpus Christi, Texas. The ~~first dock of the~~ marine export terminal ~~began crude oil export operations in July 2020. The second dock commenced crude oil export operations in the fourth quarter of 2020. Upon completion~~commissioned additional storage capacity in the first quarter of 2021, ~~the marine export terminal will have storage~~bringing total capacity ofto 8.6 million barrels and marking completion of the final construction phase. The marine export terminal has two deepwater docks with up to 800,000 ~~BPD~~barrels per day (BPD) of ~~dock throughput~~export capacity.

Phillips 66 Partners ~~continued~~completed construction of the C2G Pipeline, a 16 inch ethane pipeline ~~(C2G Pipeline)~~ that ~~will connect~~connects its Clemens Caverns storage facility to petrochemical facilities in Gregory, ~~Texas.~~Texas, near Corpus Christi. The ~~project~~pipeline began commercial operations in the fourth quarter of 2021 and is ~~backed~~supported by long-term ~~commitments and is expected to be completed in mid-2021.~~

The Liberty Pipeline joint venture was formed to transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. Phillips 66 Partners holds a 50% interest in the joint venture. In March 2020, Phillips 66 Partners deferred the Liberty Pipeline system project due to the challenging business environment.commitments.

In the ~~third quarter~~first half of ~~2020,~~2021, Phillips 66 Partners exited the Liberty Pipeline project ~~to develop~~ and ~~construct the Red Oak Pipeline system was canceled. We hold a 50%~~transferred its ownership interest in the joint venture ~~that was pursuing this~~to its co-venturer. See the “Liberty Pipeline LLC (Liberty)” section of Note 6—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information regarding the Liberty Pipeline project.

The Dakota Access Pipeline is currently subject to litigation that could affect operations. See the “Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)” section of Note 6—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information on this litigation.

Table of Contents

Index to Financial Statements

The following table depicts our ownership interest in major pipeline systems at December 31, ~~2020:~~2021:


Name	Name	State of Origination/Terminus	Interest		Length (Miles)	Gross Capacity (MBD)	Name	State of Origination/Terminus	Interest		Length (Miles)	Gross Capacity (MBD)
Crude Oil	Crude Oil						Crude Oil
Bakken Pipeline †	Bakken Pipeline †	North Dakota/Texas	25	%	1,918	570	Bakken Pipeline †	North Dakota/Texas	25	%	1,918	750
Bayou Bridge †	Bayou Bridge †	Texas/Louisiana	40		213	480	Bayou Bridge †	Texas/Louisiana	40		213	480
Clifton Ridge †	Clifton Ridge †	Louisiana	100		10	260	Clifton Ridge †	Louisiana	100		10	260
CushPo †	CushPo †	Oklahoma	100		62	130	CushPo †	Oklahoma	100		62	130
Eagle Ford Gathering †	Eagle Ford Gathering †	Texas	100		28	54	Eagle Ford Gathering †	Texas	100		28	58
Glacier †	Glacier †	Montana	79		825	124	Glacier †	Montana	79		800	124
Gray Oak Pipeline* †	Gray Oak Pipeline* †	Texas	42		845	900	Gray Oak Pipeline* †	Texas	42		862	900
Line 100	Line 100	California	100		79	61	Line 100	California	100		79	61
Line 200	Line 200	California	100		228	100	Line 200	California	100		228	100
Line 300	Line 300	California	100		61	34	Line 300	California	100		61	34
Line 400	Line 400	California	100		153	46	Line 400	California	100		153	46
Line O †	Line O †	Oklahoma/Texas	100		276	38	Line O †	Oklahoma/Texas	100		276	38
New Mexico Crude †	New Mexico Crude †	New Mexico/Texas	100		227	106	New Mexico Crude †	New Mexico/Texas	100		227	106
North Texas Crude †	North Texas Crude †	Texas	100		224	34	North Texas Crude †	Texas	100		142	34
Oklahoma Crude †	Oklahoma Crude †	Texas/Oklahoma	100		217	100	Oklahoma Crude †	Texas/Oklahoma	100		217	100
Sacagawea †	Sacagawea †	North Dakota	50		95	183	Sacagawea †	North Dakota	50		95	183
STACK PL †	STACK PL †	Oklahoma	50		149	250	STACK PL †	Oklahoma	50		149	250
Sweeny Crude	Sweeny Crude	Texas	100		56	617	Sweeny Crude	Texas	100		56	617
West Texas Crude †	West Texas Crude †	Texas	100		1,079	140	West Texas Crude †	Texas	100		1,079	140
Refined Petroleum Products	Refined Petroleum Products						Refined Petroleum Products
ATA Line †	ATA Line †	Texas/New Mexico	50		293	34	ATA Line †	Texas/New Mexico	50		293	34
Borger to Amarillo †	Borger to Amarillo †	Texas	100		93	74	Borger to Amarillo †	Texas	100		93	74
Borger-Denver	Borger-Denver	Texas	100		38	39	Borger-Denver	Texas	100		38	39
Borger-Denver	Borger-Denver	Texas/Colorado	65		207	39	Borger-Denver	Texas/Colorado	65		207	39
Borger-Denver	Borger-Denver	Colorado	70		152	39	Borger-Denver	Colorado	70		152	39
Cherokee East †	Cherokee East †	Oklahoma/Missouri	100		287	59	Cherokee East †	Oklahoma/Missouri	100		292	59
Cherokee North †	Cherokee North †	Oklahoma/Kansas	100		29	55	Cherokee North †	Oklahoma/Kansas	100		29	55
Cherokee South †	Cherokee South †	Oklahoma	100		98	47	Cherokee South †	Oklahoma	100		98	47
Cross Channel Connector †	Cross Channel Connector †	Texas	100		5	184	Cross Channel Connector †	Texas	100		5	184
Explorer †	Explorer †	Texas/Indiana	22		1,830	660	Explorer †	Texas/Indiana	22		1,830	660
Gold Line †	Gold Line †	Texas/Illinois	100		686	120	Gold Line †	Texas/Illinois	100		686	120

Heartland**	Heartland**	Kansas/Iowa	50		49	30	Heartland**	Kansas/Iowa	50		49	30
LAX Jet Line	LAX Jet Line	California	50		19	25	LAX Jet Line	California	50		19	25
Los Angeles Products	Los Angeles Products	California	100		22	132	Los Angeles Products	California	100		22	132
Paola Products †	Paola Products †	Kansas	100		106	120	Paola Products †	Kansas	100		106	120
Pioneer	Pioneer	Wyoming/Utah	50		562	63	Pioneer	Wyoming/Utah	50		562	63
Powder River							Powder River	Colorado/Texas	100		350	13
Richmond	Richmond	California	100		14	31	Richmond	California	100		14	31
SAAL †	SAAL †	Texas	33		102	32	SAAL †	Texas	33		102	32
SAAL †	SAAL †	Texas	54		19	30	SAAL †	Texas	54		19	30
Seminoe †	Seminoe †	Montana/Wyoming	100		342	44	Seminoe †	Montana/Wyoming	100		342	44
Standish †	Standish †	Oklahoma/Kansas	100		92	77	Standish †	Oklahoma/Kansas	100		92	77
Sweeny to Pasadena †	Sweeny to Pasadena †	Texas	100		120	335	Sweeny to Pasadena †	Texas	100		120	335
Torrance Products	Torrance Products	California	100		8	279	Torrance Products	California	100		8	279
Watson Products	Watson Products	California	100		9	238	Watson Products	California	100		9	238
Yellowstone	Yellowstone	Montana/Washington	46		710	68	Yellowstone	Montana/Washington	46		710	68

Table of Contents

Index to Financial Statements


Name	Name	State of Origination/Terminus	Interest		Length (Miles)	Gross Capacity (MBD)	Name	State of Origination/Terminus	Interest		Length (Miles)	Gross Capacity (MBD)
NGL	NGL						NGL
Blue Line	Blue Line	Texas/Illinois	100	%	688	26	Blue Line	Texas/Illinois	100	%	688	26
Brown Line †	Brown Line †	Oklahoma/Kansas	100		76	26	Brown Line †	Oklahoma/Kansas	100		76	26
C2G †							C2G †	Texas	100		155	135
Chisholm	Chisholm	Oklahoma/Kansas	50		202	42	Chisholm	Oklahoma/Kansas	50		202	42
Conway to Wichita	Conway to Wichita	Kansas	100		55	26	Conway to Wichita	Kansas	100		55	26
Medford †	Medford †	Oklahoma	100		42	25	Medford †	Oklahoma	100		42	25
Powder River	Powder River	Wyoming/Texas	100		716	16	Powder River	Wyoming/Colorado	100		366	16
River Parish NGL †	River Parish NGL †	Louisiana	100		499	104	River Parish NGL †	Louisiana	100		499	104
Sand Hills †	Sand Hills †	New Mexico/Texas	33		1,400	500	Sand Hills †	New Mexico/Texas	33		1,400	500
Skelly-Belvieu	Skelly-Belvieu	Texas	50		571	47	Skelly-Belvieu	Texas	50		571	45
Southern Hills †	Southern Hills †	Kansas/Texas	33		981	192	Southern Hills †	Kansas/Texas	33		981	192
Sweeny LPG	Sweeny LPG	Texas	100		260	942	Sweeny LPG	Texas	100		260	942
Sweeny NGL	Sweeny NGL	Texas	100		18	204	Sweeny NGL	Texas	100		18	204
TX Panhandle Y1/Y2	TX Panhandle Y1/Y2	Texas	100		289	78	TX Panhandle Y1/Y2	Texas	100		289	78

Natural Gas	Natural Gas						Natural Gas
Rockies Express***	Rockies Express***						Rockies Express***
East to West	East to West	Ohio/Illinois	25		661	2.6 Bcf/d	East to West	Ohio/Illinois	25		661	2.6 Bcf/d
West to East	West to East	Colorado/Ohio	25		1,712	1.8 Bcf/d	West to East	Colorado/Ohio	25		1,712	1.8 Bcf/d
Sacagawea Gas †	Sacagawea Gas †	North Dakota	50		24	0.18 Bcf/d	Sacagawea Gas †	North Dakota	50		24	0.18 Bcf/d

† Owned by Phillips 66 Partners; Phillips 66 held 74% of the limited partner interest in Phillips 66 Partners at December 31, ~~2020.~~2021.

* Interest reflects Phillips 66 Partners’ proportionate share of the Gray Oak Pipeline, net of a noncontrolling interest.

** Total pipeline system is 419 miles. Phillips 66 has an ownership interest in multiple segments totaling 49 miles.

*** Total pipeline system consists of three zones for a total of 1,712 miles. The third zone of the pipeline is bidirectional and can transport 2.6 Bcf/d of natural gas from east to west.

Table of Contents

Index to Financial Statements

The following table depicts our ownership interest in terminal and storage facilities at December 31, ~~2020~~2021:

Facility Name

Location

Commodity Handled

Interest

Gross Storage Capacity (MBbl)

Gross Rack Capacity (MBD)

Facility Name

Location

Commodity Handled

Interest

Gross Storage Capacity (MBbl)

Gross Rack Capacity (MBD)

Albuquerque †

New Mexico

Refined Petroleum Products

100

274

Albuquerque †

New Mexico

Refined Petroleum Products

100

274

Amarillo †

Texas

Refined Petroleum Products

100

296

Amarillo †

Texas

Refined Petroleum Products

100

296

Beaumont

Texas

Crude Oil, Refined Petroleum Products

100

16,800

Beaumont

Texas

Crude Oil, Refined Petroleum Products

100

16,800

Billings

Montana

Refined Petroleum Products

100

Billings

Montana

Refined Petroleum Products

100

Billings Crude †

Montana

Crude Oil

100

236

N/A

Billings Crude †

Montana

Crude Oil

100

236

N/A

Borger

Texas

Crude Oil

772

N/A

Borger

Texas

Crude Oil

772

N/A

Bozeman

Montana

Refined Petroleum Products

100

Bozeman

Montana

Refined Petroleum Products

100

Buffalo Crude †

Montana

Crude Oil

100

303

N/A

Buffalo Crude †

Montana

Crude Oil

100

303

N/A

Casper †

Wyoming

Refined Petroleum Products

100

365

Casper †

Wyoming

Refined Petroleum Products

100

365

Clemens †

Texas

NGL

100

16,500

N/A

Clemens †

Texas

NGL

100

16,500

N/A

Clifton Ridge †

Louisiana

Crude Oil

100

3,800

N/A

Clifton Ridge †

Louisiana

Crude Oil

100

3,800

N/A

Coalinga

California

Crude Oil

100

817

N/A

Coalinga

California

Crude Oil

100

817

N/A

Colton

California

Refined Petroleum Products

100

207

Colton

California

Refined Petroleum Products

100

207

Cushing †

Oklahoma

Crude Oil

100

675

N/A

Cushing †

Oklahoma

Crude Oil

100

675

N/A

Cut Bank †

Montana

Crude Oil

100

315

N/A

Cut Bank †

Montana

Crude Oil

100

315

N/A

Denver

Colorado

Refined Petroleum Products

100

441

Denver

Colorado

Refined Petroleum Products

100

441

Des Moines

Iowa

Refined Petroleum Products

217

Des Moines

Iowa

Refined Petroleum Products

217

East St. Louis †

Illinois

Refined Petroleum Products

100

1,529

East St. Louis †

Illinois

Refined Petroleum Products

100

1,529

Freeport

Texas

Crude Oil, Refined Petroleum Products, NGL

100

3,485

N/A

Freeport

Texas

Crude Oil, Refined Petroleum Products, NGL

100

3,485

N/A

Glenpool †

Oklahoma

Refined Petroleum Products

100

571

Glenpool †

Oklahoma

Refined Petroleum Products

100

571

Great Falls

Montana

Refined Petroleum Products

100

198

Great Falls

Montana

Refined Petroleum Products

100

198

Hartford †

Illinois

Refined Petroleum Products

100

1,468

Hartford †

Illinois

Refined Petroleum Products

100

1,468

Helena

Montana

Refined Petroleum Products

100

195

Helena

Montana

Refined Petroleum Products

100

195

Jefferson City †

Missouri

Refined Petroleum Products

100

103

Jefferson City †

Missouri

Refined Petroleum Products

100

103

Jones Creek

Texas

Crude Oil

100

2,580

N/A

Jones Creek

Texas

Crude Oil

100

2,580

N/A

Junction

California

Crude Oil, Refined Petroleum Products

100

524

N/A

Junction

California

Crude Oil, Refined Petroleum Products

100

524

N/A

Kansas City †

Kansas

Refined Petroleum Products

100

1,410

Kansas City †

Kansas

Refined Petroleum Products

100

1,410

Keene †

North Dakota

Crude Oil

503

N/A

Keene †

North Dakota

Crude Oil

503

N/A

La Junta

Colorado

Refined Petroleum Products

100

109

La Junta

Colorado

Refined Petroleum Products

100

109

Lake Charles Pipeline Storage

Louisiana

Refined Petroleum Products

3,143

N/A

Lake Charles Pipeline Storage

Louisiana

Refined Petroleum Products

3,143

N/A

Lincoln

Nebraska

Refined Petroleum Products

100

217

Lincoln

Nebraska

Refined Petroleum Products

100

217

Linden †

New Jersey

Refined Petroleum Products

100

360

Linden †

New Jersey

Refined Petroleum Products

100

360

Los Angeles

California

Refined Petroleum Products

100

156

Los Angeles

California

Refined Petroleum Products

100

156

Lubbock †

Texas

Refined Petroleum Products

100

182

Lubbock †

Texas

Refined Petroleum Products

100

182

Medford Spheres †

Oklahoma

NGL

100

N/A

Medford Spheres †

Oklahoma

NGL

100

N/A

Missoula

Montana

Refined Petroleum Products

365

Missoula

Montana

Refined Petroleum Products

365

Moses Lake

Washington

Refined Petroleum Products

216

Moses Lake

Washington

Refined Petroleum Products

216

Mount Vernon †

Missouri

Refined Petroleum Products

100

365

Mount Vernon †

Missouri

Refined Petroleum Products

100

365

North Salt Lake

Utah

Refined Petroleum Products

755

North Salt Lake

Utah

Refined Petroleum Products

755

North Spokane

Washington

Refined Petroleum Products

100

492

N/A

North Spokane

Washington

Refined Petroleum Products

100

492

N/A

Odessa †

Texas

Crude Oil

100

521

N/A

Odessa †

Texas

Crude Oil

100

521

N/A

Oklahoma City †

Oklahoma

Crude Oil, Refined Petroleum Products

100

355

Oklahoma City †

Oklahoma

Crude Oil, Refined Petroleum Products

100

355

Table of Contents

Index to Financial Statements

Facility Name

Location

Commodity Handled

Interest

Gross Storage Capacity (MBbl)

Gross Rack Capacity (MBD)

Facility Name

Location

Commodity Handled

Interest

Gross Storage Capacity (MBbl)

Gross Rack Capacity (MBD)

Palermo †

North Dakota

Crude Oil

235

N/A

Palermo †

North Dakota

Crude Oil

235

N/A

Paola †

Kansas

Refined Petroleum Products

100

978

N/A

Paola †

Kansas

Refined Petroleum Products

100

978

N/A

Pasadena †

Texas

Refined Petroleum Products, NGL

100

3,558

Pasadena †

Texas

Refined Petroleum Products, NGL

100

3,558

Pecan Grove †

Louisiana

Lubricant Base Stocks, Refined Petroleum Products

100

177

N/A

Pecan Grove †

Louisiana

Lubricant Base Stocks, Refined Petroleum Products

100

177

N/A

Ponca City †

Oklahoma

Refined Petroleum Products

100

Ponca City †

Oklahoma

Refined Petroleum Products

100

Ponca City Crude †

Oklahoma

Crude Oil

100

1,229

N/A

Ponca City Crude †

Oklahoma

Crude Oil

100

1,229

N/A

Portland

Oregon

Refined Petroleum Products

100

650

Portland

Oregon

Refined Petroleum Products

100

650

Renton

Washington

Refined Petroleum Products

100

243

Renton

Washington

Refined Petroleum Products

100

243

Richmond

California

Refined Petroleum Products

100

343

Richmond

California

Refined Petroleum Products

100

343

River Parish †

Louisiana

NGL

100

1,500

N/A

River Parish †

Louisiana

NGL

100

1,500

N/A

Rock Springs

Wyoming

Refined Petroleum Products

100

132

Rock Springs

Wyoming

Refined Petroleum Products

100

132

Sacramento

California

Refined Petroleum Products

100

146

Sacramento

California

Refined Petroleum Products

100

146

San Bernard

Texas

Refined Petroleum Products

100

222

N/A

San Bernard

Texas

Refined Petroleum Products

100

222

N/A

Santa Margarita

California

Crude Oil

100

398

N/A

Santa Margarita

California

Crude Oil

100

398

N/A

Sheridan †

Wyoming

Refined Petroleum Products

100

Sheridan †

Wyoming

Refined Petroleum Products

100

South Texas Gateway †

Texas

Crude Oil

7,700

N/A

South Texas Gateway †

Texas

Crude Oil

8,600

N/A

Spokane

Washington

Refined Petroleum Products

100

351

Spokane

Washington

Refined Petroleum Products

100

351

Tacoma

Washington

Refined Petroleum Products

100

316

Tacoma

Washington

Refined Petroleum Products

100

316

Torrance

California

Crude Oil, Refined Petroleum Products

100

2,128

N/A

Torrance

California

Crude Oil, Refined Petroleum Products

100

2,128

N/A

Tremley Point †

New Jersey

Refined Petroleum Products

100

1,701

Tremley Point †

New Jersey

Refined Petroleum Products

100

1,701

Westlake

Louisiana

Refined Petroleum Products

100

128

Westlake

Louisiana

Refined Petroleum Products

100

128

Wichita Falls †

Texas

Crude Oil

100

225

N/A

Wichita Falls †

Texas

Crude Oil

100

225

N/A

Wichita North †

Kansas

Refined Petroleum Products

100

769

Wichita North †

Kansas

Refined Petroleum Products

100

769

Wichita South †

Kansas

Refined Petroleum Products

100

272

N/A

Wichita South †

Kansas

Refined Petroleum Products

100

272

N/A

† Owned by Phillips 66 Partners; Phillips 66 held 74% of the limited partner interest in Phillips 66 Partners at December 31, ~~2020.~~2021.

Table of Contents

Index to Financial Statements

The following table depicts our ownership interest in marine, rail and petroleum coke loading and offloading facilities at December 31, ~~2020:~~2021:

Facility Name

Location

Commodity Handled

Interest

Gross Loading Capacity*

Facility Name

Location

Commodity Handled

Interest

Gross Loading Capacity*

Marine

Beaumont

Texas

Crude Oil, Refined Petroleum Products

100

Beaumont

Texas

Crude Oil, Refined Petroleum Products

100

Clifton Ridge †

Louisiana

Crude Oil, Refined Petroleum Products

100

Clifton Ridge †

Louisiana

Crude Oil, Refined Petroleum Products

100

Freeport

Texas

Crude Oil, Refined Petroleum Products, NGL

100

Freeport

Texas

Crude Oil, Refined Petroleum Products, NGL

100

Hartford †

Illinois

Refined Petroleum Products

100

Hartford †

Illinois

Refined Petroleum Products

100

Pecan Grove †

Louisiana

Lubricant Base Stocks, Refined Petroleum Products

100

Pecan Grove †

Louisiana

Lubricant Base Stocks, Refined Petroleum Products

100

Portland

Oregon

Crude Oil

100

Portland

Oregon

Crude Oil

100

Richmond

California

Crude Oil

100

Richmond

California

Crude Oil

100

San Bernard

Texas

Refined Petroleum Products

100

San Bernard

Texas

Refined Petroleum Products

100

South Texas Gateway †

Texas

Crude Oil

South Texas Gateway †

Texas

Crude Oil

120

Tacoma

Washington

Crude Oil

100

Tacoma

Washington

Crude Oil

100

Tremley Point †

New Jersey

Refined Petroleum Products

100

Tremley Point †

New Jersey

Refined Petroleum Products

100

Rail

Bayway †

New Jersey

Crude Oil

100

Bayway †

New Jersey

Crude Oil

100

Beaumont

Texas

Crude Oil

100

Beaumont

Texas

Crude Oil

100

Ferndale †

Washington

Crude Oil

100

Ferndale †

Washington

Crude Oil

100

Missoula

Montana

Refined Petroleum Products

Missoula

Montana

Refined Petroleum Products

Palermo †

North Dakota

Crude Oil

100

Palermo †

North Dakota

Crude Oil

100

Thompson Falls

Montana

Refined Petroleum Products

Thompson Falls

Montana

Refined Petroleum Products

Petroleum Coke

Lake Charles

Louisiana

Petroleum Coke

N/A

Lake Charles

Louisiana

Petroleum Coke

N/A

† Owned by Phillips 66 Partners; Phillips 66 held 74% of the limited partner interest in Phillips 66 Partners at December 31, ~~2020.~~2021.

* Marine facilities in thousands of barrels per hour; Rail in thousands of barrels daily (MBD).

Table of Contents

Index to Financial Statements

Marine Vessels

At December 31, ~~2020,~~2021, we had 1211 international-flagged crude oil, refined petroleum product and NGL tankers under time charter contracts, with capacities ranging in size from 300,000 to 2,200,000 barrels. Additionally, we had a variety of inland and offshore tug/barge units. These vessels are used primarily to transport crude oil and other feedstocks, as well as refined petroleum products for our refineries. In addition, the NGL tankers are used to export propane and butane from our fractionation, transportation and storage infrastructure.

Truck and Rail

Our truck and rail fleets support our feedstock and distribution operations. Rail movements are provided via a fleet of approximately ~~9,700~~9,000 owned and leased railcars. Truck movements are provided through our wholly owned subsidiary, Sentinel Transportation LLC, and through numerous third-party trucking companies.

NGL and Other

Our NGL and Other business includes the following:

•The Sweeny Hub, a U.S. Gulf Coast NGL market hub consisting of three fractionators with ~~400,000 BPD of~~a total fractionation capacity of 400,000 BPD, a liquefied petroleum gas (LPG) export terminal and NGL storage caverns.

•A 22.5% interest in Gulf Coast Fractionators, which owns an NGL fractionation plant in Mont Belvieu, Texas. Our net share of its capacity is 32,625 BPD. In December 2020, we began the process to idle this facility and transfer operatorship to a co-venturer. See below for additional information regarding Sweeny Hub Assets.

•A 12.5% undivided interest in a fractionation plant in Mont Belvieu, Texas. Our net share of its capacity is 30,250 BPD.

•A 40% undivided interest in a fractionation plant in Conway, Kansas. Our net share of its capacity is 43,200 BPD.

•A 22.5% interest in Gulf Coast Fractionators, which owns an NGL fractionation plant in Mont Belvieu, Texas. Our net share of its capacity is 32,625 BPD. This facility has been idled since December 2020.

•Phillips 66 Partners owns the River Parish NGL logistics system in southeast Louisiana, comprising approximately 500 miles of pipeline 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 (Southern Hills), which own NGL pipeline systems that connect the Eagle Ford, Permian Basin and Midcontinent production areas to the Mont Belvieu, Texas, market hub.

•Phillips 66 Partners owns a vacuum distillation unit with a capacity of 125,000 BPD and a delayed coker unit with a capacity of 70,000 BPD located at our Sweeny Refinery in Old Ocean, Texas.

•Phillips 66 Partners owns a 25,000 BPD isomerization unit at our Lake Charles Refinery. The isomerization unit increases Phillips 66’s production of higher-octane gasoline blend components.

•A 16% investment in NOVONIX, a company that develops technology and supplies materials for lithium-ion batteries. See below for additional information regarding our investment in NOVONIX.

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Index to Financial Statements

Sweeny Hub Assets

The Sweeny Hub fractionators are located adjacent to our Sweeny Refinery in Old Ocean, Texas, and supply purity ethane to the petrochemical industry and purity NGL to domestic and global markets. Raw NGL supply to the fractionators is delivered from nearby major pipelines, including the Sand Hills Pipeline. The fractionators are supported by significant infrastructure including connectivity to two NGL supply pipelines, a pipeline connecting to the Mont Belvieu market hub and the Clemens Caverns storage facility with access to our LPG export terminal in Freeport, Texas.

~~Table~~During the second half of ~~Contents~~

~~Index to Financial Statements~~

~~During 2020, Phillips 66 completed two new 150,000 BPD fractionators~~2021, we resumed construction of Frac 4 at the Sweeny ~~Hub, bringing~~Hub. The 150,000-BPD fractionator is expected to be completed in the ~~site’s total~~fourth quarter of 2022 and will increase Sweeny Hub fractionation capacity to ~~400,000~~550,000 BPD. ~~Frac 2 and Frac 3 commenced commercial operations in September 2020 and October 2020, respectively.~~ The fractionators are supported by long-term customer commitments. ~~The construction and development of Frac 4, a new 150,000 BPD fractionator at the Sweeny Hub, is expected to resume in the second half of 2021, after a temporary deferral announced in March 2020.~~

~~During the second quarter of 2020, Phillips 66 Partners completed the expansion of storage capacity at Clemens Caverns from 9 million barrels to 16.5 million barrels.~~

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~~a propane vessel and a butane atvessel, and has a combined ~~rate~~LPG export capacity of ~~approximately 36,000 barrels per hour.~~260,000 BPD. In addition, the terminal has the capability to export natural gasoline (C5+) produced by the Sweeny Hub fractionators.

NOVONIX

In September 2021, we acquired a 16% stake in NOVONIX, a Brisbane, Australia-based company that develops technology and supplies materials for lithium-ion batteries. Our investment in NOVONIX’s ordinary shares traded on the Australian Securities Exchange supports an expansion of synthetic graphite production capacity at NOVONIX’s Chattanooga, Tennessee plant. In January 2022, we signed a technology development agreement with NOVONIX to advance the production and commercialization of next-generation anode materials for lithium-ion batteries. In February 2022, NOVONIX’s American Depositary Receipts started trading on the Nasdaq Stock Market.

DCP Midstream

Our Midstream segment includes our 50% equity investment in DCP Midstream, which is headquartered in Denver, Colorado. At December 31, 2020, DCP Midstream, through its subsidiary DCP Midstream, LP (DCP Partners), owned or operated 39 active natural gas processing facilities, with a net processing capacity of approximately 6.0 billion cubic feet per day (Bcf/d), and approximately 57,000 miles of natural gas and NGL pipelines. DCP Midstream’s owned or operated natural gas pipeline systems included gathering services for these facilities and natural gas transmission. DCP Midstream also owned or operated 9 NGL fractionation plants, along with natural gas and NGL storage facilities and NGL 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 our equity affiliates under existing contracts.

~~During 2020,~~At December 31, 2021, DCP Midstream, ~~completed the following growth projects:~~

•~~The Cheyenne Connector was placed into service in the second quarter~~through its subsidiary DCP Midstream, LP (DCP Partners), owned or operated 35 active natural gas processing facilities, with a net processing capacity of ~~2020, adding 600 million~~approximately 5.4 billion cubic feet per day ~~(MMcf/~~(Bcf/d), and approximately 56,000 miles of ~~residue~~natural gas ~~takeaway~~ and ~~easing logistics constraints in the DJ Basin.~~

•~~The Front Range~~NGL pipelines. DCP Midstream’s owned or operated natural gas pipeline ~~was expanded to a capacity of 260,000 BPD~~systems included gathering services for these facilities and ~~the Texas Express pipeline was expanded to a capacity of 370,000 BPD in the second quarter of 2020.~~

•~~The Latham 2 offload was placed into service in the fourth quarter of 2020, adding up to 225 MMcf/d of incremental DJ Basin processing capacity.~~

natural gas transmission. DCP Midstream also owned or operated 9 NGL fractionation plants, along with natural gas and NGL storage facilities and NGL pipelines. During 2021, DCP Midstream completed expansion projects around its existing assets.

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Index to Financial Statements

CHEMICALS

The Chemicals segment consists of our 50% equity investment in CPChem, which is headquartered in The Woodlands, Texas. At December 31, ~~2020,~~2021, CPChem owned or had joint venture interests in 28 manufacturing facilities located in Belgium, Colombia, Qatar, Saudi Arabia, Singapore and the United States. Additionally, CPChem has two research and development centers in the United States.

We structure our reporting of CPChem’s operations around two primary business lines: Olefins and Polyolefins (O&P) and Specialties, Aromatics and Styrenics (SA&S). The O&P business line produces and markets ethylene and other olefin products. The ethylene produced is primarily used by CPChem to produce polyethylene, normal alpha olefins (NAO) and polyethylene pipe. The SA&S business line manufactures and markets aromatics and styrenics products, such as benzene, cyclohexane, styrene and polystyrene. SA&S also manufactures and/or markets a variety of specialty chemical products including organosulfur chemicals, solvents, catalysts, and chemicals used in drilling and 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 by cracking ethane, propane, butane, natural gasoline or certain refinery liquids, such as naphtha and gas oil. Ethylene primarily is used as a raw material in the production of plastics, such as polyethylene and polyvinyl 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.

The following table reflects CPChem’s petrochemicals and plastics product capacities at December 31, ~~2020:~~2021:


	Millions of Pounds per Year*
	U.S.	Worldwide
O&P
Ethylene	11,910	14,385
Propylene	2,675	3,180
High-density polyethylene	5,305	7,470
Low-density polyethylene	620	620
Linear low-density polyethylene	1,590	1,590
Polypropylene	—	310
Normal alpha olefins	2,335	2,850
Polyalphaolefins	125	255
Polyethylene pipe	500	500
Total O&P	25,060	31,160

SA&S
Benzene	1,600	2,530
Cyclohexane	1,060	1,455
Styrene	1,050	1,875
Polystyrene	835	915
Specialty chemicals	440	575
Total SA&S	4,985	7,350
Total O&P and SA&S	30,045	38,510

* Capacities include CPChem’s share in equity affiliates and excludes CPChem’s NGL fractionation capacity.

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Index to Financial Statements

CPChem ~~and~~is growing its normal alpha olefins business with a ~~co-venturer~~second world-scale unit to produce 1-hexene, a critical component in high-performance polyethylene. The 586 million pounds per year unit will be located in Old Ocean, Texas. The project will utilize CPChem’s proprietary technology. In addition, CPChem is expanding its propylene splitting capacity by 1 billion pounds per year with a new unit located at its Cedar Bayou facility. Both projects are ~~jointly pursuing the~~expected to start up in 2023.

In early 2022, CPChem announced its first commercial sales of Marlex® Anew™ Circular Polyethylene, which uses advanced recycling technology to convert difficult-to-recycle plastic waste into high-quality raw materials. CPChem is working to further expand production volumes, targeting annual production of 1 billion pounds of circular polyethylene by 2030.

CPChem is continuing development of world-scale petrochemical facilities on the U.S. Gulf Coast and in Ras Laffan, ~~Qatar.~~Qatar, jointly with its co-venturer. CPChem ~~is monitoring economic developments and has deferred~~expects to make a final investment decision for ~~the~~its U.S. Gulf Coast project ~~until~~in 2022.

In October 2020, CPChem announced its first U.S. commercial-scale production of circular polyethylene from recycled mixed-waste plastics at its Cedar Bayou facility and received International Sustainability and Carbon Certification PLUS (ISCC PLUS) certification for this location in November 2020. CPChem is using advanced recycling technology to convert plastic waste to liquids that can become new petrochemicals. CPChem’s circular polyethylene matches the performance and safety specifications of traditional polymers.

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Index to Financial Statements

REFINING

Our Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, at 1312 refineries in the United States and Europe.

The Alliance Refinery, located in Belle Chasse, Louisiana, sustained significant impacts from Hurricane Ida in August 2021. In the fourth quarter of 2021, we announced the shutdown of the Alliance Refinery in connection with plans to convert it to a terminal.

The table below depicts information for each of our owned and joint venture refineries at December 31, ~~2020:~~2021:


					Thousands of Barrels Daily										Thousands of Barrels Daily
Region/Refinery	Region/Refinery	Location	Interest		Net Crude Throughput Capacity		Net Clean Product Capacity**		Clean Product Yield Capability		Region/Refinery	Location	Interest		Net Crude Throughput Capacity		Net Clean Product Capacity**		Clean Product Yield Capability
					At December 31 2020	Effective January 1 2021	Gasolines	Distillates							At December 31 2021	Effective January 1 2022	Gasolines	Distillates
Atlantic Basin/Europe	Atlantic Basin/Europe										Atlantic Basin/Europe
Bayway	Bayway	Linden, NJ	100	%	258	258	155	130	92	%	Bayway	Linden, NJ	100	%	258	258	155	130	92	%
Humber	Humber	N. Lincolnshire, United Kingdom	100		221	221	95	115	81		Humber	N. Lincolnshire, United Kingdom	100		221	221	95	115	81
MiRO*	MiRO*	Karlsruhe, Germany	19		58	58	25	25	87		MiRO*	Karlsruhe, Germany	19		58	58	25	27	87
					537	537									537	537

Gulf Coast	Gulf Coast										Gulf Coast
Alliance		Belle Chasse, LA	100		255	255	130	120	87

Lake Charles	Lake Charles	Westlake, LA	100		249	264	105	115	70		Lake Charles	Westlake, LA	100		264	264	105	115	70
Sweeny	Sweeny	Old Ocean, TX	100		265	265	140	125	86		Sweeny	Old Ocean, TX	100		265	265	158	125	86
					769	784									529	529

Central Corridor	Central Corridor										Central Corridor
Wood River	Wood River	Roxana, IL	50		173	173	88	70	81		Wood River	Roxana, IL	50		173	173	88	70	81
Borger	Borger	Borger, TX	50		75	75	50	35	91		Borger	Borger, TX	50		75	75	50	35	91
Ponca City	Ponca City	Ponca City, OK	100		217	217	120	100	93		Ponca City	Ponca City, OK	100		217	217	120	100	93
Billings	Billings	Billings, MT	100		65	66	36	30	90		Billings	Billings, MT	100		66	66	37	30	90
					530	531									531	531

West Coast	West Coast										West Coast
Ferndale	Ferndale	Ferndale, WA	100		105	105	65	37	81		Ferndale	Ferndale, WA	100		105	105	65	39	84
Los Angeles	Los Angeles	Carson/Wilmington, CA	100		139	139	85	65	90		Los Angeles	Carson/Wilmington, CA	100		139	139	85	65	90
San Francisco	San Francisco	Arroyo Grande/Rodeo, CA	100		120	120	60	65	85		San Francisco	Arroyo Grande/Rodeo, CA	100		120	120	60	65	85
					364	364									364	364
					2,200	2,216									1,961	1,961

* 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.

Table of Contents

Index to Financial Statements

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

Humber

MiRO

~~Alliance~~

Lake Charles

Sweeny

Wood River

Borger

Ponca City

Billings

Ferndale

Los Angeles

San Francisco

* 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. 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. Humber is the only coking refinery in the United Kingdom, and a producer of high-quality specialty graphite and anode-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 throughout the 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% 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, and anode- and fuel-grade petroleum cokes. Refined petroleum products are distributed to customers in Germany, Switzerland, France, and Austria by truck, railcar and barge.

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Index to Financial Statements

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. A majority of the refined petroleum products are distributed to customers in the southeastern and eastern United States through major common carrier pipeline systems and by barge. Additionally, refined petroleum products are exported 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 cokes. 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. Additionally, refined petroleum products are exported to customers primarily in Latin America and Europe 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, aromatics units, and a Phillips 66 Partners owned delayed coking unit. The refinery produces a high percentage of transportation fuels. Other products include petrochemical feedstocks, home heating oil and fuel-grade petroleum coke. A majority of the refined petroleum products are distributed to customers throughout the Midcontinent region, southeastern and eastern United States by pipeline, barge and railcar. Additionally, refined petroleum products are exported 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 percent-owned joint venture that 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.

•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. The refinery produces a high percentage of transportation fuels, as well as fuel-grade petroleum coke, NGL and solvents. Refined petroleum products are distributed to customers in West Texas, New Mexico, Colorado and the Midcontinent region by company-owned and common carrier pipelines.

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Ponca City Refinery

The Ponca City Refinery is located in Ponca City, Oklahoma, approximately 95 miles northwest of Tulsa, Oklahoma. 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 anode-grade petroleum coke. Refined petroleum products are 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 in Montana, Wyoming, Idaho, Utah, Colorado and Washington by pipeline, railcar and truck.

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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 in the northwest United States by pipeline and barge.

Los Angeles Refinery

The Los Angeles Refinery consists of two facilities linked by 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. Refinery 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 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. Intermediate refined products from the Santa Maria facility are shipped by pipeline to the Rodeo facility for upgrading into finished petroleum products. Refinery 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, 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. Additionally, refined petroleum products are exported to customers primarily in Latin America by waterborne cargo.

InWe are advancing our plans at the ~~third quarter of 2020, we announced Rodeo Renewed, a project to reconfigure our~~ San Francisco Refinery in Rodeo, California, to ~~produce~~meet the growing demand for renewable fuels. The ~~Rodeo facility will no longer produce fuels from crude oil, but instead will make fuels from used cooking oil, fats, greases, soybean oils and other feedstocks. We expect to complete the diesel~~ hydrotreater ~~conversion in mid-2021, which will produce~~feedstock flexibility project reached full rates of 8,000 BPD (120 million gallons per year) of renewable ~~diesel. Upon~~diesel production in July 2021. Separately, the Rodeo Renewed refinery conversion project is expected ~~completion of the full conversion~~to be finished in early 2024, subject to permitting and approvals. Upon completion, the facility will initially have ~~a renewable fuel production capacity of~~ over 50,000 BPD ~~or 800~~(800 million gallons per ~~year.~~

year) of renewable fuels production capacity. The conversion will reduce emissions from the facility and produce lower-carbon transportation fuels. We plan to distribute our renewable diesel through new and existing channels, including approximately 600 branded retail sites in California.

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MARKETING AND SPECIALTIES

Our M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable 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.

Marketing

Marketing—United States

We market gasoline, diesel and aviation fuel through marketer and joint venture outlets that utilize the Phillips 66, Conoco or 76 brands. At December 31, ~~2020,~~2021, we had approximately ~~7,590~~7,110 branded outlets in 48 states and Puerto Rico.

Our wholesale operations utilize a network of marketers operating approximately ~~5,440~~5,000 outlets. We place a strong emphasis on the wholesale channel of trade because of its relatively lower capital requirements. In addition, we hold brand-licensing agreements covering approximately ~~1,370~~1,340 sites. Our refined petroleum products are marketed on both a branded and unbranded basis. A high percentage of our branded marketing sales are in the Midcontinent, Rockies and West Coast regions, where our wholesale marketing network secures efficient offtake from our refineries. We also utilize consignment fuel arrangements with several marketers whereby we own the fuel inventory and pay the marketers a monthly fee.

In the Gulf Coast and East Coast regions, most sales are conducted via the unbranded channel of trade, which does not require a highly integrated marketing network to secure product placement for refinery pull through. We have export capability at our U.S. coastal refineries to meet international demand.

In addition to automotive gasoline and diesel, we produce and market aviation gasoline and jet fuel. Aviation gasoline and jet fuel are sold through dealers and independent marketers at approximately ~~780~~770 Phillips 66 branded locations.

During 2021, Phillips 66 converted approximately 600 branded retail sites in California to distribute renewable diesel. In December 2021, we acquired a commercial fleet fueling business in California, providing further placement opportunities for renewable diesel production to end-use customers.

We ~~also~~ participate in ~~retail~~ joint ventures engaged in retail convenience store operations in the West Coast and Central regions. These joint ventures enable us to secure long-term placement of our refinery production and extend participation in the retail value chain. ~~At December 31, 2020, our~~During 2021, a joint ~~ventures had approximately 730 outlets. During the second quarter of 2020, our West Coast retail joint~~ venture ~~completed the acquisition of 95 additional sites. In January 2021, one of our joint ventures~~ in the Central region acquired ~~106~~approximately 200 sites. At December 31, 2021, our retail ~~sites.~~joint ventures had approximately 930 outlets.

Marketing—International

We have marketing operations in four European countries. Our European marketing strategy is to sell primarily through owned, leased or joint 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, we have an equity interest in a joint venture that markets refined petroleum products in Switzerland under the ~~COOP~~Coop brand name.

We also market aviation fuels, LPG, heating oils, marine bunker fuels, and other secondary refined products to commercial customers and into the bulk or spot markets in the above countries.

At December 31, ~~2020,~~2021, we had approximately 1,280 marketing outlets in Europe, of which approximately 990 were company owned and approximately 290 were dealer owned. We had interests in approximately 330 additional sites through our ~~COOP~~Coop joint venture operations in Switzerland, and we held brand-licensing agreements covering approximately 90 sites in Mexico.

~~We continued~~In February 2022, we and H2 Energy Europe announced our ~~program~~commitment to ~~update signature image designs for~~ form a joint venture to develop a network of up to 250 hydrogen retail refueling stations across Germany, Austria and Denmark by 2026. The formation of the joint venture is subject to regulatory approvals and customary closing conditions.

~~JET~~ ~~branded sites in Europe.~~

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Specialties

We manufacture lubricants and sell a variety of specialty products, including petroleum coke products, solvents and polypropylene.

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 plant located adjacent to the Lake 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 produced base oil under the Pure Performance brand. The facility’s feedstock is sourced primarily from our Lake Charles Refinery.

Other 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.

ENERGY RESEARCH & INNOVATION

Our Energy Research & Innovation organization, located in Bartlesville, Oklahoma, ~~consists of approximately 250~~includes scientists and engineers ~~who conduct~~working in over 200 labs on our 440 acre research campus to develop new technologies focused on advancing our business and solving tomorrow’s energy challenges. Areas of focus for 2021 included feedstock valuation and process optimization to enhance margins in our refining segment; lubricant development and product support; water, air, and renewable fuels research to ~~enhance~~ensure the ~~safety and reliability~~sustainability of ~~our operations and to develop future air, water~~all business segments; and energy ~~solutions, including battery technology, organic (carbon-based) photovoltaic materials~~transition programs such as carbon mitigation, hydrogen, batteries and ~~solid oxide~~ fuel cells to help position Phillips 66 for the storage or production of electricity. The Energy Research & Innovation organization enhances our business programs and initiatives with research that enables us to improve our operations and provides a science-based approach to supporting our businesses and evaluating new opportunities.

energy future.

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HUMAN CAPITAL

Phillips 66 employees, our human capital, are guided by our values of safety, honor and commitment. Together, we operate as a high-performing organization by building breadth and depth in capabilities, pursuing excellence and doing the right thing. We empower our people to create and innovate, and to work in ways to deliver industry leading performance. At December 31, ~~2020,~~2021, we had approximately ~~14,300~~14,000 employees working toward our vision of providing energy and improving lives.

We believe maintaining and enhancing a high-performing organization is critical to our success. Our employees promote our culture and are integral to achieving our strategic goals and maximizing long-term shareholder value. We strive for continuous improvement of our high-performing organization, as we believe that our employees differentiate us in the marketplace. ~~Human~~In addition to the disclosures below, we have issued a human capital management report that is accessible on our website and provides more detailed data about human capital generally. The human capital measures and objectives that we focus on in managing our business and that we believe are material to understand our business, include:

•Safety—Safety is the cornerstone of our business. 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. We employ rigorous training and audit programs to drive ongoing improvement in personal safety as we strive for zero incidents. We also include safety metrics along with metrics for process safety and environmental performance in our annual bonus program to incentivize and reward safe operations. Our personal safety performance is measured by our total recordable rate (TRR), which measures the number of incidents per 200,000 hours worked. In 2021, our combined workforce TRR of 0.12 was industry leading and more than 25 times better than the U.S. manufacturing average.

•Culture—Phillips 66 fosters behaviors that promote our culture. “Our Energy in Action” is a set of core behaviors embedded in all of the company’s talent and business processes to drive accountability. Those behaviors include working for the greater good; creating an environment of trust; seeking different perspectives; and achieving excellence.

In addition, we believe a high level of performance can only be achieved through an inclusive culture and diverse workforce. Our inclusion and diversity (I&D) council, chaired by our Chairman and Chief Executive Officer and comprised of executives and business leaders, sets the strategic vision for advancing I&D. We have eight Employee Resource Groups (ERGs) that align with our corporate objective of fostering a diverse workforce. These ERGs are organizations formed around a shared set of experiences and perspectives, and are focused on professional development, networking, recruiting, raising cultural awareness, and community involvement.

We conduct biennial employee engagement surveys to gather employee perspectives on their experience, although we delayed the rollout of the survey from 2020 to 2021 because of the Coronavirus Disease 2019 (COVID-19) pandemic. The results of ~~which~~the survey are ~~available to~~shared with our employees and ~~our~~ board of directors. Management analyzes findings to identify progress on previous recommendations and areas of continued opportunity. In 2021, we expanded the scope of the survey to include assessments of Our Energy in Action and a culture of inclusion. Compared to 2018, results showed a five-percentage point increase in our overall engagement score.

•Capability—We strive to build depth and breadth in our skills. We drive employee development through technical training and providing opportunities for ~~rotational moves,~~job rotations, as well as assisting employees with obtaining and sharpening managerial skills through targeted development programs and promotional moves. Our performance management process identifies coaching and training needs.

We also have a robust succession planning practice and work each year to identify successors for positions within the company. As part of the process, quarterly sessions are held with executives to monitor and guide leadership development for our key corporate positions.

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•Performance—We focus on delivering exceptional, sustainable results. We work towards retention of top talent and have advanced the effectiveness of our performance management process by embedding Our Energy in Action into the process to ensure that we drive the desired behaviors. Additionally, “High Performing Organization” is one of the metrics used in our annual bonus plan.Measures used are foundational metrics such as employee engagement and I&D, talent attraction, retention and development, as well as our organization’s ability to adapt and respond to changing market conditions or other external factors.

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COMPETITION

In the Midstream segment, our crude oil and products pipelines face competition from 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~~rates 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 natural gas markets. 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 in many of its major product lines according to published industry sources, based on average ~~2020~~2021 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. 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 marketing portion of the business, competitive factors include product properties, reliability of supply, customer service, price and credit terms, advertising and sales promotion, and development of customer loyalty to branded products.

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GENERAL

At December 31, ~~2020,~~2021, we held a total of ~~501~~508 active patents in 2221 countries worldwide, including ~~391~~399 active U.S. patents. The overall profitability of any business segment is not dependent on any single patent, trademark, license or franchise.

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.

We are subject to various laws and government regulations concerning environmental matters and employee safety and health in the United States and other countries. In addition, various states have authority under the federal statutes and many state and local governments have adopted environmental and employee safety and health laws and regulations, some of which are similar to federal requirements. State and federal authorities may seek fines and penalties for violating these laws and regulations. The material effects of compliance with these government regulations upon our capital expenditures, earnings and competitive position are primarily associated with environmental regulations. See the environmental information contained in “Item 7. 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 ~~2020~~2021 and those expected for ~~2021~~2022 and ~~2022.~~2023.

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.

2021

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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 the value of an investment in our common stock. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we do not currently consider to present significant risks to our operations.

Risks Related to the COVID-19 Pandemic

The Coronavirus Disease 2019 (COVID-19) pandemic ~~has~~ resulted in a significant decrease in demand for many of our products ~~which~~and has had and ~~is expected to~~could continue to have ~~an adverse, and potentially materially~~a material adverse effect on our ~~results of operations~~business. Any future widespread health crises could materially and ~~cash flows.~~adversely impact our business in the future.

~~The economic, business,~~Our global operations expose us to risks associated with public health crises and ~~oil and gas industry impacts from the~~outbreaks of epidemics, pandemics, or contagious diseases, such as COVID-19. The COVID-19 pandemic ~~have continued to be far reaching. Within~~and the ~~past year, crude oil prices have fallen dramatically to historic lows, even briefly going negative, due in part to severely reduced~~associated containment efforts had a serious adverse impact on the economy and a material adverse effect on our business, particularly our Refining segment. During 2020, demand for crude oil, gasoline, jet fuel, diesel fuel and other refined products ~~resulting from government-mandated travel~~was significantly reduced. In the event government authorities impose any new mandatory closures, work-from-home orders and social distancing protocols, or other restrictions to mitigate the further spread of COVID-19, it is likely that demand for our products will again be impacted and ~~the curtailment of economic activity. The reduced demand and resulting oversupply of products continue to~~our business will be negatively impact refinery utilization rates and operating margins in our Refining business. Any prolonged period of economic stagnation, as well as depressed oil prices, may also adversely impact the financial results of our Midstream, Chemicals, and Marketing and Specialties businesses. The company’s equity affiliates, customers and other counterparties, have also been negatively impacted by the COVID-19 pandemic, and they may be unable to fulfill their obligations to us in a timely manner, or at all, which also could negatively affect our financial condition and cash flows.affected.

~~The extent~~Even if a virus or other illness does not spread significantly, the perceived risk of infection or health risk may result in reduced demand for our products and materially affect our business. As we cannot predict the duration or scope of COVID-19 or any pandemic, the negative financial impact to ~~which~~our results cannot be reasonably estimated and could be material. Factors that will influence the impact on our business and operations ~~and those of our equity affiliates, customers and counterparties, will continue to be negatively impacted depends on~~include the duration and ~~scope of any existing or new travel restrictions, business and school closures, and stay at home orders. The~~ extent of the ~~negative~~pandemic, including the virulence and spread of different strains of a virus and the level and timing of vaccine development and distribution across the world and their impact ~~also will depend~~ on ~~how quickly~~economic recovery and ~~to what~~growth, the extent of imposed or recommended containment and mitigation measures and their impact on our operations, and the general economic ~~conditions improve and normal business and operating conditions, including demand for refined petroleum products, resume.~~consequences of the pandemic.

Additionally, depending on future movements of market prices for products held in inventories, we or certain of our equity affiliates could be required to make future inventory valuation adjustments, which could affect our financial results. Any ofTo the ~~foregoing events or conditions, or other consequences of~~extent the COVID-19 pandemic or other widespread public health crises adversely affected or affects our business and financial results, it may also have the effect of heightening many of the other risks that could ~~significantly~~ adversely affect our business described below, such as risks associated with industry capacity utilization, volatility in the price and ~~financial condition~~availability of raw materials, material adverse changes in customer relationships including any failure of a customer to perform its obligations under agreements with us, and ~~the business and financial condition of our equity affiliates, as well as our customers and other counterparties.~~

risks associated with worldwide or regional economic conditions.

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Risks Related to Our Manufacturing and Operations

Our financial results are affected by changing commodity prices and margins for refined petroleum, petrochemical and plastics products.

Our financial results are largely affected by the relationship, or margin, between the prices at which we sell refined petroleum, petrochemical and plastics products and the prices for crude oil and other feedstocks used in manufacturing these products. Historically, margins have been volatile, and we expect they will continue to be volatile in the future.

The costs of feedstocks and the prices at which we can ultimately sell our products depend on numerous factors beyond our control, including regional and global supply and demand, which are subject to, among other things, production levels, levels of refined petroleum product inventories, productivity and growth of economies, and governmental regulation. We do not produce crude oil and must purchase all of the crude we process. The prices for crude oil and refined petroleum products can fluctuate based on global, regional and local market conditions, as well as by type and class of products, which can reduce margins and 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-based pricing provisions. We normally purchase our refinery feedstocks weeks before manufacturing and selling the refined petroleum products. We also purchase refined petroleum products produced by others for sale to our customers. Changes in prices that occur between the time we purchase feedstocks or products and when we sell the refined petroleum products could have a significant effect on our financial results.

The price of crude oil also influences prices for petrochemical and plastics products and the feedstocks used to manufacture the products. Our ~~Chemical~~Chemicals segment uses feedstocks that are derivatively produced in the refining of crude oil and the processing of natural gas, and those feedstock prices can fluctuate widely for a variety of reasons, including changes in worldwide energy prices and the supply and availability of the feedstocks. Due to the highly competitive nature of most of the products sold by our Chemicals segment, market position cannot necessarily be protected by product differentiation or by passing on cost increases to customers. As a result, price increases in raw materials may not correlate with changes in the prices at which petrochemical and plastics products are sold, thereby negatively affecting margins and the results of operations of our Chemicals segment.

Market conditions, including commodity prices, may impact the earnings, financial condition and cash flows of our Midstream ~~business, including Phillips 66 Partners and DCP Midstream.~~business.

Our Midstream business is affected by the price of and demand for crude oil, natural gas and NGL, which have historically been volatile. The prices for crude oil, natural gas and NGL depend upon factors beyond our control, including global and local demand, production levels, imports and exports, seasonality and weather conditions, economic and political conditions domestically and internationally, and governmental regulations. Decreases in energy prices can decrease drilling activity, production rates and investments by third parties in the development of new crude oil and natural gas reserves. Sustained periods of low prices can also cause producers to significantly curtail or limit their oil and gas drilling operations, which could substantially delay the production and delivery of volumes of crude oil, natural gas and NGL.

The volume of crude oil and refined petroleum products transported or stored in our pipelines and terminal facilities depends on the demand for and availability of ~~attractively priced~~ crude oil and refined petroleum products in the areas serviced by our assets. A period of sustained low demand or prices for crude oil ~~or products~~ could lead to a decline in drilling activity ~~production,~~ and ~~refining of crude oil,~~production, which would lead to a decrease in the volumes of crude oil ~~or petroleum products~~ transported inthrough our pipelines and terminal facilities, negatively affecting our earnings and cash flows.

Likewise, our earnings and cash flows would be negatively impacted by a period of sustained lower demand for refined petroleum products, which could lead to lower refinery utilization and result in a decrease in the volumes of refined petroleum product transported through our pipelines and terminal facilities.

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The natural gas gathered, processed, transported, sold and stored by DCP Midstream is delivered into pipelines for further delivery to end-users, including fractionation facilities. Demand for these services may be substantially reduced due to lower rates of natural gas production as a result of declining commodity prices. Commodity prices, including when ethane prices are low relative to natural gas prices, can also negatively impact throughput volumes of NGL transported, fractionated and stored by DCP Midstream. Additionally, DCP Midstream’s revenues and cash flows can increase or decrease as the price of natural gas and NGL ~~fluctuate~~fluctuates because of certain contractual arrangements whereby natural gas is purchased for an agreed percentage of proceeds from the sale of the residue gas and/or NGL resulting from its processing activities.

Additionally, the level of production from natural gas wells will naturally 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 level of successful drilling activity and prices of, and demand for, natural gas and crude oil, as well as producers’ desire and ability to obtain necessary permits are some of the factors that may affect new supplies of natural gas and NGL. 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.

Our operations are subject to planned and unplanned downtime, business interruptions, and operational hazards, any of which could adversely impact our ability to operate and could adversely impact our financial condition, results of operations and cash flows.

Our operating results are largely dependent on the continued operation of facilities and assets owned and operated by us and our equity affiliates. Interruptions may materially reduce productivity and thus, the profitability, of operations during and after downtime, including for planned turnarounds and scheduled maintenance activities. In the past, we and certain of our equity affiliates also have temporarily shut down facilities due to the threat of severe weather, such as hurricanes. Although we take precautions to ensure and enhance the safety of our operations and minimize the risk of disruptions, our operations are also subject to hazards inherent in chemicals, refining and midstream businesses, such as explosions, fires, refinery or pipeline releases or other incidents, power outages, labor disputes, or other natural or man-made disasters, such as geopolitical conflicts and acts of terrorism, including cyber intrusion. The inability to operate facilities or assets due to any of these events could significantly impair our ability to manufacture, process, store or transport products.

Any casualty occurrence involving our assets or operations could result in serious personal injury or loss of human life, significant damage to property and equipment, environmental pollution, impairment of operations and substantial 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 the equity affiliate and negatively impact their ability to make future distributions to us.

We are subject to interruptions of supply and offtake, as well as 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, 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.

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Competition Risks

Refining and marketing competitors that produce their own 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 aspects 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.

Market demand for transportation and midstream services and the risk of overbuild could negatively impact the results of operations of our Midstream business.

We and our Midstream equity affiliates compete with other pipelines and terminals that provide similar services in the same markets as our assets. We compete on the basis of many factors, including but not limited to rates, service levels and offerings, geographic location, connectivity and reliability. Our competitors could construct new assets or redeploy existing assets in a manner that would result in more intense competition. Additionally, we could be required to increase our costs or reduce the fees we charge in order to retain our customers.

We and our equity affiliates have made and continue to make significant investments in new infrastructure projects to meet market demand. Similar investments have been made, and additional investments may be made in the future, by us, our competitors or by new entrants to the markets we serve. The success of these investments largely depends on the realization of anticipated market demand, and these projects typically require significant development periods, during which time demand for such infrastructure may change, or additional investments by competitors may be made. Any of these or other competitive forces could materially adversely affect our results of operations, financial position or cash flows, as well as our ability to pay cash distributions.

Strategic Performance and Future Growth Risks

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 rate of return on the capital invested. We base these forecasted project economics on our best estimate of future market conditions including the regulatory and operating environment. Most large-scale projects take several years to complete. During this multiyear 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.

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Plans we or our joint ventures may have to expand ~~existing assets~~ or construct ~~new~~ assets, ~~particularly in~~and plans for our ~~Midstream segment,~~future performance 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 realize certain growth strategies.~~results of operations.

Certain of our ~~planned expenditures~~plans are based upon the assumption that societal sentiment will continue to enable, and existing regulations will remain ~~intact~~in place to allow for, the future development, transportation and use of carbon-based fuels. A portion of our growth strategy is dependent on our and our joint ventures’ ability to ~~expand existing assets~~capture growth opportunities in the Midstream and ~~to construct additional assets.~~Chemicals segments. Policy decisions relating to the production, refining, transportation, marketing and ~~marketing~~use 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 segment’s growth plans include~~ the construction or expansion of pipelines ~~which~~ can involve numerous regulatory, environmental, political, and legal uncertainties, many of which are beyond our control. ~~Our~~We may not be able to identify or execute growth projects, and those that are identified 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 return on capital employed.

Political and economic developments could affect our operations and materially reduce our profitability and cash flows.

Actions of federal, state, local and international governments through 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 profitability both in the United States and abroad. Any such actions may affect many aspects of our operations, including:

•Requiring permits or other approvals that may impose unforeseen or unduly burdensome conditions or potentially cause delays in our operations.

•Further limiting or prohibiting construction or other activities in environmentally sensitive or other areas.

•Requiring increased capital costs to construct, maintain or upgrade equipment, facilities or infrastructure.

•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 and from 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. 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 obtain optimum crude slates and other refinery feedstocks and effectively distribute refined petroleum products.

Other political and economic risks include global pandemics; financial market turmoil; economic volatility and global economic slowdown; currency exchange rate ~~fluctuations~~fluctuations; short-term and long-term inflationary pressures; import or export restrictions and changes in trade regulations; supply chain disruptions; acts of terrorism, war, civil unrest and other political risks; ~~difficulties~~limitations in ~~developing, staffing~~the availability of labor to develop, staff and ~~managing~~manage operations; and potentially adverse tax developments. If any of these events occur, our businesses and results of operations may be adversely affected.

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We may not be able to effectively identify, whether through acquisition, investment or development, lower-carbon opportunities on favorable terms, or at all, and failure to do so could limit our growth, our ability to participate in the energy transition, and our ability to meet our environmental goals and targets.

Part of our strategy includes capturing growth opportunities in our Emerging Energy business to further advance our participation in the energy transition and meet our greenhouse gas (GHG) emissions reduction targets. This strategy depends on our ability to successfully identify and evaluate acquisition and investment opportunities or develop and commercialize new technologies. The number of lower-carbon opportunities may be limited, and we will compete with other energy companies for these limited opportunities, which could make them more expensive and the returns for our business less attractive and possibly cause us to refrain from making them at all. Further, certain lower-carbon opportunities will depend on technological and other advancements that may not be within our control and may not come to fruition or be economically feasible in the near term.Any new opportunities also may depend on the viability of new assets or businesses that are contingent on public policy mechanisms including investment tax credits, subsidies, renewable portfolio standards and carbon trading plans. These mechanisms have been implemented at the state and federal levels to support the development of renewable energy, demand-side, and other clean infrastructure technologies. The availability and continuation of public policy support mechanisms will drive a significant part of the economics and viability of lower-carbon and clean energy investments generally, as well as our participation in them. If we are unable to identify and consummate acquisitions and investments, our ability to execute a portion of our growth strategy and meet our environmental goals may be impeded.

Regulatory and Environmental, Climate and Weather Risks

Climate change and severe weather may adversely affect our and our joint ventures’ facilities and ongoing operations.

The potential physical effects of climate change and severe weather 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, including those that may be caused by climate change, but if any such events were to occur, they could have an adverse effect on our assets and operations. Examples of potential physical risks include floods, hurricane-force winds, wildfires, freezing temperatures and snowstorms, as well as rising sea levels at our coastal facilities. We have incurred, and will continue to incur, costs to protect our assets from physical risks and to employ processes, to the extent available, to mitigate such risks.

~~Many~~We operate facilities located in coastal regions of ~~our~~the United States, which have been impacted by hurricanes that have required us to temporarily, or even permanently, shut down operations at those sites. Due to significant damages from Hurricane Ida, we shut down the Alliance Refinery in connection with plans to convert it to a terminal. CPChem also operates facilities ~~are located near coastal areas,~~on the Gulf Coast and has had to temporarily shut down sites as ~~are many of CPChem’s facilities. As~~ a result of hurricanes. Any extreme weather ~~and~~events or rising sea levels may disrupt the ability to operate ~~these~~any facilities located near coastal areas or to transport crude oil, refined petroleum or petrochemical and plastics ~~products.~~products in these areas. Extended periods of such disruption could have an adverse effect on our results of 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, our operations may need to be modified and material costs incurred, which could materially and adversely affect our business, financial condition and results of operations.

There are certain environmental hazards and risks inherent in our operations that could adversely affect those operations and our financial results.

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 byproducts 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.

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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.

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, such as nitrogen oxides, sulfur dioxide and mercury emissions, and ~~greenhouse gas (GHG)~~GHG emissions, as they are, or may become, 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.

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.

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The adoption of climate change legislation or regulation could result in increased operating costs and reduced demand for the refined petroleum products we produce.

Currently, multiple legislative and regulatory measures to address GHG and other emissions are in various phases of consideration, promulgation or implementation. These include actions to develop international, federal, regional or statewide programs, which could require reductions in our GHG or other emissions, establish a carbon tax and decrease the demand for our refined products. Requiring reductions in these emissions could result in increased costs to (i) operate and maintain our facilities, (ii) install new emission controls at our facilities and (iii) administer and manage any emissions programs, including acquiring emission credits or allotments.

For example, in 2017, the California state legislature adopted Assembly Bill 398, which provides direction and parameters on utilizing cap and trade after 2020 to meet the 40% reduction target for GHG emissions from 1990 levels by 2030 specified in Senate Bill 32. Compliance with the cap and trade program is demonstrated through a market-based credit system. Additionally, the California Air Resources Board is now exploring the potential for additional GHG reductions by 2045 via a yet undefined carbon neutrality standard, and California’s governor has issued an Executive Order calling for a ban on the in-state sales of new cars containing internal combustion engines beginning in 2035. Other states are proposing, or have already promulgated, low carbon fuel standards or similar initiatives to reduce emissions from the transportation sector. If we are unable to pass the costs of compliance on to our customers, sufficient credits are unavailable for purchase, we have to pay a significantly higher price for credits, or if we are otherwise unable to meet our compliance obligation, our financial condition and results of operations could be adversely affected.

~~Regional~~Federal, regional and state climate change and air emissions goals and regulatory programs are complex, subject to change and impose considerable uncertainty due to a number of factors including technological feasibility, legal challenges and potential changes in federal policy. Increasing concerns about climate change and carbon intensity have also resulted in heightened societal ~~concerns~~awareness and a number of international and national measures to limit GHG emissions. Additional stricter regulatory measures and investor pressure can be expected in the future and any of these changes may have a material adverse impact on our business or financial condition.

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International climate change-related efforts, such as the 2015 United Nations Conference on Climate Change, which led to the creation of the Paris Agreement, may impact the regulatory framework of states whose policies directly influence our present and future operations. Although the United States had previously withdrawn from the Paris Agreement, it has since taken the steps necessary to rejoin, which was effective in February 2021. The U.S. climate change strategy and the impact to our industry and operations due to GHG regulation is unknown at this time.

Increased regulation of the fossil fuel industry, particularly with respect to 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~~Most 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 a 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~~In addition, certain interest groups have also proposed ballot initiatives and constitutional amendments designed to restrict crude oil and natural gas development generally. If ballot initiatives, local, state, or national restrictions or prohibitions are adopted and result in more stringent limitations on the production and development of ~~regulation~~crude oil and ~~permits required with~~natural gas, producers may experience delays or curtailment in the ~~adoption~~permitting or pursuit of exploration, development or production activities.

If legislative and regulatory initiatives cause a material decrease in the drilling of new ~~laws~~wells and ~~regulations at the federal or state level could result in our having to rely on higher priced~~related servicing activities, it may reduce crude oil, ~~for our refineries. The resulting increased operating costs, process prohibitions and delays could also reduce~~ natural gas and NGL supplies, negatively affecting ~~midstream~~the volume of products available to our Midstream segment and ~~chemicals operations.~~increasing feedstock prices for our Chemicals and Refining segments, resulting in a material adverse effect on our financial position, results of operations and cash flows.

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Compliance with the EPA’s Renewable Fuel Standard (RFS) could adversely affect our financial results.

The EPA has implemented the RFS pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. The RFS program sets annual ~~quotas~~renewable volume obligation (RVO) requirements for the quantity of renewable fuels, such as 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~~RVO requirements and, to the extent we do not, we must purchase RINs in the open market to satisfy our obligation under the RFS program.

We are exposed to the volatility in the market price of RINs. We cannot predict the future prices of RINs. RINs prices are dependent upon a variety of factors, including EPA regulations, the availability of RINs for purchase, and levels of transportation fuels produced, which can vary significantly from quarter to quarter. If sufficient RINs are unavailable for purchase, if we have to pay a significantly higher price for RINs, or if we are otherwise unable to meet the EPA’s ~~RFS mandates,~~RVO requirements, including because 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.~~fuel for sale in the United States.

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Societal, technological, political and scientific developments around emissions and fuel efficiency may decrease demand for transportation fuels.

Developments aimed at reducing GHG emissions may decrease the demand or increase the cost for our transportation fuels. ~~Attitudes~~Societal attitudes toward these products and their relationship to the environment may significantly affect our effectiveness in marketing our products. Government efforts to steer the public toward non-petroleum-based fuel dependent modes of transportation may foster a negative perception toward transportation fuels or increase costs of our products, thus affecting the public’s attitude toward our major product. Advanced technology and increased use of vehicles that do not use petroleum-based transportation fuels or that are powered by hybrid engines would reduce demand for motor fuel. We may also incur increased production costs, which we may not be able to pass along to our customers.

Additionally, 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.

These developments could potentially have a material adverse effect on our business, financial condition, results of operations and cash flows.

Continuing political and social concerns about the issues of climate change may result in changes to our business and significant expenditures, including litigation-related expenses.

Increasing attention to global climate change has resulted in increased investor attention and an increased risk of public and private litigation, which could increase our costs or otherwise adversely affect our business. For example, shareholder activism has recently been increasing in our industry, and shareholders may attempt to effect changes to our business or governance, whether by shareholder proposals, public campaigns, proxy solicitations or otherwise. Additionally, cities, counties, and other governmental entities in several states in the U.S. began filing lawsuits against energy companies in 2017, including Phillips 66. The lawsuits seek damages allegedly associated with climate change, and the plaintiffs are seeking unspecified damages and abatement under various tort theories. Similar lawsuits may be filed in other jurisdictions. We believe these lawsuits are an inappropriate vehicle to address the challenges associated with climate change and will vigorously defend against them for lacking factual and legal merit. The ultimate outcome and impact to us of any such litigation cannot be predicted with certainty, and we could incur substantial legal costs associated with defending these and similar lawsuits in the future. Additionally, any of these risks could result in unexpected costs, negative sentiments about our company, disruptions in our operations, increases to our operating expenses and reduced demand for our products, which in turn could have an adverse effect on our business, financial condition and results of operations.

Increased concerns regarding plastic waste in the environment, consumers selectively reducing their consumption of plastic products due to recycling concerns, or new or more restrictive regulations and rules related to plastic waste could reduce demand for CPChem’s plastic products and could negatively impact our equity interest.

There is a growing concern with the accumulation of plastic, including microplastics, and other packaging waste in the environment. Additionally, plastics have recently faced increased public backlash and scrutiny. Policy measures to address this concern are being discussed or implemented by governments at all levels. In addition, a host of single-use plastic bans and taxes have been passed by countries around the world and counties and municipalities throughout the U.S. Increased regulation of, or prohibition on, the use of certain plastic products could reduce demand for certain of the products CPChem produces, which could negatively impact its financial condition, results of operations and cash flows, thereby negatively impacting our equity earnings, and cash distributions that we receive, from CPChem.

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Cybersecurity and Data Privacy Risks

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

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 malicious actors or breached due to human error, malfeasance or other disruptions. 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 one or more of the following outcomes: (i) a loss of intellectual property, proprietary information, or employee, customer or vendor data; (ii) public disclosure of sensitive information; (iii) increased costs to prevent, respond to, or mitigate cybersecurity events, such as deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants; (iv) systems interruption; (v) disruption of our business operations; (vi) remediation costs for repairs of system damage; (vii) reputational damage that adversely affects customer or investor confidence; and (viii) damage to our competitiveness, stock price, and long-term stockholder value. Although we have experienced occasional, actual or attempted breaches of our cybersecurity, we do not believe that any of these breaches has had a material effect on our business, operations or financial condition.

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A breach may also result in legal claims or proceedings against us by our shareholders, employees, customers, vendors, and governmental authorities (U.S. and non-U.S.). Our infrastructure protection technologies and disaster recovery plans may not be able to prevent a technology systems breach or systems failure, which could have a material adverse effect on our financial position or results of operations. Furthermore, the continuing and evolving threat of cyberattacks has resulted in increased regulatory focus on prevention. To the extent we face increased regulatory requirements, we may be required to expend significant additional resources to meet such requirements.

Increasing regulatory focus on privacy and cybersecurity issues and expanding laws could expose us to increased liability, subject us to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.

Along with our own data and information collected in the normal course of our business, we and our partners collect and retain certain data that is subject to specific laws and regulations. The transfer and use of this data both domestically and across international borders is becoming increasingly complex. This data is subject to governmental regulation at the federal, state, international, national, provincial and local levels in many areas of our business, including data privacy and security laws such as the European Union (EU) General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA).

The GDPR applies to activities related to personal data that are conducted from an establishment in the EU. As interpretation and enforcement of the GDPR evolves, it creates a range of new compliance obligations, which could cause us to incur additional costs. Failure to comply could result in significant penalties that may materially adversely affect our business, reputation, results of operations, and cash flows.

The CCPA, which came into effect on January 1, 2020, gives California residents specific rights in relation to their personal information, requires that companies take certain actions, including notifications for security incidents and may apply to activities regarding personal information that is collected by us, directly or indirectly, from California residents. As interpretation and enforcement of the CCPA evolves, it creates a range of new compliance obligations, with the possibility for significant financial penalties for noncompliance that may materially adversely affect our business, reputation, results of operations, and cash flows.

The GDPR and CCPA, as well as other data privacy laws that may become applicable to our business, pose increasingly complex compliance challenges and potentially elevate our costs. Any failure by us to comply with these laws and regulations, including as a result of a security or privacy breach, could result in significant penalties and liabilities for us. Additionally, if we acquire a company that has violated or is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result.

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Risks Related to Our Joint Ventures and Our MLP

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~~Marketing and Specialities (M&S) segments, and our entire Chemicals segment, through joint ventures in which we share control with our joint venture partners. Our joint venture partners 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.

One of our subsidiaries acts as the general partner of a publicly traded MLP, Phillips 66 Partners, which may involve a greater exposure to legal liability than our historic business ~~operations.~~operations, including with respect to the pending acquisition by us of all of the publicly held limited partner interests in Phillips 66 Partners (the Merger).

One of our subsidiaries acts as the general partner of Phillips 66 Partners, a publicly traded MLP. 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~~

Additionally, our directors and officers, as well as the directors and officers of the general partner of Phillips 66 Partners, could be subject to lawsuits relating to the Merger. Such litigation is very common in connection with acquisitions of public companies, regardless of the merits related to the underlying acquisition. While we will evaluate and defend against any actions vigorously, the costs of the defense of such ~~claims~~lawsuits and other effects of such litigation could have a material adverse effect on our future business, financial condition, results of operations and cash flows.

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Indebtedness, Capital Markets and Financial Risks

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 cash from our consolidated operations and joint venture distributions, 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.

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Investor sentiment towards climate change, fossil fuels and sustainability could adversely affect our business, ~~and~~ the market price for our common ~~stock.~~stock and our access to capital markets.

There have been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities, and other groups, to promote the divestment ~~of shares~~ of energy companies, as well as to pressure lenders and other financial services companies to limit or curtail activities with energy companies. If these efforts are successful, our stock price and our ability to access capital markets may be negatively impacted.

Members of the investment community are also increasing their focus on sustainability practices, including practices related to GHG and climate change, in the energy industry. As a result, we may face increasing pressure regarding our sustainability disclosures and practices. Additionally, members of the investment community may screen companies such as ours for sustainability performance before investing in our ~~stock.~~stock or participating in our financing activities.

If we are unable to meet the sustainability standards set by these investors, we may lose investors, our stock price may be negatively impacted, our access to capital markets and lenders may be curtailed, and our reputation may be negatively affected.

We do not fully insure against all potential losses, including those from extreme weather events, and, therefore, our business, financial condition, results of operations and cash flows could be adversely affected by unexpected or underinsured liabilities and increased costs.

We maintain insurance coverage in amounts we believe to be prudent, including against many, but not all, potential liabilities arising from operating hazards. Uninsured or underinsured liabilities arising from operating hazards, including but not limited to, explosions, fires, refinery or pipeline releases or other incidents involving our assets or operations, including climate-related weather events, 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.

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Deterioration in our credit profile could increase our costs of borrowing money, 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 Corporation (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 material 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 plans 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.

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We may incur losses as a result of our forward 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.

Continuing Risks Related to Spin-Off from ConocoPhillips

We are subject to continuing contingent liabilities of ConocoPhillips following the separation. Further, ConocoPhillips has indemnified us for certain matters, but may not be able to satisfy its obligations to us in the future.

In connection with our separation from ConocoPhillips, we entered into a Tax Sharing Agreement 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. Additionally, the Tax Sharing Agreement provides that if the separation and certain related transactions fail to qualify as tax-free transactions, we may be responsible for any resulting tax liabilities. Our indemnification obligations under the Tax Sharing Agreement are not subject to any cap and could be significant. We also entered into an Indemnification and Release Agreement and certain other agreements ~~in connection with the separation~~ pursuant to which 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 are not subject to any cap and may be significant. 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. Each of these risks could negatively affect our business, results of operations and financial condition.

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Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 3. LEGAL PROCEEDINGS

Item 103 of Regulation S-K promulgated by the U.S. Securities and Exchange Commission (SEC) requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will be in excess of $300,000. The following matters are disclosed in accordance with that requirement. We do not currently believe that the eventual outcome of any matters reported, individually or in the aggregate, could have a material adverse effect on our 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 EPA, five 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 reporting threshold set forth in SEC rules 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

There are no new matters to report.

Matters Previously Reported (unresolved or resolved since the quarterly report on Form 10-Q for the quarterly period ended September 30, 2021)

On July 2, 2020, the South Coast Air Quality Management District (SCAQMD) issued a demand for penalties totaling $2,697,575. The penalty demand proposes to resolve 26 Notices of Violation (NOVs) issued between 2017 and 2020 for alleged violations of air permit and air pollution regulatory requirements at the Los Angeles Refinery. ~~The company is~~We are working with SCAQMD to resolve these NOVs.

See Note 14—Contingencies and Commitments, in the Notes to Consolidated Financial Statements, for additional information.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

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INFORMATION ABOUT OUR EXECUTIVE OFFICERS


Name	Position Held	Age*

Greg C. Garland	Chairman and Chief Executive Officer	6364
Mark E. Lashier	President and Chief Operating Officer	60
Robert A. Herman	Executive Vice President, Refining	61
~~Paula A. Johnson~~	~~Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary~~	5762
Brian M. Mandell	Executive Vice President, Marketing and Commercial	5758
Kevin J. Mitchell	Executive Vice President, Finance and Chief Financial Officer	5455
Timothy D. Roberts	Executive Vice President, Midstream	5960
~~Chukwuemeka A. Oyolu~~Vanessa L. Allen Sutherland	Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary	50
J. Scott Pruitt	Vice President and Controller	5157

* On February ~~24, 2021.~~18, 2022.

There are no family relationships among any of the executive officers named above or any member of our Board of Directors. 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 has been the Chairman and Chief Executive Officer of Phillips 66 since April 2012. Previously, Mr. Garland 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.

Mark E. Lashier is President and Chief Operating Officer of Phillips 66, a position he has held since April 2021. Previously, Mr. Lashier served as President and Chief Executive Officer of Chevron Phillips Chemical Company LLC from August 2017 to April 2021 after serving as Executive Vice President—Commercial since August 2015.

Robert A. Herman is Executive Vice President, Refining of Phillips 66, a position he has held since September 2017. Previously, Mr. Herman served as Executive Vice President, Midstream from June 2014 to September 2017.

~~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. Ms. Johnson previously served as Executive Vice President, Legal, General Counsel and Corporate Secretary from May 2013 to October 2016.

Brian M. Mandell is Executive Vice President, Marketing and Commercial of Phillips 66, a position he has held since March 2019. Mr. Mandell served as Senior Vice President, Marketing and Commercial from August 2018 to March 2019; Senior Vice President, Commercial from November 2016 to August 2018; and President, Global Marketing from March 2015 to November 2016.

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 Vice President, Investor Relations from September 2014 to January 2016.

Timothy D. Roberts is Executive Vice President, Midstream of Phillips 66, a position he has held since August 2018. Previously, Mr. Roberts served as Executive Vice President, Marketing and Commercial from January 2017 to August 2018 and as Executive Vice President Strategy and Business Development from April 2016 to January 2017.

~~Chukwuemeka A. Oyolu~~Vanessa L. Allen Sutherland is Executive Vice President, Legal and Government Affairs, General Counsel and Corporate Secretary of Phillips 66, a position she has held since January 2022. Ms. Sutherland previously served as Executive Vice President and Chief Legal Officer of Norfolk Southern Corporation from April 2020 to December 2021, Senior Vice President Government Relations and Chief Legal Officer from August 2019 to April 2020, Senior Vice President Law and Chief Legal Officer from April 2019 to August 2019, and Vice President Law from June 2018 to April 2019. Prior to joining Norfolk Southern Corporation, Ms. Sutherland served as Chairman of the U.S. Chemical Safety and Hazard Investigation Board from August 2015 to June 2018.

J. Scott Pruitt is Vice President and Controller of Phillips 66, a position he has held since ~~December 2014.~~August 2021. Mr. ~~Oyolu~~Pruitt previously served as General ~~Manager, Planning~~Auditor from September 2020 to August 2021 and ~~Optimization from February 2014 to December 2014 and General Manager, Finance for Refining, Marketing and Transportation~~Assistant Controller from May 2012 to ~~February 2014.~~

September 2020.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Phillips 66’s common stock is traded on the New York Stock Exchange under the symbol “PSX.” At January ~~29, 2021,~~31, 2022, the number of stockholders of record of our shares was ~~33,565, including Cede & Co. as nominee of the Depository Trust Company.~~31,692.

Performance Graph

The above performance graph represents cumulative total stockholder return, which assumes reinvestment of dividends, of a $100 investment in ~~the Company’s~~our common stock, ~~the company’s~~our self-constructed peer group for the year ended December 31, ~~2020~~2021 (the ~~New Peer Group), the company’s self-constructed peer group for the year ended December 31, 2019 (the Old~~ Peer Group), and the S&P 500 Index, for the five years ended December 31, ~~2020.~~2021. We evaluate our peer group on an annual basis and believe the ~~New~~ Peer Group ~~more~~ closely aligns with ~~the company’s~~our size and lines of business.

The ~~New~~ Peer Group consists of Delek US Holdings, Inc.; Dow Inc.; HollyFrontier Corporation; LyondellBasell Industries N.V.; Magellan Midstream Partners, L.P.; Marathon Petroleum Corporation; MPLX LP; ~~Oneok,~~ONEOK, Inc.; PBF Energy Inc.; Targa Resources Corp.; Valero Energy Corporation; Westlake Chemical Corporation; and The Williams Companies, Inc. Additionally, Andeavor was included as a peer for periods prior to its acquisition by Marathon Petroleum Corporation in October 2018.

The Old Peer Group was composed of 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 Corporation. Additionally, Andeavor was included as a peer for periods prior to its acquisition by Marathon Petroleum Corporation in October 2018.

~~Table of Contents~~

~~Index to Financial Statements~~

Issuer Purchases of Equity Securities
In March 2020, we announced that we had temporarily suspended our share repurchases. As of December 31, ~~2020,~~2021, we had $2,514 million remaining onunder our existing share repurchase authorization, which has no expiration date. During 2020, prior to the temporary suspension, we repurchased an aggregate of $443 million of our common stock in open market repurchases, which equated to 5.4 million shares with a weighted average price per share of $82.23. Any future share repurchases will be made at the discretion of management and will depend on various factors including our share price, results of operations, financial condition and cash required for future business plans.

Item 6. ~~[REMOVED AND RESERVED]~~[RESERVED]

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis is the company’s analysis of its financial performance and financial condition, and of 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.

The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss) attributable to Phillips 66. The terms “results,” “before-tax income” or “before-tax loss” as used in Management’s Discussion and Analysis refer to income (loss) before income taxes.

EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT

Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. At December 31, ~~2020,~~2021, we had total assets of ~~$54.7~~$55.6 billion.

Executive Overview

~~The COVID-19 pandemic continues to disrupt economic activities globally. Actions taken by governments to prevent the spread~~We reported earnings of the disease, including travel and business restrictions, have resulted in substantial decreases in the demand for many refined petroleum products, particularly gasoline and jet fuel. The lack of demand for petroleum products has resulted in low crude oil prices and refining margins. Accordingly, crude oil producers have shut in high cost production, and refiners have reduced crude oil processing rates.

~~During 2020, we took the following significant steps to enhance our liquidity in this challenged margin environment:~~

•~~Issued $3.75 billion of senior unsecured notes and borrowed a net $500 million under a term loan facility.~~

•~~Temporarily suspended our share repurchase program.~~

•~~Reduced consolidated capital spending in 2020 by more than $700 million compared with our original budget.~~

•~~Exceeded our $500 million cost reduction target in 2020.~~

~~In 2020, we reported a loss of $4.0~~$1.3 billion and generated ~~$2.1~~$6.0 billion in cash from operating ~~activities. We~~activities for the full year of 2021. During 2021, we used available cash ~~and the debt financing noted above~~ to fund capital expenditures and investments of ~~$2.9~~$1.9 billion, pay dividends on our common stock of $1.6 billion, and ~~repurchase $0.4~~pay down $1.5 billion ~~of our common stock.~~in debt. We ended ~~2020~~2021 with ~~$2.5~~$3.1 billion of cash and cash equivalents and approximately ~~$5.3~~$5.7 billion of total committed capacity available under our credit facilities.

Our ~~results in 2020~~reported earnings for 2021 continued to reflect the ~~adverse effects~~ongoing impacts of the disruption to global economic activities caused by the Coronavirus Disease 2019 (COVID-19) pandemic, primarily on our Refining segment. However, through 2021 global refined petroleum product demand steadily recovered due to the easing of pandemic restrictions and the administration of COVID-19 vaccines. Consequently, margins and utilization for our Refining segment, margins and sales volumes for our Marketing and Specialities (M&S) segment, and throughput volumes for our Transportation business improved. In addition, equity earnings from our Chemicals segment increased significantly due to higher margins driven by strong demand and tight product supply. However, as uncertainty remains regarding the ongoing impact of the pandemic ~~including asset and investment impairments. These adverse effects may~~on the global economy, we will continue to be ~~significant~~disciplined in our allocation of capital and monitor the ~~near term. The depth and duration~~performance of ~~the economic consequences of the COVID-19 pandemic remain unknown. We continuously monitor~~ our ~~asset and investment portfolio for impairments, as well as optimization opportunities, in this challenging business environment. As such, additional impairments may be required in the future.~~portfolio.

In 2021, we progressed strategic initiatives to position Phillips 66 for a lower-carbon future as a part of our commitment to play an important role in addressing climate change. In September 2021, we announced a set of company-wide greenhouse gas (GHG) emission intensity reduction targets that we consider to be impactful, attainable and measurable. By 2030, we expect to reduce GHG emission intensity by 30% for Scope 1 and 2 emissions from our operations and by 15% for Scope 3 emissions from our energy products, below 2019 levels. Also in September 2021, we acquired a 16% interest in NOVONIX Limited (NOVONIX), a company that develops technology and supplies materials for lithium-ion batteries.

In October 2021, we entered into a definitive merger agreement with Phillips 66 Partners to acquire all of the limited partner interests in Phillips 66 Partners not already owned by us on the closing date of the transaction. The agreement provides for an all-stock transaction in which each outstanding Phillips 66 Partners common unitholder would receive 0.50 shares of Phillips 66 common stock for each Phillips 66 Partners common unit. Phillips 66 Partners’ perpetual convertible preferred units would be converted into common units at a premium to the original issuance price prior to exchange for Phillips 66 common stock. This merger is expected to close in March 2022, subject to customary closing conditions. Upon closing, Phillips 66 Partners will become a wholly owned subsidiary of Phillips 66 and will no longer be a publicly traded partnership. See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the pending merger transaction.

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Index to Financial Statements

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. In ~~2020,~~2021, we achieved a ~~0.11~~0.12 total recordable ~~incident rate—the lowest since our inception.~~rate. 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.~~costs and assesses opportunities for permanent cost reductions. We are committed to protecting the environment and strive to reduce our environmental footprint throughout our operations. Optimizing utilization rates and product yield 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 ~~2020,~~2021, our worldwide refining crude oil capacity utilization rate was ~~76%, mainly driven by the decrease in market demand for refined petroleum products due to negative impacts from the COVID-19 pandemic.~~84% and our worldwide refining clean product yield was 83%.

•Growth. A disciplined capital allocation process ensures we invest in projects that are expected to generate competitive returns. Our strategy primarily focuses on investing in returns-focused growth opportunities in the Midstream and Chemicals segments. In response to the challenging market conditions caused by the COVID-19 pandemic, we reduced our 2021 capital budget to $1.7 billion. We are prioritizing sustaining capital spending and completion of in-progress growth projects,segments, as well as ~~advancing~~ our investments in renewable ~~fuels.~~fuels projects to advance a lower-carbon future. In ~~the third quarter of 2020, we announced Rodeo Renewed, a project to reconfigure our San Francisco Refinery in Rodeo, California, to produce renewable fuels. In 2021,~~2022, we have budgeted ~~$615~~$426 million in growth capital for our Midstream capital expenditures and investments, including $305 million for Phillips 66 Partners. Capital will be used to complete near-term committed and optimization projects and to maintain our integrated logistics infrastructure network.segment, which includes construction completion of Frac 4 at the Sweeny Hub. In Chemicals, our share of expected self-funded growth capital spending by ~~CPChem~~Chevron Phillips Chemical Company LLC (CPChem) is ~~$410~~$502 million. CPChem plans to use its growth capital to fund expansion of its normal alpha olefins production, optimization and debottleneck opportunities in the olefins and polyolefins chains, as well as continuing development of ~~petrochemical~~petrochemicals projects onin the U.S. Gulf Coast and Qatar. In Refining, we have budgeted $408 million of growth capital, primarily for the reconfiguration of the San Francisco Refinery in ~~Qatar. We recently formed an Emerging Energy organization. This group is charged with establishing~~Rodeo, California, to a ~~lower-carbon business platform that delivers attractive returns. It will focus on opportunities within our portfolio, such~~renewable fuels production facility, as part of the Rodeo Renewed ~~as well as commercializing emerging energy technologies for a sustainable future.~~project.

•Returns. We plan to enhance Refining returns by increasing throughput of advantaged feedstocks, improving yields, optimizing our portfolio, ~~optimization~~ and ~~an ongoing commitment~~remaining committed to operating excellence. For 2021, 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, as well as investments to competitively position the company for a lower-carbon future.2022, our M&S segment will continue to develop and enhance our retail network, ~~and brands in the United States and Europe.~~including energy transition opportunities.

•Distributions. We believe shareholder value is enhanced through, among other things, ~~consistent growth of regular dividends,~~a secure, competitive and growing dividend, complemented by share repurchases. In the fourth quarter of 2021, we increased our quarterly dividend by 2% to $0.92 per common share. 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 2020, despite the challenging business environment, we maintained stable quarterly dividend distributions to shareholders and repurchased $443 million of common stock before suspending~~We suspended our share repurchase program in March 2020 to preserve liquidity. As operating cash flows improve further, we will prioritize shareholder returns and debt repayment.

•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 promoting an inclusive workplace that enables our diverse workforce to innovate, create value and deliver extraordinary performance. We also focus on getting results in the right way ~~embrace~~and embracing our values as a common bond, and we 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.

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Business Environment

The Midstream segment includes our Transportation and NGL businesses. Our Transportation business contains fee-based operations ~~that are~~ not directly exposed to commodity price risk. Our NGL business contains both fee-based operations and operations ~~that are~~ directly impacted by NGL prices. The Midstream segment also includes our 50% equity investment in DCP Midstream. During 2021, NGL prices ~~were~~increased significantly, ~~lower in 2020,~~ compared with ~~2019,~~2020, due to ~~negative~~strong demand as economic ~~impacts caused by~~activities gradually recovered following the administration of COVID-19 ~~pandemic.~~vaccines and the easing of pandemic restrictions.

The Chemicals segment consists of our 50% 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. Compared with ~~2019,~~2020, the benchmark high-density polyethylene chain margin ~~was lower~~increased significantly in ~~the first three quarters of 2020, before rebounding strongly in the fourth quarter of 2020. The lower margin in the first three quarters of 2020 was mainly~~2021, due to ~~lower polyethylene sales prices. The significant margin increase in the fourth quarter of 2020 was primarily driven by~~continued strong demand and tight ~~supply caused by hurricane impacts in the Gulf Coast region and a strong global market demand.~~supply.

Our Refining segment results are driven by several factors, including ~~refining margins,~~market crack spreads, refinery throughput, feedstock costs, product yields, turnaround activity, and other operating costs. The price of U.S. benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, ~~decreased~~increased to an average of $67.96 per barrel during 2021, compared with an average of $39.31 per barrel ~~during 2020, compared with an average of $57.02 per barrel~~ in ~~2019, due to a significant decline in global demand driven by the adverse impacts of the COVID-19 pandemic.~~2020. Market crack spreads are used as indicators of refining margins and measure the difference between market prices for refined petroleum products and crude oil. ~~During 2020, the worldwide~~Worldwide market crack spreads increased to an average of $17.09 per barrel during 2021, compared with an average of $8.33 per barrel in 2020. The increases in crude oil prices and market crack spreads were ~~significantly lower compared with 2019, mainly~~primarily driven by a ~~sharp decline~~significant increase in demand for refined petroleum products, ~~resulting from~~as economic activities gradually recovered following the administration of COVID-19 ~~global pandemic.~~vaccines and the easing of pandemic restrictions, as well as tightening supply. In 2021, renewable identification number (RIN) prices increased significantly, compared with 2020.

Results for our M&S segment depend largely on marketing fuel and lubricant margins, and sales volumes of our refined petroleum and other specialty products. While ~~M&S~~marketing fuel and lubricant 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~~trends in spot prices, and where applicable, retail prices for refined petroleum ~~products. Generally speaking,~~products in the regions and countries where we operate. In general, 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. The global disruption caused by the COVID-19 pandemic ~~significantly~~resulted in reduced demand for ~~our~~ refined petroleum and specialty products since March 2020. Following the administration of COVID-19 vaccines in ~~2020~~2021 and the easing of pandemic restrictions, demand for refined petroleum and specialty products improved in 2021, compared with ~~2019.~~2020.

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RESULTS OF OPERATIONS

Consolidated Results

A summary of income (loss) before income taxes by business segment with a reconciliation to net income (loss) attributable to Phillips 66 follows:


		Millions of Dollars					Millions of Dollars
		Year Ended December 31					Year Ended December 31
		2020		2019	2018		2021		2020	2019

Midstream	Midstream	$	(9)	684	1,181	Midstream	$	1,610	(9)	684
Chemicals	Chemicals	635		879	1,025	Chemicals	1,844		635	879
Refining	Refining	(6,155)		1,986	4,535	Refining	(2,549)		(6,155)	1,986
Marketing and Specialties	Marketing and Specialties	1,446		1,433	1,557	Marketing and Specialties	1,809		1,446	1,433
Corporate and Other	Corporate and Other	(881)		(804)	(853)	Corporate and Other	(974)		(881)	(804)
Income (loss) before income taxes	Income (loss) before income taxes	(4,964)		4,178	7,445	Income (loss) before income taxes	1,740		(4,964)	4,178
Income tax expense (benefit)	Income tax expense (benefit)	(1,250)		801	1,572	Income tax expense (benefit)	146		(1,250)	801
Net income (loss)	Net income (loss)	(3,714)		3,377	5,873	Net income (loss)	1,594		(3,714)	3,377
Less: net income attributable to noncontrolling interests	Less: net income attributable to noncontrolling interests	261		301	278	Less: net income attributable to noncontrolling interests	277		261	301
Net income (loss) attributable to Phillips 66	Net income (loss) attributable to Phillips 66	$	(3,975)	3,076	5,595	Net income (loss) attributable to Phillips 66	$	1,317	(3,975)	3,076

2021 vs. 2020

Net income attributable to Phillips 66 for the year ended December 31, 2021, was $1,317 million, compared with a net loss attributable to Phillips 66 of $3,975 million for the year ended December 31, 2020. The improvement was primarily due to lower impairments, improved realized refining margins and higher equity earnings from CPChem, partially offset by income tax impacts from improved results.

2020 vs. 2019

~~Our results decreased $7,051~~Net loss attributable to Phillips 66 for the year ended December 31, 2020, was $3,975 million, ~~in 2020,~~compared with net income attributable to Phillips 66 of $3,076 million for the year ended December 31, 2019. The decrease was mainly ~~reflecting:~~attributable to:

•Lower realized refining margins and decreased refinery production.

•A goodwill impairment in our Refining segment.

•A long-lived asset impairment associated with our plan to reconfigure the San Francisco Refinery into a renewable fuels production facility, which impacted our Refining and Midstream segments.

•Higher impairments of equity investments in our Midstream segment.

These decreases were partially offset by an income tax benefit recognized in 2020, compared with income tax expense recognized in 2019.

~~2019 vs. 2018~~

~~Our earnings decreased $2,519 million~~See Note 9—Impairments, and Note 16—Fair Value Measurements, in ~~2019, mainly reflecting:~~

•~~Lower realized refining~~the Notes to Consolidated Financial Statements, for information on impairments recorded in 2021, 2020 and ~~marketing margins.~~

•~~Impairments associated with our equity 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.~~2019.

See the “Segment Results” section for additional information on our segment results.

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Statement of Operations Analysis

2021 vs. 2020

Sales and other operating revenues and purchased crude oil and products increased 74% and 77%, respectively, in 2021. These increases were mainly due to higher prices for refined petroleum products, crude oil and NGL, as well as increased volumes for refined petroleum products and crude oil.

Equity in earnings of affiliates increased $1,713 million in 2021. The increase was primarily due to higher equity earnings from CPChem mainly driven by increased margins, WRB Refining LP (WRB) resulting from improved realized refining margins and higher refinery production, and Excel Paralubes LLC (Excel) attributable to higher base oil margins. See Chemicals segment analysis in the “Segment Results” section for additional information on CPChem.

Net gain on dispositions decreased 83% in 2021, mainly reflecting a before-tax gain of $84 million recognized in the second quarter of 2020 associated with a co-venturer’s acquisition of an ownership interest in the consolidated holding company that owns an interest in Gray Oak Pipeline, LLC. See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information.

Other income increased $388 million in 2021, primarily driven by an unrealized gain of $365 million related to the change in fair value of our investment in NOVONIX, which we acquired in the third quarter of 2021.

Operating expenses increased 13% in 2021, mainly attributable to higher utility costs driven by increased commodity prices, higher employee-related expenses, and increased maintenance and repair costs.

Selling, general and administrative expenses increased 13% in 2021, primarily driven by higher selling expenses due to rising refined petroleum product prices and demand, increased employee-related expenses, and a benefit received from a legal settlement in the first quarter of 2020.

Depreciation and amortization increased 15% in 2021, mainly due to asset retirements related to the shutdown of our Alliance Refinery in connection with plans to convert it to a terminal. See Note 7—Properties, Plants and Equipment, in the Notes to Consolidated Financial Statements, for additional information regarding asset retirements related to our Alliance Refinery.

Impairments decreased 65% in 2021. See Note 9—Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding impairments.

Taxes other than income taxes decreased 12% in 2021, primarily driven by tax credits received from renewable diesel blending activity at our San Francisco Refinery in 2021, and lower property and franchise taxes.

Interest and debt expense increased 16% in 2021, primarily driven by lower capitalized interest due to the completion of capital projects and the placement of assets into service, as well as higher average debt principal balances resulting from new debt issuances in the second and fourth quarters of 2020.

We had income tax expense of $146 million in 2021, compared with an income tax benefit of $1,250 million in 2020, primarily due to before-tax income in 2021 versus a before-tax loss in 2020. See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for more information regarding our income taxes.

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2020 vs. 2019

Sales and other operating revenues and purchased crude oil and products both decreased 40% in 2020. The decreases were mainly due to lower prices and volumes for refined petroleum products and crude oil, reflecting the impact of the COVID-19 pandemic.

Equity in earnings of affiliates decreased 44% in 2020. The decrease was primarily due to lower realized refining margins and decreased refinery production at WRB, and lower margins, partially offset by higher sales volumes, at CPChem. See Chemicals segment analysis in the “Segment Results” section for additional information on CPChem.

Net gain on dispositions increased $88 million in 2020. The increase was mainly due to a gain of $84 million associated with a co-venturer’s prior-year acquisition of a 35% interest in Phillips 66 Partners’ consolidated holding company that owns an interest in Gray Oak Pipeline, LLC. See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information.

Operating expenses decreased 10% in 2020, primarily driven by our company-wide cost reduction initiatives in response to the COVID-19 pandemic, lower utility costs, and decreased refinery turnaround activities.

Impairments increased $3,391 million in 2020. See Note 9—Impairments, and Note 16—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information associated with impairments.

We had an income tax benefit of $1,250 million in 2020, compared with income tax expense of $801 million in 2019, primarily due to a ~~net~~before-tax loss in 2020 versus ~~net~~before-tax income in 2019. See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for more information regarding our income taxes.

~~2019 vs. 2018~~

~~Sales and other operating revenues~~ ~~and~~ ~~purchased crude oil and products~~ ~~decreased 4% and 2%, respectively, in 2019. The decreases were mainly driven by lower prices for refined petroleum products, crude oil and NGL.~~

~~Equity in earnings of affiliates~~ decreased 21% in 2019. The decrease was mainly due to lower margins at WRB and CPChem, partially offset by improved results from our Transportation and NGL joint venture assets. Lower equity earnings in 2019 also reflected higher goodwill and other asset impairments at DCP Midstream. See the “Segment Results” section for additional information.

~~Other income~~ increased $58 million in 2019. The increase was mainly driven by trading activities not directly related to our physical business. See Note 15—Derivatives and Financial Instruments, in the Notes to Consolidated Financial Statements, for additional information associated with our commodity derivatives.

~~Impairments~~ increased $853 million in 2019. The increase was driven by an $853 million before-tax impairment associated with our investment in DCP Midstream recognized in the third quarter of 2019. See Note 9—Impairments, and Note 16—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information associated with this impairment.

~~Income tax expense (benefit)~~ decreased 49% in 2019. The decrease in income tax expense was 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.

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Segment Results

Midstream


		Year Ended December 31					Year Ended December 31
		2020		2019	2018		2021		2020	2019
		Millions of Dollars					Millions of Dollars
Income (Loss) Before Income Taxes	Income (Loss) Before Income Taxes					Income (Loss) Before Income Taxes
Transportation	Transportation	$	508	946	770	Transportation	$	678	508	946
NGL and Other	NGL and Other	441		522	305	NGL and Other	747		441	522
DCP Midstream	DCP Midstream	(958)		(784)	106	DCP Midstream	185		(958)	(784)
Total Midstream	Total Midstream	$	(9)	684	1,181	Total Midstream	$	1,610	(9)	684


		Thousands of Barrels Daily				Thousands of Barrels Daily
Transportation Volumes	Transportation Volumes				Transportation Volumes
Pipelines*	Pipelines*	3,005	3,396	3,441	Pipelines*	3,271	3,005	3,396
Terminals	Terminals	2,971	3,315	3,153	Terminals	2,790	2,971	3,315
Operating Statistics	Operating Statistics				Operating Statistics
NGL fractionated**	NGL fractionated**	249	224	216	NGL fractionated**	410	249	224
NGL extracted***	NGL extracted***	399	417	413	NGL extracted***	394	399	417

* Pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment.

** Excludes DCP Midstream.

*** Includes 100% of DCP Midstream’s volumes.


	Dollars Per Gallon					Dollars Per Gallon
Weighted-Average NGL Price*
DCP Midstream	$	0.41	0.51	0.75
Market Indicator					Market Indicator
Weighted-Average NGL Price*					Weighted-Average NGL Price*	$	0.83	0.41	0.51

* Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component mix.

The Midstream segment provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and NGL transportation, storage, fractionation, processing and marketing services, mainly in the United States. This segment includes our MLP, Phillips 66 Partners, ~~as well as~~ our 50% equity investment in DCP Midstream, which includes the operations of its MLP, DCP ~~Partners.~~Partners, and our 16% investment in NOVONIX.

2021 vs. 2020

Results from our Midstream segment increased $1,619 million in 2021, compared with 2020.

Results from our Transportation business increased $170 million in 2021, compared with 2020. The increase was primarily due to improved earnings from our equity affiliates, lower asset impairments, and increased pipeline volumes and tariffs. These increases were partially offset by a before-tax gain of $84 million recognized in the second quarter of 2020 associated with a co-venturer’s acquisition of an ownership interest in the consolidated holding company that owns an interest in Gray Oak Pipeline, LLC, and increased depreciation and amortization expense from asset retirements related to the shutdown of the Alliance Refinery in the fourth quarter of 2021.

Results from our NGL and Other business increased $306 million in 2021, compared with 2020. The increase in 2021 was primarily driven by a $370 million increase in the value of our investment in NOVONIX, which we acquired in the third quarter of 2021, partially offset by higher utility costs due to increased natural gas prices.

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Index to Financial Statements

Results from our investment in DCP Midstream increased $1,143 million in 2021, compared with 2020. The increase in 2021 reflects a $1,161 million before-tax impairment of our investment in DCP Midstream recorded in the first quarter of 2020.

See Note 9—Impairments, and Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding the impairments and the $84 million before-tax gain, respectively.

See the “Executive Overview and Business Environment” section for information on market factors impacting 2021 results.

2020 vs. 2019

Midstream’s results decreased $693 million in 2020, compared with 2019.

Results from our Transportation business decreased $438 million in 2020, compared with 2019. The decrease was primarily attributable to before-tax impairments of $300 million, decreased equity earnings, lower pipeline and terminal throughput volumes, and higher operating costs, partially offset by an $84 million before-tax gain recognized in the second quarter of 2020 associated with the Gray Oak Pipeline joint venture.

The $300 million before-tax impairments consisted of a $120 million impairment of the pipeline and terminal assets associated with the planned reconfiguration of our San Francisco Refinery into a renewable fuels production facility, a $96 million impairment of Phillips 66 Partners’ equity investments in two crude oil logistics joint ventures, and an $84 million impairment of our equity investment in the canceled Red Oak Pipeline project.

~~Table of Contents~~

~~Index to Financial Statements~~

Results from our NGL and Other business decreased $81 million in 2020, compared with 2019. The decrease was mainly due to lower results from our trading activities and decreased margins, partially offset by higher export cargos and increased fractionation volumes from the startup of Frac 2 and Frac 3 in late 2020, as well as the startup of a new isomerization unit at our Lake Charles Refinery in the second half of 2019.

Results from our investment in DCP Midstream decreased $174 million in 2020, compared with 2019. The decrease was primarily due to higher impairment charges, partially offset by the recognition of a larger benefit to our equity earnings from the amortization of the basis difference associated with the impairments and DCP Midstream’s cost reduction initiatives in response to the challenging business environment. See Note 6—Investments, Loans and Long-Term Receivables, and Note 9—Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding the impairments and the associated basis difference amortization related to our investment in DCP Midstream.

~~See the “Executive Overview and Business Environment” section for information on market factors impacting 2020 results.~~

~~2019 vs. 2018~~

Before-tax income from the Midstream segment decreased $497 million in 2019, compared with 2018, mainly driven by an $853 million before-tax impairment associated with our investment in DCP Midstream and lower equity earnings from DCP Midstream, partially offset by improved results from our Transportation and NGL and Other businesses.

Before-tax income from our Transportation business increased $176 million in 2019, compared with 2018. The increase was mainly driven by higher volumes and pipeline tariffs from our portfolio of consolidated and joint venture assets.

Before-tax income from our NGL and Other business increased $217 million in 2019, compared with 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.

Before-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 before-tax impairment associated with our investment in DCP Midstream and lower equity earnings driven by higher goodwill and other asset impairments at DCP Partners in 2019. See Note 6—Investments, Loans and Long-Term Receivables, Note 9—Impairments, and Note 16—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding our investment in DCP Midstream.

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Chemicals


		Year Ended December 31						Year Ended December 31
		2020			2019	2018		2021			2020	2019
		Millions of Dollars						Millions of Dollars

Income Before Income Taxes	Income Before Income Taxes	$	635		879	1,025	Income Before Income Taxes	$	1,844		635	879

		Millions of Pounds						Millions of Pounds
CPChem Externally Marketed Sales Volumes*	CPChem Externally Marketed Sales Volumes*						CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins	Olefins and Polyolefins	20,993			20,237	18,977	Olefins and Polyolefins	19,332			20,993	20,237
Specialties, Aromatics and Styrenics	Specialties, Aromatics and Styrenics	4,367			4,281	4,931	Specialties, Aromatics and Styrenics	4,735			4,367	4,281
		25,360			24,518	23,908		24,067			25,360	24,518
* 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.						* 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)	Olefins and Polyolefins Capacity Utilization (percent)	99		%	97	94	Olefins and Polyolefins Capacity Utilization (percent)	95		%	99	97

The Chemicals segment consists of our 50% 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 lines: Olefins and Polyolefins (O&P) and Specialties, Aromatics and Styrenics (SA&S). The O&P business line 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 line manufactures and markets aromatics and styrenics products, such as benzene, cyclohexane, styrene and polystyrene. SA&S also manufactures and/or markets a variety of specialty chemical products. Unless otherwise noted, amounts referenced below reflect our net 50% interest in CPChem.

2021 vs. 2020

Before-tax income from the Chemicals segment increased $1,209 million in 2021, compared with 2020. The increase was primarily due to improved margins driven by increased sale prices reflecting strong demand and tight supply, partially offset by higher utility, turnaround, maintenance and repair costs.

See the “Executive Overview and Business Environment” section for information on market factors impacting CPChem’s 2021 results.

2020 vs. 2019

Before-tax income from the Chemicals segment decreased $244 million in 2020, compared with 2019. The decrease was mainly due to lower margins and decreased earnings from CPChem’s equity affiliates, partially offset by higher sales volumes and a favorable impact from lower-of-cost-or-market adjustments of inventories valued on the last-in-first-out (LIFO) basis attributable to petrochemical product price recovery in 2020.

~~See the “Executive Overview and Business Environment” section for information on market factors impacting CPChem’s 2020 results.~~

~~2019 vs. 2018~~

Before-tax income from the Chemicals segment decreased $146 million in 2019, compared with 2018. The decrease was mainly due to lower polyethylene 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, before-tax. The decreases were partially offset by higher polyethylene sales volumes and lower turnaround and maintenance activity during 2019.

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Refining


		Year Ended December 31					Year Ended December 31
		2020		2019	2018		2021		2020	2019
		Millions of Dollars					Millions of Dollars
Income (Loss) Before Income Taxes	Income (Loss) Before Income Taxes					Income (Loss) Before Income Taxes
Atlantic Basin/Europe	Atlantic Basin/Europe	$	(1,224)	608	567	Atlantic Basin/Europe	$	(36)	(1,224)	608
Gulf Coast	Gulf Coast	(2,077)		364	1,040	Gulf Coast	(1,889)		(2,077)	364
Central Corridor	Central Corridor	(641)		1,338	2,817	Central Corridor	70		(641)	1,338
West Coast	West Coast	(2,213)		(324)	111	West Coast	(694)		(2,213)	(324)
Worldwide	Worldwide	$	(6,155)	1,986	4,535	Worldwide	$	(2,549)	(6,155)	1,986

		Dollars Per Barrel					Dollars Per Barrel
Income (Loss) Before Income Taxes	Income (Loss) Before Income Taxes					Income (Loss) Before Income Taxes
Atlantic Basin/Europe	Atlantic Basin/Europe	$	(7.18)	3.11	3.05	Atlantic Basin/Europe	$	(0.19)	(7.18)	3.11
Gulf Coast	Gulf Coast	(9.71)		1.24	3.55	Gulf Coast	(7.84)		(9.71)	1.24
Central Corridor	Central Corridor	(6.96)		12.95	26.50	Central Corridor	0.73		(6.96)	12.95
West Coast	West Coast	(20.01)		(2.49)	0.81	West Coast	(6.14)		(20.01)	(2.49)
Worldwide	Worldwide	(10.48)		2.75	6.29	Worldwide	(3.99)		(10.48)	2.75

Realized Refining Margins*	Realized Refining Margins*					Realized Refining Margins*
Atlantic Basin/Europe	Atlantic Basin/Europe	$	2.17	9.33	10.32	Atlantic Basin/Europe	$	7.48	2.17	9.33
Gulf Coast	Gulf Coast	1.85		7.42	9.48	Gulf Coast	4.92		1.85	7.42
Central Corridor	Central Corridor	7.17		14.91	22.22	Central Corridor	9.65		7.17	14.91
West Coast	West Coast	3.43		9.18	11.20	West Coast	7.49		3.43	9.18
Worldwide	Worldwide	3.51		9.91	12.99	Worldwide	7.15		3.51	9.91

* See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable measure under generally accepted accounting principles in the United States (GAAP), income (loss) before income taxes per barrel.

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		Thousands of Barrels Daily					Thousands of Barrels Daily
		Year Ended December 31					Year Ended December 31
		2020		2019	2018		2021		2020	2019
Operating Statistics	Operating Statistics					Operating Statistics
Refining operations*	Refining operations*					Refining operations*
Atlantic Basin/Europe	Atlantic Basin/Europe					Atlantic Basin/Europe
Crude oil capacity	Crude oil capacity	537		537	537	Crude oil capacity	537		537	537
Crude oil processed	Crude oil processed	434		497	477	Crude oil processed	479		434	497
Capacity utilization (percent)	Capacity utilization (percent)	81	%	92	89	Capacity utilization (percent)	89	%	81	92
Refinery production	Refinery production	470		541	514	Refinery production	522		470	541
Gulf Coast
Gulf Coast**						Gulf Coast**
Crude oil capacity	Crude oil capacity	769		764	752	Crude oil capacity	720		769	764
Crude oil processed	Crude oil processed	533		725	717	Crude oil processed	592		533	725
Capacity utilization (percent)	Capacity utilization (percent)	69	%	95	95	Capacity utilization (percent)	82	%	69	95
Refinery production	Refinery production	586		804	808	Refinery production	662		586	804
Central Corridor	Central Corridor					Central Corridor
Crude oil capacity	Crude oil capacity	530		515	493	Crude oil capacity	531		530	515
Crude oil processed	Crude oil processed	431		498	507	Crude oil processed	461		431	498
Capacity utilization (percent)	Capacity utilization (percent)	81	%	97	103	Capacity utilization (percent)	87	%	81	97
Refinery production	Refinery production	446		518	530	Refinery production	476		446	518
West Coast	West Coast					West Coast
Crude oil capacity	Crude oil capacity	364		364	364	Crude oil capacity	364		364	364
Crude oil processed	Crude oil processed	279		323	343	Crude oil processed	284		279	323
Capacity utilization (percent)	Capacity utilization (percent)	77	%	89	94	Capacity utilization (percent)	78	%	77	89
Refinery production	Refinery production	301		354	373	Refinery production	308		301	354
Worldwide	Worldwide					Worldwide
Crude oil capacity	Crude oil capacity	2,200		2,180	2,146	Crude oil capacity	2,152		2,200	2,180
Crude oil processed	Crude oil processed	1,677		2,043	2,044	Crude oil processed	1,816		1,677	2,043
Capacity utilization (percent)	Capacity utilization (percent)	76	%	94	95	Capacity utilization (percent)	84	%	76	94
Refinery production	Refinery production	1,803		2,217	2,225	Refinery production	1,968		1,803	2,217
* Includes our share of equity affiliates.	* Includes our share of equity affiliates.					* Includes our share of equity affiliates.
** Excludes operating statistics of the Alliance Refinery beginning on October 1, 2021.						** Excludes operating statistics of the Alliance Refinery beginning on October 1, 2021.

The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, at 1312 refineries in the United States and Europe. Our Alliance Refinery sustained significant impacts from Hurricane Ida in August 2021, and in the fourth quarter of 2021, we announced the shutdown of the refinery in connection with plans to convert it to a terminal.

2021 vs. 2020

Results from the Refining segment increased $3,606 million in 2021, compared with 2020. The improved results in 2021 were primarily due to higher realized refining margins and lower asset impairments, partially offset by increased utility expenses and higher costs related to the shutdown of our Alliance Refinery. The improved realized refining margins in 2021 were mainly attributable to increased market crack spreads, partially offset by higher RIN costs, lower clean product differentials and decreased secondary products margins.

Our worldwide refining crude oil capacity utilization rate was 84% and 76% in 2021 and 2020, respectively. The increase in 2021 was primarily driven by improved market demand for refined petroleum products following the administration of COVID-19 vaccines and the easing of pandemic restrictions.

See Note 9—Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding impairments recorded in our Refining segment during 2021 and 2020.

See the “Executive Overview and Business Environment” section for information on industry crack spreads and other market factors impacting this year’s results.

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Index to Financial Statements

2020 vs. 2019

Results from the Refining segment decreased $8,141 million in 2020, compared with 2019. The decreased results in 2020 were due to:

•Lower realized refining margins and decreased refinery production. A sharp decline in demand for refined petroleum products resulting from global economic disruption caused by the COVID-19 pandemic led to lower market crack spreads and reduced refinery production in 2020. In addition, hurricane impacts contributed to the lower refinery production in the Gulf Coast region in 2020.

•A before-tax long-lived asset impairment of $910 million in the third quarter of 2020 associated with our plan to reconfigure the San Francisco Refinery into a renewable fuels production facility.

•A before-tax goodwill impairment of $1,845 million in the first quarter of 2020.

~~Table of Contents~~

~~Index to Financial Statements~~

Our worldwide refining crude oil capacity utilization rate was 76% and 94% in 2020 and 2019, respectively. The lower utilization rate in 2020 was primarily due to reduced refining runs driven by lower demand for refined petroleum products as a result of the COVID-19 pandemic, as well as hurricane impacts in the Gulf Coast region.

See Note 9—Impairments, in the ~~“Executive Overview and Business Environment” section~~Notes to Consolidated Financial Statements, for additional information ~~on industry crack spreads and other market factors impacting this year’s results.~~regarding impairments recorded in our Refining segment during 2020.

~~2019 vs. 2018~~

Before-tax income for the Refining segment decreased $2,549 million in 2019, compared with 2018. The decrease 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 lower feedstock advantage driven by narrowing heavy crude differentials.

~~Our worldwide refining crude oil capacity utilization rate was 94% and 95% in 2019 and 2018, respectively.~~

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Marketing and Specialties


		Year Ended December 31					Year Ended December 31
		2020		2019	2018		2021		2020	2019
		Millions of Dollars					Millions of Dollars
Income Before Income Taxes	Income Before Income Taxes					Income Before Income Taxes
Marketing and Other	Marketing and Other	$	1,271	1,199	1,306	Marketing and Other	$	1,453	1,271	1,199
Specialties	Specialties	175		234	251	Specialties	356		175	234
Total Marketing and Specialties	Total Marketing and Specialties	$	1,446	1,433	1,557	Total Marketing and Specialties	$	1,809	1,446	1,433

		Dollars Per Barrel					Dollars Per Barrel
Income Before Income Taxes	Income Before Income Taxes					Income Before Income Taxes
U.S.	U.S.	$	1.42	1.22	1.21	U.S.	$	1.74	1.42	1.22
International	International	4.84		3.58	5.00	International	4.13		4.84	3.58

Realized Marketing Fuel Margins*	Realized Marketing Fuel Margins*					Realized Marketing Fuel Margins*
U.S.	U.S.	$	1.87	1.57	1.62	U.S.	$	2.19	1.87	1.57
International	International	6.34		4.90	6.87	International	5.96		6.34	4.90
* 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.					* 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*	U.S. Average Wholesale Prices*					U.S. Average Wholesale Prices*
Gasoline	Gasoline	$	1.56	2.12	2.20	Gasoline	$	2.46	1.56	2.12
Distillates	Distillates	1.47		2.12	2.29	Distillates	2.36		1.47	2.12
* On third-party branded refined petroleum product sales, excluding excise taxes.	* On third-party branded refined petroleum product sales, excluding excise taxes.					* On third-party branded refined petroleum product sales, excluding excise taxes.

		Thousands of Barrels Daily					Thousands of Barrels Daily
Marketing Refined Petroleum Product Sales	Marketing Refined Petroleum Product Sales					Marketing Refined Petroleum Product Sales
Gasoline	Gasoline	1,021		1,230	1,195	Gasoline	1,154		1,021	1,230
Distillates	Distillates	895		1,104	975	Distillates	959		895	1,104
Other	Other	17		18	18	Other	17		17	18
		1,933		2,352	2,188		2,130		1,933	2,352

The M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable 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.

2021 vs. 2020

Before-tax income from the M&S segment increased $363 million in 2021, compared with 2020. The increase in 2021 was primarily driven by higher realized U.S. marketing fuel margins and increased equity earnings from Excel due to improved base oil margins, partially offset by lower realized international marketing fuel margins.

See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting 2021 results.

2020 vs. 2019

Before-tax income from the M&S segment increased $13 million in 2020, compared with 2019. The increase was primarily attributable to higher realized marketing fuel margins, partially offset by lower sales volumes for refined petroleum and specialty products driven by decreased demand.

~~See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting 2020 results.~~

~~2019 vs. 2018~~

Before-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.

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Corporate and Other


		Millions of Dollars					Millions of Dollars
		Year Ended December 31					Year Ended December 31
		2020		2019	2018		2021		2020	2019
Loss Before Income Taxes	Loss Before Income Taxes					Loss Before Income Taxes
Net interest expense	Net interest expense	$	(485)	(415)	(459)	Net interest expense	$	(583)	(485)	(415)
Corporate overhead and other	Corporate overhead and other	(396)		(389)	(394)	Corporate overhead and other	(391)		(396)	(389)

Total Corporate and Other	Total Corporate and Other	$	(881)	(804)	(853)	Total Corporate and Other	$	(974)	(881)	(804)

Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. 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.

2021 vs. 2020

Net interest expense increased $98 million in 2021, compared with 2020, primarily driven by lower capitalized interest due to the completion of capital projects and the placement of assets into service, and higher average debt principal balances reflecting debt issuances in the second and fourth quarters of 2020, as well as costs associated with early debt retirement in 2021. See Note 12—Debt, in the Notes to Consolidated Financial Statements, for additional information on the debt issuances in 2020 and debt repayment in 2021.

Corporate overhead and other decreased $5 million in 2021, compared with 2020.

2020 vs. 2019

Net interest expense increased $70 million in 2020, compared with 2019, primarily due to higher average debt principal balances, reflecting new debt issuances during 2020, along with decreased interest income driven by lower interest rates in 2020. See Note 12—Debt, in the Notes to Consolidated Financial Statements, for additional information on the debt issuances in 2020.

~~2019 vs. 2018~~

~~Net interest expense decreased $44~~Corporate overhead and other increased $7 million in ~~2019,~~2020, compared with ~~2018, mainly due to higher capitalized interest related to capital projects under development in our Midstream segment, partially offset by higher debt balances in~~ 2019.

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CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators


		Millions of Dollars, Except as Indicated						Millions of Dollars, Except as Indicated
		2020			2019	2018		2021			2020	2019

Cash and cash equivalents	Cash and cash equivalents	$	2,514		1,614	3,019	Cash and cash equivalents	$	3,147		2,514	1,614
Net cash provided by operating activities	Net cash provided by operating activities	2,111			4,808	7,573	Net cash provided by operating activities	6,017			2,111	4,808
Short-term debt	Short-term debt	987			547	67	Short-term debt	1,489			987	547
Total debt	Total debt	15,893			11,763	11,160	Total debt	14,448			15,893	11,763
Total equity	Total equity	21,523			27,169	27,153	Total equity	21,637			21,523	27,169
Percent of total debt to capital*	Percent of total debt to capital*	42		%	30	29	Percent of total debt to capital*	40		%	42	30
Percent of floating-rate debt to total debt	Percent of floating-rate debt to total debt	12		%	9	11	Percent of floating-rate debt to total debt	3		%	12	9
* Capital includes total debt and total equity.	* Capital includes total debt and total equity.						* Capital includes total debt and total equity.

To meet our short- and long-term liquidity requirements, we use a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. During ~~2020,~~2021, we generated ~~$2.1~~$6.0 billion in cash from ~~operations and had net borrowings of $4.1 billion.~~operations. We used available cash ~~primarily for~~to fund capital expenditures and investments of ~~$2.9~~$1.9 billion, ~~and dividend payments~~pay dividends on our common stock of $1.6 ~~billion.~~billion, pay down $1.5 billion in debt, and fund an additional member loan to an equity affiliate of $310 million. During ~~the first quarter of 2020, we repurchased $443 million of common stock before suspending our share repurchase program in March 2020. During 2020,~~2021, cash and cash equivalents increased ~~$900~~$633 million to ~~$2.5~~$3.1 billion.

Significant Sources of Capital

Operating Activities

During 2021, cash generated by operating activities was $6.0 billion, a $3.9 billion increase compared with 2020. The increase was primarily due to improved realized refining margins, a U.S. federal income tax refund of $1.1 billion received in the second quarter of 2021, and higher cash distributions from our equity affiliates, partially offset by higher operating expenses.

During 2020, cash generated by operating activities was ~~$2,111 million,~~$2.1 billion, a 56% decrease compared with 2019. The decrease was primarily due to lower realized refining margins, driven by the global economic disruption caused by the COVID-19 pandemic, partially offset by lower cash income taxes paid.

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.

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 recent decline in demand for refined petroleum products has led to a decrease in refining margins. If the global economic disruption associated with the COVID-19 pandemic sustains, we expect refining margins to remain challenged in the near term, all of which could have an unfavorable impact on our future operating cash flows.

The level and quality of output from our refineries also ~~impacts~~impact 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. However, the recent decline in demand for refined petroleum products has led to a reduction of our refinery production. If the global economic disruption associated with the COVID-19 pandemic sustains, we expect refinery production, along with marketing, transportation and terminaling volumes, to remain challenged in the near term, which could have an unfavorable impact on our future operating cash flows. Our worldwide refining crude oil capacity utilization was ~~76%~~84%, 76% and 94% in 2021, 2020 and ~~95%~~2019, respectively. Our worldwide refining clean product yield was 83%, 84% and 84% in 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively.

~~Table of Contents~~

~~Index to Financial Statements~~

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.~~CPChem. Over the three years ended December 31, ~~2020,~~2021, our operating cash flows included aggregate distributions from our equity affiliates of ~~$6,406~~$6,285 million, including ~~$290~~$3,101 million from ~~DCP Midstream, $2,490 million from CPChem and $1,230 million from WRB.~~CPChem. We cannot control the amount or timing of future distributions from equity affiliates; therefore, future distributions are not assured.

~~Tax Refunds~~

An income tax receivable of $1.5 billion is included in the “Accounts and notes receivable” line item on our consolidated balance sheet as of December 31, 2020, which reflects tax refunds we expect to receive within the next 12 months.

~~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, 2020, 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 $2,219 million in our consolidated balance sheet at December 31, 2020.

~~Debt and Equity Financings~~

~~During the three years ended December 31, 2020, Phillips 66 Partners raised net proceeds of approximately $1 billion from the following third-party debt and equity offerings:~~

•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.

•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. For the three years ended December 31, 2020, net proceeds of $303 million have been received under these programs.

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 regarding Phillips 66 Partners.

5052

Table of Contents

Index to Financial Statements

~~Transfers~~Tax Refunds

We received a U.S. federal income tax refund of ~~Equity Interests~~

Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, Texas, and the Sweeny area, including our Sweeny Refinery. Phillips 66 Partners has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party acquired a 35% interest in the holding company. Because the holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which was considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP at that time. The Gray Oak Pipeline commenced full operations$1.1 billion in the second quarter of 2020, and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the sale under GAAP. Accordingly, at June 30, 2020, the co-venturer’s 35% interest in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet, and the premium of $84 million previously paid by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of operations. For the year ended December 31, 2020, the co-venturer contributed an aggregate of $61 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls. Phillips 66 Partners’ effective ownership interest in Gray Oak Pipeline, LLC is 42.25% , after considering the co-venturer’s 35% interest in the consolidated holding company. See Note 6—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillips 66 Partners’ investment in Gray Oak Pipeline, LLC.2021.

Revolving Credit Facilities and Commercial Paper

Phillips 66 has a $5 billion revolving credit facility which may be used for direct bank borrowings, as support for issuances of letters of credit, and as support for our commercial paper program. We have an option to increase the overall capacity to $6 billion, subject to certain conditions. We also have the option to extend the scheduled maturity of the facility for up to two additional one-year terms after its July 30, 2024, maturity date, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. The facility is with a broad syndicate of financial institutions and contains covenants that are usual and customary for an agreement of this type, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. The facility has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; and violation of covenants. Outstanding borrowings under the facility bear interest, at our option, at either: (a) the Eurodollar rate in effect from time to time plus the applicable margin; or (b) the reference rate (as described in the facility) plus the applicable margin. The facility also provides for customary fees, including commitment fees. The pricing levels for the commitment fees and interest-rate margins are determined based on the ratings in effect for Phillips 66’s senior unsecured long-term debt from time to time. Phillips 66 may at any time prepay outstanding borrowings under the facility, in whole or in part, without premium or penalty. At December 31, ~~2020~~2021 and ~~2019,~~2020, no amount had been drawn under the facility.

Phillips 66 also has a $5 billion uncommitted commercial paper program for short-term working capital needs that is supported by our revolving credit facility. Commercial paper maturities are contractually limited to 365 days. At December 31, ~~2020~~2021 and ~~2019,~~2020, no borrowings were outstanding under the program.

~~Table of Contents~~

~~Index to Financial Statements~~

Phillips 66 Partners has a $750 million revolving credit facility which may be used for direct bank borrowings and as support for issuances of letters of credit. Phillips 66 Partners has an option to increase the overall capacity to $1 billion, subject to certain conditions. Phillips 66 Partners also has the option to extend the facility for two additional one-year terms after its July 30, 2024, maturity date, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. The facility is with a broad syndicate of financial institutions and contains covenants that are usual and customary for an agreement of this type. The facility has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; and violation of covenants. Outstanding revolving borrowings under the facility bear interest, at Phillips 66 Partners’ option, at either: (a) the Eurodollar rate in effect from time to time plus the applicable margin; or (b) the reference rate (as described in the facility) plus the applicable margin. The facility also provides for customary fees, including commitment fees. The pricing levels for the commitment fees and interest-rate margins are determined based on Phillips 66 Partners’ credit ratings in effect from time to time. Borrowings under this facility may be short-term or long-term in duration, and Phillips 66 Partners may at any time prepay outstanding borrowings under the facility, in whole or in part, without premium or penalty. At December 31, ~~2020,~~2021, no borrowings ~~of $415 million~~ were outstanding under this facility, compared with no borrowings ~~outstanding~~of $415 million at December 31, ~~2019.~~2020. At both December 31, ~~2020~~2021 and ~~2019,~~2020, $1 million in letters of credit had been issued that were supported by this facility.

We had approximately ~~$5.3~~$5.7 billion and ~~$5.7~~$5.3 billion of total committed capacity available under our revolving credit facilities at December 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Table of Contents

Index to Financial Statements

Other Debt Issuances and Financings

Senior Unsecured Notes

OnIn November ~~18,~~2021, Phillips 66 closed its public offering of $1 billion aggregate principal amount of 3.300% senior unsecured notes due 2052. Interest on the Senior Notes due 2052 is payable semiannually on March 15 and September 15 of each year, commencing on March 15, 2022. Proceeds received from the public offering were $982 million, net of underwriters’ discounts and commissions, as well as debt issuance costs. In December 2021, Phillips 66 used the proceeds from this offering, together with cash on hand, to repay $1 billion in aggregate principal amount of its $2 billion 4.300% Senior Notes due April 2022.

In November 2020, Phillips 66 closed its public offering of $1.75 billion aggregate principal amount of senior unsecured notes consisting of:

•$450 million aggregate principal amount of Floating Rate Senior Notes due ~~2024 (the Floating Rate Notes).~~2024.

•$800 million aggregate principal amount of 0.900% Senior Notes due 2024.

•$500 million aggregate principal amount of 1.300% Senior Notes due 2026.

The Floating Rate Senior Notes ~~will~~ bear interest at a floating rate, reset quarterly, equal to the three-month London Interbank Offered Rate ~~(LIBOR)~~ plus 0.62% per year, subject to adjustment. In December 2021, we used cash on hand to repay the $450 million Floating Rate Senior Notes due 2024. Interest on the Senior Notes due 2024 and 2026 is payable semiannually on February 15 and August 15 of each year, commencing on February 15, 2021.

Proceeds received from the public offering of senior unsecured notes onin November ~~18,~~ 2020 were $1.74 billion, net of underwriters’ discounts and commissions, as well as debt issuance costs. On November 19, 2020, a portion of these proceeds were used to repay $500 million of outstanding borrowings under the term loan facility that Phillips 66 entered into in March 2020 (see the “Term Loan Facility” section below for a full description of the term loan facility). In addition, a portion of the proceeds will be used to repay the $500 million aggregate principal amount of our outstanding Floating Rate Senior Notes due February 2021. The remainder of the proceeds are being used for general corporate purposes.

~~Table of Contents~~

~~Index to Financial Statements~~

OnIn June ~~10,~~ 2020, Phillips 66 closed its public offering of $1 billion aggregate principal amount of senior unsecured notes consisting of:

•$150 million aggregate principal amount of 3.850% Senior Notes due 2025.

•$850 million aggregate principal amount of 2.150% Senior Notes due 2030.

OnIn April 9, 2020, Phillips 66 closed its public offering of $1 billion aggregate principal amount of senior unsecured notes consisting of:

•$500 million aggregate principal amount of 3.700% Senior Notes due 2023.

•$500 million aggregate principal amount of 3.850% Senior Notes due 2025.

Interest on the Senior Notes due 2023 is payable semiannually on April 6 and October 6 of each year, commencing on October 6, 2020. The Senior Notes due 2025 issued onin June ~~10,~~ 2020 constitute a further issuance of the Senior Notes due 2025 originally issued onin April 9, 2020. The $650 million in aggregate principal amount of Senior Notes due 2025 is treated as a single class of debt securities. Interest on the Senior Notes due 2025 is payable semiannually on April 9 and October 9 of each year, commencing on October 9, 2020. Interest on the Senior Notes due 2030 is payable semiannually on June 15 and December 15 of each year, commencing on December 15, 2020.

Proceeds received from the public offerings of senior unsecured notes onin June ~~10, 2020,~~ and April 9,of 2020 were $1,008 million exclusive of accrued interest received, and $993 million, respectively, net of underwriters’ discounts or premiums and commissions, as well as debt issuance costs. ~~These proceeds are being used for general corporate purposes.~~

Term Loan Facility

OnIn March ~~19,~~ 2020, ~~Phillips 66~~we entered into a $1 billion 364-day delayed draw term loan agreement (the Facility) and borrowed $1 billion under the Facility shortly thereafter. On April 6, 2020, Phillips 66 increased the size of the Facility to $2 billion, and in June 2020, the Facility was amended to extend the commitment period to September 19, 2020. We did not draw additional amounts under the Facility before the end of the commitment period or further extend the commitment period. In November 2020, we repaid $500 million of borrowings outstanding under the Facility, and the Facility was amended to extend the maturity date of the remaining $500 million ~~outstanding borrowings from March 18, 2021,~~ to November 20, 2023. ~~Borrowings under~~In September 2021, we repaid the ~~Facility bear interest at a floating rate based on either the Eurodollar rate or the reference rate, plus a margin determined by the credit rating~~outstanding borrowings of ~~Phillips 66’s senior unsecured long-term debt. Phillips 66 is using the proceeds for general corporate purposes.~~$500 million.

Table of Contents

Index to Financial Statements

Availability of Debt Financing

We have an A3 credit rating, with a stable outlook, from Moody’s Investors Service and a BBB+ credit rating, with a ~~negative~~stable outlook, from Standard & ~~Poor’s and an A3~~Poor’s. In the fourth quarter of 2021, both rating agencies updated their outlooks on our credit ~~rating, with a~~ratings from negative ~~outlook, from Moody’s Investors Service.~~to stable. These investment grade ratings have served to lower our borrowing costs and facilitate access to a variety of lenders. 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 rating ~~downgrade.~~downgrade by one or both rating agencies. Failure to maintain ~~strong~~ investment grade ratings could prohibit us from accessing the commercial paper market, although we would expect to be able to access funds under our liquidity facilities mentioned above.

Phillips 66 Partners’ Debt and Equity Financings

In 2013, we formed Phillips 66 Partners, a publicly traded MLP, which owns and operates primarily fee-based midstream assets. At December 31, 2021, we owned 170 million Phillips 66 Partners common units, representing a 74% limited partner interest, while the public owned a 26% limited partner interest and 13.5 million perpetual convertible preferred units. We consolidate Phillips 66 Partners as a variable interest entity for financial reporting purposes. As a result of this consolidation, the public common and preferred unitholders’ interests in Phillips 66 Partners are reflected as noncontrolling interests of $2,169 million in our consolidated balance sheet at December 31, 2021.

During the three years ended December 31, 2021, Phillips 66 Partners raised proceeds, primarily used for its capital spending and investments, from the following third-party debt and equity offerings:

•In April 2021, Phillips 66 Partners entered into a $450 million term loan agreement and borrowed the full amount. Proceeds from this term loan were primarily used to repay the outstanding borrowings under its $750 million revolving credit facility.

•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. For the three years ended December 31, 2021, net proceeds of $175 million have been received under these programs.

See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding Phillips 66 Partners.

Table of Contents

Index to Financial Statements

Off-Balance Sheet Arrangements

Lease Residual Value Guarantees

~~In September 2020, we amended~~Under the operating lease agreement for our headquarters facility in Houston, Texas, ~~and extended the lease term from June 2021 to September 2025. Under this agreement,~~ we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at December 31, ~~2020.~~2021. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future ~~payments~~exposures totaling ~~$381~~$221 million. These ~~operating~~ leases have remaining terms of up to ~~nine~~ten years.

Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)

In 2020, the trial court presiding over litigation regarding the Dakota Access Pipeline ordered the U.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) relating to an easement under Lake Oahe in North Dakota and later vacated the easement. Although the easement has been vacated, the USACE has indicated that it will not take action to stop pipeline operations while it proceeds with the EIS, which is expected to be completed in the second half of 2022. In May 2021, the court denied a request for an injunction to shut down the pipeline while the EIS is being prepared and, in June 2021, dismissed the litigation. It is possible that the litigation could be reopened or new litigation challenging the EIS, once completed, could be filed. In September 2021, Dakota Access filed a writ of certiorari, requesting the U.S. Supreme Court to review the lower court’s judgment that ordered the EIS and vacated the easement.

In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $2.5 billion aggregate principal amount of senior unsecured notes consisting of:

•$650 million aggregate principal amount of 3.625% Senior Notes due 2022.

•$1.0 billion aggregate principal amount of 3.900% Senior Notes due 2024.

•$850 million aggregate principal amount of 4.625% Senior Notes due 2029.

Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners and its ~~coventurers~~co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the above mentioned ongoing ~~litigation related to an easement granted by the U.S. Army Corps of Engineers (USACE) to allow the pipeline to be constructed under Lake Oahe in North Dakota.~~litigation. Contributions may be required if Dakota Access determines that the issues included in any such final judgment cannot be remediated and Dakota Access has or is projected to have insufficient funds to satisfy repayment of the notes. If Dakota Access undertakes remediation to cure issues raised in a final judgment, contributions may be required if any series of the notes become due, whether by acceleration or at maturity, during such time, to the extent Dakota Access has or is projected to have insufficient funds to pay such amounts. At December 31, ~~2020,~~2021, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU was approximately $631 ~~million and the aggregate book value of Phillips 66 Partners’ investments in Dakota Access and ETCO was $577~~ million.

In March 2020, the trial court presiding over this litigation ordered the USACE to prepare an Environmental Impact Statement (EIS) and requested additional information to enable a decision on whether the Dakota Access Pipeline should be shut down while the EIS is being prepared. In July 2020, the trial court ordered the Dakota Access Pipeline to be shut down and emptied of crude oil within 30 days and that the pipeline should remain shut down pending the preparation of the EIS by the USACE, which the USACE has indicated is expected to take approximately 13 months. Dakota Access filed an appeal and a request for a stay of the order, which was granted. In January 2021, the appellate court affirmed the trial court’s order that: (1) vacated Dakota Access’s easement under Lake Oahe, and (2) directed the USACE to prepare an EIS. The appellate court did not affirm the trial court’s order that the Dakota Access Pipeline be shut down and emptied of crude oil. However, the appellate court acknowledged the precise consequences of the vacated easement remain uncertain. Since the pipeline is now an encroachment, the USACE could seek a shutdown of the pipeline during the preparation of the EIS. Alternatively, the trial court could again issue an injunction that the pipeline be shut down, assuming it makes all findings necessary for injunctive relief. A status hearing is scheduled for April 9, 2021, at which time the parties will discuss the appellate court’s decision and how the USACE plans to proceed given the vacating of the easement.

If the pipeline is required to cease operations, ~~pending the preparation of the EIS,~~ and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, Phillips 66 Partners also could be required to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually, in addition to the potential obligations under the CECU.

~~Table of Contents~~

~~Index to Financial Statements~~

~~Gray Oak Pipeline, LLC~~

Gray Oak Pipeline, LLC had a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. 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, plus any additional accrued interest and associated fees, if Gray Oak Pipeline, LLC defaulted on certain of its obligations thereunder. In September 2020, Gray Oak Pipeline, LLC fully repaid the outstanding balance of the term loan facility, and the associated equity contribution agreement was terminated.

See Note 13—Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.

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Index to Financial Statements

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, ~~2020,~~2021, was ~~$15.9~~$14.4 billion and our total debt-to-capital ratio was ~~42%~~40%. In 2021, we paid down $1.5 billion in debt and will continue to prioritize debt reduction in 2022. As our operating cash flows improve further, we expect to reduce our debt to pre-COVID-19 pandemic levels over the next couple of years.

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.

~~Debt Incurred During 2020~~

As noted in “Significant Sources of Capital,” Phillips 66 received approximately $4.7 billion in proceeds from debt issuances during 2020, while repaying approximately $1.0 billion of debt. Phillips 66 Partners had net borrowings of $415 million under its revolving credit facility during 2020. The net increase in debt of $4.1 billion reflects our response to the COVID-19 pandemic’s negative impacts on our operating cash flows. As economic conditions improve and our operating cash flows return to more typical levels, we will continue to prioritize funding sustaining capital expenditures and the company’s dividend. After these cash flow needs, we expect to prioritize repayment of debt, with an objective of maintaining our investment grade credit ratings and reducing our debt to pre-pandemic levels. We intentionally structured the maturities and call options of our debt issued in 2020 to facilitate these objectives. Additionally, restarting our share repurchase program remains a priority once operating cash flows exceed amounts needed to fulfill the other priorities stated above and assuming our shares are trading below intrinsic value.

Joint Venture Loans

During 2020 and 2021, we and our co-venturer provided member loans to WRB. At December 31, ~~2020,~~2021, our share of the outstanding member loan balance, including accrued interest, was ~~$277~~$595 million. The need for additional loans to WRB in ~~2021,~~2022, as well as WRB’s repayment schedule, will depend on market conditions.

Dividends

On February ~~10, 2021,~~9, 2022, our Board of Directors declared a quarterly cash dividend of ~~$0.90~~$0.92 per common share, payable March 1, ~~2021,~~2022, to holders of record at the close of business on February 22, ~~2021.~~2022. We expect that our Board of Directors will continue to declare ~~quarterly dividends~~a competitive and growing dividend in ~~2021.~~2022.

Share Repurchases

Since July 2012, our ~~Board~~board of ~~Directors~~directors has authorized an aggregate of $15 billion of repurchases of our outstanding common stock. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. We are not obligated to repurchase any shares of common stock pursuant to these authorizations and may commence, suspend or terminate repurchases at any time. Since the inception of our share repurchase program in 2012, we have repurchased 159 million shares at an aggregate cost of $12.5 billion. Shares of stock repurchased are held as treasury shares. We suspended our share ~~repurchases~~repurchase program in ~~mid-March~~March 2020 to preserve ~~liquidity~~liquidity. As operating cash flows improve further, we will prioritize shareholder returns and debt repayment.

Pending Merger with Phillips 66 Partners

On October 26, 2021, we entered into a definitive merger agreement with Phillips 66 Partners to acquire all of the limited partner interests in ~~response~~Phillips 66 Partners not already owned by us on the closing date of the transaction. The agreement provides for an all-stock transaction in which each outstanding Phillips 66 Partners common unitholder would receive 0.50 shares of Phillips 66 common stock for each Phillips 66 Partners common unit. Phillips 66 Partners’ perpetual convertible preferred units would be converted into common units at a premium to the ~~global economic disruption caused by~~original issuance price prior to exchange for Phillips 66 common stock. This merger is expected to close in March 2022, subject to customary closing conditions.

Based on the ~~COVID-19 pandemic.~~closing market prices of Phillips 66 common stock and Phillips 66 Partners common units on December 31, 2021, we would issue approximately 44 million shares of our common stock with a value of approximately $3.2 billion on the closing date of this transaction. The number of shares of common stock we will issue and the value of those shares are subject to change until the merger is closed.

See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the pending merger.

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Index to Financial Statements

Contractual Obligations

~~The following table summarizes our aggregate~~Our contractual ~~fixed~~obligations primarily consist of purchase obligations, outstanding debt principal and ~~variable~~interest obligations, ~~as of December 31, 2020:~~operating and finance lease obligations, and asset retirement and environmental obligations.

Millions of Dollars
Payments Due by Period
Total Up to
1 Year Years
2-3 Years
4-5 After
5 Years
Debt obligations (a) $ 15,716 965 3,000 2,700 9,051
Finance lease obligations 264 16 30 32 186
Software obligations 19 6 10 3 —
Total debt 15,999 987 3,040 2,735 9,237
Interest on debt 7,434 568 998 866 5,002
Operating lease obligations 1,372 406 455 240 271
Purchase obligations (b) 76,887 28,946 9,742 8,099 30,100
Other long-term liabilities (c)
Asset retirement obligations 309 9 40 29 231
Accrued environmental costs 427 70 131 65 161
Repatriation income tax liability (d) 88 9 27 52 —
Total $ 102,516 30,995 14,433 12,086 45,002
Purchase Obligations

~~(a)For additional information, see Note 12—Debt, in the Notes to Consolidated Financial Statements.~~

~~(b)Represents any agreement~~Our purchase obligations represent agreements to purchase goods or services that isare enforceable, legally binding and ~~specifies~~specify all significant terms. We expect these purchase obligations will be fulfilled with operating cash flows in the ~~applicable maturity period.~~ period when due. As of December 31, 2021, our purchase obligations totaled $113.9 billion, with $43.0 billion due within one year.

The majority of ~~the~~our 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~~At December 31, 2021, product purchase commitments with third parties ~~totaled $29,551 million. Related party~~and related parties were $44.8 billion and $51.3 billion, respectively. The remaining purchase ~~commitments totaled $31,729 million and included purchases from CPChem, DCP Midstream and other equity affiliates.~~

~~Purchase~~ obligations ~~of $4,027 million are related to~~mainly represent 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~~products, and our net share of purchase commitments for materials and services for jointly owned facilities where we are the operator.

~~(c)Excludes pensions~~Debt Principal and ~~unrecognized income tax benefits. From~~Interest Obligations

As of December 31, 2021, ~~through 2025, we expect to contribute an average~~our aggregate principal amount of ~~$125~~outstanding debt was $14.3 billion, with $1.5 billion due within one year. Our obligations for interest on the debt totaled $7.5 billion, with $513 million ~~per year to our qualified and nonqualified pension and other postretirement benefit plans~~due within one year. See Note 12—Debt, in the ~~United States~~Notes to Consolidated Financial Statements, for additional information regarding our outstanding debt principal and an average of $30 million per year to our non-U.S. plans. The U.S. five-year average consists of approximately $40 million for 2021 and $145 million per year for the remaining four years. Our minimum funding in 2021 is expected to be $40 million in the United States and $30 million outside the United States.interest obligations.

~~This amount also excludes unrecognized tax benefits of $56 million because~~Finance and Operating Lease Obligations

See Note 18—Leases, in the ~~ultimate disposition~~Notes to Consolidated Financial Statements, for information regarding our lease obligations and timing of any tax payments to be made with regard to such amounts are not reasonably estimable or the amounts relate to potential refunds. This amount also excludes interest of $5 million. Although unrecognized tax benefits are not a contractual obligation, they represent potential demands on our ~~liquidity.~~expected lease payments.

~~(d)We elected~~Asset Retirement and Environmental Obligations

See Note 10—Asset Retirement Obligations and Accrued Environmental Costs, in the Notes 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.Consolidated Financial Statements, for information regarding asset retirement and environmental obligations.

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Index to Financial Statements

~~Capital Spending~~Marketing and Specialties

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
2021
Budget 2020 2019 2018
Capital Expenditures and Investments
Midstream $ 615 1,747 2,292 1,548
Chemicals — — — —
Refining 776 816 1,001 826
Marketing and Specialties 116 173 374 125
Corporate and Other 166 184 206 140
Total Capital Expenditures and Investments 1,673 2,920 3,873 2,639
Less: capital spending funded by certain joint venture partners* 5 61 423 —
Adjusted Capital Spending $ 1,668 2,859 3,450 2,639
Selected Equity Affiliates**
DCP Midstream $ 55 119 472 484
CPChem 410 284 382 339
WRB 242 175 175 156
$ 707 578 1,029 979

* Included in the Midstream segment.

** Our share of joint venture’s capital spending.


	Year Ended December 31
	2021		2020	2019
	Millions of Dollars
Income Before Income Taxes
Marketing and Other	$	1,453	1,271	1,199
Specialties	356		175	234
Total Marketing and Specialties	$	1,809	1,446	1,433

	Dollars Per Barrel
Income Before Income Taxes
U.S.	$	1.74	1.42	1.22
International	4.13		4.84	3.58

Realized Marketing Fuel Margins*
U.S.	$	2.19	1.87	1.57
International	5.96		6.34	4.90
* 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	$	2.46	1.56	2.12
Distillates	2.36		1.47	2.12
* On third-party branded refined petroleum product sales, excluding excise taxes.

	Thousands of Barrels Daily
Marketing Refined Petroleum Product Sales
Gasoline	1,154		1,021	1,230
Distillates	959		895	1,104
Other	17		17	18
	2,130		1,933	2,352

~~Midstream~~The M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable 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.

~~Capital spending~~

2021 vs. 2020

Before-tax income from the M&S segment increased $363 million in ~~our Midstream~~2021, compared with 2020. The increase in 2021 was primarily driven by higher realized U.S. marketing fuel margins and increased equity earnings from Excel due to improved base oil margins, partially offset by lower realized international marketing fuel margins.

See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting 2021 results.

2020 vs. 2019

Before-tax income from the M&S segment ~~during the three-year period ended December 31,~~increased $13 million in 2020, ~~included:~~compared with 2019. The increase was primarily attributable to higher realized marketing fuel margins, partially offset by lower sales volumes for refined petroleum and specialty products driven by decreased demand.

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Index to Financial Statements

Corporate and Other


	Millions of Dollars
	Year Ended December 31
	2021		2020	2019
Loss Before Income Taxes
Net interest expense	$	(583)	(485)	(415)
Corporate overhead and other	(391)		(396)	(389)



Total Corporate and Other	$	(974)	(881)	(804)

•
~~Continued development~~

2021 vs. 2020

Net interest expense increased $98 million in 2021, compared with 2020, primarily driven by lower capitalized interest due to the completion of capital projects and the placement of assets into service, and higher average debt principal balances reflecting debt issuances in the second and fourth quarters of 2020, as well as costs associated with early debt retirement in 2021. See Note 12—Debt, in the Notes to Consolidated Financial Statements, for additional ~~Gulf Coast fractionation capacity. During~~information on the debt issuances in 2020 ~~Phillips 66 commenced operations~~and debt repayment in 2021.

Corporate overhead and other decreased $5 million in 2021, compared with 2020.

2020 vs. 2019

Corporate overhead and other increased $7 million in 2020, compared with 2019.

Table of ~~two new NGL fractionators (Frac 2 and Frac 3) at the Sweeny Hub in Texas.~~Contents

Index to Financial Statements

CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators


	Millions of Dollars, Except as Indicated
	2021			2020	2019

Cash and cash equivalents	$	3,147		2,514	1,614
Net cash provided by operating activities	6,017			2,111	4,808
Short-term debt	1,489			987	547
Total debt	14,448			15,893	11,763
Total equity	21,637			21,523	27,169
Percent of total debt to capital*	40		%	42	30
Percent of floating-rate debt to total debt	3		%	12	9
* Capital includes total debt and total equity.

•~~Contributions by Phillips 66 Partners~~To meet our short- and long-term liquidity requirements, we use a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. During 2021, we generated $6.0 billion in cash from operations. We used available cash to fund ~~the Gray Oak Pipeline project~~capital expenditures and ~~South Texas Gateway Terminal development activities.~~investments of $1.9 billion, pay dividends on our common stock of $1.6 billion, pay down $1.5 billion in debt, and fund an additional member loan to an equity affiliate of $310 million. During 2021, cash and cash equivalents increased $633 million to $3.1 billion.

•~~Construction activities on Phillips 66 Partners’ C2G Pipeline that will connect its Clemens Caverns storage facility to petrochemical facilities in Gregory, Texas.~~Significant Sources of Capital

•~~Contributions~~Operating Activities

During 2021, cash generated by operating activities was $6.0 billion, a $3.9 billion increase compared with 2020. The increase was primarily due to ~~joint ventures to develop~~improved realized refining margins, a U.S. federal income tax refund of $1.1 billion received in the second quarter of 2021, and ~~construct crude oil pipeline systems, including the Liberty Pipeline system.~~higher cash distributions from our equity affiliates, partially offset by higher operating expenses.

•~~Construction~~During 2020, cash generated by operating activities was $2.1 billion, a 56% decrease compared with 2019. The decrease was primarily due to ~~increase storage and export capacity at our Beaumont Terminal.~~lower realized refining margins, driven by the global economic disruption caused by the COVID-19 pandemic, partially offset by lower cash income taxes paid.

•~~Construction of Phillips 66 Partners’ Sweeny to Pasadena refined petroleum product pipeline.~~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.

•~~Construction~~The level and quality of ~~Phillips 66 Partners’ new isomerization unit at~~output from our refineries also impact our cash flows. Factors such as operating efficiency, maintenance turnarounds, market conditions, feedstock availability, and weather conditions can affect output. We actively manage the ~~Lake Charles Refinery.~~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 84%, 76% and 94% in 2021, 2020 and 2019, respectively. Our worldwide refining clean product yield was 83%, 84% and 84% in 2021, 2020 and 2019, respectively.

•~~Contributions to Bayou Bridge Pipeline, LLC, a Phillips 66 Partners’ 40 percent-owned joint venture, for~~Equity Affiliate Operating Distributions

Our operating cash flows are also impacted by distribution decisions made by our equity affiliates, including CPChem. Over the ~~construction~~three years ended December 31, 2021, our operating cash flows included aggregate distributions from our equity affiliates of ~~a pipeline~~$6,285 million, including $3,101 million from ~~Nederland, Texas, to Lake Charles, Louisiana, and a pipeline segment~~CPChem. We cannot control the amount or timing of future distributions from ~~Lake Charles to St. James, Louisiana.~~equity affiliates; therefore, future distributions are not assured.

•~~Spending associated with other return, reliability and maintenance projects in our Transportation and NGL businesses.~~

5852

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Index to Financial Statements

Tax Refunds

We received a U.S. federal income tax refund of $1.1 billion in the second quarter of 2021.

Revolving Credit Facilities and Commercial Paper

Phillips 66 has a $5 billion revolving credit facility which may be used for direct bank borrowings, as support for issuances of letters of credit, and as support for our commercial paper program. We have an option to increase the overall capacity to $6 billion, subject to certain conditions. We also have the option to extend the scheduled maturity of the facility for up to two additional one-year terms after its July 30, 2024, maturity date, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. The facility is with a broad syndicate of financial institutions and contains covenants that are usual and customary for an agreement of this type, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. The facility has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; and violation of covenants. Outstanding borrowings under the facility bear interest, at our option, at either: (a) the Eurodollar rate in effect from time to time plus the applicable margin; or (b) the reference rate (as described in the facility) plus the applicable margin. The facility also provides for customary fees, including commitment fees. The pricing levels for the commitment fees and interest-rate margins are determined based on the ratings in effect for Phillips 66’s senior unsecured long-term debt from time to time. Phillips 66 may at any time prepay outstanding borrowings under the facility, in whole or in part, without premium or penalty. At December 31, 2021 and 2020, no amount had been drawn under the facility.

Phillips 66 also has a $5 billion uncommitted commercial paper program for short-term working capital needs that is supported by our revolving credit facility. Commercial paper maturities are contractually limited to 365 days. At December 31, 2021 and 2020, no borrowings were outstanding under the program.

Phillips 66 Partners has a $750 million revolving credit facility which may be used for direct bank borrowings and as support for issuances of letters of credit. Phillips 66 Partners has an option to increase the overall capacity to $1 billion, subject to certain conditions. Phillips 66 Partners also has the option to extend the facility for two additional one-year terms after its July 30, 2024, maturity date, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. The facility is with a broad syndicate of financial institutions and contains covenants that are usual and customary for an agreement of this type. The facility has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; and violation of covenants. Outstanding revolving borrowings under the facility bear interest, at Phillips 66 Partners’ option, at either: (a) the Eurodollar rate in effect from time to time plus the applicable margin; or (b) the reference rate (as described in the facility) plus the applicable margin. The facility also provides for customary fees, including commitment fees. The pricing levels for the commitment fees and interest-rate margins are determined based on Phillips 66 Partners’ credit ratings in effect from time to time. Borrowings under this facility may be short-term or long-term in duration, and Phillips 66 Partners may at any time prepay outstanding borrowings under the facility, in whole or in part, without premium or penalty. At December 31, 2021, no borrowings were outstanding under this facility, compared with borrowings of $415 million at December 31, 2020. At both December 31, 2021 and 2020, $1 million in letters of credit had been issued that were supported by this facility.

We had approximately $5.7 billion and $5.3 billion of total committed capacity available under our revolving credit facilities at December 31, 2021 and 2020, respectively.

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Index to Financial Statements

Other Debt Issuances and Financings

Senior Unsecured Notes

In November 2021, Phillips 66 closed its public offering of $1 billion aggregate principal amount of 3.300% senior unsecured notes due 2052. Interest on the Senior Notes due 2052 is payable semiannually on March 15 and September 15 of each year, commencing on March 15, 2022. Proceeds received from the public offering were $982 million, net of underwriters’ discounts and commissions, as well as debt issuance costs. In December 2021, Phillips 66 used the proceeds from this offering, together with cash on hand, to repay $1 billion in aggregate principal amount of its $2 billion 4.300% Senior Notes due April 2022.

In November 2020, Phillips 66 closed its public offering of $1.75 billion aggregate principal amount of senior unsecured notes consisting of:

•$450 million aggregate principal amount of Floating Rate Senior Notes due 2024.

•$800 million aggregate principal amount of 0.900% Senior Notes due 2024.

•$500 million aggregate principal amount of 1.300% Senior Notes due 2026.

The Floating Rate Senior Notes bear interest at a floating rate, reset quarterly, equal to the three-month London Interbank Offered Rate plus 0.62% per year, subject to adjustment. In December 2021, we used cash on hand to repay the $450 million Floating Rate Senior Notes due 2024. Interest on the Senior Notes due 2024 and 2026 is payable semiannually on February 15 and August 15 of each year, commencing on February 15, 2021. Proceeds received from the public offering of senior unsecured notes in November 2020 were $1.74 billion, net of underwriters’ discounts and commissions, as well as debt issuance costs.

In June 2020, Phillips 66 closed its public offering of $1 billion aggregate principal amount of senior unsecured notes consisting of:

•$150 million aggregate principal amount of 3.850% Senior Notes due 2025.

•$850 million aggregate principal amount of 2.150% Senior Notes due 2030.

In April 2020, Phillips 66 closed its public offering of $1 billion aggregate principal amount of senior unsecured notes consisting of:

•$500 million aggregate principal amount of 3.700% Senior Notes due 2023.

•$500 million aggregate principal amount of 3.850% Senior Notes due 2025.

Interest on the Senior Notes due 2023 is payable semiannually on April 6 and October 6 of each year, commencing on October 6, 2020. The Senior Notes due 2025 issued in June 2020 constitute a further issuance of the Senior Notes due 2025 originally issued in April 2020. The $650 million in aggregate principal amount of Senior Notes due 2025 is treated as a single class of debt securities. Interest on the Senior Notes due 2025 is payable semiannually on April 9 and October 9 of each year, commencing on October 9, 2020. Interest on the Senior Notes due 2030 is payable semiannually on June 15 and December 15 of each year, commencing on December 15, 2020. Proceeds received from the public offerings of senior unsecured notes in June and April of 2020 were $1,008 million exclusive of accrued interest received, and $993 million, respectively, net of underwriters’ discounts or premiums and commissions, as well as debt issuance costs.

Term Loan Facility

In March 2020, we entered into a $1 billion 364-day delayed draw term loan agreement (the Facility) and borrowed $1 billion under the ~~development~~Facility shortly thereafter. In November 2020, we repaid $500 million of borrowings outstanding under the Facility, and ~~construction~~the Facility was amended to extend the maturity date of the remaining $500 million to November 20, 2023. In September 2021, we repaid the outstanding borrowings of $500 million.

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Index to Financial Statements

Availability of Debt Financing

We have an A3 credit rating, with a stable outlook, from Moody’s Investors Service and a BBB+ credit rating, with a stable outlook, from Standard & Poor’s. In the fourth quarter of 2021, both rating agencies updated their outlooks on our credit ratings from negative to stable. These investment grade ratings have served to lower our borrowing costs and facilitate access to a variety of lenders. We do not have any ratings triggers on any of our ~~Red Oak Pipeline system~~corporate debt that would cause an automatic default, and ~~Sweeny Frac 4, as well as~~ thereby impact our access to liquidity, in the event of a rating downgrade by one or both rating agencies. Failure to maintain investment grade ratings could prohibit us from accessing the commercial paper market, although we would expect to be able to access funds under our liquidity facilities mentioned above.

Phillips 66 Partners’ ~~Liberty Pipeline system projects, were deferred~~Debt and Equity Financings

In 2013, we formed Phillips 66 Partners, a publicly traded MLP, which owns and operates primarily fee-based midstream assets. At December 31, 2021, we owned 170 million Phillips 66 Partners common units, representing a 74% limited partner interest, while the public owned a 26% limited partner interest and 13.5 million perpetual convertible preferred units. We consolidate Phillips 66 Partners as a variable interest entity for financial reporting purposes. As a result of this consolidation, the ~~challenging business environment. In the third quarter~~public common and preferred unitholders’ interests in Phillips 66 Partners are reflected as noncontrolling interests of ~~2020, the Red Oak Pipeline project was canceled. We plan to resume construction of Sweeny Frac 4~~$2,169 million in ~~the second half of~~our consolidated balance sheet at December 31, 2021.

During the ~~three-year period~~three years ended December 31, ~~2020, DCP Midstream’s self-funded~~2021, Phillips 66 Partners raised proceeds, primarily used for its capital ~~expenditures~~spending and investments, ~~were $2.1 billion on a 100% basis. Capital spending during this period was primarily for expansion projects~~from the following third-party debt and maintenance capital expenditures for existing assets. Expansion projects included construction of the Latham II offload facilities, the Cheyenne Connector, and the Mewbourn 3 and O’Connor 2 plants, as well as investments in the Sand Hills, Southern Hills and Gulf Coast Express pipeline joint ventures.

~~Chemicals~~

During the three-year period ended December 31, 2020, CPChem had a self-funded capital program that totaled $2.0 billion on a 100% basis. The capital spending was primarily for the development of U.S. Gulf Coast 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, 2020, was $2.6 billion, primarily for refinery upgrade projects to enhance the yield of high-value products, renewable diesel projects, improvements to the operating integrity of key processing units, and safety-related projects.

~~Key projects completed during the three-year period included:~~equity offerings:

•~~Installation of facilities~~In April 2021, Phillips 66 Partners entered into a $450 million term loan agreement and borrowed the full amount. Proceeds from this term loan were primarily used to ~~improve clean product yield at~~repay the ~~Bayway and Lake Charles refineries, as well as the jointly owned Borger and Wood River refineries.~~outstanding borrowings under its $750 million revolving credit facility.

•~~Installation~~In September 2019, Phillips 66 Partners received net proceeds of ~~facilities to improve product value at~~$892 million from the ~~Bayway~~issuance of $300 million of 2.450% Senior Notes due December 2024 and ~~Sweeny refineries.~~$600 million of 3.150% Senior Notes due December 2029.

•~~Installation~~In March 2019, Phillips 66 Partners entered into a senior unsecured term loan facility with a borrowing capacity of ~~facilities to improve processing~~$400 million due March 20, 2020. Phillips 66 Partners borrowed an aggregate amount of ~~advantaged crude at~~$400 million under the ~~Lake Charles refinery.~~facility during the first half of 2019, which was repaid in full in September 2019.

•~~Installation~~Phillips 66 Partners has authorized an aggregate of ~~facilities to comply with~~$750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. Phillips 66 Partners completed the ~~EPA Tier 3 gasoline regulations at~~first two programs in June 2018 and December 2019, respectively. For the ~~Bayway and Ferndale refineries.~~three years ended December 31, 2021, net proceeds of $175 million have been received under these programs.

See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding Phillips 66 Partners.

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Index to Financial Statements

Off-Balance Sheet Arrangements

Lease Residual Value Guarantees

Under the operating lease agreement for our headquarters facility in Houston, Texas, we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at December 31, 2021. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future exposures totaling $221 million. These leases have remaining terms of up to ten years.

Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)

In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $2.5 billion aggregate principal amount of senior unsecured notes consisting of:

•$650 million aggregate principal amount of 3.625% Senior Notes due 2022.

•$1.0 billion aggregate principal amount of 3.900% Senior Notes due 2024.

•$850 million aggregate principal amount of 4.625% Senior Notes due 2029.

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, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the above mentioned ongoing litigation. Contributions may be required if Dakota Access determines that the issues included in any such final judgment cannot be remediated and Dakota Access has or is projected to have insufficient funds to satisfy repayment of the notes. If Dakota Access undertakes remediation to cure issues raised in a final judgment, contributions may be required if any series of the notes become due, whether by acceleration or at maturity, during such time, to the extent Dakota Access has or is projected to have insufficient funds to pay such amounts. At December 31, 2021, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU was approximately $631 million.

If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, Phillips 66 Partners also could be required to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually, in addition to the potential obligations under the CECU.

See Note 13—Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.

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Index to Financial Statements

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, 2021, was $14.4 billion and our total debt-to-capital ratio was 40%. In 2021, we paid down $1.5 billion in debt and will continue to prioritize debt reduction in 2022. As our operating cash flows improve further, we expect to reduce our debt to pre-COVID-19 pandemic levels over the next couple of years.

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.

Joint Venture Loans

During 2020 and 2021, we and our co-venturer provided member loans to WRB. At December 31, 2021, our share of the outstanding member loan balance, including accrued interest, was $595 million. The need for additional loans to WRB in 2022, as well as WRB’s repayment schedule, will depend on market conditions.

Dividends

On February 9, 2022, our Board of Directors declared a quarterly cash dividend of $0.92 per common share, payable March 1, 2022, to holders of record at the close of business on February 22, 2022. We expect that our Board of Directors will continue to declare a competitive and growing dividend in 2022.

Share Repurchases

Since July 2012, our board of directors has authorized an aggregate of $15 billion of repurchases of our outstanding common stock. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. We are not obligated to repurchase any shares of common stock pursuant to these authorizations and may commence, suspend or terminate repurchases at any time. Since the inception of our share repurchase program in 2012, we have repurchased 159 million shares at an aggregate cost of $12.5 billion. Shares of stock repurchased are held as treasury shares. We suspended our share repurchase program in March 2020 to preserve liquidity. As operating cash flows improve further, we will prioritize shareholder returns and debt repayment.

Pending Merger with Phillips 66 Partners

Based on the closing market prices of Phillips 66 common stock and Phillips 66 Partners common units on December 31, 2021, we would issue approximately 44 million shares of our common stock with a value of approximately $3.2 billion on the closing date of this transaction. The number of shares of common stock we will issue and the value of those shares are subject to change until the merger is closed.

See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the pending merger.

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Index to Financial Statements

Contractual Obligations

Our contractual obligations primarily consist of purchase obligations, outstanding debt principal and interest obligations, operating and finance lease obligations, and asset retirement and environmental obligations.

Purchase Obligations

Our purchase obligations represent agreements to purchase goods or services that are enforceable, legally binding and specify all significant terms. We expect these purchase obligations will be fulfilled with operating cash flows in the period when due. As of December 31, 2021, our purchase obligations totaled $113.9 billion, with $43.0 billion due within one year.

The majority of our 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. At December 31, 2021, product purchase commitments with third parties and related parties were $44.8 billion and $51.3 billion, respectively. The remaining purchase obligations mainly represent 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, and our net share of purchase commitments for materials and services for jointly owned facilities where we are the operator.

Debt Principal and Interest Obligations

As of December 31, 2021, our aggregate principal amount of outstanding debt was $14.3 billion, with $1.5 billion due within one year. Our obligations for interest on the debt totaled $7.5 billion, with $513 million due within one year. See Note 12—Debt, in the Notes to Consolidated Financial Statements, for additional information regarding our outstanding debt principal and interest obligations.

Finance and Operating Lease Obligations

See Note 18—Leases, in the Notes to Consolidated Financial Statements, for information regarding our lease obligations and timing of our expected lease payments.

Asset Retirement and Environmental Obligations

See Note 10—Asset Retirement Obligations and Accrued Environmental Costs, in the Notes to Consolidated Financial Statements, for information regarding asset retirement and environmental obligations.

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Index to Financial Statements

Marketing and Specialties


	Year Ended December 31
	2021		2020	2019
	Millions of Dollars
Income Before Income Taxes
Marketing and Other	$	1,453	1,271	1,199
Specialties	356		175	234
Total Marketing and Specialties	$	1,809	1,446	1,433

	Dollars Per Barrel
Income Before Income Taxes
U.S.	$	1.74	1.42	1.22
International	4.13		4.84	3.58

Realized Marketing Fuel Margins*
U.S.	$	2.19	1.87	1.57
International	5.96		6.34	4.90
* 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	$	2.46	1.56	2.12
Distillates	2.36		1.47	2.12
* On third-party branded refined petroleum product sales, excluding excise taxes.

	Thousands of Barrels Daily
Marketing Refined Petroleum Product Sales
Gasoline	1,154		1,021	1,230
Distillates	959		895	1,104
Other	17		17	18
	2,130		1,933	2,352

2021 vs. 2020

See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting 2021 results.

2020 vs. 2019

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Index to Financial Statements

Corporate and Other


	Millions of Dollars
	Year Ended December 31
	2021		2020	2019
Loss Before Income Taxes
Net interest expense	$	(583)	(485)	(415)
Corporate overhead and other	(391)		(396)	(389)



Total Corporate and Other	$	(974)	(881)	(804)

2021 vs. 2020

Corporate overhead and other decreased $5 million in 2021, compared with 2020.

2020 vs. 2019

Corporate overhead and other increased $7 million in 2020, compared with 2019.

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Index to Financial Statements

CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators


	Millions of Dollars, Except as Indicated
	2021			2020	2019

Cash and cash equivalents	$	3,147		2,514	1,614
Net cash provided by operating activities	6,017			2,111	4,808
Short-term debt	1,489			987	547
Total debt	14,448			15,893	11,763
Total equity	21,637			21,523	27,169
Percent of total debt to capital*	40		%	42	30
Percent of floating-rate debt to total debt	3		%	12	9
* Capital includes total debt and total equity.

To meet our short- and long-term liquidity requirements, we use a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. During 2021, we generated $6.0 billion in cash from operations. We used available cash to fund capital expenditures and investments of $1.9 billion, pay dividends on our common stock of $1.6 billion, pay down $1.5 billion in debt, and fund an additional member loan to an equity affiliate of $310 million. During 2021, cash and cash equivalents increased $633 million to $3.1 billion.

Significant Sources of Capital

Operating Activities

During 2020, cash generated by operating activities was $2.1 billion, a 56% decrease compared with 2019. The decrease was primarily due to lower realized refining margins, driven by the global economic disruption caused by the COVID-19 pandemic, partially offset by lower cash income taxes paid.

The level and quality of output from our refineries also impact 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 84%, 76% and 94% in 2021, 2020 and 2019, respectively. Our worldwide refining clean product yield was 83%, 84% and 84% in 2021, 2020 and 2019, respectively.

Equity Affiliate Operating Distributions

Our operating cash flows are also impacted by distribution decisions made by our equity affiliates, including CPChem. Over the three years ended December 31, 2021, our operating cash flows included aggregate distributions from our equity affiliates of $6,285 million, including $3,101 million from CPChem. We cannot control the amount or timing of future distributions from equity affiliates; therefore, future distributions are not assured.