UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the quarterly period ended | September 30, 2019
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For the quarterly period ended | June 30, 2020 | or | | |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the transition period from | | to | | |
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Commission file number: | 001-35349 | |
Phillips 66
(Exact name of registrant as specified in its charter)
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Delaware | | 45-3779385 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.)
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2331 CityWest Blvd.Blvd., Houston,, Texas77042
(Address of principal executive offices) (Zip Code)
281-293-6600281-293-6600
(Registrant’s telephone number, including area code)
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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 | |
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 ☒ No ☐
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 ☒ No ☐
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. |
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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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 444,357,576436,696,660 shares of common stock, $0.01 par value, outstanding as of SeptemberJune 30, 2019.2020.
PHILLIPS 66
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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| | | | |
Consolidated Statement of IncomeOperations | Phillips 66 |
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
Revenues and Other Income | | | | | |
Sales and other operating revenues | $ | 27,218 |
| 29,788 |
| | 78,168 |
| 82,363 |
|
Equity in earnings of affiliates | 499 |
| 779 |
| | 1,663 |
| 1,946 |
|
Net gain on dispositions | 18 |
| 1 |
| | 19 |
| 18 |
|
Other income | 36 |
| 24 |
| | 97 |
| 47 |
|
Total Revenues and Other Income | 27,771 |
| 30,592 |
| | 79,947 |
| 84,374 |
|
| | | | | |
Costs and Expenses | | | | | |
Purchased crude oil and products | 23,806 |
| 26,385 |
| | 69,415 |
| 73,270 |
|
Operating expenses | 1,206 |
| 1,206 |
| | 3,678 |
| 3,595 |
|
Selling, general and administrative expenses | 416 |
| 440 |
| | 1,190 |
| 1,258 |
|
Depreciation and amortization | 336 |
| 346 |
| | 1,001 |
| 1,019 |
|
Impairments | 853 |
| 1 |
| | 856 |
| 7 |
|
Taxes other than income taxes | 105 |
| 109 |
| | 330 |
| 328 |
|
Accretion on discounted liabilities | 6 |
| 5 |
| | 17 |
| 17 |
|
Interest and debt expense | 109 |
| 125 |
| | 343 |
| 383 |
|
Foreign currency transaction (gains) losses | (9 | ) | — |
| | 5 |
| (30 | ) |
Total Costs and Expenses | 26,828 |
| 28,617 |
| | 76,835 |
| 79,847 |
|
Income before income taxes | 943 |
| 1,975 |
|
| 3,112 |
| 4,527 |
|
Income tax expense | 150 |
| 407 |
| | 545 |
| 970 |
|
Net Income | 793 |
| 1,568 |
| | 2,567 |
| 3,557 |
|
Less: net income attributable to noncontrolling interests | 81 |
| 76 |
| | 227 |
| 202 |
|
Net Income Attributable to Phillips 66 | $ | 712 |
| 1,492 |
| | 2,340 |
| 3,355 |
|
| | | | | |
Net Income Attributable to Phillips 66 Per Share of Common Stock (dollars) | | | | | |
Basic | $ | 1.58 |
| 3.20 |
| | 5.15 |
| 7.07 |
|
Diluted | 1.58 |
| 3.18 |
| | 5.13 |
| 7.03 |
|
| | | | | |
Weighted-Average Common Shares Outstanding (thousands) | | | | | |
Basic | 449,005 |
| 466,109 |
| | 453,398 |
| 473,760 |
|
Diluted | 451,001 |
| 469,440 |
| | 455,810 |
| 477,220 |
|
See Notes to Consolidated Financial Statements. | | | | | |
| | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | |
| Three Months Ended June 30 | | | Six Months Ended June 30 | |
| 2020 | | 2019 | | | 2020 | | 2019 | |
Revenues and Other Income | | | | | |
Sales and other operating revenues | $ | 10,913 | | 27,847 | | | 31,791 | | 50,950 | |
Equity in earnings of affiliates | 157 | | 648 | | | 522 | | 1,164 | |
Net gain on dispositions | 85 | | — | | | 86 | | 1 | |
Other income | 28 | | 23 | | | 28 | | 61 | |
Total Revenues and Other Income | 11,183 | | 28,518 | | | 32,427 | | 52,176 | |
| | | | | |
Costs and Expenses | | | | | |
Purchased crude oil and products | 9,608 | | 24,554 | | | 28,048 | | 45,609 | |
Operating expenses | 1,026 | | 1,165 | | | 2,367 | | 2,472 | |
Selling, general and administrative expenses | 409 | | 408 | | | 728 | | 774 | |
Depreciation and amortization | 343 | | 334 | | | 685 | | 665 | |
Impairments | — | | 2 | | | 3,006 | | 3 | |
Taxes other than income taxes | 114 | | 97 | | | 271 | | 225 | |
Accretion on discounted liabilities | 5 | | 5 | | | 11 | | 11 | |
Interest and debt expense | 117 | | 115 | | | 228 | | 234 | |
Foreign currency transaction losses | 6 | | 9 | | | 6 | | 14 | |
Total Costs and Expenses | 11,628 | | 26,689 | | | 35,350 | | 50,007 | |
Income (loss) before income taxes | (445) | | 1,829 | | | (2,923) | | 2,169 | |
Income tax expense (benefit) | (378) | | 325 | | | (429) | | 395 | |
Net Income (Loss) | (67) | | 1,504 | | | (2,494) | | 1,774 | |
Less: net income attributable to noncontrolling interests | 74 | | 80 | | | 143 | | 146 | |
Net Income (Loss) Attributable to Phillips 66 | $ | (141) | | 1,424 | | | (2,637) | | 1,628 | |
| | | | | |
Net Income (Loss) Attributable to Phillips 66 Per Share of Common Stock (dollars) | | | | | |
Basic | $ | (0.33) | | 3.13 | | | (6.00) | | 3.57 | |
Diluted | (0.33) | | 3.12 | | | (6.00) | | 3.55 | |
| | | | | |
| | | | | |
| | | | | |
Weighted-Average Common Shares Outstanding (thousands) | | | | | |
Basic | 438,756 | | 453,681 | | | 440,050 | | 455,630 | |
Diluted | 438,756 | | 455,585 | | | 440,050 | | 457,620 | |
| | | | | |
See Notes to Consolidated Financial Statements. | | | | | |
|
| | | | |
Consolidated Statement of Comprehensive Income (Loss) | Phillips 66 |
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| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Net Income | $ | 793 |
| 1,568 |
| | 2,567 |
| 3,557 |
|
Other comprehensive income (loss) | | | | | |
Defined benefit plans | | | | | |
Amortization to income of net actuarial loss, prior service credit and settlements | 17 |
| 68 |
| | 51 |
| 111 |
|
Plans sponsored by equity affiliates | 2 |
| 4 |
| | 7 |
| 13 |
|
Income taxes on defined benefit plans | (4 | ) | (18 | ) | | (13 | ) | (30 | ) |
Defined benefit plans, net of income taxes | 15 |
| 54 |
| | 45 |
| 94 |
|
Foreign currency translation adjustments | (119 | ) | (15 | ) | | (124 | ) | (125 | ) |
Income taxes on foreign currency translation adjustments | 1 |
| 1 |
| | — |
| 2 |
|
Foreign currency translation adjustments, net of income taxes | (118 | ) | (14 | ) | | (124 | ) | (123 | ) |
Cash flow hedges | (2 | ) | 2 |
| | (13 | ) | 10 |
|
Income taxes on hedging activities | 1 |
| (1 | ) | | 2 |
| (3 | ) |
Hedging activities, net of income taxes | (1 | ) | 1 |
| | (11 | ) | 7 |
|
Other Comprehensive Income (Loss), Net of Income Taxes | (104 | ) | 41 |
| | (90 | ) | (22 | ) |
Comprehensive Income | 689 |
| 1,609 |
| | 2,477 |
| 3,535 |
|
Less: comprehensive income attributable to noncontrolling interests | 81 |
| 76 |
| | 227 |
| 202 |
|
Comprehensive Income Attributable to Phillips 66 | $ | 608 |
| 1,533 |
| | 2,250 |
| 3,333 |
|
See Notes to Consolidated Financial Statements.
|
| |
Consolidated Balance Sheet | Phillips 66 |
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| | | | | | |
| Millions of Dollars |
| September 30 2019 |
| | December 31 2018 |
|
Assets | | | |
Cash and cash equivalents | $ | 2,268 |
| | 3,019 |
|
Accounts and notes receivable (net of allowances of $41 million in 2019 and $22 million in 2018) | 6,097 |
| | 5,414 |
|
Accounts and notes receivable—related parties | 989 |
| | 759 |
|
Inventories | 5,521 |
| | 3,543 |
|
Prepaid expenses and other current assets | 742 |
| | 474 |
|
Total Current Assets | 15,617 |
| | 13,209 |
|
Investments and long-term receivables | 14,147 |
| | 14,421 |
|
Net properties, plants and equipment | 22,954 |
| | 22,018 |
|
Goodwill | 3,270 |
| | 3,270 |
|
Intangibles | 872 |
| | 869 |
|
Other assets | 1,881 |
| | 515 |
|
Total Assets | $ | 58,741 |
| | 54,302 |
|
| | | |
Liabilities | | | |
Accounts payable | $ | 7,738 |
| | 6,113 |
|
Accounts payable—related parties | 635 |
| | 473 |
|
Short-term debt | 842 |
| | 67 |
|
Accrued income and other taxes | 1,128 |
| | 1,116 |
|
Employee benefit obligations | 624 |
| | 724 |
|
Other accruals | 1,116 |
| | 442 |
|
Total Current Liabilities | 12,083 |
| | 8,935 |
|
Long-term debt | 11,083 |
| | 11,093 |
|
Asset retirement obligations and accrued environmental costs | 617 |
| | 624 |
|
Deferred income taxes | 5,503 |
| | 5,275 |
|
Employee benefit obligations | 905 |
| | 867 |
|
Other liabilities and deferred credits | 1,458 |
| | 355 |
|
Total Liabilities | 31,649 |
| | 27,149 |
|
| | | |
Equity | | | |
Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2019—647,050,977 shares; 2018—645,691,761 shares) | | | |
Par value | 6 |
| | 6 |
|
Capital in excess of par | 20,253 |
| | 19,873 |
|
Treasury stock (at cost: 2019—202,693,401 shares; 2018—189,526,331 shares) | (16,261 | ) | | (15,023 | ) |
Retained earnings | 21,730 |
| | 20,489 |
|
Accumulated other comprehensive loss | (871 | ) | | (692 | ) |
Total Stockholders’ Equity | 24,857 |
| | 24,653 |
|
Noncontrolling interests | 2,235 |
| | 2,500 |
|
Total Equity | 27,092 |
| | 27,153 |
|
Total Liabilities and Equity | $ | 58,741 |
| | 54,302 |
|
See Notes to Consolidated Financial Statements.
|
| |
Consolidated Statement of Cash Flows | Phillips 66 |
|
| | | | | | |
| Millions of Dollars |
| Nine Months Ended September 30 |
| 2019 |
| | 2018 |
|
Cash Flows From Operating Activities | | | |
Net income | $ | 2,567 |
| | 3,557 |
|
Adjustments to reconcile net income to net cash provided by operating activities | | | |
Depreciation and amortization | 1,001 |
| | 1,019 |
|
Impairments | 856 |
| | 7 |
|
Accretion on discounted liabilities | 17 |
| | 17 |
|
Deferred income taxes | 115 |
| | 229 |
|
Undistributed equity earnings | (25 | ) | | 111 |
|
Net gain on dispositions | (19 | ) | | (18 | ) |
Other | (97 | ) | | 118 |
|
Working capital adjustments | | | |
Accounts and notes receivable | (909 | ) | | (478 | ) |
Inventories | (2,004 | ) | | (2,178 | ) |
Prepaid expenses and other current assets | (269 | ) | | (509 | ) |
Accounts payable | 1,778 |
| | 1,280 |
|
Taxes and other accruals | 103 |
| | 279 |
|
Net Cash Provided by Operating Activities | 3,114 |
| | 3,434 |
|
| | | |
Cash Flows From Investing Activities | | | |
Capital expenditures and investments | (2,595 | ) | | (1,645 | ) |
Proceeds from asset dispositions* | 139 |
| | 39 |
|
Advances/loans—related parties | (95 | ) | | (1 | ) |
Collection of advances/loans—related parties | 95 |
| | — |
|
Other | 24 |
| | 67 |
|
Net Cash Used in Investing Activities | (2,432 | ) | | (1,540 | ) |
| | | |
Cash Flows From Financing Activities | | | |
Issuance of debt | 1,758 |
| | 1,594 |
|
Repayment of debt | (1,004 | ) | | (374 | ) |
Issuance of common stock | 15 |
| | 39 |
|
Repurchase of common stock | (1,238 | ) | | (4,148 | ) |
Dividends paid on common stock | (1,172 | ) | | (1,069 | ) |
Distributions to noncontrolling interests | (176 | ) | | (146 | ) |
Net proceeds from issuance of Phillips 66 Partners LP common units | 133 |
| | 114 |
|
Other | 282 |
| | (79 | ) |
Net Cash Used in Financing Activities | (1,402 | ) | | (4,069 | ) |
| | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (31 | ) | | (20 | ) |
| | | |
Net Change in Cash and Cash Equivalents | (751 | ) | | (2,195 | ) |
Cash and cash equivalents at beginning of period | 3,019 |
| | 3,119 |
|
Cash and Cash Equivalents at End of Period | $ | 2,268 |
| | 924 |
|
* Includes return of investments in equity affiliates. | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | |
| Three Months Ended June 30 | | | Six Months Ended June 30 | |
| 2020 | | 2019 | | | 2020 | | 2019 | |
| | | | | |
Net Income (Loss) | $ | (67) | | 1,504 | | | (2,494) | | 1,774 | |
Other comprehensive income (loss) | | | | | |
Defined benefit plans | | | | | |
| | | | | |
Actuarial loss arising during the period | (300) | | — | | | (300) | | — | |
Amortization to income of net actuarial loss, net prior service credit and settlements | 55 | | 15 | | | 78 | | 34 | |
| | | | | |
| | | | | |
Plans sponsored by equity affiliates | 3 | | 1 | | | 5 | | 5 | |
Income taxes on defined benefit plans | 59 | | (4) | | | 54 | | (9) | |
Defined benefit plans, net of income taxes | (183) | | 12 | | | (163) | | 30 | |
Foreign currency translation adjustments | 26 | | (62) | | | (196) | | (5) | |
Income taxes on foreign currency translation adjustments | — | | (1) | | | 1 | | (1) | |
Foreign currency translation adjustments, net of income taxes | 26 | | (63) | | | (195) | | (6) | |
Cash flow hedges | — | | (7) | | | (9) | | (11) | |
| | | | | |
Income taxes on hedging activities | — | | — | | | 2 | | 1 | |
Hedging activities, net of income taxes | — | | (7) | | | (7) | | (10) | |
Other Comprehensive Income (Loss), Net of Income Taxes | (157) | | (58) | | | (365) | | 14 | |
Comprehensive Income (Loss) | (224) | | 1,446 | | | (2,859) | | 1,788 | |
Less: comprehensive income attributable to noncontrolling interests | 74 | | 80 | | | 143 | | 146 | |
Comprehensive Income (Loss) Attributable to Phillips 66 | $ | (298) | | 1,366 | | | (3,002) | | 1,642 | |
See Notes to Consolidated Financial Statements.
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| | | | |
Consolidated Balance Sheet | Phillips 66 |
| | | | | | | | | | | |
| Millions of Dollars | | |
| June 30 2020 | | December 31 2019 |
Assets | | | |
Cash and cash equivalents | $ | 1,890 | | | 1,614 | |
Accounts and notes receivable (net of allowances of $39 million in 2020 and $41 million in 2019) | 3,995 | | | 7,376 | |
Accounts and notes receivable—related parties | 857 | | | 1,134 | |
Inventories | 5,136 | | | 3,776 | |
Prepaid expenses and other current assets | 621 | | | 495 | |
Total Current Assets | 12,499 | | | 14,395 | |
Investments and long-term receivables | 13,628 | | | 14,571 | |
Net properties, plants and equipment | 24,282 | | | 23,786 | |
Goodwill | 1,425 | | | 3,270 | |
Intangibles | 874 | | | 869 | |
Other assets | 1,810 | | | 1,829 | |
Total Assets | $ | 54,518 | | | 58,720 | |
| | | |
Liabilities | | | |
Accounts payable | $ | 4,902 | | | 8,043 | |
Accounts payable—related parties | 466 | | | 532 | |
Short-term debt | 1,783 | | | 547 | |
Accrued income and other taxes | 1,046 | | | 979 | |
Employee benefit obligations | 395 | | | 710 | |
Other accruals | 1,431 | | | 835 | |
Total Current Liabilities | 10,023 | | | 11,646 | |
Long-term debt | 12,663 | | | 11,216 | |
Asset retirement obligations and accrued environmental costs | 625 | | | 638 | |
Deferred income taxes | 5,471 | | | 5,553 | |
Employee benefit obligations | 1,360 | | | 1,044 | |
Other liabilities and deferred credits | 1,081 | | | 1,454 | |
Total Liabilities | 31,223 | | | 31,551 | |
| | | |
Equity | | | |
Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2020—648,468,487 shares; 2019—647,416,633 shares) | | | |
Par value | 6 | | | 6 | |
Capital in excess of par | 20,342 | | | 20,301 | |
Treasury stock (at cost: 2020—211,771,827 shares; 2019—206,390,806 shares) | (17,116) | | | (16,673) | |
Retained earnings | 18,631 | | | 22,064 | |
Accumulated other comprehensive loss | (1,148) | | | (788) | |
Total Stockholders’ Equity | 20,715 | | | 24,910 | |
Noncontrolling interests | 2,580 | | | 2,259 | |
Total Equity | 23,295 | | | 27,169 | |
Total Liabilities and Equity | $ | 54,518 | | | 58,720 | |
See Notes to Consolidated Financial Statements.
| | | | | |
Consolidated Statement of Cash Flows | Phillips 66 |
| | | | | | | | | | | |
| Millions of Dollars | | |
| Six Months Ended June 30 | | |
| 2020 | | | 2019 | |
Cash Flows From Operating Activities | | | |
Net income (loss) | $ | (2,494) | | | 1,774 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | |
Depreciation and amortization | 685 | | | 665 | |
Impairments | 3,006 | | | 3 | |
Accretion on discounted liabilities | 11 | | | 11 | |
Deferred income taxes | (21) | | | 253 | |
Undistributed equity earnings | 298 | | | (44) | |
Net gain on dispositions | (86) | | | (1) | |
| | | |
| | | |
Other | 7 | | | (59) | |
Working capital adjustments | | | |
Accounts and notes receivable | 3,814 | | | (534) | |
Inventories | (1,416) | | | (1,549) | |
Prepaid expenses and other current assets | (126) | | | (182) | |
Accounts payable | (3,121) | | | 1,368 | |
Taxes and other accruals | 424 | | | (253) | |
| | | |
| | | |
Net Cash Provided by Operating Activities | 981 | | | 1,452 | |
| | | |
Cash Flows From Investing Activities | | | |
Capital expenditures and investments | (1,862) | | | (1,728) | |
Return of investments in equity affiliates | 88 | | | 35 | |
Proceeds from asset dispositions | 1 | | | 83 | |
Advances/loans—related parties | (231) | | | (95) | |
Collection of advances/loans—related parties | 44 | | | 95 | |
| | | |
Other | (64) | | | 24 | |
| | | |
| | | |
Net Cash Used in Investing Activities | (2,024) | | | (1,586) | |
| | | |
Cash Flows From Financing Activities | | | |
Issuance of debt | 3,230 | | | 860 | |
Repayment of debt | (541) | | | (597) | |
Issuance of common stock | 6 | | | 9 | |
Repurchase of common stock | (443) | | | (799) | |
Dividends paid on common stock | (789) | | | (770) | |
Distributions to noncontrolling interests | (127) | | | (117) | |
Net proceeds from issuance of Phillips 66 Partners LP common units | 2 | | | 42 | |
Other | (15) | | | 301 | |
| | | |
| | | |
Net Cash Provided by (Used in) Financing Activities | 1,323 | | | (1,071) | |
| | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (4) | | | 5 | |
| | | |
Net Change in Cash and Cash Equivalents | 276 | | | (1,200) | |
Cash and cash equivalents at beginning of period | 1,614 | | | 3,019 | |
Cash and Cash Equivalents at End of Period | $ | 1,890 | | | 1,819 | |
See Notes to Consolidated Financial Statements.
| | | | | |
Consolidated Statement of Changes in Equity | Phillips 66 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | | |
| Three Months Ended June 30 | | | | | | |
| Attributable to Phillips 66 | | | | | | |
| Common Stock | | | | | | |
| Par Value | Capital in Excess of Par | Treasury Stock | Retained Earnings | Accum. Other Comprehensive Loss | Noncontrolling Interests | Total |
| | | | | | | |
March 31, 2020 | $ | 6 | | 20,305 | | (17,116) | | 19,168 | | (991) | | 2,267 | | 23,639 | |
Net income (loss) | — | | — | | — | | (141) | | — | | 74 | | (67) | |
Other comprehensive loss | — | | — | | — | | — | | (157) | | — | | (157) | |
Dividends paid on common stock ($0.90 per share) | — | | — | | — | | (393) | | — | | — | | (393) | |
| | | | | | | |
Benefit plan activity | — | | 37 | | — | | (3) | | — | | — | | 34 | |
Transfer of equity interest | — | | — | | — | | — | | — | | 305 | | 305 | |
| | | | | | | |
Distributions to noncontrolling interests | — | | — | | — | | — | | — | | (66) | | (66) | |
| | | | | | | |
June 30, 2020 | $ | 6 | | 20,342 | | (17,116) | | 18,631 | | (1,148) | | 2,580 | | 23,295 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
March 31, 2019 | $ | 6 | | 19,879 | | (15,367) | | 20,408 | | (709) | | 2,528 | | 26,745 | |
| | | | | | | |
Net income | — | | — | | — | | 1,424 | | — | | 80 | | 1,504 | |
Other comprehensive loss | — | | — | | — | | — | | (58) | | — | | (58) | |
Dividends paid on common stock ($0.90 per share) | — | | — | | — | | (406) | | — | | — | | (406) | |
Repurchase of common stock | — | | — | | (455) | | — | | — | | — | | (455) | |
Benefit plan activity | — | | 30 | | — | | (3) | | — | | — | | 27 | |
Issuance of Phillips 66 Partners LP common units | — | | 3 | | — | | — | | — | | 7 | | 10 | |
Distributions to noncontrolling interests | — | | — | | — | | — | | — | | (61) | | (61) | |
June 30, 2019 | $ | 6 | | 19,912 | | (15,822) | | 21,423 | | (767) | | 2,554 | | 27,306 | |
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| | | | | | | | |
| Shares in Thousands | |
| Three Months Ended June 30 | |
| Common Stock Issued | Treasury Stock |
| | |
March 31, 2020 | 648,447 | | 211,772 | |
Repurchase of common stock | — | | — | |
Shares issued—share-based compensation | 21 | | — | |
June 30, 2020 | 648,468 | | 211,772 | |
| | |
March 31, 2019 | 646,716 | | 193,165 | |
Repurchase of common stock | — | | 5,122 | |
Shares issued—share-based compensation | 112 | | — | |
June 30, 2019 | 646,828 | | 198,287 | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
See Notes to Consolidated Financial Statements. | | |
|
| | | | | | | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 |
| Attributable to Phillips 66 | | |
| Common Stock | | | | |
| Par Value |
| Capital in Excess of Par |
| Treasury Stock |
| Retained Earnings |
| Accum. Other Comprehensive Loss |
| Noncontrolling Interests |
| Total |
|
| | | | | | | |
June 30, 2019 | $ | 6 |
| 19,912 |
| (15,822 | ) | 21,423 |
| (767 | ) | 2,554 |
| 27,306 |
|
Net income | — |
| — |
| — |
| 712 |
| — |
| 81 |
| 793 |
|
Other comprehensive loss | — |
| — |
| — |
| — |
| (104 | ) | — |
| (104 | ) |
Dividends paid on common stock ($0.90 per share) | — |
| — |
| — |
| (402 | ) | — |
| — |
| (402 | ) |
Repurchase of common stock | — |
| — |
| (439 | ) | — |
| — |
| — |
| (439 | ) |
Benefit plan activity | — |
| 22 |
| — |
| (3 | ) | — |
| — |
| 19 |
|
Issuance of Phillips 66 Partners LP common units | — |
| 44 |
| — |
| — |
| — |
| 32 |
| 76 |
|
Impacts from Phillips 66 Partners GP/IDR restructuring transaction | — |
| 275 |
| — |
| — |
| — |
| (373 | ) | (98 | ) |
Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (59 | ) | (59 | ) |
September 30, 2019 | $ | 6 |
| 20,253 |
| (16,261 | ) | 21,730 |
| (871 | ) | 2,235 |
| 27,092 |
|
| | | | | | | |
June 30, 2018 | $ | 6 |
| 19,831 |
| (14,121 | ) | 17,500 |
| (680 | ) | 2,424 |
| 24,960 |
|
Net income | — |
| — |
| — |
| 1,492 |
| — |
| 76 |
| 1,568 |
|
Other comprehensive income | — |
| — |
| — |
| — |
| 41 |
| — |
| 41 |
|
Dividends paid on common stock ($0.80 per share) | — |
| — |
| — |
| (370 | ) | — |
| — |
| (370 | ) |
Repurchase of common stock | — |
| — |
| (405 | ) | — |
| — |
| — |
| (405 | ) |
Benefit plan activity | — |
| 13 |
| — |
| (4 | ) | — |
| — |
| 9 |
|
Issuance of Phillips 66 Partners LP common units | — |
| 16 |
| — |
| — |
| — |
| 26 |
| 42 |
|
Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (50 | ) | (50 | ) |
September 30, 2018 | $ | 6 |
| 19,860 |
| (14,526 | ) | 18,618 |
| (639 | ) | 2,476 |
| 25,795 |
|
|
| | | | |
| Shares in Thousands |
| Three Months Ended September 30 |
| Common Stock Issued |
| Treasury Stock |
|
| | |
June 30, 2019 | 646,828 |
| 198,287 |
|
Repurchase of common stock | — |
| 4,406 |
|
Shares issued—share-based compensation | 223 |
| — |
|
September 30, 2019 | 647,051 |
| 202,693 |
|
| | |
June 30, 2018 | 645,215 |
| 180,952 |
|
Repurchase of common stock | — |
| 3,501 |
|
Shares issued—share-based compensation | 364 |
| — |
|
September 30, 2018 | 645,579 |
| 184,453 |
|
See Notes to Consolidated Financial Statements. |
|
| | | | | | | | | | | | | | | |
| Millions of Dollars |
| Nine Months Ended September 30 |
| Attributable to Phillips 66 | | |
| Common Stock | | | | |
| Par Value |
| Capital in Excess of Par |
| Treasury Stock |
| Retained Earnings |
| Accum. Other Comprehensive Loss |
| Noncontrolling Interests |
| Total |
|
| | | | | | | |
December 31, 2018 | $ | 6 |
| 19,873 |
| (15,023 | ) | 20,489 |
| (692 | ) | 2,500 |
| 27,153 |
|
Cumulative effect of accounting changes | — |
| — |
| — |
| 81 |
| (89 | ) | (1 | ) | (9 | ) |
Net income | — |
| — |
| — |
| 2,340 |
| — |
| 227 |
| 2,567 |
|
Other comprehensive loss | — |
| — |
| — |
| — |
| (90 | ) | — |
| (90 | ) |
Dividends paid on common stock ($2.60 per share) | — |
| — |
| — |
| (1,172 | ) | — |
| — |
| (1,172 | ) |
Repurchase of common stock | — |
| — |
| (1,238 | ) | — |
| — |
| — |
| (1,238 | ) |
Benefit plan activity | — |
| 56 |
| — |
| (8 | ) | — |
| — |
| 48 |
|
Issuance of Phillips 66 Partners LP common units | — |
| 49 |
| — |
| — |
| — |
| 58 |
| 107 |
|
Impacts from Phillips 66 Partners GP/IDR restructuring transaction | — |
| 275 |
| — |
| — |
| — |
| (373 | ) | (98 | ) |
Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (176 | ) | (176 | ) |
September 30, 2019 | $ | 6 |
| 20,253 |
| (16,261 | ) | 21,730 |
| (871 | ) | 2,235 |
| 27,092 |
|
| | | | | | | |
December 31, 2017 | $ | 6 |
| 19,768 |
| (10,378 | ) | 16,306 |
| (617 | ) | 2,343 |
| 27,428 |
|
Cumulative effect of accounting changes | — |
| — |
| — |
| 36 |
| — |
| 13 |
| 49 |
|
Net income | — |
| — |
| — |
| 3,355 |
| — |
| 202 |
| 3,557 |
|
Other comprehensive loss | — |
| — |
| — |
| — |
| (22 | ) | — |
| (22 | ) |
Dividends paid on common stock ($2.30 per share) | — |
| — |
| — |
| (1,069 | ) | — |
| — |
| (1,069 | ) |
Repurchase of common stock | — |
| — |
| (4,148 | ) | — |
| — |
| — |
| (4,148 | ) |
Benefit plan activity | — |
| 54 |
| — |
| (10 | ) | — |
| — |
| 44 |
|
Issuance of Phillips 66 Partners LP common units | — |
| 38 |
| — |
| — |
| — |
| 64 |
| 102 |
|
Distributions to noncontrolling interests | — |
| — |
| — |
| — |
| — |
| (146 | ) | (146 | ) |
September 30, 2018 | $ | 6 |
| 19,860 |
| (14,526 | ) | 18,618 |
| (639 | ) | 2,476 |
| 25,795 |
|
|
| | | | |
| Shares in Thousands |
| Nine Months Ended September 30 |
| Common Stock Issued |
| Treasury Stock |
|
| | |
December 31, 2018 | 645,692 |
| 189,526 |
|
Repurchase of common stock | — |
| 13,167 |
|
Shares issued—share-based compensation | 1,359 |
| — |
|
September 30, 2019 | 647,051 |
| 202,693 |
|
| | |
December 31, 2017 | 643,835 |
| 141,565 |
|
Repurchase of common stock | — |
| 42,888 |
|
Shares issued—share-based compensation | 1,744 |
| — |
|
September 30, 2018 | 645,579 |
| 184,453 |
|
See Notes to Consolidated Financial Statements. |
| | | | | |
Consolidated Statement of Changes in Equity | Phillips 66 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | | |
| Six Months Ended June 30, 2020 | | | | | | |
| Attributable to Phillips 66 | | | | | | |
| Common Stock | | | | | | |
| Par Value | Capital in Excess of Par | Treasury Stock | Retained Earnings | Accum. Other Comprehensive Loss | Noncontrolling Interests | Total |
| | | | | | | |
December 31, 2019 | $ | 6 | | 20,301 | | (16,673) | | 22,064 | | (788) | | 2,259 | | 27,169 | |
Net income (loss) | — | | — | | — | | (2,637) | | — | | 143 | | (2,494) | |
Other comprehensive loss | — | | — | | — | | — | | (365) | | — | | (365) | |
Dividends paid on common stock ($1.80 per share) | — | | — | | — | | (789) | | — | | — | | (789) | |
Repurchase of common stock | — | | — | | (443) | | — | | — | | — | | (443) | |
Benefit plan activity | — | | 41 | | — | | (5) | | — | | — | | 36 | |
Transfer of equity interest | — | | — | | — | | — | | — | | 305 | | 305 | |
Distributions to noncontrolling interests | — | | — | | — | | — | | — | | (127) | | (127) | |
Other | — | | — | | — | | (2) | | 5 | | — | | 3 | |
June 30, 2020 | $ | 6 | | 20,342 | | (17,116) | | 18,631 | | (1,148) | | 2,580 | | 23,295 | |
| | | | | | | |
December 31, 2018 | $ | 6 | | 19,873 | | (15,023) | | 20,489 | | (692) | | 2,500 | | 27,153 | |
Cumulative effect of accounting changes | — | | — | | — | | 81 | | (89) | | (1) | | (9) | |
Net income | — | | — | | — | | 1,628 | | — | | 146 | | 1,774 | |
Other comprehensive income | — | | — | | — | | — | | 14 | | — | | 14 | |
Dividends paid on common stock ($1.70 per share) | — | | — | | — | | (770) | | — | | — | | (770) | |
Repurchase of common stock | — | | — | | (799) | | — | | — | | — | | (799) | |
Benefit plan activity | — | | 34 | | — | | (5) | | — | | — | | 29 | |
Issuance of Phillips 66 Partners LP common units | — | | 5 | | — | | — | | — | | 26 | | 31 | |
Distributions to noncontrolling interests | — | | — | | — | | — | | — | | (117) | | (117) | |
June 30, 2019 | $ | 6 | | 19,912 | | (15,822) | | 21,423 | | (767) | | 2,554 | | 27,306 | |
| | | | | | | |
| | | | | | | | |
| Shares in Thousands | |
| Six Months Ended June 30 | |
| Common Stock Issued | Treasury Stock |
| | |
December 31, 2019 | 647,417 | | 206,391 | |
Repurchase of common stock | — | | 5,381 | |
Shares issued—share-based compensation | 1,051 | | — | |
June 30, 2020 | 648,468 | | 211,772 | |
| | |
December 31, 2018 | 645,692 | | 189,526 | |
Repurchase of common stock | — | | 8,761 | |
Shares issued—share-based compensation | 1,136 | | — | |
June 30, 2019 | 646,828 | | 198,287 | |
See Notes to Consolidated Financial Statements. | | |
| | | | | |
Notes to Consolidated Financial Statements | Phillips 66 |
Note 1—Interim Financial Information
The unaudited interim financial information presented in the financial statements included in this report is prepared in accordance with generally accepted accounting principles in the United States (GAAP) and includes all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of the consolidated financial position of Phillips 66 and its results of operations and cash flows for the periods presented. Unless otherwise specified, all such adjustments are of a normal and recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our 20182019 Annual Report on Form 10-K. The results of operations for the three and ninesix months ended SeptemberJune 30, 2019,2020, are not necessarily indicative of the results expected for the full year. Certain prior period financial information has been recast to reflect the current year’s presentation.
Note 2—Changes in Accounting Principles
Effective January 1, 2019, we elected to adopt Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU permits the deferred income tax effects stranded in accumulated other comprehensive income (AOCI) resulting from the U.S. Tax Cuts and Jobs Act (the Tax Act) enacted in December 2017 to be reclassified to retained earnings. As of January 1, 2019, we recorded a cumulative effect adjustment to our opening consolidated balance sheet to reclassify an aggregate income tax benefit of $89 million, primarily related to our pension plans, from accumulated other comprehensive loss to retained earnings.
Effective January 1, 2019, we early adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, and off-balance sheet credit exposures. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. We recorded a noncash cumulative effect adjustment to retained earnings of $9 million, net of $3 million of income taxes, on our opening consolidated balance sheet as of January 1, 2019. See Note 4—Credit Losses, for more information on our presentation of credit losses.
Effective January 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842),” using the modified retrospective transition method. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12 months. Leases will continue to be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated income statement.
We elected the package of practical expedients that allowed us to carry forward our determination of whether an arrangement contained a lease and lease classification, as well as our accounting for initial direct costs for existing contracts. We recorded a noncash cumulative effect adjustment to our opening consolidated balance sheet as of January 1, 2019, to record an aggregate operating lease ROU asset and corresponding lease liability of $1,415 million and immaterial adjustments to retained earnings and noncontrolling interests. See Note 14—Leases, for the new lease disclosures required by this ASU.
Note 3—Sales and Other Operating Revenues
Disaggregated Revenues
The following tables present our disaggregated sales and other operating revenues:
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
Product Line and Services | | | | | |
Refined petroleum products | $ | 22,373 |
| 23,184 |
| | 64,088 |
| 64,975 |
|
Crude oil resales | 3,511 |
| 4,747 |
| | 10,162 |
| 12,316 |
|
Natural gas liquids (NGL) | 1,025 |
| 1,782 |
| | 3,508 |
| 4,751 |
|
Services and other* | 309 |
| 75 |
| | 410 |
| 321 |
|
Consolidated sales and other operating revenues | $ | 27,218 |
| 29,788 |
|
| 78,168 |
| 82,363 |
|
| | | | | |
Geographic Location** | | | | | |
United States | $ | 21,160 |
| 23,068 |
| | 60,602 |
| 64,481 |
|
United Kingdom | 2,375 |
| 3,085 |
| | 7,318 |
| 7,623 |
|
Germany | 1,025 |
| 1,135 |
| | 3,074 |
| 3,174 |
|
Other foreign countries | 2,658 |
| 2,500 |
| | 7,174 |
| 7,085 |
|
Consolidated sales and other operating revenues | $ | 27,218 |
| 29,788 |
|
| 78,168 |
| 82,363 |
|
* Includes derivatives-related activities. See Note 12—Derivatives and Financial Instruments, for additional information. |
** Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues. |
| | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
Product Line and Services | | | | | | |
Refined petroleum products | $ | 8,701 | | | 22,922 | | | 24,858 | | 41,715 | |
Crude oil resales | 1,490 | | | 3,613 | | | 4,367 | | 6,651 | |
Natural gas liquids (NGL) | 700 | | | 1,179 | | | 1,679 | | 2,483 | |
Services and other* | 22 | | | 133 | | | 887 | | 101 | |
Consolidated sales and other operating revenues | $ | 10,913 | | | 27,847 | | | 31,791 | | 50,950 | |
| | | | | | |
Geographic Location** | | | | | | |
United States | $ | 8,377 | | | 21,867 | | | 24,087 | | 39,442 | |
United Kingdom | 972 | | | 2,512 | | | 3,281 | | 4,943 | |
Germany | 613 | | | 1,092 | | | 1,471 | | 2,049 | |
Other foreign countries | 951 | | | 2,376 | | | 2,952 | | 4,516 | |
Consolidated sales and other operating revenues | $ | 10,913 | | | 27,847 | | | 31,791 | | 50,950 | |
* Includes derivatives-related activities. See Note 12—Derivatives and Financial Instruments, for additional information. | | | | | | |
** Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues. | | | | | | |
Contract-Related Assets and Liabilities
At SeptemberJune 30, 2019,2020, and December 31, 2018,2019, receivables from contracts with customers were $5,585$3,237 million and $4,993$6,902 million, respectively. Significant non-customernoncustomer balances, such as buy/sell receivables and excise tax receivables, were excluded from these amounts.
Our contract-related assets also include payments we make to our marketing customers related to incentive programs. An incentive payment is initially recognized as an asset and subsequently amortized as a reduction to revenue over the contract term, which generally ranges from 5 to 15 years. At SeptemberJune 30, 2019,2020, and December 31, 2018,2019, our asset balances related to such payments were $311$376 million and $248$336 million, respectively.
Our contract-relatedcontract liabilities represent advances received from our customers prior to product or service delivery. At SeptemberJune 30, 2019,2020, and December 31, 2018,2019, contract liabilities were $218 million and $99 million, respectively.0t material.
Remaining Performance Obligations
Most of our contracts with customers are spot contracts or term contracts with only variable consideration. We do not disclose remaining performance obligations for these contracts as the expected duration is one year or less, or because the variable consideration has been allocated entirely to an unsatisfied performance obligation. We also have certain contracts in our Midstream segment that include minimum volume commitments with fixed pricing, most of which mostly expire by 2021. At SeptemberJune 30, 2019,2020, the remaining performance obligations related to these minimum volume commitment contracts were not0t material.
Note 4—3—Credit Losses
We are exposed to credit losses primarily through our sales of refined petroleum products, crude oil and NGL. We assess each counterparty’s ability to pay for the products we sell by conducting a credit review. The credit review considers our expected billing exposure and timing for payment and the counterparty’s established credit rating or our assessment of the counterparty’s creditworthiness based on our analysis of their financial statements when a credit rating is not available. We also consider contract terms and conditions, country and political risk, and business strategy in our evaluation. A credit limit is established for each counterparty based on the outcome of this review. We may require collateralized asset support or a prepayment to mitigate credit risk.
We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. Our activities include timely account reconciliation,reconciliations, dispute resolution and payment confirmation.confirmations. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.
The negative economic impacts associated with Coronavirus Disease 2019 (COVID-19) increase the probability that certain of our counterparties may not be able to completely fulfill their obligations in a timely manner. In response, we have enhanced our credit monitoring, sought collateral to support some transactions, and required prepayments from higher-risk counterparties.
At SeptemberJune 30, 2020, and December 31, 2019, we reported $7,086$4,852 million and $8,510 million of accounts and notes receivable, net of allowances of $39 million and $41 million. Changes in the allowance were not material for the three and nine months ended September 30, 2019.million, respectively. Based on an aging analysis at SeptemberJune 30, 2019,2020, more than 99% of our accounts receivable were outstanding less than 60 days, with the remainder outstanding less than 90 days.
We are also exposed to credit losses from off-balance sheet exposures, such as guarantees of joint venture debt residual value guarantees of leased assets and standby letters of credit. See Note 10—Guarantees, and Note 11—Contingencies and Commitments, for more information on these off-balance sheet exposures.
Note 5—Inventories
Note 4—Inventories
Inventories consisted of the following:
|
| | | | | | |
| Millions of Dollars |
| September 30 2019 |
| | December 31 2018 |
|
| | | |
Crude oil and petroleum products | $ | 5,208 |
| | 3,238 |
|
Materials and supplies | 313 |
| | 305 |
|
| $ | 5,521 |
| | 3,543 |
|
| | | | | | | | | | | |
| Millions of Dollars | | |
| June 30 2020 | | December 31 2019 |
| | | |
Crude oil and petroleum products | $ | 4,806 | | | 3,452 | |
Materials and supplies | 330 | | | 324 | |
| $ | 5,136 | | | 3,776 | |
Inventories valued on the last-in, first-out (LIFO) basis totaled $5,103$4,701 million and $3,123$3,331 million at SeptemberJune 30, 2019,2020, and December 31, 2018,2019, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $4.4$1.4 billion and $2.9$4.3 billion at SeptemberJune 30, 2019,2020, and December 31, 2018,2019, respectively.
Note 6—5—Investments, Loans and Long-Term Receivables
Equity Investments
Summarized 100% financial information for Chevron Phillips Chemical Company LLC (CPChem) was as follows:
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Revenues | $ | 2,369 |
| 3,195 |
| | 7,209 |
| 8,773 |
|
Income before income taxes | 475 |
| 552 |
| | 1,522 |
| 1,819 |
|
Net income | 456 |
| 531 |
| | 1,464 |
| 1,766 |
|
DCP Midstream, LLC (DCP Midstream)
The fair value of our investment in DCP Midstream depends on the market value of DCP Midstream’s general partner interest in DCP Midstream, LP (DCP Partners) and thecommon units. The market value of DCP Partners’Partners common units. At June 30, 2019, we estimatedunits declined by approximately 85% in the first quarter of 2020. As a result, at March 31, 2020, the fair value of our investment in DCP Midstream was below oursignificantly lower than its book value. We concluded the difference between its fair value and book value butwas not temporary primarily due to its magnitude. Accordingly, we believed the condition was temporary. The fair valuerecorded a $1.2 billion before-tax impairment of our investment in DCP Midstream further deteriorated in the third quarter as the market value of DCP Midstream’s general partner interest in DCP Partners and the market value of DCP Partners’ common units declined further. We concluded the decline in fair value was no longer temporary due to the duration and magnitude of the decline. Accordingly, we recorded an $853 million impairment in the thirdfirst quarter of 2019. The impairment2020. This charge is included in the “Impairments” line item on our consolidated statement of income and results inoperations for the six months ended June 30, 2020. The impairment increased the basis difference for our investment in DCP Midstream having a bookto $1.8 billion at March 31, 2020, which indicated the carrying value of $1,358our investment was lower than our share of DCP Midstream’s recorded net assets at March 31, 2020. The basis difference is being amortized and recognized as a benefit to equity earnings over a period of 22 years, which was the estimated remaining useful life of DCP Midstream’s properties, plants and equipment (PP&E) at March 31, 2020. Equity earnings for the three and six months ended June 30, 2020, were increased by approximately $20 million at September 30, 2019.and $30 million, respectively, due to the amortization of the basis difference. See Note 13—Fair Value Measurements, for additional information on the techniques used to determine the fair value of our investment in DCP Midstream. At June 30, 2020, our investment in DCP Midstream had a book value of $254 million.
Dakota Access,Gray Oak Pipeline, 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 $2,500 million aggregate principal amount of unsecured senior notes. The net proceeds from the issuance of these notes were used to repay amounts outstanding under existing credit facilities of Dakota Access and ETCO. Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners LP (Phillips 66 Partners) and its co-venturershas a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. Excluding a co-venturer’s 35% interest in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, if Dakota Access receives an unfavorable court ruling related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million.consolidated holding company, Phillips 66 Partners’ sharePartners has an effective ownership interest of the maximum potential equity contributions under the CECU is approximately $631 million.
42.25% in Gray Oak Pipeline, LLC. Gray Oak Pipeline, LLC (Gray Oak)
In February 2019, Gray Oak Holdings LLC (Holdings LLC), a consolidated subsidiary of Phillips 66 Partners, transferred a 10% ownership interest in Gray Oak to a third party that exercised a purchase option, for proceeds of $81 million. This transfer was accounted for as a sale and resulted in a decrease in Holdings LLC’s ownership interest in Gray Oak from 75% to 65% and the recognition of an immaterial gain. The proceeds received from this sale are presented as an investing cash inflow in the “Proceeds from asset dispositions” line on our consolidated statement of cash flows. At September 30, 2019, Phillips 66 Partners’ effective ownership interest in the Gray Oak Pipeline was 42.25%.
In June 2019, Gray Oak entered intohas a third-party term loan facility with an initiala borrowing capacity of $1,230$1,379 million, which was increased in July 2019 to $1,317 million.inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. Phillips 66 Partners and its co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount. Under the agreement, Phillips 66 Partners’ maximum potential amount, of future obligations is $556 million, plus any additional accrued interest and associated fees, which would be required if Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At June 30, 2020, the term loan facility iswas fully utilized andby Gray Oak defaults on its obligations. At September 30, 2019, Gray Oak had outstanding borrowings of $904 million,Pipeline, LLC, and Phillips 66 Partners’ 42.25% proportionate exposure under the equity contribution agreement was $382$583 million. The net proceeds from the term loan were used by
During its development phase, Gray Oak forPipeline, LLC was considered a variable interest entity (VIE) because it did not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We determined we were not the primary beneficiary because we and our co-venturers jointly directed the activities of Gray Oak Pipeline, LLC that most significantly impacted economic performance. The Gray Oak Pipeline commenced full operations in the second quarter of 2020 and ceased being a VIE. At June 30, 2020, Phillips 66 Partners’ investment in the Gray Oak Pipeline and repayment of amounts borrowed underhad a related party loan agreement that Phillips 66 Partners and its co-venturers executed in March 2019 and terminated upon the repayment by Gray Oak in June. The total related party loan to and repayment received from Gray Oak was $95 million.
At September 30, 2019, Phillips 66 Partners’ maximum exposure to loss was $1,130 million, which represented the book value of the investment in Gray Oak of $748 million and the term loan guarantee of $382$896 million. See Note 21—19—Phillips 66 Partners LP, for additional information regarding Phillips 66 Partners’ ownership in HoldingsGray Oak Pipeline, LLC.
Dakota Access, LLC (Dakota Access) and Gray Oak.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 unsecured senior 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 accounts forand its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the investmentnotes 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 Gray Oakthe 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. 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 June 30, 2020, Phillips 66 Partners’ share of the maximum potential equity contributions under the equity method because it doesCECU was approximately $631 million.
In March 2020, the 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. On July 6, 2020, the court ordered the Dakota Access Pipeline to be shut down and emptied of crude oil by August 5, 2020, 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. On July 14, 2020, an appeals court granted a temporary stay of the lower court’s order directing the pipeline to be shut down and emptied of crude oil. The appeals court has not yet ruled on the motion for a stay during the appeals process. In addition to the potential obligations under the CECU, 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 asked to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually.
CF United LLC (CF United)
We hold a 50% voting rights over key governance provisions to assert control over Gray Oak. Gray Oakinterest and a 48% economic interest in CF United, a retail marketing joint venture with operations primarily on the U.S. West Coast. CF United is considered a VIE because our co-venturer has an option to sell its interest to us based on a fixed multiple. The put option becomes effective July 1, 2023, and expires on March 31, 2024. The put option is viewed as a variable interest entity (VIE)as the purchase price on the exercise date may not represent the then-current fair value of CF United. We have determined that we are not the primary beneficiary because we and our co-venturer jointly direct the activities of CF United that most significantly impact economic performance. At June 30, 2020, our maximum exposure to loss was comprised of our $322 million investment in CF United and any potential future loss resulting from the put option, if the purchase price based on a fixed multiple exceeds the then-current fair value of CF United.
Liberty Pipeline LLC (Liberty)
Liberty is a 50 percent-owned joint venture formed to develop and construct the Liberty Pipeline system which, upon completion, will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. Liberty is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. Phillips 66 Partners hasWe have determined it iswe are not the primary beneficiary because itwe and its co-venturersour co-venturer jointly direct the activities of GrayLiberty that most significantly impact economic performance. On March 2, 2020, Phillips 66 Partners closed a transaction to acquire our 50% interest in Liberty for $75 million. The development and construction of the Liberty Pipeline system have been deferred as a result of the current challenging business environment. At June 30, 2020, our maximum exposure to loss was $251 million, which represented the book value of Phillips 66 Partners’ investment in Liberty of $202 million and our outstanding proportionate vendor guarantees of $49 million.
Red Oak Pipeline LLC (Red Oak)
We hold a 50% interest in a joint venture formed to develop and construct the Red Oak Pipeline system which, upon completion, will transport crude oil from Cushing, Oklahoma, and the Permian to multiple destinations along the Texas Gulf Coast, including Corpus Christi, Ingleside, Houston, and Beaumont, Texas. Red Oak is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We have determined we are not the primary beneficiary because we and our co-venturer jointly direct the activities of Red Oak that most significantly impact Gray Oak’s economic performance. The development and construction of the Red Oak Pipeline system have been deferred as a result of the current challenging business environment. In June 2020, Red Oak fully repaid its outstanding member loan. At June 30, 2020, our maximum exposure to loss was the book value of our investment in Red Oak of $104 million.
OnCue Holdings, LLC (OnCue)
We hold a 50% interest in OnCue, a joint venture that owns and operates retail convenience stores. We fully guaranteed various debt agreements of OnCue and our co-venturer did not participate in the guarantees. This entity is considered a VIE because our debt guarantees resulted in OnCue not being exposed to all potential losses. We have determined we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact OnCue’s economic performance. At SeptemberJune 30, 2019,2020, our maximum exposure to loss was $139$155 million, which represented the book value of our investment in OnCue of $76$86 million and guaranteed debt obligations of $63$69 million.
Note 7—6—Properties, Plants and Equipment
Our gross investment in properties, plants and equipment (PP&E)PP&E and the associated accumulated depreciation and amortization (Accum. D&A) balances were as follows:
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| | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| September 30, 2019 | | December 31, 2018 |
| Gross PP&E |
| | Accum. D&A |
| | Net PP&E |
| | Gross PP&E |
| | Accum. D&A |
| | Net PP&E |
|
| | | | | | | | | | | |
Midstream | $ | 10,759 |
| | 2,316 |
| | 8,443 |
| | 9,663 |
| | 2,100 |
| | 7,563 |
|
Chemicals | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Refining | 23,189 |
| | 10,084 |
| | 13,105 |
| | 22,640 |
| | 9,531 |
| | 13,109 |
|
Marketing and Specialties | 1,656 |
| | 927 |
| | 729 |
| | 1,671 |
| | 926 |
| | 745 |
|
Corporate and Other | 1,309 |
| | 632 |
| | 677 |
| | 1,223 |
| | 622 |
| | 601 |
|
| $ | 36,913 |
| | 13,959 |
| | 22,954 |
| | 35,197 |
| | 13,179 |
| | 22,018 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | | | | | | |
| June 30, 2020 | | | | | | December 31, 2019 | | | | |
| Gross PP&E | | Accum. D&A | | Net PP&E | | Gross PP&E | | Accum. D&A | | Net PP&E |
| | | | | | | | | | | |
Midstream | $ | 11,931 | | | 2,543 | | | 9,388 | | | 11,221 | | | 2,391 | | | 8,830 | |
Chemicals | — | | | — | | | — | | | — | | | — | | | — | |
Refining | 24,110 | | | 10,730 | | | 13,380 | | | 23,692 | | | 10,336 | | | 13,356 | |
Marketing and Specialties (M&S) | 1,695 | | | 945 | | | 750 | | | 1,847 | | | 959 | | | 888 | |
Corporate and Other | 1,401 | | | 637 | | | 764 | | | 1,311 | | | 599 | | | 712 | |
| $ | 39,137 | | | 14,855 | | | 24,282 | | | 38,071 | | | 14,285 | | | 23,786 | |
Note 8—Earnings Per Share7—Goodwill
Our stock price declined significantly in the first quarter of 2020 due to the volatility in global commodity and equity markets related to the COVID-19 pandemic and other factors. We assessed our goodwill for impairment due to the decline in our market capitalization and concluded that the carrying value of our Refining reporting unit at March 31, 2020, was greater than its fair value by an amount in excess of its goodwill balance. Accordingly, we recorded a goodwill impairment charge of $1,845 million in our Refining segment during the first quarter of 2020. This charge is included in the “Impairments” line item on our consolidated statement of operations for the six months ended June 30, 2020. See Note 13—Fair Value Measurements for additional information on the techniques used to determine the fair value of our Refining reporting unit.
The carrying amount of goodwill by segment at June 30, 2020 was:
| | | | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | | |
| Midstream | | Refining | | M&S | | Total |
| | | | | | | |
Balance at January 1, 2020 | $ | 626 | | | 1,845 | | | 799 | | | 3,270 | |
Impairments | — | | | (1,845) | | | — | | | (1,845) | |
Balance at June 30, 2020 | $ | 626 | | | — | | | 799 | | | 1,425 | |
Note 8—Earnings (Loss) Per Share
The numerator of basic earnings (loss) per share (EPS) is net income (loss) attributable to Phillips 66, reduced byadjusted for noncancelable dividends paid on unvested share-based employee awards during the vesting period (participating securities). The denominator of basic EPS is the sum of the daily weighted-average number of common shares outstanding during the periods presented and fully vested stock and unit awards that have not yet been issued as common stock. The numerator of diluted EPS is also based on net income (loss) attributable to Phillips 66, which is reduced only by dividend equivalents paid on participating securities for which the dividends are more dilutive than the participation of the awards in the earnings (losses) of the periods presented. To the extent unvested stock, unit or option awards and vested unexercised stock options are dilutive, they are included with the weighted-average common shares outstanding in the denominator. Treasury stock is excluded from the denominator in both basic and diluted EPS.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | | | | Six Months Ended June 30 | | | |
| 2020 | | 2019 | | | 2020 | | 2019 | |
| Basic | Diluted | Basic | Diluted | | Basic | Diluted | Basic | Diluted |
Amounts Attributed to Phillips 66 Common Stockholders (millions): | | | | | | | | | |
Net income (loss) attributable to Phillips 66 | $ | (141) | | (141) | | 1,424 | | 1,424 | | | (2,637) | | (2,637) | | 1,628 | | 1,628 | |
Income allocated to participating securities | (2) | | (2) | | (2) | | (1) | | | (4) | | (4) | | (3) | | (2) | |
Net income (loss) available to common stockholders | $ | (143) | | (143) | | 1,422 | | 1,423 | | | (2,641) | | (2,641) | | 1,625 | | 1,626 | |
| | | | | | | | | |
Weighted-average common shares outstanding (thousands): | 436,688 | | 438,756 | | 451,216 | | 453,681 | | | 437,851 | | 440,050 | | 453,041 | | 455,630 | |
Effect of share-based compensation | 2,068 | | — | | 2,465 | | 1,904 | | | 2,199 | | — | | 2,589 | | 1,990 | |
Weighted-average common shares outstanding—EPS | 438,756 | | 438,756 | | 453,681 | | 455,585 | | | 440,050 | | 440,050 | | 455,630 | | 457,620 | |
| | | | | | | | | |
Earnings (Loss) Per Share of Common Stock (dollars) | $ | (0.33) | | (0.33) | | 3.13 | | 3.12 | | | (6.00) | | (6.00) | | 3.57 | | 3.55 | |
|
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 | | 2018 | | 2019 | | 2018 |
| Basic |
| Diluted |
| | Basic |
| Diluted |
| | Basic |
| Diluted |
| | Basic |
| Diluted |
|
Amounts attributed to Phillips 66 Common Stockholders (millions): | | | | | | | | | | | |
Net income attributable to Phillips 66 | $ | 712 |
| 712 |
| | 1,492 |
| 1,492 |
| | 2,340 |
| 2,340 |
| | 3,355 |
| 3,355 |
|
Income allocated to participating securities | (2 | ) | (1 | ) | | (1 | ) | — |
| | (5 | ) | (1 | ) | | (4 | ) | — |
|
Net income available to common stockholders | $ | 710 |
| 711 |
|
| 1,491 |
| 1,492 |
| | 2,335 |
| 2,339 |
|
| 3,351 |
| 3,355 |
|
| | | | | | | | | | | |
Weighted-average common shares outstanding (thousands): | 446,498 |
| 449,005 |
| | 463,002 |
| 466,109 |
| | 450,836 |
| 453,398 |
| | 470,471 |
| 473,760 |
|
Effect of share-based compensation | 2,507 |
| 1,996 |
| | 3,107 |
| 3,331 |
| | 2,562 |
| 2,412 |
| | 3,289 |
| 3,460 |
|
Weighted-average common shares outstanding—EPS | 449,005 |
| 451,001 |
| | 466,109 |
| 469,440 |
| | 453,398 |
| 455,810 |
| | 473,760 |
| 477,220 |
|
| | | | | | | | | | | |
Earnings Per Share of Common Stock (dollars) | $ | 1.58 |
| 1.58 |
| | 3.20 |
| 3.18 |
| | 5.15 |
| 5.13 |
| | 7.07 |
| 7.03 |
|
Note 9—Debt
2019 Activities
Debt Issuances and Repayments
On September 6, 2019,June 10, 2020, Phillips 66 Partners closed on aits public offering of $900$1 billion aggregate principal amount of senior unsecured notes consisting of:
•$150 million aggregate principal amount of unsecured notes consisting of:3.850% Senior Notes due 2025.
•$300850 million aggregate principal amount of 2.450%2.150% Senior Notes due December 15, 2024.2030.
On April 9, 2020, Phillips 66 closed its public offering of $1 billion aggregate principal amount of senior unsecured notes consisting of:
•$600500 million aggregate principal amount of 3.150%3.700% Senior Notes due December 15, 2029.2023.
•$500 million aggregate principal amount of 3.850% Senior Notes due 2025.
Interest on each series of senior notesthe Senior Notes due 2023 is payable semi-annuallysemiannually on April 6 and October 6 of each year, commencing on October 6, 2020. The Senior Notes due 2025 issued on June 10, 2020, constitute a further issuance of the Senior Notes due 2025 originally issued on April 9, 2020. The $650 million in arrearsaggregate 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 JuneDecember 15, 2020.
Proceeds received from the public offerings of senior unsecured notes on June 10, 2020, and April 9, 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.
On September 13, 2019,March 19, 2020, Phillips 66 Partners usedentered into a portion$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 net proceedsFacility to repay$2 billion, with $1 billion of capacity remaining undrawn at June 30, 2020. In June 2020, the $400 million outstanding principal balanceFacility was amended to extend the commitment period to September 19, 2020. Borrowings under 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 of its term loans due March 2020, and on October 15, 2019,Phillips 66’s senior unsecured long-term debt. Phillips 66 Partners used a portionis using the proceeds from the debt issuance for general corporate purposes.
At June 30, 2020, borrowings of the net proceeds to repay$215 million were outstanding and $3 million in letters of credit had been drawn under Phillips 66 Partners’ $750 million revolving credit facility.
Debt Repayments
In April 2020, Phillips 66 repaid the $300 million outstanding principal balance of its 2.646% Senior Notesfloating-rate notes due February 2020.
Credit Agreement Amendment and Restatement
On July 30, 2019, we amended and restated our revolving credit agreement. The agreement extended the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement,April 2020 and the overall capacity remains at $5 billion with an option to increase the overall capacity to $6 billion, subject to certain conditions.
On July 30, 2019, Phillips 66 Partners amended and restated its revolving credit agreement. The agreement extended the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $750 million with an option to increase the overall capacity to $1 billion, subject to certain conditions.
Phillips 66’s revolving credit facility had 0 outstanding balance at September 30, 2019, and December 31, 2018. Phillips 66 Partners’ revolving credit facility had 0 amount directly drawn at September 30, 2019, compared with borrowings of $125 million at December 31, 2018.
2018 Activities
Debt Issuances and Repayments
On March 1, 2018, Phillips 66 closed on a public offering of $1,500 million aggregate principal amount of unsecured notes consisting of:
$500 million of floating-rate Senior Notes due February 2021. Interest on these notes is equal to the three-month London Interbank Offered Rate (LIBOR) plus 0.60% per annum and is payable quarterly in arrears on February 26, May 26, August 26 and November 26, beginning on May 29, 2018.
$800 million of 3.900% Senior Notes due March 2028. Interest on these notes is payable semiannually on March 15 and September 15 of each year, beginning on September 15, 2018.
An additional $200 million outstanding principal balance of our 4.875% Senior Notes due November 2044. Interest on these notes is payable semiannually on May 15 and November 15 of each year, beginning on May 15, 2018.
These notes are guaranteed by Phillips 66 Company, a wholly owned subsidiary. Phillips 66 used the net proceeds from the issuance of these notes and cash on hand to repay commercial paper borrowings during the three months ended March 31, 2018, and for general corporate purposes. The commercial paper borrowings during the three months ended March 31, 2018, were primarily used to fund a Stock Purchase and Sale Agreement (Purchase Agreement). See Note 17—Treasury Stock, for additional information.
In June 2018, Phillips 66 repaid $250 million of the $450 million outstanding under its three-year term loan facility due April 2020.
Also in April 2020, Phillips 66 Partners repaid the $25 million outstanding principal balance of its tax-exempt bonds due April 2020.
Note 10—Guarantees
At SeptemberJune 30, 2019,2020, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability either because the guarantees were issued prior to December 31, 2002, or because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantees and expect future performance to be either immaterial or have only a remote chance of occurrence.
Guarantees of Joint Venture Obligations
In June 2019, Phillips 66 Partners issued a guarantee for 42.25% of Gray Oak’s third-party term loan facility. See Note 6—Investments, Loans and Long-Term Receivables, for additional information.
In addition, at September 30, 2019, we had other guarantees outstanding for our portion of certain joint venture debt obligations, which have remaining terms of up to six years. The maximum potential amount of future payments to third parties under these guarantees was approximately $135 million. Payment would be required if a joint venture defaults on its obligations.
Lease Residual Value Guarantees
Under the operating lease agreement on our headquarters facility in Houston, Texas, we have a residual value guarantee with a maximum future exposure of $554 million at SeptemberJune 30, 2019.2020. The operating lease term ends in June 2021 and provides us the option, at the end of the lease term, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future exposurespayments totaling $344 million$351 million. These leases have remaining terms of up to four years.
Guarantees of Joint Venture and Other Obligations
In June 2019, Phillips 66 Partners issued a guarantee through an equity contribution agreement for 42.25% of Gray Oak Pipeline, LLC’s third-party term loan facility. See Note 5—Investments, Loans and Long-Term Receivables, for additional information on Gray Oak Pipeline, LLC.
In March 2019, Phillips 66 Partners and its co-venturers in Dakota Access provided a CECU in conjunction with an unsecured senior notes offering. See Note 5—Investments, Loans and Long-Term Receivables, for additional information on Dakota Access and the CECU.
In addition, at SeptemberJune 30, 2019,2020, we had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations, which have remaining terms of up to fiveeight years. The maximum potential amount of future payments to third parties under these guarantees was approximately $155 million. Payment would be required if a joint venture defaults on its obligations.
Indemnifications
Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to indemnification. Agreements associated with these sales include indemnifications for taxes, litigation, environmental liabilities, permits and licenses and employee claims, as well as real estate indemnity against tenant defaults. The provisions of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, which generally have indefinite terms and potentially unlimited exposure. At SeptemberJune 30, 2019,2020, and December 31, 2018,2019, the carrying amount of recorded indemnifications was $159$154 million and $171$153 million, respectively.
We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have information to support that the liability was essentially relieved or amortize the liability over an appropriate time period as the fair value of our indemnification exposure declines.reversal. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments. At SeptemberJune 30, 2019,2020, and December 31, 2018,2019, environmental accruals for known contamination of $110$107 million and $101$105 million, respectively, were included in the carrying amount of recorded indemnifications.indemnifications noted above. These environmental accruals were primarily included in the “Asset retirement obligations and accrued environmental costs” line item on our consolidated balance sheet. For additional information about environmental liabilities, see Note 11—Contingencies and Commitments.
Indemnification and Release Agreement
In 2012, in connection with our separation from ConocoPhillips, we entered into the Indemnification and Release Agreement. This agreement governs the treatment between ConocoPhillips and us of matters relating to indemnification, insurance, litigation responsibility and management, and litigation document sharing and cooperation arising in connection with the separation. Generally, the agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of ConocoPhillips’ business with ConocoPhillips. The agreement also establishes procedures for handling claims subject to indemnification and related matters.
Note 11—Contingencies and Commitments
A number of lawsuits involving a variety of claims that arose in the ordinary course of business have been filed against us or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income-tax-relatedincome tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.
Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.
Environmental
We are subject to international, federal, state and local environmental laws and regulations. When we prepare our consolidated financial statements, we record accruals for environmental liabilities based on management’s best estimates, using information available at the time. We measure estimates and base contingent liabilities on currently available facts, existing technology and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring contingent environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency (EPA) or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.
Although liability for environmental remediation costs is generally joint and several for federal sites and frequently so for state sites, we are usually only one of many companies alleged to have liability at a particular site. Due to such joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been designated as a potentially responsible party. We have been successful to date in sharing cleanup costs with other financially sound companies. Many of the sites at which we are potentially responsible are still under investigation by the EPA or the state agencies concerned. Prior to actual cleanup, those potentially responsible normally assess the site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or may attain a settlement of liability. Where it appears that other potentially responsible parties may be financially unable to bear their proportional share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly. As a result of various acquisitions in the past, we assumed certain environmental obligations. Some of these environmental obligations are mitigated by indemnifications made by others for our benefit, although some of the indemnifications are subject to dollar and time limits.
We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those pertaining to sites acquired in a business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated. At SeptemberJune 30, 2019, and December 31, 2018,2020, our total environmental accrual was $447accruals were $429 million, for both periods.compared with $441 million at December 31, 2019. We expect to incur a substantial amount of these expenditures within the next 30 years. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.
Legal Proceedings
Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required.
Other Contingencies
We have contingent liabilities not associated with financing arrangements resulting from throughput agreements with pipeline and processing companies.companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized.
At SeptemberJune 30, 2019,2020, we had performance obligations secured by letters of credit and bank guarantees of $644$461 million related to various purchase and other commitments incident to the ordinary conduct of business.
Note 12—Derivatives and Financial Instruments
Derivative Instruments
We use financial and commodity-based derivative contracts to manage exposures to fluctuations in commodity prices, interest rates and foreign currency exchange rates, or to capture market opportunities. Because we do not apply hedge accounting for commodity derivative contracts, all realized and unrealized gains and losses from commodity derivative contracts are recognized in our consolidated statement of income.operations. Gains and losses from derivative contracts held for trading not directly related to our physical business are reported net in the “Other income” line item on our consolidated statement of income.operations. Cash flows from all our derivative activity for the periods presented appear in the operating section on our consolidated statement of cash flows.
Purchase and sales contracts with firm minimum notional volumes for commodities that are readily convertible to cash are recorded on our consolidated balance sheet as derivatives unless the contracts are eligible for, and we elect, the normal purchases and normal sales exception, whereby the contracts are recorded on an accrual basis. We generally apply the normal purchases and normal sales exception to eligible crude oil, refined petroleum product, NGL, natural gas and power commodity contracts to purchase or sell quantities we expect to use or sell in the normal course of business. All other derivative instruments are recorded at fair value on our consolidated balance sheet. For further information on the fair value of our derivatives, see Note 13—Fair Value Measurements.Measurements.
Commodity Derivative Contracts—We sell into or receive supply from the worldwide crude oil, refined petroleum product, NGL, natural gas and electric power markets, exposing our revenues, purchases, cost of operating activities and cash flows to fluctuations in the prices for these commodities. Generally, our policy is to remain exposed to the market prices of commodities; however, we use futures, forwards, swaps and options in various markets to balance physical systems, meet customer needs, manage price exposures on specific transactions, and do a limited amount of trading not directly related to our physical business, all of which may reduce our exposure to fluctuations in market prices. We also use the market knowledge gained from these activities to capture market opportunities such as moving physical commodities to more profitable locations, storing commodities to capture seasonal or time premiums, and blending commodities to capture quality upgrades.
The following table indicates the consolidated balance sheet line items that include the fair values of commodity derivative assets and liabilities. The balances in the following table are presented on a gross basis, before the effects of counterparty and collateral netting. However, we have elected to present our commodity derivative assets and liabilities with the same counterparty on a net basis on our consolidated balance sheet when the legal right of offset exists.
|
| | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| September 30, 2019 | | December 31, 2018 |
| Commodity Derivatives | Effect of Collateral Netting |
| Net Carrying Value Presented on the Balance Sheet |
| | Commodity Derivatives | Effect of Collateral Netting |
| Net Carrying Value Presented on the Balance Sheet |
|
| Assets |
| Liabilities |
| | Assets |
| Liabilities |
|
| | | | | | | | | |
Assets | | | | | | | | | |
Prepaid expenses and other current assets | $ | 1,018 |
| (856 | ) | (5 | ) | 157 |
| | 1,257 |
| (1,070 | ) | (89 | ) | 98 |
|
Other assets | 4 |
| (1 | ) | — |
| 3 |
| | 2 |
| — |
| — |
| 2 |
|
Liabilities | | | | | | | | | |
Other accruals | 454 |
| (542 | ) | 70 |
| (18 | ) | | — |
| (23 | ) | — |
| (23 | ) |
Other liabilities and deferred credits | 35 |
| (37 | ) | — |
| (2 | ) | | 5 |
| (7 | ) | — |
| (2 | ) |
Total | $ | 1,511 |
| (1,436 | ) | 65 |
| 140 |
| | 1,264 |
| (1,100 | ) | (89 | ) | 75 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | | | | | |
| June 30, 2020 | | | | | | December 31, 2019 | | | |
| Commodity Derivatives | | Effect of Collateral Netting | Net Carrying Value Presented on the Balance Sheet | | | Commodity Derivatives | | Effect of Collateral Netting | Net Carrying Value Presented on the Balance Sheet |
| Assets | Liabilities | | | | | Assets | Liabilities | | |
| | | | | | | | | | |
Assets | | | | | | | | | | |
Prepaid expenses and other current assets | $ | 56 | | (25) | | — | | 31 | | | | 23 | | — | | — | | 23 | |
Other assets | — | | — | | — | | — | | | | 3 | | — | | — | | 3 | |
Liabilities | | | | | | | | | | |
Other accruals | 1,216 | | (1,399) | | 168 | | (15) | | | | 1,188 | | (1,281) | | 80 | | (13) | |
Other liabilities and deferred credits | — | | (1) | | — | | (1) | | | | — | | (1) | | — | | (1) | |
Total | $ | 1,272 | | (1,425) | | 168 | | 15 | | | | 1,214 | | (1,282) | | 80 | | 12 | |
At SeptemberJune 30, 2019,2020, and December 31, 2018,2019, there was no material cash collateral received or paid that was not offset on our consolidated balance sheet.
The realized and unrealized gains (losses) incurred from commodity derivatives, and the line items where they appear on our consolidated statement of income,operations, were:
| | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
| | | | | | |
Sales and other operating revenues | $ | (180) | | | 17 | | | 499 | | (160) | |
Other income | 6 | | | — | | | 9 | | 13 | |
Purchased crude oil and products | (124) | | | 54 | | | 317 | | (101) | |
Net gain (loss) from commodity derivative activity | $ | (298) | | | 71 | | | 825 | | (248) | |
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Sales and other operating revenues | $ | 71 |
| (98 | ) | | (89 | ) | (227 | ) |
Other income | 20 |
| 3 |
| | 33 |
| (17 | ) |
Purchased crude oil and products | 60 |
| (138 | ) | | (41 | ) | (311 | ) |
Net gain (loss) from commodity derivative activity | $ | 151 |
| (233 | ) | | (97 | ) | (555 | ) |
The following table summarizes our material net exposures resulting from outstanding commodity derivative contracts. These financial and physical derivative contracts are primarily used to manage price exposure on our underlying operations. The underlying exposures may be from non-derivativenonderivative positions such as inventory volumes. Financial derivative contracts may also offset physical derivative contracts, such as forward purchase and sales contracts. The percentage of our derivative contract volumes expiring within the next 12 months was at least 97%98% at SeptemberJune 30, 2019,2020, and December 31, 2018.2019.
|
| | | | | |
| Open Position Long / (Short) |
| September 30 2019 |
| | December 31 2018 |
|
Commodity | | | |
Crude oil, refined petroleum products and NGL (millions of barrels) | (35 | ) | | (17 | ) |
| | | | | | | | | | | |
| Open Position Long / (Short) | | |
| June 30 2020 | | December 31 2019 |
Commodity | | | |
Crude oil, refined petroleum products and NGL (millions of barrels) | (36) | | | (16) | |
Interest Rate Derivative Contracts—In 2016, we entered into interest rate swaps to hedge the variability of lease payments on our headquarters facility. These monthly lease payments vary based on monthly changes in the one-month LIBORLondon Inter-Bank Offered Rate (LIBOR) and changes, if any, in our credit rating over the five-year term of the lease. The pay-fixed, receive-floating interest rate swaps have an aggregate notional value of $650 million and end in April 2021. We have designated these swaps as cash flow hedges.
The aggregate net fair value of these swaps which is included in the “Prepaid expenses and other current assets” and “Other assets” lines on our consolidated balance sheet, totaled $1 million and $15 millionwas immaterial at SeptemberJune 30, 2019,2020, and December 31, 2018, respectively.
2019. We report the mark-to-market gains or losses on our interest rate swaps designated as highly effective cash flow hedges as a component of other comprehensive income (loss), and reclassify such gains and losses into earnings in the same period during which the hedged transaction affects earnings. Net realized gains and losses from settlements of the swaps were immaterial for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
We currently estimate that pre-tax gainsbefore-tax losses of $1$7 million will be reclassified from accumulated other comprehensive loss into general and administrative expenses during the next 12 months as the hedged transactions settle; however, the actual amounts that will be reclassified will vary based on changes in interest rates.
Credit Risk from Derivative Instruments
The credit risk from our derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because these trades are cleared with an exchange clearinghouse and subject to mandatory margin requirements, typically on a daily basis, until settled.
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if our credit ratings fall below investment grade. Cash is the primary collateral in all contracts; however, many contracts also permit us to post letters of credit as collateral.
The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at SeptemberJune 30, 2019,2020, and December 31, 2018.
2019.
Note 13—Fair Value Measurements
Recurring Fair Value Measurements
We carry certain assets and liabilities at fair value, which we measure at the reporting date using the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price), and disclose the quality of these fair values based on the valuation inputs used in these measurements under the following hierarchy:
•Level 1: Fair value measured with unadjusted quoted prices from an active market for identical assets or liabilities.
•Level 2: Fair value measured either with: (1) adjusted quoted prices from an active market for similar assets or liabilities; or (2) other valuation inputs that are directly or indirectly observable.
•Level 3: Fair value measured with unobservable inputs that are significant to the measurement.
We classify the fair value of an asset or liability based on the significance of its observable or unobservable inputs to the measurement. However, the fair value of an asset or liability initially reported as Level 3 will be subsequently reported as Level 2 if the unobservable inputs become inconsequential to its measurement or corroborating market data becomes available. Conversely, an asset or liability initially reported as Level 2 will be subsequently reported as Level 3 if corroborating market data becomes unavailable. For the nine months ended September 30, 2019, derivative assets with an aggregate value of $117 million and derivative liabilities with an aggregate value of $82 million were transferred to Level 1 from Level 2, as measured from the beginning of the reporting period. The measurements were reclassified within the fair value hierarchy due to the availability of unadjusted quoted prices from an active market.
We used the following methods and assumptions to estimate the fair value of financial instruments:
| |
• | Cash and cash equivalents—The carrying amount reported on our consolidated balance sheet approximates fair value.
|
| |
• | Accounts and notes receivable—The carrying amount reported on our consolidated balance sheet approximates fair value.
|
| |
• | Derivative instruments—We fair value our exchange-traded contracts based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange or other exchanges, and classify them as Level 1 in the fair value hierarchy. When exchange-cleared contracts lack sufficient liquidity, or are valued using either adjusted exchange-provided prices or non-exchange•Cash and cash equivalents—The carrying amount reported on our consolidated balance sheet approximates fair value. •Accounts and notes receivable—The carrying amount reported on our consolidated balance sheet approximates fair value. •Derivative instruments—We fair value our exchange-traded contracts based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange or other exchanges, and classify them as Level 1 in the fair value hierarchy. When exchange-cleared contracts lack sufficient liquidity, or are valued using either adjusted exchange-provided prices or nonexchange quotes, we classify those contracts as Level 2. |
Physical commodity forward purchase and sales contracts and over-the-counter (OTC) financial swaps are generally valued using forward quotes provided by brokers and price index developers, such as Platts and Oil Price Information Service. We corroborate these quotes with market data and classify the resulting fair values as Level 2. When forward market prices are not available, we estimate fair value using the forward price of a similar commodity, adjusted for the difference in quality or location. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, physical commodity purchase and sales contracts and OTC swaps are valued using internally developed methodologies that consider historical relationships among various commodities that result in management’s best estimate of fair value. We classify these contracts as Level 3. Physical and OTC commodity options are valued using industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and contractual prices for the underlying instruments, as well as other relevant economic measures. The degree to which these inputs are observable in the forward markets determines whether the options are classified as Level 2 or 3. We use a mid-marketmidmarket pricing convention (the mid-pointmidpoint between bid and ask prices). When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.
We determine the fair value of our interest rate swaps based on observedobservable market valuations for interest rate swaps that have notional amounts, terms and pay and reset frequencies similar to ours.
| |
• | •Rabbi trust assets—These deferred compensation investments are measured at fair value using unadjusted quoted prices available from national securities exchanges and are therefore categorized as Level 1 in the fair value hierarchy. •Debt—The carrying amount of our floating-rate debt approximates fair value. The fair value of our fixed-rate debt is estimated based on observable market prices.
|
| |
• | Debt—The carrying amount of our floating-rate debt approximates fair value. The fair value of our fixed-rate debt is estimated based on observable market prices.
|
The following tables display the fair value hierarchy for our financial assets and liabilities either accounted for or disclosed at fair value on a recurring basis. These values are determined by treating each contract as the fundamental unit of account; therefore, derivative assets and liabilities with the same counterparty are shown on a gross basis in the hierarchy sections of these tables, before the effects of counterparty and collateral netting. The following tables also reflect the effect of netting derivative assets and liabilities with the same counterparty for which we have the legal right of offset and collateral netting.
The carrying values and fair values by hierarchy of our financial assets and liabilities, either carried or disclosed at fair value, including any effects of counterparty and collateral netting, were:
|
| | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| September 30, 2019 |
| Fair Value Hierarchy | | Total Fair Value of Gross Assets & Liabilities |
| Effect of Counterparty Netting |
| Effect of Collateral Netting |
| Difference in Carrying Value and Fair Value |
| Net Carrying Value Presented on the Balance Sheet |
|
| Level 1 |
| | Level 2 |
| | Level 3 |
|
Commodity Derivative Assets | | | | | | | | | | | |
Exchange-cleared instruments | $ | 788 |
| | 657 |
| | — |
| | 1,445 |
| (1,346 | ) | (5 | ) | — |
| 94 |
|
OTC instruments | — |
| | 1 |
| | — |
| | 1 |
| — |
| — |
| — |
| 1 |
|
Physical forward contracts | — |
| | 64 |
| | 1 |
| | 65 |
| — |
| — |
| — |
| 65 |
|
Interest rate derivatives | — |
| | 1 |
| | — |
| | 1 |
| — |
| — |
| — |
| 1 |
|
Rabbi trust assets | 122 |
| | — |
| | — |
| | 122 |
| N/A |
| N/A |
| — |
| 122 |
|
| $ | 910 |
| | 723 |
| | 1 |
| | 1,634 |
| (1,346 | ) | (5 | ) | — |
| 283 |
|
| | | | | | | | | | | |
Commodity Derivative Liabilities | | | | | | | | | | | |
Exchange-cleared instruments | $ | 748 |
| | 669 |
| | — |
| | 1,417 |
| (1,346 | ) | (70 | ) | — |
| 1 |
|
OTC instruments | — |
| | 3 |
| | — |
| | 3 |
| — |
| — |
| — |
| 3 |
|
Physical forward contracts | — |
| | 16 |
| | — |
| | 16 |
| — |
| — |
| — |
| 16 |
|
Floating-rate debt | — |
| | 1,075 |
| | — |
| | 1,075 |
| N/A |
| N/A |
| — |
| 1,075 |
|
Fixed-rate debt, excluding capital leases | — |
| | 12,050 |
| | — |
| | 12,050 |
| N/A |
| N/A |
| (1,377 | ) | 10,673 |
|
| $ | 748 |
| | 13,813 |
| | — |
| | 14,561 |
| (1,346 | ) | (70 | ) | (1,377 | ) | 11,768 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | | | | | | | |
| June 30, 2020 | | | | | | | | | | | |
| Fair Value Hierarchy | | | | | | Total Fair Value of Gross Assets & Liabilities | Effect of Counterparty Netting | Effect of Collateral Netting | Difference in Carrying Value and Fair Value | Net Carrying Value Presented on the Balance Sheet | |
| Level 1 | | Level 2 | | Level 3 | | | | | | | |
Commodity Derivative Assets | | | | | | | | | | | | |
Exchange-cleared instruments | $ | 850 | | | 392 | | | — | | | 1,242 | | (1,241) | | — | | — | | 1 | | |
| | | | | | | | | | | | |
Physical forward contracts | — | | | 30 | | | — | | | 30 | | — | | — | | — | | 30 | | |
| | | | | | | | | | | | |
Rabbi trust assets | 129 | | | — | | | — | | | 129 | | N/A | N/A | — | | 129 | | |
| $ | 979 | | | 422 | | | — | | | 1,401 | | (1,241) | | — | | — | | 160 | | |
| | | | | | | | | | | | |
Commodity Derivative Liabilities | | | | | | | | | | | | |
Exchange-cleared instruments | $ | 986 | | | 424 | | | — | | | 1,410 | | (1,241) | | (168) | | — | | 1 | | |
| | | | | | | | | | | | |
Physical forward contracts | — | | | 14 | | | 1 | | | 15 | | — | | — | | — | | 15 | | |
Interest rate derivatives | — | | | 7 | | | — | | | 7 | | — | | — | | — | | 7 | | |
Floating-rate debt | — | | | 1,787 | | | — | | | 1,787 | | N/A | N/A | — | | 1,787 | | |
Fixed-rate debt, excluding finance leases | — | | | 14,023 | | | — | | | 14,023 | | N/A | N/A | (1,643) | | 12,380 | | |
| $ | 986 | | | 16,255 | | | 1 | | | 17,242 | | (1,241) | | (168) | | (1,643) | | 14,190 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | | | | | | | |
| December 31, 2019 | | | | | | | | | | | |
| Fair Value Hierarchy | | | | | | Total Fair Value of Gross Assets & Liabilities | Effect of Counterparty Netting | Effect of Collateral Netting | Difference in Carrying Value and Fair Value | Net Carrying Value Presented on the Balance Sheet | |
| Level 1 | | Level 2 | | Level 3 | | | | | | | |
Commodity Derivative Assets | | | | | | | | | | | | |
Exchange-cleared instruments | $ | 820 | | | 368 | | | — | | | 1,188 | | (1,188) | | — | | — | | — | | |
| | | | | | | | | | | | |
Physical forward contracts | — | | | 26 | | | — | | | 26 | | — | | — | | — | | 26 | | |
Interest rate derivatives | — | | | 1 | | | — | | | 1 | | — | | — | | — | | 1 | | |
Rabbi trust assets | 127 | | | — | | | — | | | 127 | | N/A | N/A | — | | 127 | | |
| $ | 947 | | | 395 | | | — | | | 1,342 | | (1,188) | | — | | — | | 154 | | |
| | | | | | | | | | | | |
Commodity Derivative Liabilities | | | | | | | | | | | | |
Exchange-cleared instruments | $ | 884 | | | 385 | | | — | | | 1,269 | | (1,188) | | (80) | | — | | 1 | | |
OTC instruments | — | | | 1 | | | — | | | 1 | | — | | — | | — | | 1 | | |
Physical forward contracts | — | | | 12 | | | — | | | 12 | | — | | — | | — | | 12 | | |
| | | | | | | | | | | | |
Floating-rate debt | — | | | 1,100 | | | — | | | 1,100 | | N/A | N/A | — | | 1,100 | | |
Fixed-rate debt, excluding finance leases | — | | | 11,813 | | | — | | | 11,813 | | N/A | N/A | (1,438) | | 10,375 | | |
| $ | 884 | | | 13,311 | | | — | | | 14,195 | | (1,188) | | (80) | | (1,438) | | 11,489 | | |
|
| | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| December 31, 2018 |
| Fair Value Hierarchy | | Total Fair Value of Gross Assets & Liabilities |
| Effect of Counterparty Netting |
| Effect of Collateral Netting |
| Difference in Carrying Value and Fair Value |
| Net Carrying Value Presented on the Balance Sheet |
|
| Level 1 |
| | Level 2 |
| | Level 3 |
| |
Commodity Derivative Assets | | | | | | | | | | | |
Exchange-cleared instruments | $ | 674 |
| | 547 |
| | — |
| | 1,221 |
| (1,075 | ) | (89 | ) | — |
| 57 |
|
Physical forward contracts | — |
| | 39 |
| | 4 |
| | 43 |
| — |
| — |
| — |
| 43 |
|
Interest rate derivatives | — |
| | 15 |
| | — |
| | 15 |
| — |
| — |
| — |
| 15 |
|
Rabbi trust assets | 104 |
| | — |
| | — |
| | 104 |
| N/A |
| N/A |
| — |
| 104 |
|
| $ | 778 |
| | 601 |
| | 4 |
| | 1,383 |
| (1,075 | ) | (89 | ) | — |
| 219 |
|
| | | | | | | | | | | |
Commodity Derivative Liabilities | | | | | | | | | | | |
Exchange-cleared instruments | $ | 605 |
| | 472 |
| | — |
| | 1,077 |
| (1,075 | ) | — |
| — |
| 2 |
|
Physical forward contracts | — |
| | 20 |
| | — |
| | 20 |
| — |
| — |
| — |
| 20 |
|
OTC instruments | — |
| | 3 |
| | — |
| | 3 |
| — |
| — |
| — |
| 3 |
|
Floating-rate debt | — |
| | 1,200 |
| | — |
| | 1,200 |
| N/A |
| N/A |
| — |
| 1,200 |
|
Fixed-rate debt, excluding capital leases | — |
| | 9,727 |
| | — |
| | 9,727 |
| N/A |
| N/A |
| 49 |
| 9,776 |
|
| $ | 605 |
| | 11,422 |
| | — |
| | 12,027 |
| (1,075 | ) | — |
| 49 |
| 11,001 |
|
The rabbi trust assets are recorded in the “Investments and long-term receivables” line item and floating-rate and fixed-rate debt are recorded in the “Short-term debt” and “Long-term debt” linesline items on our consolidated balance sheet. See Note 12—Derivatives and Financial Instruments,, for information regarding where the assets and liabilities related to our commodity and interest rate derivatives are recorded on our consolidated balance sheet.
Nonrecurring Fair Value Measurements
The nonrecurring fair value measurement used to record an impairment of our DCP Midstream investment consisted of two valuations:
Theat March 31, 2020, was the fair value of our share of DCP Midstream’s limited partner interest in DCP Partners, which was estimated based on an average market priceprices of DCP Partners’Partners common units for a 20 day15-day trading period encompassing September 30, 2019.
The fair value of our share of DCP Midstream’s general partner interest in DCP Partners was estimated using two primary inputs: 1) estimated future cash flows of distributions attributable to the incentive distribution rights (IDRs) from DCP Partners, and 2) a multiple of those cash flows based on internal estimates and observation of IDR conversion transactions by other master limited partnerships.
Taken together, we concluded the two valuations aboveMarch 31, 2020. This valuation resulted in an overalla Level 32 nonrecurring fair value measurement. See Note 6—5—Investments, Loans and Long-Term Receivables, for additional information on the impairment.
The carrying value of the Refining reporting unit’s goodwill was remeasured to fair value on a nonrecurring basis in the first quarter of 2020. The fair value of the Refining reporting unit was calculated by weighting the results from the income approach and the market approach. The income approach uses a discounted cash flow model that requires various observable and nonobservable inputs, such as prices, volumes, expenses, capital expenditures, discount rates and projected long-term growth rates and terminal values. The market approach uses peer company enterprise values relative to current and future net income (loss) before net interest expense, income taxes, depreciation and amortization (EBITDA) projections to arrive at an average multiple. This multiple was applied to the reporting unit’s current and projected EBITDA, with consideration for an estimated market participant acquisition premium. The resulting fair value Level 3 estimate was less than the Refining reporting unit’s carrying value by an amount that exceeded the existing goodwill balance of the reporting unit. As a result, the Refining reporting unit recorded a goodwill impairment charge of $1,845 million and reduced its goodwill balance to 0. As part of our impairment analysis, the fair value of all reporting units was reconciled to the company’s market capitalization. See Note 7—Goodwill, for additional information on the goodwill impairment.
Note 14—Leases
We lease marine vessels, tugboats, barges, pipelines, storage tanks, railcars, service station sites, office buildings, corporate aircraft, land and other facilities and equipment. In determining whether an agreement contains a lease, we consider our ability to control the asset and whether there are limitations on our control through third-party participation or vendor substitution rights. Certain leases include escalation clauses for adjusting rental payments to reflect changes in price indices, as well as renewal options and/or options to purchase the leased property. Renewal options have been included only when reasonably certain of exercise. There are no significant restrictions imposed on us in our lease agreements with regards to dividend payments, asset dispositions or borrowing ability. Certain leases have residual value guarantees, which may require additional payments at the end of the lease term if future fair values decline below contractual lease balances.
In our implementation of ASU No. 2016-02, we elected to discount lease obligations using our incremental borrowing rate. Furthermore, we elected to separate costs for lease and service components for contracts involving the following asset types: marine vessels, tugboats, barges and consignment service stations. For these contracts, we allocate the consideration payable between the lease and service components using the relative standalone prices of each component. For contracts involving all other asset types, we elected the practical expedient to account for the lease and service components on a combined basis. Our right-of-way agreements in effect prior to January 1, 2019, were not accounted for as leases as they were not initially determined to be leases at their commencement dates. However, modifications to these agreements or new agreements will be assessed and accounted for accordingly under ASU No. 2016-02. For short-term leases, which are leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that is reasonably certain to exercise, we elected to not recognize the ROU asset and corresponding lease liability on our consolidated balance sheet.
The following table indicates the consolidated balance sheet line items that include the ROU assets and lease liabilities for our finance and operating leases:
|
| | | | | | |
| Millions of Dollars |
| September 30, 2019 |
| Finance Leases |
| | Operating Leases |
|
Right-of-Use Assets | | | |
Net properties, plants and equipment | $ | 177 |
| | — |
|
Other assets | — |
| | 1,338 |
|
Total right-of-use assets | $ | 177 |
| | 1,338 |
|
| | | |
Lease Liabilities | | | |
Short-term debt | $ | 13 |
| | — |
|
Other accruals | — |
| | 468 |
|
Long-term debt | 153 |
| | — |
|
Other liabilities and deferred credits | — |
| | 820 |
|
Total lease liabilities | $ | 166 |
| | 1,288 |
|
Future minimum lease payments at September 30, 2019, for finance and operating lease liabilities were:
|
| | | | | | |
| Millions of Dollars |
| Finance Leases |
| | Operating Leases |
|
| | | |
Remainder of 2019 | $ | 4 |
| | 126 |
|
2020 | 19 |
| | 469 |
|
2021 | 18 |
| | 245 |
|
2022 | 15 |
| | 157 |
|
2023 | 15 |
| | 102 |
|
Remaining years | 135 |
| | 355 |
|
Future minimum lease payments | 206 |
| | 1,454 |
|
Amount representing interest or discounts | (40 | ) | | (166 | ) |
Total lease liabilities | $ | 166 |
| | 1,288 |
|
Our finance lease liabilities relate primarily to an oil terminal in the United Kingdom. The lease liability for this finance lease is subject to foreign currency translation adjustments each reporting period.
Components of net lease cost for the three and nine months ended September 30, 2019, were:
|
| | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| | 2019 |
|
Finance lease cost | | | |
Amortization of right-of-use assets | $ | 5 |
| | 15 |
|
Interest on lease liabilities | 2 |
| | 5 |
|
Total finance lease cost | 7 |
| | 20 |
|
Operating lease cost | 126 |
| | 386 |
|
Short-term lease cost | 29 |
| | 93 |
|
Variable lease cost | 6 |
| | 18 |
|
Sublease income | (4 | ) | | (14 | ) |
Total net lease cost | $ | 164 |
| | 503 |
|
Cash paid for amounts included in the measurement of our lease liabilities for the nine months ended September 30, 2019, were:
|
| | | |
| Millions of Dollars |
|
| |
Operating cash outflows—finance leases | $ | 5 |
|
Operating cash outflows—operating leases | 397 |
|
Financing cash outflows—finance leases | 18 |
|
During the nine months ended September 30, 2019, we recorded noncash ROU assets and corresponding operating lease liabilities totaling $259 million related to new and modified lease agreements.
At September 30, 2019, the weighted-average remaining lease term and discount rate for our lease liabilities were:
|
| | |
Weighted-average remaining lease term—finance leases (years) | 12.7 |
|
Weighted-average remaining lease term—operating leases (years) | 5.5 |
|
| |
Weighted-average discount rate—finance leases (percent) | 3.7 | % |
Weighted-average discount rate—operating leases (percent) | 3.9 |
|
Note 15—Pension and Postretirement Plans
The components of net periodic benefit cost for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | | | | | | |
| Pension Benefits | | | | | | | | Other Benefits | | |
| 2020 | | | | 2019 | | | | 2020 | | | 2019 | |
| U.S. | | Int’l. | | U.S. | | Int’l. | | | | |
Components of Net Periodic Benefit Cost | | | | | | | | | | | |
Three Months Ended June 30 | | | | | | | | | | | |
Service cost | $ | 34 | | | 7 | | | 31 | | | 6 | | | 2 | | | 2 | |
Interest cost | 24 | | | 5 | | | 27 | | | 7 | | | 1 | | | 2 | |
Expected return on plan assets | (42) | | | (12) | | | (35) | | | (12) | | | — | | | — | |
Amortization of prior service credit | — | | | — | | | — | | | — | | | — | | | (1) | |
Recognized net actuarial loss | 15 | | | 4 | | | 13 | | | 1 | | | — | | | — | |
Settlements | 39 | | | — | | | 2 | | | — | | | — | | | — | |
Net periodic benefit cost* | $ | 70 | | | 4 | | | 38 | | | 2 | | | 3 | | | 3 | |
| | | | | | | | | | | |
Six Months Ended June 30 | | | | | | | | | | | |
Service cost | $ | 67 | | | 14 | | | 63 | | | 12 | | | 3 | | | 3 | |
Interest cost | 49 | | | 11 | | | 54 | | | 13 | | | 3 | | | 4 | |
Expected return on plan assets | (83) | | | (25) | | | (71) | | | (23) | | | — | | | — | |
Amortization of prior service credit | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Recognized net actuarial loss | 29 | | | 8 | | | 26 | | | 3 | | | — | | | — | |
Settlements | 39 | | | — | | | 6 | | | — | | | — | | | — | |
Net periodic benefit cost* | $ | 101 | | | 8 | | | 78 | | | 5 | | | 5 | | | 6 | |
* Included in the “Operating expenses” and “Selling, general and administrative expenses” line items on our consolidated statement of operations. | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| Pension Benefits | | Other Benefits |
| 2019 | | 2018 | | 2019 |
| | 2018 |
|
| U.S. |
| | Int’l. |
| | U.S. |
| | Int’l. |
| | | | |
Components of Net Periodic Benefit Cost | | | | | | | | | | | |
Three Months Ended September 30 | | | | | | | | | | | |
Service cost | $ | 32 |
| | 5 |
| | 34 |
| | 5 |
| | 1 |
| | 2 |
|
Interest cost | 27 |
| | 6 |
| | 26 |
| | 6 |
| | 2 |
| | 1 |
|
Expected return on plan assets | (36 | ) | | (10 | ) | | (42 | ) | | (11 | ) | | — |
| | — |
|
Amortization of prior service credit | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Recognized net actuarial loss | 14 |
| | 2 |
| | 14 |
| | 5 |
| | — |
| | — |
|
Settlements | 1 |
| | — |
| | 49 |
| | — |
| | — |
| | — |
|
Net periodic benefit cost* | $ | 38 |
|
| 3 |
|
| 81 |
|
| 5 |
|
| 3 |
|
| 3 |
|
| | | | | | | | | | | |
Nine Months Ended September 30 | | | | | | | | | | | |
Service cost | $ | 95 |
| | 17 |
| | 102 |
| | 22 |
| | 4 |
| | 5 |
|
Interest cost | 81 |
| | 19 |
| | 78 |
| | 21 |
| | 6 |
| | 5 |
|
Expected return on plan assets | (107 | ) | | (33 | ) | | (127 | ) | | (35 | ) | | — |
| | — |
|
Amortization of prior service credit | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | (1 | ) |
Recognized net actuarial loss | 40 |
| | 5 |
| | 44 |
| | 15 |
| | — |
| | — |
|
Settlements | 7 |
| | — |
| | 54 |
| | — |
| | — |
| | — |
|
Net periodic benefit cost* | $ | 116 |
| | 8 |
| | 151 |
| | 22 |
| | 9 |
| | 9 |
|
* Included in the “Operating expenses” and “Selling, general and administrative expenses” lines on our consolidated statement of income. |
During the ninesix months ended SeptemberJune 30, 2019,2020, we contributed $50$13 million to our U.S. pension and other postretirement benefit plans and $21$13 million to our international pension plans. We currently expect to make additional contributions of approximately $8$24 million to our U.S. pension and other postretirement benefit plans and $7$13 million to our international pension plans during the remainder of 2019.
2020.
During the six months ended June 30, 2020, we estimated that lump-sum benefit payments will exceed the sum of service and interest costs for the plan year for our U.S. qualified and non-qualified pension plans. As a result, we recognized a portion of prior actuarial losses, or pension settlement expense, of $34 million related to our U.S. qualified pension plan and $5 million related to our U.S. non-qualified pension plan. In conjunction with the recognition of pension settlement expense, the plan assets and projected benefit obligation of our U.S. qualified pension plan were remeasured as of June 30, 2020. At the remeasurement date, the net pension liability increased by $300 million resulting in a corresponding increase to other comprehensive loss. The increase in the net pension liability was primarily due to a decline in the discount rate used to value the projected benefit obligation from 3.3% to 2.7% and a decrease in the fair value of plan assets during the six months ended June 30, 2020.
Note 16—15—Accumulated Other Comprehensive Loss
Changes in the balances of each component of accumulated other comprehensive loss were as follows:
|
| | | | | | | | | | | | |
| Millions of Dollars |
| Defined Benefit Plans |
| | Foreign Currency Translation |
| | Hedging |
| | Accumulated Other Comprehensive Loss |
|
| | | | | | | |
December 31, 2018 | $ | (472 | ) | | (228 | ) | | 8 |
| | (692 | ) |
Other comprehensive income (loss) before reclassifications | 5 |
| | (124 | ) | | (6 | ) | | (125 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | | | | | |
Defined benefit plans* | | | | | | | |
Amortization of net actuarial loss, prior service credit and settlements | 40 |
| | — |
| | — |
| | 40 |
|
Foreign currency translation | — |
| | — |
| | — |
| | — |
|
Hedging | — |
| | — |
| | (5 | ) | | (5 | ) |
Net current period other comprehensive income (loss) | 45 |
| | (124 | ) | | (11 | ) | | (90 | ) |
Income taxes reclassified to retained earnings** | (93 | ) | | 2 |
| | 2 |
| | (89 | ) |
September 30, 2019 | $ | (520 | ) | | (350 | ) | | (1 | ) | | (871 | ) |
| | | | | | | |
December 31, 2017 | $ | (598 | ) | | (26 | ) | | 7 |
| | (617 | ) |
Other comprehensive income (loss) before reclassifications | 10 |
| | (113 | ) | | 9 |
| | (94 | ) |
Amounts reclassified from accumulated other comprehensive loss | | | | | | | |
Defined benefit plans* | | | | | | | |
Amortization of net actuarial loss, prior service credit and settlements | 84 |
| | — |
| | — |
| | 84 |
|
Foreign currency translation | — |
| | (10 | ) | | — |
| | (10 | ) |
Hedging | — |
| | — |
| | (2 | ) | | (2 | ) |
Net current period other comprehensive income (loss) | 94 |
| | (123 | ) | | 7 |
| | (22 | ) |
September 30, 2018 | $ | (504 | ) | | (149 | ) | | 14 |
| | (639 | ) |
* Included in the computation of net periodic benefit cost. See Note 15—Pension and Postretirement Plans, for additional information. |
** As of January 1, 2019, stranded income taxes related to the enactment of the Tax Act in December 2017 were reclassified to retained earnings upon adoption of ASU No. 2018-02. See Note 2—Changes in Accounting Principles, for additional information on our adoption of this ASU. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | | |
| Defined Benefit Plans | | Foreign Currency Translation | | Hedging | | Accumulated Other Comprehensive Loss |
| | | | | | | |
December 31, 2019 | $ | (656) | | | (131) | | | (1) | | | (788) | |
Other comprehensive loss before reclassifications | (223) | | | (195) | | | (8) | | | (426) | |
Amounts reclassified from accumulated other comprehensive loss | | | | | | | |
Defined benefit plans* | | | | | | | |
Amortization of net actuarial loss, prior service credit and settlements | 60 | | | — | | | — | | | 60 | |
Foreign currency translation | — | | | — | | | — | | | — | |
Hedging | — | | | — | | | 1 | | | 1 | |
Net current period other comprehensive loss | (163) | | | (195) | | | (7) | | | (365) | |
Other | — | | | 5 | | | — | | | 5 | |
June 30, 2020 | $ | (819) | | | (321) | | | (8) | | | (1,148) | |
| | | | | | | |
December 31, 2018 | $ | (472) | | | (228) | | | 8 | | | (692) | |
Other comprehensive income (loss) before reclassifications | 4 | | | (6) | | | (7) | | | (9) | |
Amounts reclassified from accumulated other comprehensive loss | | | | | | | |
Defined benefit plans* | | | | | | | |
Amortization of net actuarial loss, prior service credit and settlements | 26 | | | — | | | — | | | 26 | |
Foreign currency translation | — | | | — | | | — | | | — | |
Hedging | — | | | — | | | (3) | | | (3) | |
Net current period other comprehensive income (loss) | 30 | | | (6) | | | (10) | | | 14 | |
Income taxes reclassified to retained earnings** | (93) | | | 2 | | | 2 | | | (89) | |
June 30, 2019 | $ | (535) | | | (232) | | | — | | | (767) | |
* Included in the computation of net periodic benefit cost. See Note 14—Pension and Postretirement Plans, for additional information. | | | | | | | |
** As of January 1, 2019, stranded income taxes related to the enactment of the Tax Act in December 2017 were reclassified to retained earnings upon adoption of ASU No. 2018-02. | | | | | | | |
Note 17—Treasury Stock
In February 2018, we entered into a Purchase Agreement with Berkshire Hathaway Inc. and National Indemnity Company, a wholly owned subsidiary
On October 4, 2019, our Board of Directors approved a new share repurchase program that authorizes us to repurchase up to $3 billion of our common stock, bringing the total amount of share repurchases authorized by our Board of Directors since July 2012 to an aggregate of $15 billion.
Note 18—16—Related Party Transactions
Significant transactions with related parties were:
| | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
| | | | | | |
Operating revenues and other income (a) | $ | 353 | | | 796 | | | 887 | | 1,479 | |
Purchases (b) | 1,130 | | | 3,260 | | | 3,256 | | 5,928 | |
Operating expenses and selling, general and administrative expenses (c) | 55 | | | 8 | | | 106 | | 17 | |
| | | | | | |
(a)We sold NGL, other petrochemical feedstocks and solvents to Chevron Phillips Chemical Company LLC (CPChem), gas oil and hydrogen feedstocks to Excel Paralubes (Excel), and refined petroleum products to several of our equity affiliates in the M&S segment, including OnCue and CF United. We also sold certain feedstocks and intermediate products to WRB Refining LP (WRB) and acted as agent for WRB in supplying crude oil and other feedstocks for a fee. In addition, we charged several of our equity affiliates, including CPChem, for the use of common facilities, such as steam generators, waste and water treaters and warehouse facilities.
(b)We purchased crude oil, refined petroleum products and NGL from WRB and also acted as agent for WRB in distributing solvents. We also purchased natural gas and NGL from DCP Midstream and CPChem, as well as other feedstocks from various equity affiliates, for use in our refinery and fractionation processes. In addition, we purchased base oils and fuel products from Excel for use in our specialty and refining businesses. We paid NGL fractionation fees to CPChem. We also paid fees to various pipeline equity affiliates for transporting crude oil, refined petroleum products and NGL.
(c)We paid consignment fees to CF United, and utility and processing fees to various equity affiliates.
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Operating revenues and other income (a) | $ | 756 |
| 955 |
| | 2,235 |
| 2,717 |
|
Purchases (b) | 2,842 |
| 3,667 |
| | 8,770 |
| 9,534 |
|
Operating expenses and selling, general and administrative expenses (c) | 8 |
| 12 |
| | 25 |
| 44 |
|
| |
(a) | We sold NGL and other petrochemical feedstocks, along with solvents, to CPChem, gas oil and hydrogen feedstocks to Excel Paralubes (Excel), and refined petroleum products to OnCue. We also sold certain feedstocks and intermediate products to WRB and acted as agent for WRB in supplying crude oil and other feedstocks for a fee. In addition, we charged several of our affiliates, including CPChem, for the use of common facilities, such as steam generators, waste and water treaters and warehouse facilities. |
| |
(b) | We purchased crude oil, refined petroleum products and NGL from WRB and also acted as agent for WRB in distributing solvents. We also purchased natural gas and NGL from DCP Midstream and CPChem, as well as other feedstocks from various affiliates, for use in our refinery and fractionation processes. In addition, we purchased base oils and fuel products from Excel for use in our specialty and refining businesses. We paid NGL fractionation fees to CPChem. We also paid fees to various pipeline affiliates for transporting crude oil, refined petroleum products and NGL. |
| |
(c) | We paid utility and processing fees to various affiliates. |
Note 19—17—Segment Disclosures and Related Information
During the fourth quarter of 2018, the segment performance measure used by our chief executive officer to assess performance and allocate resources was changed from “net income” to “income before income taxes.” Prior-period segment information has been recast to conform to the current presentation.
Our operating segments are:
| |
1) | 1)Midstream—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. The Midstream segment includes our master limited partnership (MLP), Phillips 66 Partners, as well as our 50% equity investment in DCP Midstream.
2)Chemicals—Consists of our 50% equity investment in CPChem, which manufactures and markets petrochemicals and plastics on a worldwide basis.
3)Refining—Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, at 13 refineries in the United States and Europe.
4)Marketing and Specialties—Purchases for resale and markets refined petroleum products, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products.
Provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and NGL transportation, storage, processing and marketing services, mainly in the United States. The Midstream segment includes our master limited partnership (MLP), Phillips 66 Partners, as well as our 50% equity investment in DCP Midstream.
|
| |
2) | Chemicals—Consists of our 50% equity investment in CPChem, which manufactures and markets petrochemicals and plastics on a worldwide basis.
|
| |
3) | Refining—Refines crude oil and other feedstocks into petroleum products (such as gasoline, distillates and aviation fuels) at 13refineries in the United States and Europe.
|
| |
4) | Marketing and Specialties—Purchases for resale and markets refined petroleum products, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, as well as power generation operations.
|
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 relatedtax-related assets.
Intersegment sales are at prices that we believe approximate market.
Analysis of Results by Operating Segment
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
Sales and Other Operating Revenues* | | | | | |
Midstream | | | | | |
Total sales | $ | 1,602 |
| 2,287 |
| | 5,208 |
| 6,234 |
|
Intersegment eliminations | (482 | ) | (524 | ) | | (1,526 | ) | (1,555 | ) |
Total Midstream | 1,120 |
| 1,763 |
| | 3,682 |
| 4,679 |
|
Chemicals | 1 |
| 1 |
| | 3 |
| 4 |
|
Refining | | | | | |
Total sales | 19,591 |
| 21,949 |
| | 56,839 |
| 61,707 |
|
Intersegment eliminations | (11,452 | ) | (12,807 | ) | | (34,008 | ) | (37,027 | ) |
Total Refining | 8,139 |
| 9,142 |
| | 22,831 |
| 24,680 |
|
Marketing and Specialties | | | | | |
Total sales | 18,535 |
| 19,332 |
| | 53,464 |
| 54,471 |
|
Intersegment eliminations | (584 | ) | (457 | ) | | (1,833 | ) | (1,492 | ) |
Total Marketing and Specialties | 17,951 |
| 18,875 |
| | 51,631 |
| 52,979 |
|
Corporate and Other | 7 |
| 7 |
| | 21 |
| 21 |
|
Consolidated sales and other operating revenues | $ | 27,218 |
| 29,788 |
| | 78,168 |
| 82,363 |
|
* See Note 3—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues. |
| | | | | |
Income (Loss) Before Income Taxes | | | | | |
Midstream | $ | (460 | ) | 284 |
| | 279 |
| 802 |
|
Chemicals | 227 |
| 263 |
| | 729 |
| 873 |
|
Refining | 856 |
| 1,232 |
| | 1,641 |
| 2,534 |
|
Marketing and Specialties | 498 |
| 423 |
| | 1,056 |
| 968 |
|
Corporate and Other | (178 | ) | (227 | ) | | (593 | ) | (650 | ) |
Consolidated income before income taxes | $ | 943 |
| 1,975 |
| | 3,112 |
| 4,527 |
|
| | | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | | |
| 2020 | | | 2019 | | | 2020 | | | 2019 | |
Sales and Other Operating Revenues* | | | | | | | |
Midstream | | | | | | | |
Total sales | $ | 1,100 | | | 1,709 | | | 2,638 | | | 3,606 | |
Intersegment eliminations | (382) | | | (460) | | | (877) | | | (1,044) | |
Total Midstream | 718 | | | 1,249 | | | 1,761 | | | 2,562 | |
Chemicals | 1 | | | 1 | | | 2 | | | 2 | |
Refining | | | | | | | |
Total sales | 7,352 | | | 20,387 | | | 21,133 | | | 37,248 | |
Intersegment eliminations | (4,437) | | | (12,788) | | | (12,070) | | | (22,556) | |
Total Refining | 2,915 | | | 7,599 | | | 9,063 | | | 14,692 | |
Marketing and Specialties | | | | | | | |
Total sales | 7,493 | | | 19,687 | | | 21,742 | | | 34,929 | |
Intersegment eliminations | (220) | | | (696) | | | (790) | | | (1,249) | |
Total Marketing and Specialties | 7,273 | | | 18,991 | | | 20,952 | | | 33,680 | |
Corporate and Other | 6 | | | 7 | | | 13 | | | 14 | |
Consolidated sales and other operating revenues | $ | 10,913 | | | 27,847 | | | 31,791 | | | 50,950 | |
* See Note 2—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues. | | | | | | | |
| | | | | | | |
Income (Loss) Before Income Taxes | | | | | | | |
Midstream | $ | 324 | | | 423 | | | (378) | | | 739 | |
Chemicals | 42 | | | 275 | | | 211 | | | 502 | |
Refining | (878) | | | 983 | | | (3,139) | | | 785 | |
Marketing and Specialties | 286 | | | 353 | | | 799 | | | 558 | |
Corporate and Other | (219) | | | (205) | | | (416) | | | (415) | |
Consolidated income (loss) before income taxes | $ | (445) | | | 1,829 | | | (2,923) | | | 2,169 | |
|
| | | | | | |
| Millions of Dollars |
| September 30 2019 |
| | December 31 2018 |
|
Total Assets | | | |
Midstream | $ | 15,209 |
| | 14,329 |
|
Chemicals | 6,269 |
| | 6,235 |
|
Refining | 25,280 |
| | 23,230 |
|
Marketing and Specialties | 8,338 |
| | 6,572 |
|
Corporate and Other | 3,645 |
| | 3,936 |
|
Consolidated total assets | $ | 58,741 |
| | 54,302 |
|
| | | | | | | | | | | |
| Millions of Dollars | | |
| June 30 2020 | | December 31 2019 |
Total Assets | | | |
Midstream | $ | 15,447 | | | 15,716 | |
Chemicals | 6,148 | | | 6,249 | |
Refining | 21,981 | | | 25,150 | |
Marketing and Specialties | 7,246 | | | 8,659 | |
Corporate and Other | 3,696 | | | 2,946 | |
Consolidated total assets | $ | 54,518 | | | 58,720 | |
Note 20—18—Income Taxes
Historically, we have calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full year to income (loss) for the interim period. In the second quarter of 2020, we concluded that we could not calculate a reliable estimate of our annual effective tax rate due to the range of potential impacts the global COVID-19 pandemic may have on our business and results of operations. Accordingly, we computed the effective tax rate for the six-month period ending June 30, 2020, using actual results.
Our effective income tax rate for the three and ninesix months ended SeptemberJune 30, 2019,2020, was 16%85% and 18%15%, respectively, compared with 21%18% for the corresponding periods of 2018.2019. The decreaseincrease in our effective tax rate for the three months ended SeptemberJune 30, 2019, compared with the three months ended September 30, 2018, was2020, is primarily attributable to the impact of our foreign operations. adjustment required in the second quarter for the first-quarter 2020 results to reflect the change in methodology discussed above.The decrease in our effective tax rate for the ninesix months ended SeptemberJune 30, 2019, compared with the nine months ended September 30, 2018, was2020, is primarily attributable to anthe impact of the nondeductible goodwill impairment, partially offset by the ability provided under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to carry back a 2020 net operating loss to a year with a 35% income tax benefit of $45 million recorded in the second quarter in connection with the Internal Revenue Service’s issuance of additional guidance related to the calculation of the one-time deemed repatriation tax on foreign-source earnings that were previously tax deferred,rate, as well as the impact of our foreign operations.operations and income attributable to noncontrolling interests.
The effective income tax rate for the three and nine months ended SeptemberJune 30, 2019, varies2020, varied from the U.S. federal statutory income tax rate of 21%, primarily attributable to the adjustment required in the second quarter for the first-quarter 2020 results to reflect the change in methodology discussed above. The effective income tax rate for the six months ended June 30, 2020, varied from the U.S. federal statutory rate of 21%, primarily due to the impact of our foreign operations and income attributable to noncontrolling interests,the nondeductible goodwill impairment, partially offset by statethe ability provided under the CARES Act to carry back a 2020 net operating loss to a year with a 35% income tax expense. For the nine months ended September 30, 2019, there was an additional reductionrate.
An income tax receivable of $557 million is included in the effective“Accounts and notes receivable” line item on our consolidated balance sheet as of June 30, 2020, which reflects our estimate of the tax rate relatedbenefit that we expect to realize within the aforementioned $45 million income tax benefit.next 12 months.
Note 21—19—Phillips 66 Partners LP
Phillips 66 Partners, headquartered in Houston, Texas, is a publicly traded MLP formed in 2013 to own, operate, develop and acquire primarily fee-based midstream assets. Phillips 66 Partners’ operations currently consist of crude oil, refined petroleum product and NGL transportation, fractionation, processing, terminaling, processing and storage assets.
We consolidate Phillips 66 Partners because we determined it is a VIE of which we are the primary beneficiary. As general partner of Phillips 66 Partners, we have the ability to control its financial interests, as well as the ability to direct the activities that most significantly impact its economic performance. As a result of this consolidation, the public common and perpetual convertible preferred unitholders’ ownership interests in Phillips 66 Partners are reflected as noncontrolling interests in our financial statements. At SeptemberJune 30, 2019,2020, we owned 170 million Phillips 66 Partners common units, representing a 75%74% limited partner interest in Phillips 66 Partners, while the public owned a 25%26% limited partner interest and 13.8 million perpetual convertible preferred units.
The most significant assets of Phillips 66 Partners that are available to settle only its obligations, along with its most significant liabilities for which its creditors do not have recourse to Phillips 66’s general credit, were:
|
| | | | | | |
| Millions of Dollars |
| September 30 2019 |
| | December 31 2018 |
|
| | | |
Cash and cash equivalents | $ | 655 |
| | 1 |
|
Equity investments* | 2,921 |
| | 2,448 |
|
Net properties, plants and equipment | 3,258 |
| | 3,052 |
|
Short-term debt | 325 |
| | 50 |
|
Long-term debt | 3,490 |
| | 2,998 |
|
* Included in “Investments and long-term receivables” line on the Phillips 66 consolidated balance sheet. |
| | | | | | | | | | | |
| Millions of Dollars | | |
| June 30 2020 | | December 31 2019 |
| | | |
Cash and cash equivalents | $ | 7 | | | 286 | |
Equity investments* | 3,340 | | | 2,961 | |
Net properties, plants and equipment | 3,500 | | | 3,349 | |
Short-term debt | 265 | | | 25 | |
Long-term debt | 3,442 | | | 3,491 | |
* Included in the “Investments and long-term receivables” line item on the Phillips 66 consolidated balance sheet. | | | |
2019 Activities
For the three and ninesix months ended SeptemberJune 30, 2019,2020, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $91$2 million and $133 million, respectively, from common units issued under its continuous offering of common units, or at-the-market (ATM) programs.programs, with 0 issuances in the second quarter of 2020. For the three and ninesix months ended SeptemberJune 30, 2018,2019, Phillips 66 Partners generated net proceeds of $47$10 million and $114$42 million, respectively, under its ATM programs.
Phillips 66 Partners holds an investment inGray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, through Holdingswhich transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. Phillips 66 Partners has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party exercised its option to acquire a 35% interest in Holdings LLC.the holding company. Because Holdings LLC’sthe holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which iswas considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in Holdings LLCthe 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. As such, the contributions the third party is making to Holdings LLC to cover its share of previously incurred and future construction costs plus a premium to Phillips 66 Partners are reflected as a long-term obligation in the “Other liabilities and deferred credits” line on our consolidated balance sheet and financing cash inflows in the “Other” line on our consolidated statement of cash flows. After construction of theGAAP at that time. The Gray Oak Pipeline is fully completed, these restrictions expire,commenced full operations 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 will be recognized under GAAP. Phillips 66 Partners will continue to control and consolidate Holdings LLC after sale recognition, and thereforeAccordingly, at June 30, 2020, the third party’sco-venturer’s 35% interest will bein the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet at that time. Also at that time,sheet. In addition, the premium of $84 million previously paid will beby the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of income.operations for the three and six months ended June 30, 2020. For the ninesix months ended SeptemberJune 30, 2019,2020, the third partyco-venturer contributed an aggregate of $341$61 million into Holdings LLC, which Holdings LLC usedto the holding company to fund its portion of Gray Oak’sOak Pipeline, LLC’s cash calls. Excluding the co-venturer’s 35% interest in the consolidated holding company, Phillips 66 Partners has an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC. See Note 6—5—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillips 66 Partners’ investment in Gray Oak.
Restructuring Transaction
On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to eliminate the IDRs held by usOak Pipeline, LLC, Dakota Access and convert our 2% economic general partner interest into a non-economic general partner interest in exchange for 101 million Phillips 66 Partners’ common units. As a result of the restructuring transaction, the balance of “Noncontrolling interests” on our consolidated balance sheet decreased $373 million, with a $275 million increase to “Capital in excess of par,” a $91 million increase in “Deferred income taxes”ETCO, and $7 million of transaction costs. No distributions will be made on the general partner interest after August 1, 2019. At September 30, 2019, we owned 170 million Phillips 66 Partners’ common units, representing 75% of Phillips 66 Partners’ outstanding common units.
Note 22—20—Condensed Consolidating Financial Information
Phillips 66 has senior notes outstanding, the payment obligations of which are fully and unconditionally guaranteed by Phillips 66 Company, a 100% owned100 percent-owned subsidiary. The following condensed consolidating financial information presents the results of operations, financial position and cash flows for:
•Phillips 66 and Phillips 66 Company (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting).
•All other nonguarantor subsidiaries.
•The consolidating adjustments necessary to present Phillips 66’s results on a consolidated basis.
This condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and notes.
| | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | |
| Three Months Ended June 30, 2020 | | | | |
Statement of Operations | Phillips 66 | Phillips 66 Company | All Other Subsidiaries | Consolidating Adjustments | Total Consolidated |
Revenues and Other Income (Loss) | | | | | |
Sales and other operating revenues | $ | — | | 8,236 | | 2,677 | | — | | 10,913 | |
Equity in earnings (losses) of affiliates | (86) | | 230 | | 174 | | (161) | | 157 | |
Net gain on dispositions | — | | — | | 85 | | — | | 85 | |
Other income | — | | 19 | | 9 | | — | | 28 | |
Intercompany revenues | 1 | | 604 | | 1,553 | | (2,158) | | — | |
Total Revenues and Other Income (Loss) | (85) | | 9,089 | | 4,498 | | (2,319) | | 11,183 | |
| | | | | |
Costs and Expenses | | | | | |
Purchased crude oil and products | — | | 7,990 | | 3,665 | | (2,047) | | 9,608 | |
Operating expenses | — | | 810 | | 248 | | (32) | | 1,026 | |
Selling, general and administrative expenses | 1 | | 319 | | 92 | | (3) | | 409 | |
Depreciation and amortization | — | | 235 | | 108 | | — | | 343 | |
| | | | | |
Taxes other than income taxes | — | | 86 | | 28 | | — | | 114 | |
Accretion on discounted liabilities | — | | 4 | | 1 | | — | | 5 | |
Interest and debt expense | 92 | | 22 | | 79 | | (76) | | 117 | |
Foreign currency transaction losses | — | | — | | 6 | | — | | 6 | |
Total Costs and Expenses | 93 | | 9,466 | | 4,227 | | (2,158) | | 11,628 | |
Income (loss) before income taxes | (178) | | (377) | | 271 | | (161) | | (445) | |
Income tax benefit | (37) | | (291) | | (50) | | — | | (378) | |
Net Income (Loss) | (141) | | (86) | | 321 | | (161) | | (67) | |
Less: net income attributable to noncontrolling interests | — | | — | | 74 | | — | | 74 | |
Net Income (Loss) Attributable to Phillips 66 | $ | (141) | | (86) | | 247 | | (161) | | (141) | |
| | | | | |
Comprehensive Income (Loss) | $ | (298) | | (243) | | 343 | | (26) | | (224) | |
| | | | | | | | | | | | | | Millions of Dollars | |
| Millions of Dollars | | Three Months Ended June 30, 2019 | |
| Three Months Ended September 30, 2019 | |
Statement of Income | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
| |
Statement of Operations | | Statement of Operations | Phillips 66 | Phillips 66 Company | All Other Subsidiaries | Consolidating Adjustments | Total Consolidated |
Revenues and Other Income | | | Revenues and Other Income | |
Sales and other operating revenues | $ | — |
| 20,947 |
| 6,271 |
| — |
| 27,218 |
| Sales and other operating revenues | $ | — | | 21,698 | | 6,149 | | — | | 27,847 | |
Equity in earnings of affiliates | 781 |
| 214 |
| 147 |
| (643 | ) | 499 |
| Equity in earnings of affiliates | 1,495 | | 1,000 | | 202 | | (2,049) | | 648 | |
Net gain on dispositions | — |
| 1 |
| 17 |
| — |
| 18 |
| |
| Other income | — |
| 25 |
| 11 |
| — |
| 36 |
| Other income | — | | 22 | | 1 | | — | | 23 | |
Intercompany revenues | — |
| 837 |
| 3,704 |
| (4,541 | ) | — |
| Intercompany revenues | — | | 722 | | 4,095 | | (4,817) | | — | |
Total Revenues and Other Income | 781 |
| 22,024 |
| 10,150 |
| (5,184 | ) | 27,771 |
| Total Revenues and Other Income | 1,495 | | 23,442 | | 10,447 | | (6,866) | | 28,518 | |
| | | |
Costs and Expenses | | | Costs and Expenses | |
Purchased crude oil and products | — |
| 19,383 |
| 8,866 |
| (4,443 | ) | 23,806 |
| Purchased crude oil and products | — | | 20,185 | | 9,082 | | (4,713) | | 24,554 | |
Operating expenses | — |
| 959 |
| 264 |
| (17 | ) | 1,206 |
| Operating expenses | — | | 917 | | 271 | | (23) | | 1,165 | |
Selling, general and administrative expenses | 1 |
| 324 |
| 94 |
| (3 | ) | 416 |
| Selling, general and administrative expenses | 1 | | 319 | | 91 | | (3) | | 408 | |
Depreciation and amortization | — |
| 230 |
| 106 |
| — |
| 336 |
| Depreciation and amortization | — | | 229 | | 105 | | — | | 334 | |
Impairments | — |
| — |
| 853 |
| — |
| 853 |
| Impairments | — | | 1 | | 1 | | — | | 2 | |
Taxes other than income taxes | — |
| 77 |
| 28 |
| — |
| 105 |
| Taxes other than income taxes | — | | 70 | | 27 | | — | | 97 | |
Accretion on discounted liabilities | — |
| 4 |
| 2 |
| — |
| 6 |
| Accretion on discounted liabilities | — | | 5 | | 1 | | (1) | | 5 | |
Interest and debt expense | 85 |
| 35 |
| 67 |
| (78 | ) | 109 |
| Interest and debt expense | 89 | | 37 | | 66 | | (77) | | 115 | |
Foreign currency transaction gains | — |
| — |
| (9 | ) | — |
| (9 | ) | |
Foreign currency transaction losses | | Foreign currency transaction losses | — | | — | | 9 | | — | | 9 | |
Total Costs and Expenses | 86 |
| 21,012 |
| 10,271 |
| (4,541 | ) | 26,828 |
| Total Costs and Expenses | 90 | | 21,763 | | 9,653 | | (4,817) | | 26,689 | |
Income (loss) before income taxes | 695 |
| 1,012 |
| (121 | ) | (643 | ) | 943 |
| |
Income before income taxes | | Income before income taxes | 1,405 | | 1,679 | | 794 | | (2,049) | | 1,829 | |
Income tax expense (benefit) | (17 | ) | 231 |
| (64 | ) | — |
| 150 |
| Income tax expense (benefit) | (19) | | 184 | | 160 | | — | | 325 | |
Net Income (Loss) | 712 |
| 781 |
| (57 | ) | (643 | ) | 793 |
| |
Net Income | | Net Income | 1,424 | | 1,495 | | 634 | | (2,049) | | 1,504 | |
Less: net income attributable to noncontrolling interests | — |
| — |
| 81 |
| — |
| 81 |
| Less: net income attributable to noncontrolling interests | — | | — | | 80 | | — | | 80 | |
Net Income (Loss) Attributable to Phillips 66 | $ | 712 |
| 781 |
| (138 | ) | (643 | ) | 712 |
| |
Net Income Attributable to Phillips 66 | | Net Income Attributable to Phillips 66 | $ | 1,424 | | 1,495 | | 554 | | (2,049) | | 1,424 | |
| | | |
Comprehensive Income (Loss) | $ | 608 |
| 677 |
| (170 | ) | (426 | ) | 689 |
| |
Comprehensive Income | | Comprehensive Income | $ | 1,366 | | 1,437 | | 574 | | (1,931) | | 1,446 | |
|
| | | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30, 2018 |
Statement of Income | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
Revenues and Other Income | | | | | |
Sales and other operating revenues | $ | — |
| 22,866 |
| 6,922 |
| — |
| 29,788 |
|
Equity in earnings of affiliates | 1,573 |
| 1,160 |
| 186 |
| (2,140 | ) | 779 |
|
Net gain on dispositions | — |
| — |
| 1 |
| — |
| 1 |
|
Other income | — |
| 23 |
| 1 |
| — |
| 24 |
|
Intercompany revenues | — |
| 1,091 |
| 4,371 |
| (5,462 | ) | — |
|
Total Revenues and Other Income | 1,573 |
| 25,140 |
| 11,481 |
| (7,602 | ) | 30,592 |
|
| | | | | |
Costs and Expenses | | | | | |
Purchased crude oil and products | — |
| 21,656 |
| 10,095 |
| (5,366 | ) | 26,385 |
|
Operating expenses | — |
| 946 |
| 280 |
| (20 | ) | 1,206 |
|
Selling, general and administrative expenses | 2 |
| 338 |
| 103 |
| (3 | ) | 440 |
|
Depreciation and amortization | — |
| 232 |
| 114 |
| — |
| 346 |
|
Impairments | — |
| 1 |
| — |
| — |
| 1 |
|
Taxes other than income taxes | — |
| 84 |
| 25 |
| — |
| 109 |
|
Accretion on discounted liabilities | — |
| 4 |
| 1 |
| — |
| 5 |
|
Interest and debt expense | 100 |
| 36 |
| 62 |
| (73 | ) | 125 |
|
Total Costs and Expenses | 102 |
| 23,297 |
| 10,680 |
| (5,462 | ) | 28,617 |
|
Income before income taxes | 1,471 |
| 1,843 |
| 801 |
| (2,140 | ) | 1,975 |
|
Income tax expense (benefit) | (21 | ) | 270 |
| 158 |
| — |
| 407 |
|
Net Income | 1,492 |
| 1,573 |
| 643 |
| (2,140 | ) | 1,568 |
|
Less: net income attributable to noncontrolling interests | — |
| — |
| 76 |
| — |
| 76 |
|
Net Income Attributable to Phillips 66 | $ | 1,492 |
| 1,573 |
| 567 |
| (2,140 | ) | 1,492 |
|
| | | | | |
Comprehensive Income | $ | 1,533 |
| 1,614 |
| 635 |
| (2,173 | ) | 1,609 |
|
31
| | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | |
| Six Months Ended June 30, 2020 | | | | |
Statement of Operations | Phillips 66 | Phillips 66 Company | All Other Subsidiaries | Consolidating Adjustments | Total Consolidated |
Revenues and Other Income (Loss) | | | | | |
Sales and other operating revenues | $ | — | | 23,746 | | 8,045 | | — | | 31,791 | |
Equity in earnings (losses) of affiliates | (2,506) | | (131) | | 413 | | 2,746 | | 522 | |
Net gain on dispositions | — | | 1 | | 85 | | — | | 86 | |
Other income | — | | 17 | | 11 | | — | | 28 | |
Intercompany revenues | 1 | | 1,534 | | 3,971 | | (5,506) | | — | |
Total Revenues and Other Income (Loss) | (2,505) | | 25,167 | | 12,525 | | (2,760) | | 32,427 | |
| | | | | |
Costs and Expenses | | | | | |
Purchased crude oil and products | — | | 22,976 | | 10,354 | | (5,282) | | 28,048 | |
Operating expenses | — | | 1,927 | | 502 | | (62) | | 2,367 | |
Selling, general and administrative expenses | 4 | | 530 | | 199 | | (5) | | 728 | |
Depreciation and amortization | — | | 470 | | 215 | | — | | 685 | |
Impairments | — | | 1,805 | | 1,201 | | — | | 3,006 | |
Taxes other than income taxes | — | | 209 | | 62 | | — | | 271 | |
Accretion on discounted liabilities | — | | 9 | | 2 | | — | | 11 | |
Interest and debt expense | 170 | | 58 | | 157 | | (157) | | 228 | |
Foreign currency transaction losses | — | | — | | 6 | | — | | 6 | |
Total Costs and Expenses | 174 | | 27,984 | | 12,698 | | (5,506) | | 35,350 | |
Loss before income taxes | (2,679) | | (2,817) | | (173) | | 2,746 | | (2,923) | |
Income tax benefit | (42) | | (311) | | (76) | | — | | (429) | |
Net Loss | (2,637) | | (2,506) | | (97) | | 2,746 | | (2,494) | |
Less: net income attributable to noncontrolling interests | — | | — | | 143 | | — | | 143 | |
Net Loss Attributable to Phillips 66 | $ | (2,637) | | (2,506) | | (240) | | 2,746 | | (2,637) | |
| | | | | |
Comprehensive Loss | $ | (3,002) | | (2,871) | | (284) | | 3,298 | | (2,859) | |
| | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | |
| Six Months Ended June 30, 2019 | | | | |
Statement of Operations | Phillips 66 | Phillips 66 Company | All Other Subsidiaries | Consolidating Adjustments | Total Consolidated |
Revenues and Other Income | | | | | |
Sales and other operating revenues | $ | — | | 39,113 | | 11,837 | | — | | 50,950 | |
Equity in earnings of affiliates | 1,776 | | 1,431 | | 367 | | (2,410) | | 1,164 | |
Net gain on dispositions | — | | — | | 1 | | — | | 1 | |
Other income | — | | 42 | | 19 | | — | | 61 | |
Intercompany revenues | — | | 1,883 | | 7,310 | | (9,193) | | — | |
Total Revenues and Other Income | 1,776 | | 42,469 | | 19,534 | | (11,603) | | 52,176 | |
| | | | | |
Costs and Expenses | | | | | |
Purchased crude oil and products | — | | 37,265 | | 17,336 | | (8,992) | | 45,609 | |
Operating expenses | — | | 1,917 | | 597 | | (42) | | 2,472 | |
Selling, general and administrative expenses | 4 | | 574 | | 201 | | (5) | | 774 | |
Depreciation and amortization | — | | 456 | | 209 | | — | | 665 | |
Impairments | — | | 1 | | 2 | | — | | 3 | |
Taxes other than income taxes | — | | 165 | | 60 | | — | | 225 | |
Accretion on discounted liabilities | — | | 9 | | 2 | | — | | 11 | |
Interest and debt expense | 182 | | 73 | | 133 | | (154) | | 234 | |
Foreign currency transaction losses | — | | — | | 14 | | — | | 14 | |
Total Costs and Expenses | 186 | | 40,460 | | 18,554 | | (9,193) | | 50,007 | |
Income before income taxes | 1,590 | | 2,009 | | 980 | | (2,410) | | 2,169 | |
Income tax expense (benefit) | (38) | | 233 | | 200 | | — | | 395 | |
Net Income | 1,628 | | 1,776 | | 780 | | (2,410) | | 1,774 | |
Less: net income attributable to noncontrolling interests | — | | — | | 146 | | — | | 146 | |
Net Income Attributable to Phillips 66 | $ | 1,628 | | 1,776 | | 634 | | (2,410) | | 1,628 | |
| | | | | |
Comprehensive Income | $ | 1,642 | | 1,790 | | 785 | | (2,429) | | 1,788 | |
| | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | |
| June 30, 2020 | | | | |
Balance Sheet | Phillips 66 | Phillips 66 Company | All Other Subsidiaries | Consolidating Adjustments | Total Consolidated |
Assets | | | | | |
Cash and cash equivalents | $ | — | | 661 | | 1,229 | | — | | 1,890 | |
Accounts and notes receivable | — | | 3,661 | | 3,154 | | (1,963) | | 4,852 | |
Inventories | — | | 3,622 | | 1,514 | | — | | 5,136 | |
Prepaid expenses and other current assets | 1 | | 377 | | 243 | | — | | 621 | |
Total Current Assets | 1 | | 8,321 | | 6,140 | | (1,963) | | 12,499 | |
Investments and long-term receivables | 31,289 | | 24,786 | | 10,747 | | (53,194) | | 13,628 | |
Net properties, plants and equipment | — | | 13,725 | | 10,557 | | — | | 24,282 | |
Goodwill | — | | 1,047 | | 378 | | — | | 1,425 | |
Intangibles | — | | 740 | | 134 | | — | | 874 | |
Other assets | 12 | | 4,195 | | 673 | | (3,070) | | 1,810 | |
Total Assets | $ | 31,302 | | 52,814 | | 28,629 | | (58,227) | | 54,518 | |
| | | | | |
Liabilities and Equity | | | | | |
Accounts payable | $ | — | | 4,796 | | 2,535 | | (1,963) | | 5,368 | |
Short-term debt | 1,497 | | 15 | | 271 | | — | | 1,783 | |
Accrued income and other taxes | — | | 439 | | 607 | | — | | 1,046 | |
Employee benefit obligations | — | | 354 | | 41 | | — | | 395 | |
Other accruals | 76 | | 1,292 | | 417 | | (354) | | 1,431 | |
Total Current Liabilities | 1,573 | | 6,896 | | 3,871 | | (2,317) | | 10,023 | |
Long-term debt | 8,938 | | 158 | | 3,567 | | — | | 12,663 | |
Asset retirement obligations and accrued environmental costs | — | | 450 | | 175 | | — | | 625 | |
Deferred income taxes | — | | 3,801 | | 1,673 | | (3) | | 5,471 | |
Employee benefit obligations | — | | 1,142 | | 218 | | — | | 1,360 | |
Other liabilities and deferred credits | 46 | | 10,806 | | 5,714 | | (15,485) | | 1,081 | |
Total Liabilities | 10,557 | | 23,253 | | 15,218 | | (17,805) | | 31,223 | |
Common stock | 3,232 | | 25,873 | | 9,588 | | (35,461) | | 3,232 | |
Retained earnings | 18,661 | | 4,836 | | 1,700 | | (6,566) | | 18,631 | |
Accumulated other comprehensive loss | (1,148) | | (1,148) | | (457) | | 1,605 | | (1,148) | |
Noncontrolling interests | — | | — | | 2,580 | | — | | 2,580 | |
Total Liabilities and Equity | $ | 31,302 | | 52,814 | | 28,629 | | (58,227) | | 54,518 | |
| | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | |
| December 31, 2019 | | | | |
Balance Sheet | Phillips 66 | Phillips 66 Company | All Other Subsidiaries | Consolidating Adjustments | Total Consolidated |
Assets | | | | | |
Cash and cash equivalents | $ | — | | 136 | | 1,478 | | — | | 1,614 | |
Accounts and notes receivable | 86 | | 6,334 | | 4,148 | | (2,058) | | 8,510 | |
Inventories | — | | 2,594 | | 1,182 | | — | | 3,776 | |
Prepaid expenses and other current assets | 2 | | 362 | | 131 | | — | | 495 | |
Total Current Assets | 88 | | 9,426 | | 6,939 | | (2,058) | | 14,395 | |
Investments and long-term receivables | 33,082 | | 25,039 | | 10,989 | | (54,539) | | 14,571 | |
Net properties, plants and equipment | — | | 13,676 | | 10,110 | | — | | 23,786 | |
Goodwill | — | | 2,853 | | 417 | | — | | 3,270 | |
Intangibles | — | | 732 | | 137 | | — | | 869 | |
Other assets | 14 | | 4,290 | | 714 | | (3,189) | | 1,829 | |
Total Assets | $ | 33,184 | | 56,016 | | 29,306 | | (59,786) | | 58,720 | |
| | | | | |
Liabilities and Equity | | | | | |
Accounts payable | $ | — | | 7,024 | | 3,609 | | (2,058) | | 8,575 | |
Short-term debt | 500 | | 16 | | 31 | | — | | 547 | |
Accrued income and other taxes | — | | 386 | | 593 | | — | | 979 | |
Employee benefit obligations | — | | 648 | | 62 | | — | | 710 | |
Other accruals | 65 | | 850 | | 249 | | (329) | | 835 | |
Total Current Liabilities | 565 | | 8,924 | | 4,544 | | (2,387) | | 11,646 | |
Long-term debt | 7,434 | | 155 | | 3,627 | | — | | 11,216 | |
Asset retirement obligations and accrued environmental costs | — | | 460 | | 178 | | — | | 638 | |
Deferred income taxes | — | | 3,727 | | 1,828 | | (2) | | 5,553 | |
Employee benefit obligations | — | | 825 | | 219 | | — | | 1,044 | |
Other liabilities and deferred credits | 245 | | 8,975 | | 5,465 | | (13,231) | | 1,454 | |
Total Liabilities | 8,244 | | 23,066 | | 15,861 | | (15,620) | | 31,551 | |
Common stock | 3,634 | | 25,838 | | 9,516 | | (35,354) | | 3,634 | |
Retained earnings | 22,094 | | 7,900 | | 1,940 | | (9,870) | | 22,064 | |
Accumulated other comprehensive loss | (788) | | (788) | | (270) | | 1,058 | | (788) | |
Noncontrolling interests | — | | — | | 2,259 | | — | | 2,259 | |
Total Liabilities and Equity | $ | 33,184 | | 56,016 | | 29,306 | | (59,786) | | 58,720 | |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | |
| Six Months Ended June 30, 2020 | | | | |
Statement of Cash Flows | Phillips 66 | Phillips 66 Company | All Other Subsidiaries | Consolidating Adjustments | Total Consolidated |
Cash Flows From Operating Activities | | | | | |
| | | | | |
| | | | | |
Net Cash Provided by (Used in) Operating Activities | $ | 517 | | (253) | | 1,273 | | (556) | | 981 | |
| | | | | |
Cash Flows From Investing Activities | | | | | |
Capital expenditures and investments | — | | (554) | | (1,350) | | 42 | | (1,862) | |
Return of investments in equity affiliates | — | | — | | 88 | | — | | 88 | |
Proceeds from asset dispositions | — | | — | | 1 | | — | | 1 | |
Intercompany lending activities | (1,751) | | 2,123 | | (372) | | — | | — | |
Advances/loans—related parties | — | | (210) | | (21) | | — | | (231) | |
Collection of advances/loans—related parties | — | | 20 | | 24 | | — | | 44 | |
| | | | | |
Other | — | | (32) | | (32) | | — | | (64) | |
| | | | | |
| | | | | |
Net Cash Provided by (Used in) Investing Activities | (1,751) | | 1,347 | | (1,662) | | 42 | | (2,024) | |
| | | | | |
Cash Flows From Financing Activities | | | | | |
Issuance of debt | 3,015 | | — | | 215 | | — | | 3,230 | |
Repayment of debt | (500) | | (13) | | (28) | | — | | (541) | |
Issuance of common stock | 6 | | — | | — | | — | | 6 | |
Repurchase of common stock | (443) | | — | | — | | — | | (443) | |
Dividends paid on common stock | (789) | | (556) | | — | | 556 | | (789) | |
Distributions to noncontrolling interests | — | | — | | (127) | | — | | (127) | |
Net proceeds from issuance of Phillips 66 Partners LP common units | — | | — | | 2 | | — | | 2 | |
Other | (55) | | — | | 82 | | (42) | | (15) | |
| | | | | |
| | | | | |
Net Cash Provided by (Used in) Financing Activities | 1,234 | | (569) | | 144 | | 514 | | 1,323 | |
| | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | — | | — | | (4) | | — | | (4) | |
| | | | | |
Net Change in Cash and Cash Equivalents | — | | 525 | | (249) | | — | | 276 | |
Cash and cash equivalents at beginning of period | — | | 136 | | 1,478 | | — | | 1,614 | |
Cash and Cash Equivalents at End of Period | $ | — | | 661 | | 1,229 | | — | | 1,890 | |
| | | | | |
|
| | | | | | | | | | | |
| Millions of Dollars |
| Nine Months Ended September 30, 2019 |
Statement of Income | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
Revenues and Other Income | | | | | |
Sales and other operating revenues | $ | — |
| 60,060 |
| 18,108 |
| — |
| 78,168 |
|
Equity in earnings of affiliates | 2,557 |
| 1,645 |
| 514 |
| (3,053 | ) | 1,663 |
|
Net gain on dispositions | — |
| 1 |
| 18 |
| — |
| 19 |
|
Other income | — |
| 67 |
| 30 |
| — |
| 97 |
|
Intercompany revenues | — |
| 2,720 |
| 11,014 |
| (13,734 | ) | — |
|
Total Revenues and Other Income | 2,557 |
| 64,493 |
| 29,684 |
| (16,787 | ) | 79,947 |
|
| | | | | |
Costs and Expenses | | | | | |
Purchased crude oil and products | — |
| 56,648 |
| 26,202 |
| (13,435 | ) | 69,415 |
|
Operating expenses | — |
| 2,876 |
| 861 |
| (59 | ) | 3,678 |
|
Selling, general and administrative expenses | 5 |
| 898 |
| 295 |
| (8 | ) | 1,190 |
|
Depreciation and amortization | — |
| 686 |
| 315 |
| — |
| 1,001 |
|
Impairments | — |
| 1 |
| 855 |
| — |
| 856 |
|
Taxes other than income taxes | — |
| 242 |
| 88 |
| — |
| 330 |
|
Accretion on discounted liabilities | — |
| 13 |
| 4 |
| — |
| 17 |
|
Interest and debt expense | 267 |
| 108 |
| 200 |
| (232 | ) | 343 |
|
Foreign currency transaction losses | — |
| — |
| 5 |
| — |
| 5 |
|
Total Costs and Expenses | 272 |
| 61,472 |
| 28,825 |
| (13,734 | ) | 76,835 |
|
Income before income taxes | 2,285 |
| 3,021 |
| 859 |
| (3,053 | ) | 3,112 |
|
Income tax expense (benefit) | (55 | ) | 464 |
| 136 |
| — |
| 545 |
|
Net Income | 2,340 |
| 2,557 |
| 723 |
| (3,053 | ) | 2,567 |
|
Less: net income attributable to noncontrolling interests | — |
| — |
| 227 |
| — |
| 227 |
|
Net Income Attributable to Phillips 66 | $ | 2,340 |
| 2,557 |
| 496 |
| (3,053 | ) | 2,340 |
|
| | | | | |
Comprehensive Income | $ | 2,250 |
| 2,467 |
| 615 |
| (2,855 | ) | 2,477 |
|
| | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | |
| Six Months Ended June 30, 2019 | | | | |
Statement of Cash Flows | Phillips 66 | Phillips 66 Company | All Other Subsidiaries | Consolidating Adjustments | Total Consolidated |
Cash Flows From Operating Activities | | | | | |
| | | | | |
| | | | | |
Net Cash Provided by (Used in) Operating Activities | $ | (130) | | 621 | | 1,079 | | (118) | | 1,452 | |
| | | | | |
Cash Flows From Investing Activities | | | | | |
Capital expenditures and investments | — | | (485) | | (1,243) | | — | | (1,728) | |
Return of investments in equity affiliates | — | | 1 | | 34 | | — | | 35 | |
Proceeds from asset dispositions | — | | — | | 83 | | — | | 83 | |
Intercompany lending activities | 1,730 | | (1,385) | | (345) | | — | | — | |
Advances/loans—related parties | — | | — | | (95) | | — | | (95) | |
Collection of advances/loans—related parties | — | | — | | 95 | | — | | 95 | |
| | | | | |
Other | — | | (24) | | 48 | | — | | 24 | |
| | | | | |
| | | | | |
Net Cash Provided by (Used in) Investing Activities | 1,730 | | (1,893) | | (1,423) | | — | | (1,586) | |
| | | | | |
Cash Flows From Financing Activities | | | | | |
Issuance of debt | — | | — | | 860 | | — | | 860 | |
Repayment of debt | — | | (9) | | (588) | | — | | (597) | |
Issuance of common stock | 9 | | — | | — | | — | | 9 | |
Repurchase of common stock | (799) | | — | | — | | — | | (799) | |
Dividends paid on common stock | (770) | | — | | (118) | | 118 | | (770) | |
| | | | | |
Distributions to noncontrolling interests | — | | — | | (117) | | — | | (117) | |
Net proceeds from issuance of Phillips 66 Partners LP common units | — | | — | | 42 | | — | | 42 | |
Other | (40) | | — | | 341 | | — | | 301 | |
| | | | | |
| | | | | |
Net Cash Provided by (Used in) Financing Activities | (1,600) | | (9) | | 420 | | 118 | | (1,071) | |
| | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | — | | — | | 5 | | — | | 5 | |
| | | | | |
Net Change in Cash and Cash Equivalents | — | | (1,281) | | 81 | | — | | (1,200) | |
Cash and cash equivalents at beginning of period | — | | 1,648 | | 1,371 | | — | | 3,019 | |
Cash and Cash Equivalents at End of Period | $ | — | | 367 | | 1,452 | | — | | 1,819 | |
|
| | | | | | | | | | | |
| Millions of Dollars |
| Nine Months Ended September 30, 2018 |
Statement of Income | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
Revenues and Other Income | | | | | |
Sales and other operating revenues | $ | — |
| 63,703 |
| 18,660 |
| — |
| 82,363 |
|
Equity in earnings of affiliates | 3,600 |
| 2,638 |
| 566 |
| (4,858 | ) | 1,946 |
|
Net gain on dispositions | — |
| 7 |
| 11 |
| — |
| 18 |
|
Other income | — |
| 25 |
| 22 |
| — |
| 47 |
|
Intercompany revenues | — |
| 2,456 |
| 11,386 |
| (13,842 | ) | — |
|
Total Revenues and Other Income | 3,600 |
| 68,829 |
| 30,645 |
| (18,700 | ) | 84,374 |
|
| | | | | |
Costs and Expenses | | | | | |
Purchased crude oil and products | — |
| 59,724 |
| 27,113 |
| (13,567 | ) | 73,270 |
|
Operating expenses | — |
| 2,771 |
| 875 |
| (51 | ) | 3,595 |
|
Selling, general and administrative expenses | 6 |
| 966 |
| 294 |
| (8 | ) | 1,258 |
|
Depreciation and amortization | — |
| 691 |
| 328 |
| — |
| 1,019 |
|
Impairments | — |
| 2 |
| 5 |
| — |
| 7 |
|
Taxes other than income taxes | — |
| 248 |
| 80 |
| — |
| 328 |
|
Accretion on discounted liabilities | — |
| 13 |
| 4 |
| — |
| 17 |
|
Interest and debt expense | 304 |
| 108 |
| 187 |
| (216 | ) | 383 |
|
Foreign currency transaction gains | — |
| — |
| (30 | ) | — |
| (30 | ) |
Total Costs and Expenses | 310 |
| 64,523 |
| 28,856 |
| (13,842 | ) | 79,847 |
|
Income before income taxes | 3,290 |
| 4,306 |
| 1,789 |
| (4,858 | ) | 4,527 |
|
Income tax expense (benefit) | (65 | ) | 706 |
| 329 |
| — |
| 970 |
|
Net Income | 3,355 |
| 3,600 |
| 1,460 |
| (4,858 | ) | 3,557 |
|
Less: net income attributable to noncontrolling interests | — |
| — |
| 202 |
| — |
| 202 |
|
Net Income Attributable to Phillips 66 | $ | 3,355 |
| 3,600 |
| 1,258 |
| (4,858 | ) | 3,355 |
|
| | | | | |
Comprehensive Income | $ | 3,333 |
| 3,578 |
| 1,357 |
| (4,733 | ) | 3,535 |
|
37
|
| | | | | | | | | | | |
| Millions of Dollars |
| September 30, 2019 |
Balance Sheet | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
Assets | | | | | |
Cash and cash equivalents | $ | — |
| 576 |
| 1,692 |
| — |
| 2,268 |
|
Accounts and notes receivable | — |
| 5,316 |
| 4,106 |
| (2,336 | ) | 7,086 |
|
Inventories | — |
| 3,673 |
| 1,848 |
| — |
| 5,521 |
|
Prepaid expenses and other current assets | — |
| 525 |
| 217 |
| — |
| 742 |
|
Total Current Assets | — |
| 10,090 |
| 7,863 |
| (2,336 | ) | 15,617 |
|
Investments and long-term receivables | 33,126 |
| 24,034 |
| 9,884 |
| (52,897 | ) | 14,147 |
|
Net properties, plants and equipment | — |
| 13,350 |
| 9,604 |
| — |
| 22,954 |
|
Goodwill | — |
| 2,853 |
| 417 |
| — |
| 3,270 |
|
Intangibles | — |
| 732 |
| 140 |
| — |
| 872 |
|
Other assets | 12 |
| 5,882 |
| 729 |
| (4,742 | ) | 1,881 |
|
Total Assets | $ | 33,138 |
| 56,941 |
| 28,637 |
| (59,975 | ) | 58,741 |
|
| | | | | |
Liabilities and Equity | | | | | |
Accounts payable | $ | — |
| 6,944 |
| 3,765 |
| (2,336 | ) | 8,373 |
|
Short-term debt | 500 |
| 11 |
| 331 |
| — |
| 842 |
|
Accrued income and other taxes | — |
| 672 |
| 456 |
| — |
| 1,128 |
|
Employee benefit obligations | — |
| 569 |
| 55 |
| — |
| 624 |
|
Other accruals | 133 |
| 1,310 |
| 262 |
| (589 | ) | 1,116 |
|
Total Current Liabilities | 633 |
| 9,506 |
| 4,869 |
| (2,925 | ) | 12,083 |
|
Long-term debt | 7,433 |
| 55 |
| 3,595 |
| — |
| 11,083 |
|
Asset retirement obligations and accrued environmental costs | — |
| 453 |
| 164 |
| — |
| 617 |
|
Deferred income taxes | — |
| 3,761 |
| 1,743 |
| (1 | ) | 5,503 |
|
Employee benefit obligations | — |
| 725 |
| 180 |
| — |
| 905 |
|
Other liabilities and deferred credits | 185 |
| 9,448 |
| 5,351 |
| (13,526 | ) | 1,458 |
|
Total Liabilities | 8,251 |
| 23,948 |
| 15,902 |
| (16,452 | ) | 31,649 |
|
Common stock | 3,998 |
| 25,802 |
| 9,239 |
| (35,041 | ) | 3,998 |
|
Retained earnings | 21,760 |
| 8,062 |
| 1,662 |
| (9,754 | ) | 21,730 |
|
Accumulated other comprehensive loss | (871 | ) | (871 | ) | (401 | ) | 1,272 |
| (871 | ) |
Noncontrolling interests | — |
| — |
| 2,235 |
| — |
| 2,235 |
|
Total Liabilities and Equity | $ | 33,138 |
| 56,941 |
| 28,637 |
| (59,975 | ) | 58,741 |
|
|
| | | | | | | | | | | |
| Millions of Dollars |
| December 31, 2018 |
Balance Sheet | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
Assets | | | | | |
Cash and cash equivalents | $ | — |
| 1,648 |
| 1,371 |
| — |
| 3,019 |
|
Accounts and notes receivable | 9 |
| 4,255 |
| 3,202 |
| (1,293 | ) | 6,173 |
|
Inventories | — |
| 2,489 |
| 1,054 |
| — |
| 3,543 |
|
Prepaid expenses and other current assets | 2 |
| 373 |
| 99 |
| — |
| 474 |
|
Total Current Assets | 11 |
| 8,765 |
| 5,726 |
| (1,293 | ) | 13,209 |
|
Investments and long-term receivables | 32,712 |
| 22,799 |
| 9,829 |
| (50,919 | ) | 14,421 |
|
Net properties, plants and equipment | — |
| 13,218 |
| 8,800 |
| — |
| 22,018 |
|
Goodwill | — |
| 2,853 |
| 417 |
| — |
| 3,270 |
|
Intangibles | — |
| 726 |
| 143 |
| — |
| 869 |
|
Other assets | 9 |
| 335 |
| 173 |
| (2 | ) | 515 |
|
Total Assets | $ | 32,732 |
| 48,696 |
| 25,088 |
| (52,214 | ) | 54,302 |
|
| | | | | |
Liabilities and Equity | | | | | |
Accounts payable | $ | — |
| 5,415 |
| 2,464 |
| (1,293 | ) | 6,586 |
|
Short-term debt | — |
| 11 |
| 56 |
| — |
| 67 |
|
Accrued income and other taxes | — |
| 458 |
| 658 |
| — |
| 1,116 |
|
Employee benefit obligations | — |
| 663 |
| 61 |
| — |
| 724 |
|
Other accruals | 66 |
| 227 |
| 149 |
| — |
| 442 |
|
Total Current Liabilities | 66 |
| 6,774 |
| 3,388 |
| (1,293 | ) | 8,935 |
|
Long-term debt | 7,928 |
| 54 |
| 3,111 |
| — |
| 11,093 |
|
Asset retirement obligations and accrued environmental costs | — |
| 458 |
| 166 |
| — |
| 624 |
|
Deferred income taxes | 1 |
| 3,541 |
| 1,735 |
| (2 | ) | 5,275 |
|
Employee benefit obligations | — |
| 676 |
| 191 |
| — |
| 867 |
|
Other liabilities and deferred credits | 55 |
| 4,611 |
| 4,287 |
| (8,598 | ) | 355 |
|
Total Liabilities | 8,050 |
| 16,114 |
| 12,878 |
| (9,893 | ) | 27,149 |
|
Common stock | 4,856 |
| 24,960 |
| 8,754 |
| (33,714 | ) | 4,856 |
|
Retained earnings | 20,518 |
| 8,314 |
| 1,249 |
| (9,592 | ) | 20,489 |
|
Accumulated other comprehensive loss | (692 | ) | (692 | ) | (293 | ) | 985 |
| (692 | ) |
Noncontrolling interests | — |
| — |
| 2,500 |
| — |
| 2,500 |
|
Total Liabilities and Equity | $ | 32,732 |
| 48,696 |
| 25,088 |
| (52,214 | ) | 54,302 |
|
Table of Contents
|
| | | | | | | | | | | |
| Millions of Dollars |
| Nine Months Ended September 30, 2019 |
Statement of Cash Flows | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
Cash Flows From Operating Activities | | | | | |
Net Cash Provided by (Used in) Operating Activities | $ | (143 | ) | 1,645 |
| 1,730 |
| (118 | ) | 3,114 |
|
| | | | | |
Cash Flows From Investing Activities | | | | | |
Capital expenditures and investments | — |
| (803 | ) | (1,792 | ) | — |
| (2,595 | ) |
Proceeds from asset dispositions* | — |
| 352 |
| 137 |
| (350 | ) | 139 |
|
Intercompany lending activities | 2,587 |
| (2,245 | ) | (342 | ) | — |
| — |
|
Advances/loans—related parties | — |
| — |
| (95 | ) | — |
| (95 | ) |
Collection of advances/loans—related parties | — |
| — |
| 95 |
| — |
| 95 |
|
Other | — |
| (3 | ) | 27 |
| — |
| 24 |
|
Net Cash Provided by (Used in) Investing Activities | 2,587 |
| (2,699 | ) | (1,970 | ) | (350 | ) | (2,432 | ) |
| | | | | |
Cash Flows From Financing Activities | | | | | |
Issuance of debt | — |
| — |
| 1,758 |
| — |
| 1,758 |
|
Repayment of debt | — |
| (14 | ) | (990 | ) | — |
| (1,004 | ) |
Issuance of common stock | 15 |
| — |
| — |
| — |
| 15 |
|
Repurchase of common stock | (1,238 | ) | — |
| — |
| — |
| (1,238 | ) |
Dividends paid on common stock | (1,172 | ) | — |
| (118 | ) | 118 |
| (1,172 | ) |
Distributions to noncontrolling interests | — |
| — |
| (176 | ) | — |
| (176 | ) |
Net proceeds from issuance of Phillips 66 Partners LP common units | — |
| — |
| 133 |
| — |
| 133 |
|
Other | (49 | ) | (4 | ) | (15 | ) | 350 |
| 282 |
|
Net Cash Provided by (Used in) Financing Activities | (2,444 | ) | (18 | ) | 592 |
| 468 |
| (1,402 | ) |
| | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | — |
| — |
| (31 | ) | — |
| (31 | ) |
| | | | | |
Net Change in Cash and Cash Equivalents | — |
| (1,072 | ) | 321 |
| — |
| (751 | ) |
Cash and cash equivalents at beginning of period | — |
| 1,648 |
| 1,371 |
| — |
| 3,019 |
|
Cash and Cash Equivalents at End of Period | $ | — |
| 576 |
| 1,692 |
| — |
| 2,268 |
|
* Includes return of investments in equity affiliates. |
|
| | | | | | | | | | | |
| Millions of Dollars |
| Nine Months Ended September 30, 2018 |
Statement of Cash Flows | Phillips 66 |
| Phillips 66 Company |
| All Other Subsidiaries |
| Consolidating Adjustments |
| Total Consolidated |
|
Cash Flows From Operating Activities | | | | | |
Net Cash Provided by Operating Activities | $ | 3,094 |
| 3,070 |
| 1,425 |
| (4,155 | ) | 3,434 |
|
| | | | | |
Cash Flows From Investing Activities | | | | | |
Capital expenditures and investments | — |
| (633 | ) | (1,012 | ) | — |
| (1,645 | ) |
Proceeds from asset dispositions* | — |
| 328 |
| 36 |
| (325 | ) | 39 |
|
Intercompany lending activities | 904 |
| (510 | ) | (394 | ) | — |
| — |
|
Advances/loans—related parties | — |
| (1 | ) | — |
| — |
| (1 | ) |
Other | — |
| (6 | ) | 73 |
| — |
| 67 |
|
Net Cash Provided by (Used in) Investing Activities | 904 |
| (822 | ) | (1,297 | ) | (325 | ) | (1,540 | ) |
| | | | | |
Cash Flows From Financing Activities | | | | | |
Issuance of debt | 1,509 |
| — |
| 85 |
| — |
| 1,594 |
|
Repayment of debt | (250 | ) | (9 | ) | (115 | ) | — |
| (374 | ) |
Issuance of common stock | 39 |
| — |
| — |
| — |
| 39 |
|
Repurchase of common stock | (4,148 | ) | — |
| — |
| — |
| (4,148 | ) |
Dividends paid on common stock | (1,069 | ) | (3,174 | ) | (981 | ) | 4,155 |
| (1,069 | ) |
Distributions to noncontrolling interests | — |
| — |
| (146 | ) | — |
| (146 | ) |
Net proceeds from issuance of Phillips 66 Partners LP common units | — |
| — |
| 114 |
| — |
| 114 |
|
Other | (79 | ) | — |
| (325 | ) | 325 |
| (79 | ) |
Net Cash Used in Financing Activities | (3,998 | ) | (3,183 | ) | (1,368 | ) | 4,480 |
| (4,069 | ) |
| | | | | |
Effect of Exchange Rate Changes on Cash and Cash Equivalents | — |
| — |
| (20 | ) | — |
| (20 | ) |
| | | | | |
Net Change in Cash and Cash Equivalents | — |
| (935 | ) | (1,260 | ) | — |
| (2,195 | ) |
Cash and cash equivalents at beginning of period | — |
| 1,411 |
| 1,708 |
| — |
| 3,119 |
|
Cash and Cash Equivalents at End of Period | $ | — |
| 476 |
| 448 |
| — |
| 924 |
|
* Includes return of investments in equity affiliates. |
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, “the company,” “we,” “our,” “us” and “Phillips 66” are used in this report to refer to the businesses of Phillips 66 and its consolidated subsidiaries.
Management’s Discussion and Analysis is the company’s analysis of its financial performance, its financial condition, and significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions often identify forward-looking statements.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 of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.”
The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss) attributable to Phillips 66. The terms “pre-tax“before-tax income” or “pre-tax“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 SeptemberJune 30, 2019,2020, we had total assets of $58.7$54.5 billion. Our common stock trades on the New York Stock Exchange under the symbol PSX.
Executive Overview
The outbreak of Coronavirus Disease 2019 (COVID-19) and its development into a pandemic continues to result in significant economic disruption globally. Actions taken by governments to prevent the spread of the disease included travel and business restrictions, which 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.
The depth and duration of the economic consequences of the COVID-19 pandemic are currently unknown. The near-term outlook for petroleum product demand remains highly uncertain, prices remain volatile, and margins and volumes remain challenged. The adverse effects on our company have significantly impacted our second-quarter earnings and may continue to be significant in the near term.
During the first six months of 2020, we took the following significant steps to enhance our liquidity:
•Secured a $2 billion, 364-day term loan facility, under which we have drawn $1 billion to date.
•Issued $2 billion of senior unsecured notes in three tranches of three-, five-, and ten-year maturities.
•Temporarily suspended our share repurchase programs.
•Reduced our consolidated capital spending plans in 2020 by $700 million.
•Executed a plan to reduce operating and administrative costs by $500 million in 2020.
In the thirdsecond quarter of 2019,2020, we reported earningsa loss of $712$141 million, and generated cash from operating activities of $1.7 billion.$764 million and received approximately $2.0 billion in net proceeds from two public offerings of senior unsecured notes. We used available cash to fund capital expenditures and investments of $867$939 million, repurchase $439repay $525 million of our common stockmaturing debt, and pay dividends of $402$393 million. We ended the thirdsecond quarter of 20192020 with $2.3$1.9 billion of cash and cash equivalents and approximately $5.7$6.5 billion of total committed capacity available under our revolving credit facilities.facilities and new term loan facility.
Business Environment
The Midstream segment which includes our 50% equity investment in DCP Midstream, LLC (DCP Midstream),Transportation and Natural Gas Liquids (NGL) businesses. Our Transportation business contains fee-based operations that are not directly exposed to commodity price risk, as well as operations thatrisk. Our NGL business results are directly linked to natural gas liquids (NGL) prices, natural gas pricesprimarily driven by fractionation and crude oilterminaling margins, throughput volumes, and impacts from NGL prices. Average natural gasThe Midstream segment also includes our 50% equity investment in DCP Midstream, LLC (DCP Midstream). Compared with the second quarter of 2019, NGL prices decreased in the thirdsecond quarter of 2019, compared with the third quarter of 2018,2020 due to continued supply growth. NGL prices were lower in the third quarter of 2019, compared withnegative economic impacts caused by the third quarter of 2018, due to higher inventory levels resulting from supply growth.COVID-19 pandemic.
The Chemicals segment consists of our 50% equity investment in Chevron Phillips Chemical Company LLC (CPChem). The chemicals and plastics industry is mainly a commodity-based industry where the margins for key products are based on supply and demand, as well as cost factors. During the thirdsecond quarter of 2019,2020, the benchmark high-density polyethylene chain margin further decreased, compared with the thirdsecond quarter of 2018, due to higher product availability2019, driven by the economic impacts of the COVID-19 pandemic and recent capacity additions, the continued trade uncertainty, and a demand slowdown in Asia.additions.
Our Refining segment results are driven by several factors, including refining margins, cost control, refinery throughput, feedstock costs, product yields, turnaround activity, and turnaround activity.other operating costs. The price of U.S. benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of $56.44$27.80 per barrel during the thirdsecond quarter of 2019,2020, compared with an average of $69.71$59.80 per barrel in the thirdsecond quarter of 2018, due to continued growth2019, driven by a significant decline in Permian Basin productionglobal demand for refined petroleum products in the second quarter of 2020, as a result of the negative global economic impacts of the COVID-19 pandemic. Market crack spreads are used as indicators of refining margins and higher inventories resulting from numerous planned and unplanned refinery outages. Industry crack spread indicators,measure the difference between market prices for refined petroleum products and crude oil, are used to estimate refining margins.oil. During the thirdsecond quarter of 2020, the worldwide market crack spreads were significantly lower compared with the second quarter of 2019, mainly driven by a sharp decline in demand for refined petroleum products resulting from the U.S. 3:2:1 crack spread (three barrels of crude oil producing two barrels of gasoline and one barrel of diesel) increased compared withsignificant global economic disruption caused by the third quarter of 2018, following heavy planned and unplanned refinery maintenance across the United States. Northwest Europe crack spreads on average improved compared with the third quarter of 2018, due to higher diesel margins.COVID-19 pandemic.
Results for our Marketing and Specialties (M&S) segment depend largely on marketing fuel margins,and lubricant margins, and sales volumes of our refined petroleum and other specialty product margins.products. While M&S margins are primarily driven by market factors, largely determined by the relationship between supply and demand, marketing fuel margins, in particular, are influenced by the trend in spot prices for refined petroleum products. Generally speaking, a downward trend of spot prices has a favorable impact on marketing fuel margins, while an upward trend of spot prices has an unfavorable impact on marketing fuel margins. The significant global disruption caused by COVID-19 also negatively impacted demand for our refined petroleum and specialty products in the second quarter of 2020 compared with the second quarter of 2019.
RESULTS OF OPERATIONS
Unless otherwise indicated, discussion of results for the three and ninesix months ended SeptemberJune 30, 2019,2020, is based on a comparison with the corresponding periods of 2019.
2018.
Basis of Presentation
During the fourth quarter of 2018, the segment performance measure used by our chief executive officer to assess performance and allocate resources was changed from “net income” to “income before income taxes.” Prior-period segment information has been recast to conform to the current presentation.
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 | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
| | | | | | |
Midstream | $ | 324 | | | 423 | | | (378) | | 739 | |
Chemicals | 42 | | | 275 | | | 211 | | 502 | |
Refining | (878) | | | 983 | | | (3,139) | | 785 | |
Marketing and Specialties | 286 | | | 353 | | | 799 | | 558 | |
Corporate and Other | (219) | | | (205) | | | (416) | | (415) | |
Income (loss) before income taxes | (445) | | | 1,829 | | | (2,923) | | 2,169 | |
Income tax expense (benefit) | (378) | | | 325 | | | (429) | | 395 | |
Net income (loss) | (67) | | | 1,504 | | | (2,494) | | 1,774 | |
Less: net income attributable to noncontrolling interests | 74 | | | 80 | | | 143 | | 146 | |
Net income (loss) attributable to Phillips 66 | $ | (141) | | | 1,424 | | | (2,637) | | 1,628 | |
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
Midstream | $ | (460 | ) | 284 |
| | 279 |
| 802 |
|
Chemicals | 227 |
| 263 |
| | 729 |
| 873 |
|
Refining | 856 |
| 1,232 |
| | 1,641 |
| 2,534 |
|
Marketing and Specialties | 498 |
| 423 |
| | 1,056 |
| 968 |
|
Corporate and Other | (178 | ) | (227 | ) | | (593 | ) | (650 | ) |
Income before income taxes | 943 |
| 1,975 |
| | 3,112 |
| 4,527 |
|
Income tax expense | 150 |
| 407 |
| | 545 |
| 970 |
|
Net income | 793 |
| 1,568 |
|
| 2,567 |
| 3,557 |
|
Less: net income attributable to noncontrolling interests | 81 |
| 76 |
| | 227 |
| 202 |
|
Net income attributable to Phillips 66 | $ | 712 |
| 1,492 |
|
| 2,340 |
| 3,355 |
|
Our earnings decreased $780$1,565 million or 52%, in the thirdsecond quarter of 2019,2020, mainly reflecting:
Impairments associated with our investment in DCP Midstream.
•Lower realized refining margins.margins and decreased refinery production.
•Lower equity in earnings of affiliates in our Chemicals, Refining and Midstream segments.
These decreases were partially offset by:
Lower•An income tax expense.benefit recognized in the current quarter, compared with income tax expense recognized in the second quarter of 2019.
Improved margins from our NGL assets.
Higher U.S. margins and volumes from our M&S segment.
Our earnings decreased $1,015$4,265 million or 30%, in the nine-monthsix-month period of 2019,2020, mainly reflecting:
Lower realized refining margins.•A $1,845 million before-tax goodwill impairment in our Refining segment.
Impairments associated with•A $1,161 million before-tax impairment of our investment in DCP Midstream.
Decreased•Lower realized refining margins and decreased refinery production.
•Lower equity in earnings from CPChem.of affiliates in our Refining and Chemicals segments.
These decreases were partially offset by:
Higher margins and volumes from our NGL and transportation assets.
Lower•An income tax expense.benefit recognized in the current six-month period, compared with income tax expense recognized in the six-month period of 2019.
Higher global margins and volumes from our M&S segment.
See the “Segment Results” section for additional information on our segment results.
Statement of IncomeOperations Analysis
Sales and other operating revenues for the thirdsecond quarter and nine-monthsix-month period of 20192020 decreased 9%61% and 5%38%, respectively, and purchased crude oil and products decreased 10%61% and 5%39%, respectively. These decreases were mainly driven bydue to lower prices for refined petroleum products, crude oil, and NGL.NGL, as well as lower volumes.
Equity in earnings of affiliates decreased 36%76% and 15%55% in the thirdsecond quarter and nine-monthsix-month period of 2019. The decrease in both periods reflected lower margins at WRB Refining LP (WRB) and CPChem, as well as maintenance activities at Wood River and Borger refineries during the third quarter of 2019. Lower equity earnings in the third quarter of 2019 also reflected asset and goodwill impairments at DCP Midstream and a lower-of-cost-or-market inventory write-down at CPChem. See the “Segment Results” section for additional information.
Other income increased $50 million in the nine-month period of 2019. The increase was mainly driven by trading activities not directly related to our physical business. See Note 12—Derivatives and Financial Instruments, for additional information associated with our commodity derivatives.
Impairments increased $852 million and $849 million in the third quarter and nine-month period of 2019, respectively. The increase in both periods was mainly driven by an $853 million before-tax impairment associated with our investment in DCP Midstream. See Note 6—Investments, Loans and Long-Term Receivables, and Note 13—Fair Value Measurements, for additional information associated with this impairment.
Interest and debt expense decreased 13% and 10% in the third quarter and nine-month period of 2019, respectively. The decrease in both periods was primarily attributable to higher capitalized interest associated with capital projects under development in our Midstream segment.
Income tax expense decreased 63% and 44% in the third quarter and nine-month period of 2019,2020, respectively. The decrease in both periods was primarily due to lower income before income taxesrealized refining margins and the impactdecreased refinery production at WRB Refining LP (WRB) and lower equity earnings from CPChem. See Chemicals segment analysis in “Segment Results” section for additional information on CPChem. The second-quarter decrease was also driven by lower equity earnings from certain of our foreign operations.Midstream joint ventures due to lower volumes.
Net gain on dispositions increased $85 million in the second quarter and six-month period of 2020. The increase in both periods was mainly due to a gain of $84 million associated with a co-venturer’s prior-year acquisition of a 35% interest in the consolidated holding company that owns an interest in Gray Oak Pipeline, LLC. See Note 20—19—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information.
Other income decreased $33 million in the six-month period of 2020. The decrease was primarily driven by a decrease in the fair value of deferred compensation investments in the first six months of 2020, compared with an increase in the fair value of deferred compensation investments in the first six months of 2019, as well as a decrease in interest income due to lower interest rates in the first six months of 2020. See Note 13—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on the fair value of the deferred compensation investments.
Operating expenses for the second quarter of 2020 decreased 12%, primarily due to lower refinery maintenance activities and decreased utility costs.
Impairments were $3,006 million for the six-month period of 2020, consisting of an impairment of $1,161 million associated with our investment in DCP Midstream, and a $1,845 million goodwill impairment in our Refining segment. See Note 5—Investments, Loans and Long-Term Receivables and Note 7—Goodwill, in the Notes to Consolidated Financial Statements, for additional information associated with these impairments.
We had an income tax benefit of $378 million and $429 million in the second quarter and six-month period of 2020, respectively, compared with income tax expense of $325 million and $395 million, respectively, in the corresponding periods of 2019. See Note 18—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our effective income tax rates.
Segment Results
Midstream
| | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
| | | | | | |
| Millions of Dollars | | | | | |
Income (Loss) Before Income Taxes | | | | | | |
Transportation | $ | 214 | | | 245 | | | 414 | | 448 | |
NGL and Other | 78 | | | 143 | | | 257 | | 233 | |
DCP Midstream | 32 | | | 35 | | | (1,049) | | 58 | |
Total Midstream | $ | 324 | | | 423 | | | (378) | | 739 | |
|
| | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
| Millions of Dollars |
Income (Loss) Before Income Taxes | | | | | |
Transportation | $ | 248 |
| 209 |
| | 696 |
| 536 |
|
NGL and Other | 169 |
| 46 |
| | 402 |
| 185 |
|
DCP Midstream | (877 | ) | 29 |
| | (819 | ) | 81 |
|
Total Midstream | $ | (460 | ) | 284 |
| | 279 |
| 802 |
|
| | | Thousands of Barrels Daily | | Thousands of Barrels Daily | |
Transportation Volumes | | | | Transportation Volumes | | | |
Pipelines* | 3,443 |
| 3,517 |
| | 3,346 |
| 3,378 |
| Pipelines* | 2,840 | | | 3,417 | | | 3,009 | | 3,297 | |
Terminals | 3,381 |
| 3,179 |
| | 3,236 |
| 3,021 |
| Terminals | 2,883 | | | 3,261 | | | 3,016 | | 3,163 | |
Operating Statistics | | | | Operating Statistics | | | |
NGL fractionated** | 203 |
| 227 |
| | 223 |
| 213 |
| NGL fractionated** | 170 | | | 232 | | | 184 | | 233 | |
NGL production*** | 409 |
| 426 |
| | 420 |
| 412 |
| NGL production*** | 374 | | | 423 | | | 385 | | 425 | |
* Pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment. Prior-period volumes have been recast to exclude our share of equity volumes from Yellowstone Pipe Line Company and Lake Charles Pipe Line Company.
** Excludes DCP Midstream.
*** Includes 100% of DCP Midstream’s volumes.
| | | | | | | | | | | | | | | | | | |
| Dollars Per Gallon | | | | | |
Weighted-Average NGL Price* | | | | | | |
| | | | | | |
DCP Midstream | $ | 0.32 | | | 0.51 | | | 0.36 | | 0.56 | |
* Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component mix. | | | | | | |
|
| | | | | | | | | | |
| Dollars Per Gallon |
Weighted-Average NGL Price* | | | | | |
DCP Midstream | $ | 0.44 |
| 0.87 |
| | 0.52 |
| 0.78 |
|
* Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component. |
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 master limited partnership (MLP), Phillips 66 Partners LP (Phillips 66 Partners), as well as our 50% equity investment in DCP Midstream, which includes the operations of its MLP, DCP Midstream, LP (DCP Partners)., its MLP.
Pre-tax income (loss) from theThe Midstream segment decreased $744had before-tax income of $324 million and a before-tax loss of $378 million in the thirdsecond quarter and six-month period of 20192020, respectively, compared with before-tax income of $423 million and $523$739 million in the nine-monthcorresponding periods of 2019, respectively. The decrease in before-tax income in the second quarter of 2020 was primarily due to decreased results in our Transportation and NGL and Other businesses. The decreased results in the six-month period of 2019.2020 were primarily driven by a $1,161 million before-tax impairment of our equity investment in DCP Midstream, slightly offset by improved results from our NGL and Other business.
Pre-taxBefore-tax income from our Transportation business increased $39decreased $31 million in the thirdsecond quarter of 20192020 and $160$34 million in the nine-monthsix-month period of 2019.2020. The increased resultsdecrease in both periods were mainlywas primarily attributable to lower pipeline and terminal volumes driven by decreased refinery utilization, lower equity earnings from joint ventures, and higher volumes and pipeline tariffs from our portfoliooperating costs. These decreases were partially offset by a gain of consolidated and joint venture assets. In addition, the increase$84 million associated with a co-venturer’s prior-year acquisition of a 35% interest in the nine-month periodconsolidated holding company that owns an interest in Gray Oak Pipeline, LLC. See Note 19—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information. The decrease in the second quarter of 20192020 was also reflecteddriven by unfavorable impacts of pipeline loss allowances due to lower maintenance cost.commodity prices.
Pre-taxBefore-tax income from our NGL and Other business increased $123decreased $65 million in the thirdsecond quarter of 20192020 and $217increased $24 million in the nine-monthsix-month period of 2019.2020. The increased resultsdecrease in both periods were mainlythe second quarter of 2020 was primarily due to improvedunfavorable impacts associated with NGL inventory storage management, as well as lower margins and volumes primarily at the Sweeny Hub, and favorable impacts from our trading activities associated with NGL inventory management, as well aspartially offset by the absencestartup of a contingency accrual recordednew isomerization unit at our Lake Charles Refinery in the third quartersecond half of 2018. In addition, the2019. The increase in the nine-monthsix-month period of 2020 was mainly due to the startup of a new isomerization unit at our Lake Charles Refinery in the second half of 2019 also reflected higher equity earnings from certain pipeline affiliates drivenand favorable inventory impacts, partially offset by increased volumes.implementation costs for additional fractionation capacity at the Sweeny Hub.
Pre-taxThe before-tax income (loss) from our investment in DCP Midstream decreased $906$3 million in the thirdsecond quarter of 20192020 and $900$1,107 million in the nine-monthsix-month period of 2019.2020. The decrease in both periodsthe six-month period was primarily due to a $1,161 million before-tax impairment of our equity investment in DCP Midstream as described below. Excluding the impairment, equity earnings from DCP Midstream increased $54 million in the six-month period ended June 30, 2020, mainly driven by $900 millionthe recognition of impairmentsa benefit to equity earnings related to our investment in DCP Midstream. the amortization of the basis difference as described below, and lower operating costs.
In September 2019, DCP Partners performed goodwill and other asset impairment assessments based on internal discounted cash flow models that reflect various observable and non-observable factors, such as prices, volumes, expenses and discount rates. As a result of these assessments, DCP Partners recorded goodwill and other asset impairments that reduced our equity earnings by $47 million, included in the “Equity in earnings of affiliates” line on our consolidated statement of income.
The fair value of our investment in DCP Midstream depends on the market value of DCP Midstream’s general partner interest in DCP Partners and thecommon units. The market value of DCP Partners’Partners common units. At June 30, 2019, we estimatedunits declined by approximately 85% in the first quarter of 2020. As a result, at March 31, 2020, the fair value of our investment in DCP Midstream was below oursignificantly lower than its book value. We concluded the difference between its fair value and book value butwas not temporary primarily due to its magnitude. Accordingly, we believed the condition was temporary. The fair valuerecorded a $1,161 million before-tax impairment of our investment in DCP Midstream further deteriorated in the third quarter as the market value of DCP Midstream’s general partner interest in DCP Partners and the market value of DCP Partners’ common units declined further. We concluded the decline in fair value was no longer temporary due to the duration and magnitude of the decline. Accordingly, we recorded an $853 million impairment in the thirdfirst quarter of 2019. The impairment2020. This charge is included in the “Impairments” line item on our consolidated statement of income and results inoperations for the six months ended June 30, 2020. The impairment increased the basis difference for our investment in DCP Midstream having a book value of $1,358 millionto $1.8 billion at September 30, 2019.
The majority ofMarch 31, 2020, which indicated the difference between the bookcarrying value of our investment in DCP Midstream andwas lower than our 50% share of theDCP Midstream’s recorded net assets reported by DCP Midstream will beat March 31, 2020. The basis difference is being amortized onand recognized as a straight-line basisbenefit to equity earnings over a 22-yearperiod of 22 years, which was the estimated remaining useful life as an increaseof DCP Midstream’s properties, plants and equipment (PP&E) at March 31, 2020. Equity earnings for the three and six months ended June 30, 2020, were increased by approximately $20 million and $30 million, respectively, due to equity earnings.the amortization of the basis difference. See Note 6—Investments, Loans and Long-Term Receivables, and Note 13—Fair Value Measurements, for additional information on the techniques used to determine the fair value of our investment in DCP Midstream.
See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.
Chemicals
|
| | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
| Millions of Dollars |
| | | | | |
Income Before Income Taxes | $ | 227 |
| 263 |
| | 729 |
| 873 |
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
| | | | | | |
| Millions of Dollars | | | | | |
| | | | | | |
Income Before Income Taxes | $ | 42 | | | 275 | | | 211 | | 502 | |
| | | | | | | | | | | | | | | | | | |
| Millions of Pounds | | | | | |
CPChem Externally Marketed Sales Volumes* | | | | | | |
Olefins and Polyolefins | 4,890 | | | 4,592 | | | 9,490 | | 9,284 | |
Specialties, Aromatics and Styrenics | 1,014 | | | 969 | | | 2,202 | | 2,038 | |
| 5,904 | | | 5,561 | | | 11,692 | | 11,322 | |
* Represents 100% of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates. | | | | | | |
|
| | | | | | | | | |
| Millions of Pounds |
CPChem Externally Marketed Sales Volumes* | | | | | |
Olefins and Polyolefins | 4,990 |
| 4,883 |
| | 14,274 |
| 14,048 |
|
Specialties, Aromatics and Styrenics | 1,322 |
| 1,385 |
| | 3,360 |
| 3,993 |
|
| 6,312 |
| 6,268 |
| | 17,634 |
| 18,041 |
|
* 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) | 103 | % | | 95 | | | 100 | | 97 | |
| | | | | | |
|
| | | | | | |
Olefins and Polyolefins Capacity Utilization (percent) | 97 | % | 91 | | 97 | 94 |
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, and Aromatics and Styrenics (SA&S).
Pre-taxBefore-tax income from the Chemicals segment decreased $36$233 million in the thirdsecond quarter of 20192020 and $144$291 million in the nine-monthsix-month period of 2019.2020. The decrease in both periods included athe second quarter and six-month period of 2020 was mainly driven by lower margins from CPChem’s portfolio of consolidated and joint venture assets, partially offset by higher sales volumes and lower utility costs. In addition, during the first six months of 2020, CPChem recorded lower-of-cost-or-market write-downwrite-downs of LIFO-valued inventories primarily resulting from lower polyethylene prices.valued on the last-in, first-out (LIFO) basis and an asset write-off by an international joint venture. Our portion of the write-downinventory write-downs and asset write-off reduced our equity earnings from CPChem by $42 million, pre-tax. In addition, the decreased results in the nine-monthsecond quarter and six-month period were due to lower margins, partially offsetof 2020 by higher polyethylene sales volume.$47 million and $71 million, respectively.
See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.
Refining
| | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
| | | | | | |
| Millions of Dollars | | | | | |
Income (Loss) Before Income Taxes | | | | | | |
Atlantic Basin/Europe | $ | (227) | | | 258 | | | (864) | | 251 | |
Gulf Coast | (365) | | | 222 | | | (1,208) | | 104 | |
Central Corridor | (104) | | | 520 | | | (331) | | 597 | |
West Coast | (182) | | | (17) | | | (736) | | (167) | |
Worldwide | $ | (878) | | | 983 | | | (3,139) | | 785 | |
|
| | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
| Millions of Dollars |
Income (Loss) Before Income Taxes | | | | | |
Atlantic Basin/Europe | $ | 296 |
| 209 |
| | 547 |
| 265 |
|
Gulf Coast | 184 |
| 210 |
| | 288 |
| 576 |
|
Central Corridor | 408 |
| 839 |
| | 1,005 |
| 1,632 |
|
West Coast | (32 | ) | (26 | ) | | (199 | ) | 61 |
|
Worldwide | $ | 856 |
| 1,232 |
| | 1,641 |
| 2,534 |
|
| | | Dollars Per Barrel | | Dollars Per Barrel | |
Income (Loss) Before Income Taxes | | | | | Income (Loss) Before Income Taxes | | | |
Atlantic Basin/Europe | $ | 5.93 |
| 4.62 |
| | 3.83 |
| 2.00 |
| Atlantic Basin/Europe | $ | (5.80) | | | 5.04 | | | (10.74) | | 2.70 | |
Gulf Coast | 2.46 |
| 3.01 |
| | 1.32 |
| 2.67 |
| Gulf Coast | (5.98) | | | 2.88 | | | (9.66) | | 0.73 | |
Central Corridor | 15.26 |
| 31.33 |
| | 13.07 |
| 20.60 |
| Central Corridor | (5.01) | | | 19.81 | | | (7.50) | | 11.91 | |
West Coast | (0.93 | ) | (0.74 | ) | | (2.03 | ) | 0.59 |
| West Coast | (7.07) | | | (0.52) | | | (13.73) | | (2.63) | |
Worldwide | 4.60 |
| 6.96 |
| | 3.07 |
| 4.77 |
| Worldwide | (5.99) | | | 5.25 | | | (10.35) | | 2.25 | |
| | | | | | | | |
Realized Refining Margins* | | | | | Realized Refining Margins* | | | |
Atlantic Basin/Europe | $ | 11.48 |
| 11.48 |
| | 10.17 |
| 9.82 |
| Atlantic Basin/Europe | $ | 1.53 | | | 10.85 | | | 1.97 | | 9.47 | |
Gulf Coast | 8.34 |
| 9.09 |
| | 7.42 |
| 8.64 |
| Gulf Coast | 0.36 | | | 8.20 | | | 3.64 | | 6.93 | |
Central Corridor | 15.99 |
| 23.61 |
| | 14.91 |
| 19.26 |
| Central Corridor | 5.78 | | | 17.84 | | | 10.03 | | 14.33 | |
West Coast | 10.11 |
| 9.53 |
| | 8.84 |
| 10.25 |
| West Coast | 5.05 | | | 9.94 | | | 4.92 | | 8.16 | |
Worldwide | 11.18 |
| 13.36 |
| | 10.06 |
| 11.72 |
| Worldwide | 2.60 | | | 11.37 | | | 4.96 | | 9.46 | |
* 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.
| | | Thousands of Barrels Daily | | Thousands of Barrels Daily | |
| Three Months Ended September 30 | | Nine Months Ended September 30 | | Three Months Ended June 30 | | | Six Months Ended June 30 | |
Operating Statistics | 2019 |
| 2018 |
| | 2019 |
| 2018 |
| Operating Statistics | 2020 | | | 2019 | | | 2020 | | 2019 | |
Refining operations* | | | | Refining operations* | | | | | |
Atlantic Basin/Europe | | | | Atlantic Basin/Europe | | | |
Crude oil capacity | 537 |
| 537 |
| | 537 |
| 537 |
| Crude oil capacity | 537 | | | 537 | | | 537 | | 537 | |
Crude oil processed | 509 |
| 465 |
| | 485 |
| 460 |
| Crude oil processed | 402 | | | 519 | | | 420 | | 473 | |
Capacity utilization (percent) | 95 | % | 87 |
| | 90 |
| 86 |
| Capacity utilization (percent) | 75 | % | | 97 | | | 78 | | 88 | |
Refinery production | 545 |
| 494 |
| | 527 |
| 488 |
| Refinery production | 433 | | | 570 | | | 445 | | 519 | |
Gulf Coast | | | | Gulf Coast | | | |
Crude oil capacity | 764 |
| 752 |
| | 764 |
| 752 |
| Crude oil capacity | 769 | | | 764 | | | 769 | | 764 | |
Crude oil processed | 729 |
| 656 |
| | 714 |
| 706 |
| Crude oil processed | 609 | | | 757 | | | 627 | | 706 | |
Capacity utilization (percent) | 95 | % | 87 |
| | 93 |
| 94 |
| Capacity utilization (percent) | 79 | % | | 99 | | | 81 | | 92 | |
Refinery production | 817 |
| 765 |
| | 797 |
| 797 |
| Refinery production | 675 | | | 850 | | | 689 | | 787 | |
Central Corridor | | | | Central Corridor | | | |
Crude oil capacity | 515 |
| 493 |
| | 515 |
| 493 |
| Crude oil capacity | 530 | | | 515 | | | 530 | | 515 | |
Crude oil processed | 517 |
| 531 |
| | 495 |
| 501 |
| Crude oil processed | 386 | | | 521 | | | 428 | | 483 | |
Capacity utilization (percent) | 100 | % | 108 |
| | 96 |
| 102 |
| Capacity utilization (percent) | 73 | % | | 101 | | | 81 | | 94 | |
Refinery production | 535 |
| 553 |
| | 515 |
| 523 |
| Refinery production | 396 | | | 541 | | | 442 | | 504 | |
West Coast | | | | West Coast | | | |
Crude oil capacity | 364 |
| 364 |
| | 364 |
| 364 |
| Crude oil capacity | 364 | | | 364 | | | 364 | | 364 | |
Crude oil processed | 351 |
| 354 |
| | 325 |
| 352 |
| Crude oil processed | 263 | | | 317 | | | 271 | | 312 | |
Capacity utilization (percent) | 97 | % | 97 |
| | 89 |
| 97 |
| Capacity utilization (percent) | 72 | % | | 87 | | | 75 | | 86 | |
Refinery production | 371 |
| 381 |
| | 357 |
| 379 |
| Refinery production | 280 | | | 357 | | | 293 | | 349 | |
Worldwide | | | | Worldwide | | | |
Crude oil capacity | 2,180 |
| 2,146 |
| | 2,180 |
| 2,146 |
| Crude oil capacity | 2,200 | | | 2,180 | | | 2,200 | | 2,180 | |
Crude oil processed | 2,106 |
| 2,006 |
| | 2,019 |
| 2,019 |
| Crude oil processed | 1,660 | | | 2,114 | | | 1,746 | | 1,974 | |
Capacity utilization (percent) | 97 | % | 93 |
| | 93 |
| 94 |
| Capacity utilization (percent) | 75 | % | | 97 | | | 79 | | 91 | |
Refinery production | 2,268 |
| 2,193 |
| | 2,196 |
| 2,187 |
| Refinery production | 1,784 | | | 2,318 | | | 1,869 | | 2,159 | |
* Includes our share of equity affiliates. | | | | * Includes our share of equity affiliates. | | | |
The Refining segment refines crude oil and other feedstocks into petroleum products, (suchsuch as gasoline, distillates and aviation fuels)fuels, at 13 refineries in the United States and Europe.
Pre-taxThe before-tax income for the(loss) from our Refining segment decreased $376$1,861 million in the thirdsecond quarter of 20192020 and $893$3,924 million in the nine-monthsix-month period of 2019,2020. The decreased results in both periods were primarily driven bydue to significantly lower realized refining margins.
Inmargins and decreased refinery production across all regions. A sharp decline in demand for refined petroleum products resulting from global economic disruption caused by the third quarter of 2019, the decrease in realized refining margins was mainly dueCOVID-19 pandemic led to lower feedstock advantage, partially offset by favorable inventory impacts and higher secondary product margins.
In the nine-month period of 2019, the decrease in realized refining margins was primarily due to lower feedstock advantage and market crack spreads partially offsetand reduced refinery production in the current periods. In addition, the decreased results in the six-month period included a goodwill impairment of $1,845 million recognized in the first quarter of 2020.
Our stock price declined significantly in the first quarter of 2020 due to the volatility in global commodity and equity markets related to the COVID-19 pandemic and other factors. We assessed our goodwill for impairment due to the decline in our market capitalization and concluded that the carrying value of our Refining reporting unit at March 31, 2020, was greater than its fair value by higher secondary product margins and lower renewable identification number costs.an amount in excess of its goodwill balance. Accordingly, we recorded a goodwill impairment charge of $1,845 million in our Refining segment during the first quarter of 2020. This charge is included in the “Impairments” line item on our consolidated statement of operations for the six months ended June 30, 2020. See Note 13—Fair Value Measurements for additional information on the techniques used to determine the fair value of our Refining reporting unit.
See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.
Our worldwide refining crude oil capacity utilization rate was 75% and 79% in the second quarter and six-month period of 2020, respectively, compared with 97% and 93%91% in the thirdsecond quarter and nine-monthsix-month period of 2019, respectively, compared with 93% and 94% in the third quarter and nine-month period of 2018, respectively. The increase in the third quarter of 2019 wasThese decreases were primarily due to reduced refining runs in the first half of 2020 driven by lower unplanned downtime.demand for refined petroleum products.
Marketing and Specialties
| | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
| | | | | | |
| Millions of Dollars | | | | | |
Income Before Income Taxes | | | | | | |
Marketing and Other | $ | 255 | | | 294 | | | 726 | | 432 | |
Specialties | 31 | | | 59 | | | 73 | | 126 | |
Total Marketing and Specialties | $ | 286 | | | 353 | | | 799 | | 558 | |
|
| | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
| | | | | |
| Millions of Dollars |
Income Before Income Taxes | | | | | |
Marketing and Other | $ | 440 |
| 361 |
| | 872 |
| 781 |
|
Specialties | 58 |
| 62 |
| | 184 |
| 187 |
|
Total Marketing and Specialties | $ | 498 |
| 423 |
| | 1,056 |
| 968 |
|
| | | | Dollars Per Barrel | | Dollars Per Barrel | |
Income Before Income Taxes | | | | | | Income Before Income Taxes | | | |
U.S. | $ | 1.66 |
| 1.48 |
| | 1.14 |
| 1.14 |
| U.S. | $ | 1.24 | | | 1.09 | | | 1.53 | | 0.86 | |
International | 5.19 |
| 4.80 |
| | 4.10 |
| 3.23 |
| International | 3.48 | | | 4.81 | | | 5.25 | | 3.55 | |
| | | | | | | |
Realized Marketing Fuel Margins* | | | | | Realized Marketing Fuel Margins* | | | |
U.S. | $ | 2.11 |
| 1.80 |
| | 1.59 |
| 1.50 |
| U.S. | $ | 1.75 | | | 1.53 | | | 1.92 | | 1.31 | |
International | 6.37 |
| 6.58 |
| | 5.42 |
| 5.07 |
| International | 5.07 | | | 6.03 | | | 7.04 | | 4.94 | |
* 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. Prior period U.S. realized marketing fuel margins have been revised to exclude the effects of special items on fuel margins.
| | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| Dollars Per Gallon | | | | | |
U.S. Average Wholesale Prices* | | | | | | |
Gasoline | $ | 1.26 | | | 2.32 | | | 1.53 | | 2.10 | |
Distillates | 1.17 | | | 2.20 | | | 1.47 | | 2.12 | |
* On third-party branded petroleum product sales, excluding excise taxes. | | | | | | |
|
| | | | | | | | | | |
| Dollars Per Gallon |
U.S. Average Wholesale Prices* | | | | | |
Gasoline | $ | 2.14 |
| 2.35 |
| | 2.11 |
| 2.25 |
|
Distillates | 2.07 |
| 2.40 |
| | 2.10 |
| 2.31 |
|
* On third-party branded petroleum product sales, excluding excise taxes. | | | | | |
| | | | | | | | | | | | | | | | | | |
| Thousands of Barrels Daily | | | | | |
| | | | | | |
| | | | | | |
Marketing Petroleum Products Sales Volumes | | | | | | |
Gasoline | 941 | | | 1,240 | | | 1,003 | | 1,197 | |
Distillates | 847 | | | 1,085 | | | 942 | | 1,013 | |
Other | 15 | | | 19 | | | 18 | | 18 | |
Total | 1,803 | | | 2,344 | | | 1,963 | | 2,228 | |
|
| | | | | | | | | |
| Thousands of Barrels Daily |
Marketing Petroleum Products Sales Volumes | | | | | |
Gasoline | 1,222 |
| 1,187 |
| | 1,205 |
| 1,163 |
|
Distillates | 1,099 |
| 955 |
| | 1,041 |
| 949 |
|
Other | 16 |
| 17 |
| | 18 |
| 18 |
|
Total | 2,337 |
| 2,159 |
| | 2,264 |
| 2,130 |
|
The M&S segment purchases for resale and markets refined petroleum products, (suchsuch as gasoline, distillates and aviation fuels),fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, (suchsuch as base oils and lubricants), as well as power generation operations.lubricants.
Pre-taxBefore-tax income from the M&S segment increased $75decreased $67 million in the thirdsecond quarter of 20192020 and $88increased $241 million in the nine-monthsix-month period of 2019.2020. The improved resultsdecrease in the thirdsecond quarter of 2019 were2020 was primarily due to higher U.S. margins,lower sales volumes driven by favorable market conditions, as well as higher sales volumes.decreased demand for refined petroleum and specialty products, partially offset by lower selling, general and administrative expenses. The improved resultsincrease in the nine-monthsix-month period were mainlyof 2020 was primarily attributable to higher realized marketing margins and lower selling, general and administrative expenses, partially offset by lower sales volumes for refined petroleum and specialty products driven by higher global margins and sales volumes. In addition, both 2018 periods reflected a benefit related to biodiesel blender’s tax incentives.decreased demand.
See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting this quarter’s results.
Corporate and Other
| | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
Loss Before Income Taxes | | | | | | |
Net interest expense | $ | (114) | | | (105) | | | (217) | | (213) | |
Corporate overhead and other | (105) | | | (100) | | | (199) | | (202) | |
| | | | | | |
| | | | | | |
| | | | | | |
Total Corporate and Other | $ | (219) | | | (205) | | | (416) | | (415) | |
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
Loss Before Income Taxes | | | | | |
Net interest expense | $ | (98 | ) | (114 | ) | | (311 | ) | (354 | ) |
Corporate overhead and other | (80 | ) | (113 | ) | | (282 | ) | (296 | ) |
Total Corporate and Other | $ | (178 | ) | (227 | ) | | (593 | ) | (650 | ) |
Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Net interest decreased in the third quarter and nine-month period of 2019, mainly due to higher capitalized interest related to capital projects under development in our Midstream segment.
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. Corporate overheadNet interest expense increased $9 million and other expenses decreased in both periods, primarily driven by lower accrued environmental expenses and technology costs. The decrease$4 million in the nine-monthsecond quarter and six-month period of 2019 was2020, respectively, primarily due to higher average debt principal balances, reflecting new debt issuances in the first half of 2020, partially offset by a one-time income tax benefit recognized by our equity affiliates in 2018higher capitalized interest related to U.S. tax reform.capital projects under development in our Midstream segment. See Note 9—Debt, in the Notes to Consolidated Financial Statements, for additional information on the new debt issuances.
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
| | | | | | | | | | | |
| Millions of Dollars, Except as Indicated | | |
| June 30 2020 | | December 31 2019 |
| | | |
Cash and cash equivalents | $ | 1,890 | | | 1,614 | |
Short-term debt | 1,783 | | | 547 | |
Total debt | 14,446 | | | 11,763 | |
Total equity | 23,295 | | | 27,169 | |
Percent of total debt to capital* | 38 | % | | 30 | |
Percent of floating-rate debt to total debt | 12 | % | | 9 | |
* Capital includes total debt and total equity. | | | |
|
| | | | | | |
| Millions of Dollars, Except as Indicated |
| September 30 2019 |
| | December 31 2018 |
|
| | | |
Cash and cash equivalents | $ | 2,268 |
| | 3,019 |
|
Short-term debt | 842 |
| | 67 |
|
Total debt | 11,925 |
| | 11,160 |
|
Total equity | 27,092 |
| | 27,153 |
|
Percent of total debt to capital* | 31 | % | | 29 |
|
Percent of floating-rate debt to total debt | 9 | % | | 11 |
|
* Capital includes total debt and total equity. |
To meet our short- and long-term liquidity requirements, we look toseek a variety of funding sources but rely primarily on cash generated from operating activities.activities and debt financing. Additionally, Phillips 66 Partners has the ability to fund its growth activities through debt and equity offerings.financings. During the first ninesix months of 2019,2020, we generated $3.1$981 million of cash from operations, received approximately $2.0 billion in proceeds from two public offerings of senior unsecured notes, and borrowed $1.0 billion under our new term loan facility. We used available cash from operations. Available cash was primarily used to fundfor capital expenditures and investments of $2.6 billion; repurchase $1.2$1.9 billion, repayment of our common stock;$525 million of maturing debt, and pay dividendsdividend payments on our common stock of $1.2 billion. In addition, Phillips 66 Partners received $422 million from its joint venture partners to partially fund the Gray Oak capital project. Phillips 66 Partners also received net proceeds of $773 million from borrowings during the period.$789 million. During the first ninequarter of 2020, we spent $443 million on common stock repurchases, before suspending our share repurchase program in March 2020. During the first six months of 2019,2020, cash and cash equivalents decreased by $0.8 billionincreased $276 million to $2.3$1.9 billion.
In addition to cash flows from operating activities, we rely on our commercial paper and credit facility programs, asset sales and our ability to issue debt securities to support our short- and long-term liquidity requirements. We believe current cash and cash equivalents and cash generated by operations, together with access to external sources of funds as described below under “Significant Sources of Capital,” will be sufficient to meet our funding requirements in the near and long term, including our capital spending, dividend payments, defined benefit plan contributions, and debt repayments and share repurchases.repayments.
Significant Sources of Capital
Operating Activities
During the first ninesix months of 2019,2020, cash generated by operating activities was $3,114$981 million, compared with $3,434$1,452 million for the first ninesix months of 2018.2019. The decrease in the first six months of 2020, compared with the same period in 2019, was mainly driven byprimarily due to decreased refinery production and lower refining margins in the first half of 2020 driven by significant global economic disruption caused by the COVID-19 pandemic, as well as reduced cash distributions from our equity affiliates, partially offset by improved results from our transportationhigher realized marketing margins and NGL assets along withfavorable working capital impacts. The working capital impacts were primarily driven by lower inventory builds in 2019.
Our short- and long-term operating cash flows are highly dependent upon refining, marketing and marketingchemical margins, as well as NGL prices, and chemicals margins.prices. 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, marketing and chemical margins, along with transportation volumes, 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 impactsimpact 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; and if the global economic disruption associated with the COVID-19 pandemic sustains, we expect the reduced refinery production to continue in the near term, which could have an unfavorable impact on our future operating cash flows.
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.affiliates. During the first ninesix months of 2019,2020, cash from operations included distributions of $1,638$820 million from our equity affiliates, compared with $2,057$1,120 million during the same period of 2018. The lower distributions from our equity affiliates for the first nine months of 2019 were mainly driven by lower equity earnings.2019. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these companiesequity affiliates are not assured. If the global economic disruption associated with the COVID-19 pandemic sustains, we expect lower distributions from our equity affiliates.
Phillips 66 Partners LP
Unit Issuances
During the first ninesix months of 2019,2020, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $133$2 million from common units issued under its active continuous offering of common units, or at-the-market (ATM) program.
Debt IssuancesTransfer of Equity Interest
Gray Oak Pipeline, LLC was formed to develop and Repayments
On September 6, 2019,construct the Gray Oak Pipeline, which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. Phillips 66 Partners closed onhas a public offeringconsolidated holding company that owns 65% of $900 million aggregate principal amount of unsecured notes consisting of:
$300 million aggregate principal amount of 2.450% Senior Notes due December 15, 2024.
$600 million aggregate principal amount of 3.150% Senior Notes due December 15, 2029.
Interest on each series of senior notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. On September 13, 2019, Phillips 66 Partners used a portion of the net proceeds to repay the $400 million outstanding principal balance of its term loans due March 2020, and on October 15, 2019, Phillips 66 Partners used a portion of the net proceeds to repay the $300 million outstanding principal balance of its 2.646% Senior Notes due February 2020.
Revolving Credit Agreement Amendment and Restatement
On July 30, 2019, Phillips 66 Partners amended and restated its revolving credit agreement. The agreement extended the scheduled maturity from October 3, 2021, to July 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $750 million with an option to increase the overall capacity to $1 billion, subject to certain conditions.
At September 30, 2019, no amount had been directly drawn under Phillips 66 Partners’ revolving credit facility, compared with borrowings of $125 million at December 31, 2018.
Transfers of Equity Interests
Gray Oak Pipeline, LLC. In December 2018, a third party exercised anits option to acquire a 35% interest in the holding company. Because the holding company’s sole asset was its ownership interest in Gray Oak HoldingsPipeline, LLC, (Holdings LLC),which was considered a consolidated subsidiaryfinancial 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 Phillips 66 Partners. This transferthe Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP becauseat that time. The Gray Oak Pipeline commenced full operations in the second quarter of certain2020, and the restrictions placed on the acquirer. The contributions received by Holdings LLCco-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 the third party to cover capital calls from Gray Oak Pipeline, LLC (Gray Oak) are presented as a long-term obligation to a noncontrolling interest on our consolidated balance sheet and financing cash inflows onsheet. In addition, 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 cash flows until construction ofoperations for the Gray Oak Pipeline is fully completedthree and these restrictions expire. Duringsix months ended June 30, 2020. For the first ninesix months of 2019,ended June 30, 2020, the third partyco-venturer contributed an aggregate of $341$61 million into Holdings LLC, which Holdings LLC usedto the holding company to fund its portion of Gray Oak’sOak Pipeline, LLC’s cash calls. See Note 21—Excluding the co-venturer’s 35% interest in the consolidated holding company, Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding this transaction.
In February 2019, Holdings LLC sold a 10%has an effective ownership interest of 42.25% in Gray Oak to a third party that exercised a purchase option, for proceeds of $81 million. The proceeds received from this sale are presented as an investing cash inflow on our consolidated statement of cash flows.Pipeline, LLC. See Note 6—5—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional informationfurther discussion regarding this transaction.
Restructuring Transaction
On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to eliminate the IDRs held by us and convert our 2% economic general partner interest into a non-economic general partner interest in exchange for 101 million Phillips 66 Partners’ common units. As a result of the restructuring transaction, the balance of “Noncontrolling interests” on our consolidated balance sheet decreased $373 million, with a $275 million increase to “Capitalinvestment in excess of par,” a $91 million increase in “Deferred income taxes” and $7 million of transaction costs. No distributions will be made on the general partner interest after August 1, 2019. At September 30, 2019, we owned 170 million Phillips 66 Partners’ common units, representing 75% of Phillips 66 Partners’ outstanding common units.Gray Oak Pipeline, LLC.
Revolving Credit Facilities and Commercial Paper
On JulyAt June 30, 2019, we amended2020, borrowings of $215 million were outstanding and restated our$3 million in letters of credit had been drawn under Phillips 66 Partners’ $750 million revolving credit agreement. The agreement extended the scheduled maturity from October 3, 2021, to Julyfacility. At June 30, 2024. No other material amendments were made to the agreement, and the overall capacity remains at $5 billion with an option to increase the overall capacity to $6 billion, subject to certain conditions.
At September 30, 2019,2020, no amount had been directly drawn under ourPhillips 66’s $5 billion revolving credit facility or ouruncommitted $5 billion commercial paper program supported by our revolving credit facility. In addition, at September 30, 2019,program.
Other Debt Issuances and Financings
On June 10, 2020, Phillips 66 Partners had no borrowings outstandingclosed 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.
On 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 on June 10, 2020, constitute a further issuance of the Senior Notes due 2025 originally issued on 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 on June 10, 2020, and April 9, 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.
On March 19, 2020, Phillips 66 entered into a $1 billion 364-day delayed draw term loan agreement (the Facility) and borrowed $1 billion under its $750 million revolving credit facility. As a result, we had approximately $5.7the Facility shortly thereafter. On April 6, 2020, Phillips 66 increased the size of the Facility to $2 billion, with $1 billion of total committed capacity availableremaining undrawn at June 30, 2020. In June 2020, the Facility was amended to extend the commitment period to September 19, 2020. Borrowings under our revolvingthe Facility bear interest at a floating rate based on either the Eurodollar rate or the reference rate, plus a margin determined by the credit facilities at September 30, 2019.rating of Phillips 66’s senior unsecured long-term debt. Phillips 66 is using the proceeds from the debt issuance for general corporate purposes.
Off-Balance Sheet ArrangementsMarketing and Specialties
Contingent | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
| | | | | | |
| Millions of Dollars | | | | | |
Income Before Income Taxes | | | | | | |
Marketing and Other | $ | 255 | | | 294 | | | 726 | | 432 | |
Specialties | 31 | | | 59 | | | 73 | | 126 | |
Total Marketing and Specialties | $ | 286 | | | 353 | | | 799 | | 558 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| Dollars Per Barrel | | | | | |
Income Before Income Taxes | | | | | | |
U.S. | $ | 1.24 | | | 1.09 | | | 1.53 | | 0.86 | |
International | 3.48 | | | 4.81 | | | 5.25 | | 3.55 | |
| | | | | | |
Realized Marketing Fuel Margins* | | | | | | |
U.S. | $ | 1.75 | | | 1.53 | | | 1.92 | | 1.31 | |
International | 5.07 | | | 6.03 | | | 7.04 | | 4.94 | |
* 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 | $ | 1.26 | | | 2.32 | | | 1.53 | | 2.10 | |
Distillates | 1.17 | | | 2.20 | | | 1.47 | | 2.12 | |
* On third-party branded petroleum product sales, excluding excise taxes. | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Thousands of Barrels Daily | | | | | |
| | | | | | |
| | | | | | |
Marketing Petroleum Products Sales Volumes | | | | | | |
Gasoline | 941 | | | 1,240 | | | 1,003 | | 1,197 | |
Distillates | 847 | | | 1,085 | | | 942 | | 1,013 | |
Other | 15 | | | 19 | | | 18 | | 18 | |
Total | 1,803 | | | 2,344 | | | 1,963 | | 2,228 | |
The M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, such as base oils and lubricants.
Before-tax income from the M&S segment decreased $67 million in the second quarter of 2020 and increased $241 million in the six-month period of 2020. The decrease in the second quarter of 2020 was primarily due to lower sales volumes driven by decreased demand for refined petroleum and specialty products, partially offset by lower selling, general and administrative expenses. The increase in the six-month period of 2020 was primarily attributable to higher realized marketing margins and lower selling, general and administrative expenses, 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 this quarter’s results.
Corporate and Other
| | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
Loss Before Income Taxes | | | | | | |
Net interest expense | $ | (114) | | | (105) | | | (217) | | (213) | |
Corporate overhead and other | (105) | | | (100) | | | (199) | | (202) | |
| | | | | | |
| | | | | | |
| | | | | | |
Total Corporate and Other | $ | (219) | | | (205) | | | (416) | | (415) | |
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. Net interest expense increased $9 million and $4 million in the second quarter and six-month period of 2020, respectively, primarily due to higher average debt principal balances, reflecting new debt issuances in the first half of 2020, partially offset by higher capitalized interest related to capital projects under development in our Midstream segment. See Note 9—Debt, in the Notes to Consolidated Financial Statements, for additional information on the new debt issuances.
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
| | | | | | | | | | | |
| Millions of Dollars, Except as Indicated | | |
| June 30 2020 | | December 31 2019 |
| | | |
Cash and cash equivalents | $ | 1,890 | | | 1,614 | |
Short-term debt | 1,783 | | | 547 | |
Total debt | 14,446 | | | 11,763 | |
Total equity | 23,295 | | | 27,169 | |
Percent of total debt to capital* | 38 | % | | 30 | |
Percent of floating-rate debt to total debt | 12 | % | | 9 | |
* Capital includes total debt and total equity. | | | |
To meet our short- and long-term liquidity requirements, we seek a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. Additionally, Phillips 66 Partners has the ability to fund its growth activities through debt and equity financings. During the first six months of 2020, we generated $981 million of cash from operations, received approximately $2.0 billion in proceeds from two public offerings of senior unsecured notes, and borrowed $1.0 billion under our new term loan facility. We used available cash primarily for capital expenditures and investments of $1.9 billion, repayment of $525 million of maturing debt, and dividend payments on our common stock of $789 million. During the first quarter of 2020, we spent $443 million on common stock repurchases, before suspending our share repurchase program in March 2020. During the first six months of 2020, cash and cash equivalents increased $276 million to $1.9 billion.
We believe current cash and cash equivalents and cash generated by operations, together with access to external sources of funds as described below under “Significant Sources of Capital,” will be sufficient to meet our funding requirements in the near and long term, including our capital spending, dividend payments, defined benefit plan contributions, and debt repayments.
Significant Sources of Capital
Operating Activities
During the first six months of 2020, cash generated by operating activities was $981 million, compared with $1,452 million for the first six months of 2019. The decrease in the first six months of 2020, compared with the same period in 2019, was primarily due to decreased refinery production and lower refining margins in the first half of 2020 driven by significant global economic disruption caused by the COVID-19 pandemic, as well as reduced cash distributions from our equity affiliates, partially offset by higher realized marketing margins and favorable working capital impacts.
Our short- and long-term operating cash flows are highly dependent upon refining, marketing and chemical margins, as well as NGL prices. 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, marketing and chemical margins, along with transportation volumes, 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 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 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; and if the global economic disruption associated with the COVID-19 pandemic sustains, we expect the reduced refinery production to continue in the near term, which could have an unfavorable impact on our future operating cash flows.
Equity Affiliate ContributionsOperating Distributions
In March 2019,Our operating cash flows are also impacted by distribution decisions made by our equity affiliates. During the first six months of 2020, cash from operations included distributions of $820 million from our equity affiliates, compared with $1,120 million during the same period of 2019. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured. If the global economic disruption associated with the COVID-19 pandemic sustains, we expect lower distributions from our equity affiliates.
Phillips 66 Partners LP
Unit Issuances
During the first six months of 2020, on a wholly owned subsidiarysettlement-date basis, Phillips 66 Partners generated net proceeds of Dakota Access, LLC (Dakota Access) closed an$2 million from common units issued under its active continuous offering of $2,500common units, or at-the-market (ATM) program.
Transfer of Equity Interest
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 and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. Phillips 66 Partners has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party exercised its option to acquire 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 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. In addition, 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 three and six months ended June 30, 2020. For the six months ended June 30, 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. Excluding the co-venturer’s 35% interest in the consolidated holding company, Phillips 66 Partners has an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC. See Note 5—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for further discussion regarding Phillips 66 Partners’ investment in Gray Oak Pipeline, LLC.
Credit Facilities and Commercial Paper
At June 30, 2020, borrowings of $215 million were outstanding and $3 million in letters of credit had been drawn under Phillips 66 Partners’ $750 million revolving credit facility. At June 30, 2020, no amount had been drawn under Phillips 66’s $5 billion revolving credit facility or uncommitted $5 billion commercial paper program.
Other Debt Issuances and Financings
On 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.
On 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 on June 10, 2020, constitute a further issuance of the Senior Notes due 2025 originally issued on 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 notes. Theunsecured notes on June 10, 2020, and April 9, 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.
On March 19, 2020, Phillips 66 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, with $1 billion of capacity remaining undrawn at June 30, 2020. In June 2020, the Facility was amended to extend the commitment period to September 19, 2020. Borrowings under 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 of Phillips 66’s senior unsecured long-term debt. Phillips 66 is using the proceeds from the debt issuance of these notes were used to repay amounts outstanding under existing credit facilities of Dakota Access and Energy Transfer Crude Oil Company, LLC (ETCO). Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, if Dakota Access receives an unfavorable court ruling related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million. Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU is approximately $631 million.for general corporate purposes.
Lease Residual Value and Joint Venture Obligation Guarantees
Under the operating lease agreement on our headquarters facility in Houston, Texas, we have a residual value guarantee with a maximum future exposure
Table of $554 million at September 30, 2019. The operating lease term ends in June 2021 and provides us the option, at the end of the lease term, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We also have residual value guarantees associated with railcar and airplane leases with maximum future exposures totaling $344 million at September 30, 2019, which have remaining terms of up to five years.Contents
In June 2019, Phillips 66 Partners issued a guarantee for 42.25% of Gray Oak’s third-party term loan facility. See Note 6—Investments, Loans and Long-Term Receivables, for additional information.
In addition, at September 30, 2019, we had other guarantees outstanding for our portion of certain joint venture debt obligations, which have remaining terms of up to six years. The maximum potential amount of future payments to third parties under these guarantees was approximately $135 million. Payment would be required if a joint venture defaults on its obligations.
Capital Requirements
Capital Expenditures and Investments
For information about our capital expenditures and investments, see the “Capital Spending” section below.
Debt Financing
Our total debt balance at September 30, 2019, and December 31, 2018, was $11,925 million and $11,160 million, respectively. Our total debt-to-capital ratio was 31% and 29% at September 30, 2019, and December 31, 2018, respectively.
Dividends
On July 10, 2019, our Board of Directors declared a quarterly cash dividend of $0.90 per common share. The dividend was paid on September 3, 2019, to shareholders of record at the close of business on August 20, 2019. On October 4, 2019, our Board of Directors declared a quarterly cash dividend of $0.90 per common share. This dividend is payable on December 2, 2019, to shareholders of record at the close of business on November 18, 2019.
Share Repurchase Programs
On October 4, 2019, our Board of Directors approved a new share repurchase program that authorizes us to repurchase up to $3 billion of our common stock, bringing the total amount of share repurchases authorized by our Board of Directors since July 2012 to an aggregate of $15 billion. The share repurchases are expected to be funded primarily through available cash. The shares will be repurchased from time to time in the open market at our discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. Since the inception of our share repurchase programs in 2012 through September 30, 2019, we have repurchased 150,270,786 shares at an aggregate cost of $11.6 billion. Shares of stock repurchased are held as treasury shares.
Capital Spending
Our capital expenditures and investments represent consolidated capital spending. Our adjusted capital spending is a non-GAAP financial measure that demonstrates our net share of capital spending, and reflects an adjustment for the portion of our consolidated capital spending funded by certain Gray Oak joint venture partners.
|
| | | | | | |
| Millions of Dollars |
| Nine Months Ended September 30 |
| 2019 |
| | 2018 |
|
Capital Expenditures and Investments | | | |
Midstream | $ | 1,724 |
| | 978 |
|
Chemicals | — |
| | — |
|
Refining | 645 |
| | 525 |
|
Marketing and Specialties | 76 |
| | 65 |
|
Corporate and Other | 150 |
| | 77 |
|
Total Capital Expenditures and Investments | $ | 2,595 |
| | 1,645 |
|
Less: capital spending funded by certain Gray Oak joint venture partners* | 422 |
| | — |
|
Adjusted Capital Spending | $ | 2,173 |
| | 1,645 |
|
|
|
| |
|
|
Selected Equity Affiliates** | | | |
DCP Midstream | $ | 355 |
| | 342 |
|
CPChem | 252 |
| | 284 |
|
WRB | 135 |
| | 116 |
|
| $ | 742 |
| | 742 |
|
* Included in the Midstream segment.
** Our share of joint venture’s self-funded capital spending.
Midstream
During the first nine months of 2019, capital spending in our Midstream segment included continued development of additional Gulf Coast fractionation capacity, construction activities related to increasing storage capacity at our crude oil and refined petroleum products terminal located near Beaumont, Texas, as well as other return, reliability and maintenance projects in our Transportation and NGL businesses. Phillips 66 Partners progressed several major capital projects, including the Gray Oak Pipeline and related ventures, a new ethane pipeline from Clemens Caverns to Gregory, Texas, and capacity expansion on the Sweeny to Pasadena refined petroleum products pipeline. Phillips 66 Partners also completed a new isomerization unit at the Lake Charles Refinery and the eastern leg of its 40% owned Bayou Bridge Pipeline.
In June 2019, we formed a 50/50 joint venture, Liberty Pipeline LLC, to construct the Liberty Pipeline, which will provide crude oil transportation from the Rockies and Bakken production areas to Cushing, Oklahoma. We will lead project construction on behalf of the joint venture and will operate the pipeline. The estimated project cost, on a gross basis, is approximately $1.6 billion. In addition, in June 2019, we formed a 50/50 joint venture, Red Oak Pipeline LLC, to construct the Red Oak Pipeline System, which will provide crude oil transportation from Cushing and the Permian Basin to multiple destinations along the Texas Gulf Coast, including Corpus Christi, Ingleside, Houston and Beaumont. Our co-venturer will lead project construction on behalf of the joint venture and we will operate the pipeline. The estimated project spending, on a gross basis, is approximately $2.5 billion. Initial services for both projects are targeted for the first half of 2021.
During the first nine months of 2019, DCP Midstream had a self-funded capital program. During this period, on a 100% basis, DCP Midstream’s capital expenditures and investments were $710 million. The capital spending was primarily for expansion projects, including construction of the O’Connor 2 plant and investments in the Gulf Coast Express joint venture pipeline, as well as maintenance capital expenditures for existing assets. We expect DCP Midstream to continue self-funding its capital program for the remainder of 2019.
Chemicals
During the first nine months of 2019, CPChem had a self-funded capital program. During this period, on a 100% basis, CPChem’s capital expenditures and investments were $503 million. The capital spending was primarily for the continued development of its second U.S. Gulf Coast (USGC) Petrochemicals Project and debottlenecking projects on existing assets. In June 2019, CPChem signed an agreement with a co-venturer to jointly pursue the development of a second USGC Petrochemicals Project, and an agreement with a co-venturer to jointly pursue the development of a petrochemical complex in Qatar. We expect CPChem to continue self-funding its capital program for the remainder of 2019.
Refining
Capital spending for the Refining segment during the first nine months of 2019 was primarily for refinery upgrade projects to increase accessibility of advantaged crudes and improve product yields, improvements to the operating integrity of key processing units and safety-related projects. Our equity affiliates in the Refining segment had self-funded capital programs during the first nine months of 2019 and we expect them to continue self-funding their capital programs for the remainder of 2019.
Major construction activities included:
Installation of facilities to improve product value at the Sweeny Refinery.
Installation of facilities to produce biofuels at the Humber Refinery.
A facility installed at the Borger Refinery to increase distillate yields started up in the third quarter of 2019.
Marketing and Specialties
| | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
| | | | | | |
| Millions of Dollars | | | | | |
Income Before Income Taxes | | | | | | |
Marketing and Other | $ | 255 | | | 294 | | | 726 | | 432 | |
Specialties | 31 | | | 59 | | | 73 | | 126 | |
Total Marketing and Specialties | $ | 286 | | | 353 | | | 799 | | 558 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | |
| | | | | | |
| Dollars Per Barrel | | | | | |
Income Before Income Taxes | | | | | | |
U.S. | $ | 1.24 | | | 1.09 | | | 1.53 | | 0.86 | |
International | 3.48 | | | 4.81 | | | 5.25 | | 3.55 | |
| | | | | | |
Realized Marketing Fuel Margins* | | | | | | |
U.S. | $ | 1.75 | | | 1.53 | | | 1.92 | | 1.31 | |
International | 5.07 | | | 6.03 | | | 7.04 | | 4.94 | |
* 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 | $ | 1.26 | | | 2.32 | | | 1.53 | | 2.10 | |
Distillates | 1.17 | | | 2.20 | | | 1.47 | | 2.12 | |
* On third-party branded petroleum product sales, excluding excise taxes. | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Thousands of Barrels Daily | | | | | |
| | | | | | |
| | | | | | |
Marketing Petroleum Products Sales Volumes | | | | | | |
Gasoline | 941 | | | 1,240 | | | 1,003 | | 1,197 | |
Distillates | 847 | | | 1,085 | | | 942 | | 1,013 | |
Other | 15 | | | 19 | | | 18 | | 18 | |
Total | 1,803 | | | 2,344 | | | 1,963 | | 2,228 | |
The M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, such as base oils and lubricants.
Before-tax income from the M&S segment decreased $67 million in the second quarter of 2020 and increased $241 million in the six-month period of 2020. The decrease in the second quarter of 2020 was primarily due to lower sales volumes driven by decreased demand for refined petroleum and specialty products, partially offset by lower selling, general and administrative expenses. The increase in the six-month period of 2020 was primarily attributable to higher realized marketing margins and lower selling, general and administrative expenses, 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 this quarter’s results.
Corporate and Other
| | | | | | | | | | | | | | | | | | |
| Millions of Dollars | | | | | |
| Three Months Ended June 30 | | | | Six Months Ended June 30 | |
| 2020 | | | 2019 | | | 2020 | | 2019 | |
Loss Before Income Taxes | | | | | | |
Net interest expense | $ | (114) | | | (105) | | | (217) | | (213) | |
Corporate overhead and other | (105) | | | (100) | | | (199) | | (202) | |
| | | | | | |
| | | | | | |
| | | | | | |
Total Corporate and Other | $ | (219) | | | (205) | | | (416) | | (415) | |
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. Net interest expense increased $9 million and $4 million in the second quarter and six-month period of 2020, respectively, primarily due to higher average debt principal balances, reflecting new debt issuances in the first half of 2020, partially offset by higher capitalized interest related to capital projects under development in our Midstream segment. See Note 9—Debt, in the Notes to Consolidated Financial Statements, for additional information on the new debt issuances.
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
| | | | | | | | | | | |
| Millions of Dollars, Except as Indicated | | |
| June 30 2020 | | December 31 2019 |
| | | |
Cash and cash equivalents | $ | 1,890 | | | 1,614 | |
Short-term debt | 1,783 | | | 547 | |
Total debt | 14,446 | | | 11,763 | |
Total equity | 23,295 | | | 27,169 | |
Percent of total debt to capital* | 38 | % | | 30 | |
Percent of floating-rate debt to total debt | 12 | % | | 9 | |
* Capital includes total debt and total equity. | | | |
To meet our short- and long-term liquidity requirements, we seek a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. Additionally, Phillips 66 Partners has the ability to fund its growth activities through debt and equity financings. During the first six months of 2020, we generated $981 million of cash from operations, received approximately $2.0 billion in proceeds from two public offerings of senior unsecured notes, and borrowed $1.0 billion under our new term loan facility. We used available cash primarily for capital expenditures and investments of $1.9 billion, repayment of $525 million of maturing debt, and dividend payments on our common stock of $789 million. During the first quarter of 2020, we spent $443 million on common stock repurchases, before suspending our share repurchase program in March 2020. During the first six months of 2020, cash and cash equivalents increased $276 million to $1.9 billion.
We believe current cash and cash equivalents and cash generated by operations, together with access to external sources of funds as described below under “Significant Sources of Capital,” will be sufficient to meet our funding requirements in the near and long term, including our capital spending, dividend payments, defined benefit plan contributions, and debt repayments.
Significant Sources of Capital
Operating Activities
During the first six months of 2020, cash generated by operating activities was $981 million, compared with $1,452 million for the first six months of 2019. The decrease in the first six months of 2020, compared with the same period in 2019, was primarily due to decreased refinery production and lower refining margins in the first half of 2020 driven by significant global economic disruption caused by the COVID-19 pandemic, as well as reduced cash distributions from our equity affiliates, partially offset by higher realized marketing margins and favorable working capital impacts.
Our short- and long-term operating cash flows are highly dependent upon refining, marketing and chemical margins, as well as NGL prices. 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, marketing and chemical margins, along with transportation volumes, 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 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 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; and if the global economic disruption associated with the COVID-19 pandemic sustains, we expect the reduced refinery production to continue in the near term, which could have an unfavorable impact on our future operating cash flows.
Equity Affiliate Operating Distributions
Our operating cash flows are also impacted by distribution decisions made by our equity affiliates. During the first six months of 2020, cash from operations included distributions of $820 million from our equity affiliates, compared with $1,120 million during the same period of 2019. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured. If the global economic disruption associated with the COVID-19 pandemic sustains, we expect lower distributions from our equity affiliates.
Phillips 66 Partners LP
Unit Issuances
During the first six months of 2020, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $2 million from common units issued under its active continuous offering of common units, or at-the-market (ATM) program.
Transfer of Equity Interest
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 and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. Phillips 66 Partners has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party exercised its option to acquire 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 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. In addition, 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 three and six months ended June 30, 2020. For the six months ended June 30, 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. Excluding the co-venturer’s 35% interest in the consolidated holding company, Phillips 66 Partners has an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC. See Note 5—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for further discussion regarding Phillips 66 Partners’ investment in Gray Oak Pipeline, LLC.
Credit Facilities and Commercial Paper
At June 30, 2020, borrowings of $215 million were outstanding and $3 million in letters of credit had been drawn under Phillips 66 Partners’ $750 million revolving credit facility. At June 30, 2020, no amount had been drawn under Phillips 66’s $5 billion revolving credit facility or uncommitted $5 billion commercial paper program.
Other Debt Issuances and Financings
On 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.
On 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 on June 10, 2020, constitute a further issuance of the Senior Notes due 2025 originally issued on 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 on June 10, 2020, and April 9, 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.
On March 19, 2020, Phillips 66 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, with $1 billion of capacity remaining undrawn at June 30, 2020. In June 2020, the Facility was amended to extend the commitment period to September 19, 2020. Borrowings under 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 of Phillips 66’s senior unsecured long-term debt. Phillips 66 is using the proceeds from the debt issuance for general corporate purposes.
Off-Balance Sheet Arrangements
Lease Residual Value Guarantees
Under the operating lease agreement on our headquarters facility in Houston, Texas, we have a residual value guarantee with a maximum future exposure of $554 million at June 30, 2020. The operating lease term ends in June 2021 and provides us the option, at the end of the lease term, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling $351 million at June 30, 2020, which have remaining terms of up to four 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 unsecured senior 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 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. 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 June 30, 2020, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU was approximately $631 million.
In March 2020, the 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. On July 6, 2020, the court ordered the Dakota Access Pipeline to be shut down and emptied of crude oil by August 5, 2020, 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. On July 14, 2020, an appeals court granted a temporary stay of the lower court’s order directing the pipeline to be shut down and emptied of crude oil. The appeals court has not yet ruled on the motion for a stay during the appeals process. In addition to the potential obligations under the CECU, 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 asked to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually.
Gray Oak Pipeline, LLC
Gray Oak Pipeline, LLC has a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. Phillips 66 Partners and its co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount, plus any additional accrued interest and associated fees, if Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At June 30, 2020, the term loan facility was fully utilized by Gray Oak Pipeline, LLC, and Phillips 66 Partners’ 42.25% proportionate exposure under the equity contribution agreement was $583 million.
Other Guarantees
At June 30, 2020, we had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations, which have remaining terms of up to eight years. The maximum potential amount of future payments to third parties under these guarantees was approximately $155 million. Payment would be required if a joint venture defaults on its obligations.
See Note 10—Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.
Capital Requirements
Capital Expenditures and Investments
For information about our capital expenditures and investments, see the “Capital Spending” section below.
Debt Financing
Our total debt balance at June 30, 2020, and December 31, 2019, was $14.4 billion and $11.8 billion, respectively. Our total debt-to-capital ratio was 38% and 30% at June 30, 2020, and December 31, 2019, respectively.
In April 2020, Phillips 66 repaid the $300 million outstanding principal balance of its floating-rate notes due April 2020 and the $200 million outstanding principal balance of its term loan facility due April 2020. Also in April 2020, Phillips 66 Partners repaid the $25 million outstanding principal balance of its tax-exempt bonds due April 2020.
Dividends
On May 6, 2020, our Board of Directors declared a quarterly cash dividend of $0.90 per common share. The dividend was paid on June 1, 2020, to shareholders of record at the close of business on May 18, 2020. On July 8, 2020, our Board of Directors declared a quarterly cash dividend of $0.90 per common share. This dividend is payable on September 1, 2020, to shareholders of record at the close of business on August 18, 2020.
Share Repurchases
Since July 2012, our Board of Directors has, at various times, authorized repurchases of our outstanding common stock under our share repurchase programs, which aggregate to a total of $15 billion. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. The shares under these authorizations are repurchased from time to time in the open market at our discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. Since the inception of our share repurchase programs in 2012 through March 17, 2020, 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 share repurchases in mid-March 2020 to preserve liquidity in response to the economic effects of the COVID-19 pandemic and other factors.
Capital Spending
Our capital expenditures and investments represent consolidated capital spending. Our adjusted capital spending is a non-GAAP financial measure that demonstrates our net share of capital spending, and reflects an adjustment for the portion of our consolidated capital spending funded by certain joint venture partners.
| | | | | | | | | | | |
| Millions of Dollars | | |
| Six Months Ended June 30 | | |
| 2020 | | | 2019 | |
Capital Expenditures and Investments | | | |
Midstream | $ | 1,238 | | | 1,200 | |
Chemicals | — | | | — | |
Refining | 409 | | | 391 | |
Marketing and Specialties | 111 | | | 42 | |
Corporate and Other | 104 | | | 95 | |
Total Capital Expenditures and Investments | 1,862 | | | 1,728 | |
Less: capital spending funded by certain joint venture partners* | 61 | | | 422 | |
Adjusted Capital Spending | $ | 1,801 | | | 1,306 | |
| | | |
Selected Equity Affiliates** | | | |
DCP Midstream | $ | 90 | | | 278 | |
CPChem | 139 | | | 175 | |
WRB | 71 | | | 81 | |
| $ | 300 | | | 534 | |
* Included in the Midstream segment.
** Our share of joint ventures’ self-funded capital spending.
Midstream
During the first six months of 2020, capital spending in our Midstream segment included:
•Continued development of additional Gulf Coast fractionation capacity.
•Cash contributions to our and Phillips 66 Partners’ joint ventures to develop and construct the Liberty and Red Oak pipeline systems.
•Cash contributions to Phillips 66 Partners’ Gray Oak Pipeline and South Texas Gateway Terminal for their development activities.
•Capacity expansion on Phillips 66 Partners’ Sweeny to Pasadena refined petroleum product pipeline.
•Construction activities on Phillips 66 Partners’ new ethane pipeline from Clemens Caverns to petrochemical facilities in Gregory, Texas (C2G Pipeline).
•Construction activities to increase storage capacity at our crude oil and refined petroleum product terminal located near Beaumont, Texas.
•Other reliability, return and maintenance projects.
On March 2, 2020, Phillips 66 Partners closed a transaction to acquire our 50% interest in Liberty Pipeline LLC for $75 million. The development and construction of our Red Oak Pipeline system and Sweeny Frac 4, as well as Phillips 66 Partners’ Liberty Pipeline system projects have been deferred as a result of the current challenging business environment.
During the first six months of 2020, DCP Midstream’s self-funded capital expenditures and investments were $179 million on a 100% basis. Capital spending during this period was primarily for expansion projects, including the construction of the Latham II offload facilities and the Cheyenne Connector, and investments in the Sand Hills and Southern Hills joint ventures, as well as maintenance capital expenditures for existing assets. In April 2020, DCP Midstream announced capital and cost reduction plans, including a 75% growth capital reduction. We expect that DCP Midstream’s capital program will continue to be self-funded for the remainder of 2020.
Chemicals
During the first six months of 2020, CPChem had a self-funded capital program. During this period, on a 100% basis, CPChem’s capital expenditures and investments were $277 million. The capital spending was primarily for the continued development of its second U.S. Gulf Coast petrochemical project and debottlenecking projects on existing assets. We expect CPChem to continue self-funding its capital program for the remainder of 2020.
Refining
Capital spending for the Refining segment during the first six months of 2020 was 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. Our equity affiliates in the Refining segment had self-funded capital programs during the first six months of 2020, and we expect them to continue self-funding their capital programs for the remainder of 2020.
Major construction activities included:
•Installation and startup of facilities to improve product value at the Sweeny Refinery.
•Installation of facilities to improve product value at the Ponca City and Bayway refineries.
•Installation of facilities to produce biofuels at the Humber Refinery.
Marketing and Specialties
Capital spending for the M&S segment during the first ninesix months of 20192020 was primarily for an additional investment in the U.S. West Coast retail marketing joint venture, and the acquisition, development and improvementenhancement of our international retail sites and safety and reliability projects at our lubricants and power generation facilities.in Europe.
Corporate and Other
Capital spending for Corporate and Other during the first ninesix months of 20192020 was primarily for information technology and facilities.technology.
2019 Budget Update
We are forecasting our total 2019 capital spending to range from $3.7 billion to $4.0 billion, including $1.2 billion for Phillips 66 Partners. Excluding $0.4 billion funded by our Gray Oak joint venture partners, we expect our adjusted capital spending to range from $3.3 billion to $3.6 billion. The increase in our expected capital spending reflects higher spending on Midstream growth projects, domestic retail marketing and other planned expenditures across our portfolio.
Contingencies
A number of lawsuits involving a variety of claims that arose in the ordinary course of business have been filed against us or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal, or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income-tax-relatedincome tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.
Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.
Legal and Tax Matters
Our legal and tax matters are handled by our legal and tax organizations. These organizations apply their knowledge, experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. We employ a litigation management process to manage and monitor the legal proceedings against us.proceedings. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. In the case of income-tax-relatedincome tax-related contingencies, we monitor tax legislation and court decisions, the status of tax audits and the statute of limitations within which a taxing authority can assert a liability.
Environmental
Like other companies in our industry, we are subject to numerous international, federal, state and local environmental laws and regulations. For a discussion of the most significant of these international and federal environmental laws and regulations, see the “Environmental” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 20182019 Annual Report on Form 10-K.
We occasionally receive requests for information or notices of potential liability from the EPAU.S. Environmental Protection Agency (EPA) and state environmental agencies alleging that we are a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or an equivalent state statute. On occasion, we also have been made a party to cost recovery litigation by those agencies or by private parties. These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically are not owned by us, but allegedly contain wastes attributable to our past operations. At September 30, 2019, and December 31, 2018,2019, we reported that we had been notified of potential liability under CERCLA and comparable state laws at 27 sites within the United States. In the second quarter of 2020, we were notified of two Superfund sites that were deemed resolved and closed, accordingly, leaving 25 unresolved sites with potential liability at June 30, 2020.
Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses, environmental costs and liabilities are inherent concerns in certain of our operations and products, and there can be no assurance that materialthose costs and liabilities will not be incurred.material. However, we currently do not expect any material adverse effect on our results of operations or financial position as a result of compliance with current environmental laws and regulations.
Climate Change
There has been a broad range of proposed or promulgated state, national and international laws focusing on greenhouse gas (GHG) emissions reduction, including various regulations proposed or issued by the EPA. These proposed or promulgated laws apply or could apply in states and/or countries where we have interests or may have interests in the future. Laws regulating GHG emissions continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws potentially could have a material impact on our results of operations and financial condition as a result of increasing costs of compliance, lengthening project implementation and agency reviews, or reducing demand for certain hydrocarbon products. We continue to monitor legislative and regulatory actions and legal proceedings globally relating to GHG emissions for potential impacts on our operations.
For examples of legislation and regulation or precursors for possible regulation that do or could affect our operations, see the “Climate Change” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 20182019 Annual Report on Form 10-K.
We consider and take into account anticipated future GHG emissions in designing and developing major facilities and projects, and implement energy efficiency initiatives to reduce GHG emissions. Data on our GHG emissions, legal requirements regulating such emissions, and the possible physical effects of climate change on our coastal assets are incorporated into our planning, investment, and risk management decision-making. We are working to continuously improve operational and energy efficiency through resource and energy conservation throughout our operations.
NON-GAAP RECONCILIATIONS
Refining
Our realized refining margins measure the difference between a)(a) sales and other operating revenues derived from the sale of petroleum products manufactured at our refineries and b)(b) purchase costs of feedstocks, primarily crude oil, used to produce the petroleum products. The realized refining margins are adjusted to include our proportional share of our joint venture refineries’ realized margins, as well as to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized refining margins are converted to a per-barrel basis by dividing them by total refinery processed inputs (primarily crude oil) measured on a barrel basis, including our share of inputs processed by our joint venture refineries. Our realized refining margin per barrel is intended to be comparable with industry refining margins, which are known as “crack spreads.” As discussed in “Business Environment,” industry crack spreads measure the difference between market prices for refined petroleum products and crude oil. We believe realized refining margin per barrel calculated on a similar basis as industry crack spreads provides a useful measure of how well we performed relative to benchmark industry margins.
The GAAP performance measure most directly comparable to realized refining margin per barrel is the Refining segment’s “income (loss) before income taxes per barrel.” Realized refining margin per barrel excludes items that are typically included in a manufacturer’s gross margin, such as depreciation and operating expenses, and other items used to determine income (loss) before income taxes, such as general and administrative expenses. It also includes our proportional share of our joint venture refineries’ realized refining margins and excludes special items. Because realized refining margin per barrel is calculated in this manner, and because realized refining margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of income (loss) before income taxes to realized refining margins:
| | | | | | | | | | | | | | | | | |
| Millions of Dollars, Except as Indicated | | | | |
Realized Refining Margins | Atlantic Basin/ Europe | Gulf Coast | Central Corridor | West Coast | Worldwide |
| | | | | |
Three Months Ended June 30, 2020 | | | | | |
Loss before income taxes | $ | (227) | | (365) | | (104) | | (182) | | (878) | |
Plus: | | | | | |
| | | | | |
Taxes other than income taxes | 15 | | 25 | | 14 | | 22 | | 76 | |
Depreciation, amortization and impairments | 49 | | 75 | | 33 | | 63 | | 220 | |
Selling, general and administrative expenses | 12 | | 10 | | 7 | | 9 | | 38 | |
Operating expenses | 190 | | 277 | | 120 | | 216 | | 803 | |
Equity in (earnings) losses of affiliates | 3 | | (1) | | 79 | | — | | 81 | |
Other segment expense, net | 3 | | — | | 3 | | 1 | | 7 | |
Proportional share of refining gross margins contributed by equity affiliates | 16 | | — | | 92 | | — | | 108 | |
Special items: | | | | | |
| | | | | |
| | | | | |
Lower-of-cost-or-market inventory adjustments | — | | — | | (35) | | — | | (35) | |
| | | | | |
| | | | | |
Realized refining margins | $ | 61 | | 21 | | 209 | | 129 | | 420 | |
| | | | | |
Total processed inputs (thousands of barrels) | 39,121 | | 61,032 | | 20,778 | | 25,737 | | 146,668 | |
Adjusted total processed inputs (thousands of barrels)* | 39,121 | | 61,032 | | 36,067 | | 25,737 | | 161,957 | |
| | | | | |
Loss before income taxes per barrel (dollars per barrel)** | $ | (5.80) | | (5.98) | | (5.01) | | (7.07) | | (5.99) | |
Realized refining margins (dollars per barrel)*** | 1.53 | | 0.36 | | 5.78 | | 5.05 | | 2.60 | |
| | | | | |
Three Months Ended June 30, 2019 | | | | | |
Income (loss) before income taxes | $ | 258 | | 222 | | 520 | | (17) | | 983 | |
Plus: | | | | | |
| | | | | |
Taxes other than income taxes | 11 | | 16 | | 10 | | 21 | | 58 | |
Depreciation, amortization and impairments | 49 | | 68 | | 34 | | 63 | | 214 | |
Selling, general and administrative expenses | 10 | | 8 | | 7 | | 8 | | 33 | |
Operating expenses | 201 | | 322 | | 134 | | 249 | | 906 | |
Equity in (earnings) losses of affiliates | 3 | | 2 | | (133) | | — | | (128) | |
Other segment (income) expense, net | 4 | | (5) | | 4 | | 1 | | 4 | |
Proportional share of refining gross margins contributed by equity affiliates | 19 | | — | | 298 | | — | | 317 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Realized refining margins | $ | 555 | | 633 | | 874 | | 325 | | 2,387 | |
| | | | | |
Total processed inputs (thousands of barrels) | 51,172 | | 77,186 | | 26,244 | | 32,697 | | 187,299 | |
Adjusted total processed inputs (thousands of barrels)* | 51,172 | | 77,186 | | 48,932 | | 32,697 | | 209,987 | |
| | | | | |
Income (loss) before income taxes per barrel (dollars per barrel)** | $ | 5.04 | | 2.88 | | 19.81 | | (0.52) | | 5.25 | |
Realized refining margins (dollars per barrel)*** | 10.85 | | 8.20 | | 17.84 | | 9.94 | | 11.37 | |
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. | | | | | |
** Income (loss) before income taxes divided by total processed inputs. | | | | | |
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts. | | | | | |
| | | Millions of Dollars, Except as Indicated | | Millions of Dollars, Except as Indicated | |
Realized Refining Margins | Atlantic Basin/ Europe |
| Gulf Coast |
| Central Corridor |
| West Coast |
| Worldwide |
| Realized Refining Margins | Atlantic Basin/ Europe | Gulf Coast | Central Corridor | West Coast | Worldwide |
| | | | |
Three Months Ended September 30, 2019 | | | |
Income (loss) before income taxes | $ | 296 |
| 184 |
| 408 |
| (32 | ) | 856 |
| |
Six Months Ended June 30, 2020 | | Six Months Ended June 30, 2020 | |
Loss before income taxes | | Loss before income taxes | $ | (864) | | (1,208) | | (331) | | (736) | | (3,139) | |
Plus: | | | Plus: | |
| Taxes other than income taxes | 12 |
| 23 |
| 10 |
| 23 |
| 68 |
| Taxes other than income taxes | 34 | | 62 | | 31 | | 53 | | 180 | |
Depreciation and amortization | 49 |
| 66 |
| 34 |
| 66 |
| 215 |
| |
Depreciation, amortization and impairments | | Depreciation, amortization and impairments | 541 | | 816 | | 502 | | 427 | | 2,286 | |
Selling, general and administrative expenses | 10 |
| 7 |
| 6 |
| 8 |
| 31 |
| Selling, general and administrative expenses | 25 | | 17 | | 13 | | 19 | | 74 | |
Operating expenses | 208 |
| 345 |
| 125 |
| 282 |
| 960 |
| Operating expenses | 384 | | 769 | | 256 | | 499 | | 1,908 | |
Equity in (earnings) losses of affiliates | 3 |
| (1 | ) | (69 | ) | — |
| (67 | ) | Equity in (earnings) losses of affiliates | 5 | | (2) | | 130 | | — | | 133 | |
Other segment (income) expense, net | (24 | ) | 1 |
| (3 | ) | 1 |
| (25 | ) | |
Other segment expense, net | | Other segment expense, net | 1 | | 1 | | — | | 2 | | 4 | |
Proportional share of refining gross margins contributed by equity affiliates | 19 |
| — |
| 269 |
| — |
| 288 |
| Proportional share of refining gross margins contributed by equity affiliates | 32 | | — | | 205 | | — | | 237 | |
| Realized refining margins | $ | 573 |
| 625 |
| 780 |
| 348 |
| 2,326 |
| Realized refining margins | $ | 158 | | 455 | | 806 | | 264 | | 1,683 | |
| | | |
Total processed inputs (thousands of barrels) | 49,895 |
| 74,936 |
| 26,740 |
| 34,498 |
| 186,069 |
| Total processed inputs (thousands of barrels) | 80,456 | | 125,098 | | 44,123 | | 53,614 | | 303,291 | |
Adjusted total processed inputs (thousands of barrels)* | 49,895 |
| 74,936 |
| 48,853 |
| 34,498 |
| 208,182 |
| Adjusted total processed inputs (thousands of barrels)* | 80,456 | | 125,098 | | 80,358 | | 53,614 | | 339,526 | |
| | | |
Income (loss) before income taxes per barrel (dollars per barrel)** | $ | 5.93 |
| 2.46 |
| 15.26 |
| (0.93 | ) | 4.60 |
| |
Realized refining margins (dollars per barrel)*** | 11.48 |
| 8.34 |
| 15.99 |
| 10.11 |
| 11.18 |
| |
| | | |
Three Months Ended September 30, 2018 | | | |
Income (loss) before income taxes | $ | 209 |
| 210 |
| 839 |
| (26 | ) | 1,232 |
| |
Plus: | | | |
Taxes other than income taxes | 13 |
| 23 |
| 10 |
| 26 |
| 72 |
| |
Depreciation and amortization | 50 |
| 69 |
| 34 |
| 60 |
| 213 |
| |
Selling, general and administrative expenses | 16 |
| 13 |
| 7 |
| 11 |
| 47 |
| |
Operating expenses | 217 |
| 317 |
| 124 |
| 264 |
| 922 |
| |
Equity in (earnings) losses of affiliates | 2 |
| 1 |
| (300 | ) | — |
| (297 | ) | |
Other segment (income) expense, net | (3 | ) | 1 |
| 4 |
| — |
| 2 |
| |
Proportional share of refining gross margins contributed by equity affiliates | 16 |
| — |
| 472 |
| — |
| 488 |
| |
Special items: | | | |
Certain tax impacts | (1 | ) | — |
| — |
| — |
| (1 | ) | |
Realized refining margins | $ | 519 |
| 634 |
| 1,190 |
| 335 |
| 2,678 |
| |
| | | |
Total processed inputs (thousands of barrels) | 45,233 |
| 69,745 |
| 26,778 |
| 35,132 |
| 176,888 |
| |
Adjusted total processed inputs (thousands of barrels)* | 45,233 |
| 69,745 |
| 50,410 |
| 35,132 |
| 200,520 |
| |
| | | |
Income (loss) before income taxes per barrel (dollars per barrel)** | $ | 4.62 |
| 3.01 |
| 31.33 |
| (0.74 | ) | 6.96 |
| |
Loss before income taxes per barrel (dollars per barrel)** | | Loss before income taxes per barrel (dollars per barrel)** | $ | (10.74) | | (9.66) | | (7.50) | | (13.73) | | (10.35) | |
Realized refining margins (dollars per barrel)*** | 11.48 |
| 9.09 |
| 23.61 |
| 9.53 |
| 13.36 |
| Realized refining margins (dollars per barrel)*** | 1.97 | | 3.64 | | 10.03 | | 4.92 | | 4.96 | |
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. | * Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. | * Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. | |
** Income (loss) before income taxes divided by total processed inputs. | |
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding. | |
** Loss before income taxes divided by total processed inputs. | | ** Loss before income taxes divided by total processed inputs. | |
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts. | | *** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts. | |
|
| | | Millions of Dollars, Except as Indicated | | Millions of Dollars, Except as Indicated | |
Realized Refining Margins | Atlantic Basin/ Europe |
| Gulf Coast |
| Central Corridor |
| West Coast |
| Worldwide |
| Realized Refining Margins | Atlantic Basin/ Europe | Gulf Coast | Central Corridor | West Coast | Worldwide |
| | | | |
Nine Months Ended September 30, 2019 | | | |
Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 | |
Income (loss) before income taxes | $ | 547 |
| 288 |
| 1,005 |
| (199 | ) | 1,641 |
| Income (loss) before income taxes | $ | 251 | | 104 | | 597 | | (167) | | 785 | |
Plus: | | | Plus: | | |
| Taxes other than income taxes | 38 |
| 62 |
| 33 |
| 68 |
| 201 |
| Taxes other than income taxes | 26 | | 39 | | 23 | | 45 | | 133 | |
Depreciation and amortization | 148 |
| 201 |
| 101 |
| 191 |
| 641 |
| |
Depreciation, amortization and impairments | | Depreciation, amortization and impairments | 99 | | 135 | | 67 | | 125 | | 426 | |
Selling, general and administrative expenses | 27 |
| 13 |
| 14 |
| 21 |
| 75 |
| Selling, general and administrative expenses | 17 | | 6 | | 8 | | 13 | | 44 | |
Operating expenses | 642 |
| 1,051 |
| 404 |
| 780 |
| 2,877 |
| Operating expenses | 434 | | 706 | | 279 | | 498 | | 1,917 | |
Equity in (earnings) losses of affiliates | 9 |
| 1 |
| (286 | ) | — |
| (276 | ) | Equity in (earnings) losses of affiliates | 6 | | 2 | | (217) | | — | | (209) | |
Other segment (income) expense, net | (14 | ) | (3 | ) | (1 | ) | 4 |
| (14 | ) | Other segment (income) expense, net | 10 | | (4) | | 2 | | 3 | | 11 | |
Proportional share of refining gross margins contributed by equity affiliates | 55 |
| — |
| 834 |
| — |
| 889 |
| Proportional share of refining gross margins contributed by equity affiliates | 36 | | — | | 565 | | — | | 601 | |
Special items: | | | Special items: | | |
| Pending claims and settlements | — |
| — |
| (21 | ) | — |
| (21 | ) | Pending claims and settlements | — | | — | | (21) | | — | | (21) | |
| Realized refining margins | $ | 1,452 |
| 1,613 |
| 2,083 |
| 865 |
| 6,013 |
| Realized refining margins | $ | 879 | | 988 | | 1,303 | | 517 | | 3,687 | |
| | | | |
Total processed inputs (thousands of barrels) | 142,749 |
| 217,556 |
| 76,877 |
| 97,898 |
| 535,080 |
| Total processed inputs (thousands of barrels) | 92,854 | | 142,620 | | 50,137 | | 63,400 | | 349,011 | |
Adjusted total processed inputs (thousands of barrels)* | 142,749 |
| 217,556 |
| 139,681 |
| 97,898 |
| 597,884 |
| Adjusted total processed inputs (thousands of barrels)* | 92,854 | | 142,620 | | 90,828 | | 63,400 | | 389,702 | |
| | | |
Income (loss) before income taxes per barrel (dollars per barrel)** | $ | 3.83 |
| 1.32 |
| 13.07 |
| (2.03 | ) | 3.07 |
| Income (loss) before income taxes per barrel (dollars per barrel)** | $ | 2.70 | | 0.73 | | 11.91 | | (2.63) | | 2.25 | |
Realized refining margins (dollars per barrel)*** | 10.17 |
| 7.42 |
| 14.91 |
| 8.84 |
| 10.06 |
| Realized refining margins (dollars per barrel)*** | 9.47 | | 6.93 | | 14.33 | | 8.16 | | 9.46 | |
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. | * Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. | * Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. | |
** Income (loss) before income taxes divided by total processed inputs. | ** Income (loss) before income taxes divided by total processed inputs. | ** Income (loss) before income taxes divided by total processed inputs. | |
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding. | |
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts. | | *** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts. | |
|
|
| | | | | | | | | | | |
| Millions of Dollars, Except as Indicated |
Realized Refining Margins | Atlantic Basin/ Europe |
| Gulf Coast |
| Central Corridor |
| West Coast |
| Worldwide |
|
| | | | | |
Nine Months Ended September 30, 2018 | | | | | |
Income before income taxes | $ | 265 |
| 576 |
| 1,632 |
| 61 |
| 2,534 |
|
Plus: | | | | | |
Taxes other than income taxes | 43 |
| 71 |
| 31 |
| 76 |
| 221 |
|
Depreciation, amortization and impairments | 152 |
| 199 |
| 101 |
| 178 |
| 630 |
|
Selling, general and administrative expenses | 44 |
| 36 |
| 21 |
| 34 |
| 135 |
|
Operating expenses | 727 |
| 975 |
| 356 |
| 722 |
| 2,780 |
|
Equity in (earnings) losses of affiliates | 7 |
| 5 |
| (459 | ) | — |
| (447 | ) |
Other segment (income) expense, net | (10 | ) | 3 |
| (8 | ) | (11 | ) | (26 | ) |
Proportional share of refining gross margins contributed by equity affiliates | 73 |
| — |
| 1,051 |
| — |
| 1,124 |
|
Special items: | | | | | |
Certain tax impacts | (1 | ) | — |
| — |
| — |
| (1 | ) |
Realized refining margins | $ | 1,300 |
| 1,865 |
| 2,725 |
| 1,060 |
| 6,950 |
|
| | | | | |
Total processed inputs (thousands of barrels) | 132,429 |
| 215,827 |
| 79,223 |
| 103,378 |
| 530,857 |
|
Adjusted total processed inputs (thousands of barrels)* | 132,429 |
| 215,827 |
| 141,522 |
| 103,378 |
| 593,156 |
|
| | | | | |
Income before income taxes per barrel (dollars per barrel)** | $ | 2.00 |
| 2.67 |
| 20.60 |
| 0.59 |
| 4.77 |
|
Realized refining margins (dollars per barrel)*** | 9.82 |
| 8.64 |
| 19.26 |
| 10.25 |
| 11.72 |
|
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate. |
** Income before income taxes divided by total processed inputs. |
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding. |
Marketing
Our realized marketing fuel margins measure the difference between a)(a) sales and other operating revenues derived from the sale of fuels in our M&S segment and b)(b) purchase costs of those fuels. The realized marketing fuel margins are adjusted to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized marketing fuel margins are converted to a per barrelper-barrel basis by dividing them by sales volumes measured on a barrel basis. We believe realized marketing fuel margin per barrel demonstrates the value uplift our marketing operations provide by optimizing the placement and ultimate sale of our refineries’ fuel production.
Within the M&S segment, the GAAP performance measure most directly comparable to realized marketing fuel margin per barrel is the marketing business’ “income before income taxes per barrel.” Realized marketing fuel margin per barrel excludes items that are typically included in gross margin, such as depreciation and operating expenses, and other items used to determine income before income taxes, such as general and administrative expenses. Because realized marketing fuel margin per barrel excludes these items, and because realized marketing fuel margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of income before income taxes to realized marketing fuel margins:
| | | Millions of Dollars, Except as Indicated | | Millions of Dollars, Except as Indicated | |
| Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2018 | | Three Months Ended June 30, 2020 | | | Three Months Ended June 30, 2019 | |
| U.S. |
| International |
| | U.S. |
| International |
| | U.S. | International | | U.S. | International |
Realized Marketing Fuel Margins | | | | | Realized Marketing Fuel Margins | | | |
Income before income taxes | $ | 312 |
| 139 |
| | 256 |
| 122 |
| Income before income taxes | $ | 179 | | 68 | | | 203 | | 129 | |
Plus: | | | | | Plus: | |
| Taxes other than income taxes | 3 |
| 2 |
| | 3 |
| 1 |
| Taxes other than income taxes | 2 | | 2 | | | 3 | | 1 | |
Depreciation and amortization | 2 |
| 16 |
| | 3 |
| 17 |
| Depreciation and amortization | 3 | | 16 | | | 3 | | 16 | |
Selling, general and administrative expenses | 184 |
| 61 |
| | 201 |
| 66 |
| Selling, general and administrative expenses | 151 | | 57 | | | 183 | | 61 | |
Equity in earnings of affiliates | (3 | ) | (27 | ) | | (3 | ) | (22 | ) | Equity in earnings of affiliates | (11) | | (28) | | | (3) | | (25) | |
Other operating revenues* | (101 | ) | (10 | ) | | (104 | ) | (7 | ) | Other operating revenues* | (71) | | (4) | | | (103) | | (9) | |
Other segment expense, net | — |
| 1 |
| | — |
| — |
| Other segment expense, net | — | | 1 | | | — | | 1 | |
Special items: | | | | | |
Certain tax impacts | — |
| — |
| | (44 | ) | — |
| |
| Marketing margins | 397 |
| 182 |
| | 312 |
| 177 |
| Marketing margins | 253 | | 112 | | | 286 | | 174 | |
Less: margin for non-fuel related sales | — |
| 11 |
| | — |
| 10 |
| |
Realized marketing fuel margins** | $ | 397 |
| 171 |
| | 312 |
| 167 |
| |
Less: margin for nonfuel related sales | | Less: margin for nonfuel related sales | — | | 13 | | | — | | 12 | |
Realized marketing fuel margins | | Realized marketing fuel margins | $ | 253 | | 99 | | | 286 | | 162 | |
| | | | | |
Total fuel sales volumes (thousands of barrels) | 188,172 |
| 26,796 |
| | 173,072 |
| 25,441 |
| Total fuel sales volumes (thousands of barrels) | 144,517 | | 19,583 | | | 186,488 | | 26,837 | |
| | | | | |
Income before income taxes per barrel (dollars per barrel) | $ | 1.66 |
| 5.19 |
| | 1.48 |
| 4.80 |
| Income before income taxes per barrel (dollars per barrel) | $ | 1.24 | | 3.48 | | | 1.09 | | 4.81 | |
Realized marketing fuel margins (dollars per barrel)*** | 2.11 |
| 6.37 |
| | 1.80 |
| 6.58 |
| |
* Includes other non-fuel revenues. | |
** Prior period U.S. realized marketing fuel margins have been revised to exclude the effects of special items on fuel margins. | |
*** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding. | |
Realized marketing fuel margins (dollars per barrel)** | | Realized marketing fuel margins (dollars per barrel)** | 1.75 | | 5.07 | | | 1.53 | | 6.03 | |
* Includes other nonfuel revenues. | | * Includes other nonfuel revenues. | |
** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts. | | ** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts. | |
| | | Millions of Dollars, Except as Indicated | |
| | | Six Months Ended June 30, 2020 | | | Six Months Ended June 30, 2019 | |
| | | U.S. | International | | U.S. | International |
Realized Marketing Fuel Margins | | Realized Marketing Fuel Margins | | | |
Income before income taxes | | Income before income taxes | $ | 478 | | 239 | | | 301 | | 187 | |
Plus: | | Plus: | |
| Taxes other than income taxes | | Taxes other than income taxes | 4 | | 3 | | | 5 | | 3 | |
Depreciation and amortization | | Depreciation and amortization | 6 | | 33 | | | 5 | | 32 | |
Selling, general and administrative expenses | | Selling, general and administrative expenses | 278 | | 120 | | | 338 | | 123 | |
Equity in earnings of affiliates | | Equity in earnings of affiliates | (11) | | (50) | | | (4) | | (47) | |
Other operating revenues* | | Other operating revenues* | (155) | | (2) | | | (185) | | (15) | |
Other segment (income) expense, net | | Other segment (income) expense, net | — | | 1 | | | — | | (1) | |
| Marketing margins | | Marketing margins | 600 | | 344 | | | 460 | | 282 | |
Less: margin for nonfuel related sales | | Less: margin for nonfuel related sales | — | | 23 | | | — | | 22 | |
Realized marketing fuel margins | | Realized marketing fuel margins | $ | 600 | | 321 | | | 460 | | 260 | |
| Total fuel sales volumes (thousands of barrels) | | Total fuel sales volumes (thousands of barrels) | 311,695 | | 45,562 | | | 350,546 | | 52,633 | |
| Income before income taxes per barrel (dollars per barrel) | | Income before income taxes per barrel (dollars per barrel) | $ | 1.53 | | 5.25 | | | 0.86 | | 3.55 | |
Realized marketing fuel margins (dollars per barrel)** | | Realized marketing fuel margins (dollars per barrel)** | 1.92 | | 7.04 | | | 1.31 | | 4.94 | |
* Includes other nonfuel revenues. | | * Includes other nonfuel revenues. | |
** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts. | | ** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts. | |
|
| | | | | | | | | | |
| Millions of Dollars, Except as Indicated |
| Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
| U.S. |
| International |
| | U.S. |
| International |
|
Realized Marketing Fuel Margins | | | | | |
Income before income taxes | $ | 613 |
| 326 |
| | 575 |
| 241 |
|
Plus: | | | | | |
Taxes other than income taxes | 8 |
| 5 |
| | (4 | ) | 1 |
|
Depreciation and amortization | 7 |
| 48 |
| | 10 |
| 53 |
|
Selling, general and administrative expenses | 522 |
| 184 |
| | 570 |
| 207 |
|
Equity in earnings of affiliates | (7 | ) | (74 | ) | | (7 | ) | (65 | ) |
Other operating revenues* | (286 | ) | (25 | ) | | (286 | ) | (20 | ) |
Other segment income, net | — |
| — |
| | — |
| (3 | ) |
Special items: | | | | | |
Certain tax impacts | — |
| — |
| | (100 | ) | — |
|
Marketing margins | 857 |
| 464 |
| | 758 |
| 414 |
|
Less: margin for non-fuel related sales | — |
| 33 |
| | — |
| 36 |
|
Realized marketing fuel margins** | $ | 857 |
| 431 |
|
| 758 |
| 378 |
|
| | | | | |
Total fuel sales volumes (thousands of barrels) | 538,718 |
| 79,429 |
| | 506,577 |
| 74,692 |
|
| | | | | |
Income before income taxes per barrel (dollars per barrel) | $ | 1.14 |
| 4.10 |
| | 1.14 |
| 3.23 |
|
Realized marketing fuel margins (dollars per barrel)*** | 1.59 |
| 5.42 |
| | 1.50 |
| 5.07 |
|
* Includes other non-fuel revenues. |
** Prior period U.S. realized marketing fuel margins have been revised to exclude the effects of special items on fuel margins. |
*** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts due to rounding. |
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can normally identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions.
expressions, but the absence of such words does not mean a statement is not forward-looking.
We based the forward-looking statements on our current expectations, estimates and projections about us, our operations, our joint ventures and entities in which we have equity interests, as well as the industries in which we and they operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:
Fluctuations in NGL, crude oil, refined petroleum product and natural gas prices and refining, marketing and petrochemical margins.
Failure of new products and services to achieve market acceptance.
Unexpected changes in costs or technical requirements for constructing, modifying or operating our facilities or transporting our products.
Unexpected technological or commercial difficulties in manufacturing, refining or transporting our products, including chemical products.
Lack of, or disruptions in, adequate and reliable transportation for our NGL, crude oil, natural gas and refined petroleum products.
The level and success of drilling and quality of production volumes around our Midstream assets.
Our inability to timely obtain or maintain permits, including those necessary for capital projects.
Our inability to comply with government regulations or make capital expenditures required to maintain compliance.
Failure to complete definitive agreements and feasibility studies for, and to complete construction of, announced and future capital projects on time and within budget.
Potential disruption or interruption of our operations due to accidents, weather events, civil unrest, political events, terrorism or cyber attacks.
International monetary conditions and exchange controls.
Substantial investment or reduced demand for products as a result of existing or future environmental rules and regulations.
Liability resulting from litigation or for remedial actions, including removal and reclamation obligations under environmental regulations.
•General domestic and international economic and political developments including: armed hostilities; expropriation of assets; changes in governmental policies relating to NGL, crude oil, natural gas or refined petroleum products pricing, regulation or taxation; actions taken by the members of the Organization of the Petroleum Exporting Countries (OPEC) affecting the production and pricing of crude oil; and other political, economic or diplomatic developments.developments, including those caused by public health issues, outbreaks of diseases and pandemics, including the COVID-19 pandemic.
•Fluctuations in NGL, crude oil, refined petroleum product and natural gas prices and refining, marketing and petrochemical margins.
•Failure of new products and services to achieve market acceptance.
•Unexpected changes in costs or technical requirements for constructing, modifying or operating our facilities or transporting our products.
•Unexpected technological or commercial difficulties in manufacturing, refining or transporting our products, including chemical products.
•Lack of, or disruptions in, adequate and reliable transportation for our NGL, crude oil, natural gas and refined petroleum products.
•The level and success of drilling and quality of production volumes around our Midstream assets.
•The inability to timely obtain or maintain permits, including those necessary for capital projects.
•The inability to comply with government regulations or make capital expenditures required to maintain compliance.
•Failure to complete definitive agreements and feasibility studies for, and to complete construction of, announced and future capital projects on time and within budget.
•Potential disruption or interruption of our operations due to accidents, weather events, civil unrest, political events, terrorism or cyberattacks.
•International monetary conditions and exchange controls.
•Substantial investment or reduced demand for products as a result of existing or future environmental rules and regulations.
•Liability resulting from litigation or for remedial actions, including removal and reclamation obligations under environmental regulations.
•Changes in tax, environmental and other laws and regulations (including alternative energy mandates) applicable to our business.
•Limited access to capital or significantly higher cost of capital related to changes to our credit profile or illiquidity or uncertainty in the domestic or international financial markets.
•The operation, financing and distribution decisions of our joint ventures.ventures that we do not control.
•Domestic and foreign supplies of crude oil and other feedstocks.
•Domestic and foreign supplies of petrochemicals and refined petroleum products, such as gasoline, diesel, aviation fuel and home heating oil.
•Governmental policies relating to exports of crude oil and natural gas.
•Overcapacity or undercapacity in the midstream, chemicals and refining industries.
•Fluctuations in consumer demand for refined petroleum products.
•The factors generally described in Item 1A.—Risk Factors in our 20182019 Annual Report on Form 10-K.10-K and in Item 1A.—Risk Factors of Part II in this Quarterly Report on Form 10-Q.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
Our commodity price risk and interest rate risk at SeptemberJune 30, 2019,2020, did not differ materially from the risks disclosed under Item 7A of our 20182019 Annual Report on Form 10-K.
Interest Rate Risk
In April 2020, we repaid the $300 million outstanding principal balance of our floating-rate notes due April 2020 and the $200 million outstanding principal balance of our term loan facility due April 2020. Also in April 2020, Phillips 66 Partners repaid the $25 million outstanding principal balance of its tax-exempt bonds due April 2020.
In March 2020, we borrowed $1 billion under our new term loan facility. In April and June 2020, we issued $2 billion in aggregate principal amount of senior notes with varying maturity dates. Because the senior notes have fixed rates, their fair value is sensitive to changes in U.S. interest rates. The following table presents the principal cash flows and associated interest rates of the newly issued debt by expected maturity dates, as of June 30, 2020. The carrying amount of our floating-rate debt approximates its fair value. The fair value of the fixed-rate debt is estimated based on observable market prices.
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| | Millions of Dollars, Except as Indicated | | | | | | | | |
Expected Maturity Date | | Fixed Rate Maturity | | | Average Interest Rate | | Floating Rate Maturity | | | Average Interest Rate |
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Remainder of 2020 | | $ | — | | | — | % | | $ | — | | | — | % |
2021 | | | — | | | — | | | | 1,000 | | | 1.68 | |
2022 | | | — | | | — | | | | — | | | — | |
2023 | | | 500 | | | 3.70 | | | | — | | | — | |
2024 | | | — | | | — | | | | — | | | — | |
Remaining years | | | 1,500 | | | 2.89 | | | | — | | | — | |
Total | | $ | 2,000 | | | | | $ | 1,000 | | | |
Fair value | | $ | 2,082 | | | | | $ | 1,000 | | | |
Item 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported within the time periods specified in U.S. Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of SeptemberJune 30, 2019,2020, with the participation of management, our Chairman and Chief Executive Officer and our Executive Vice President, Finance and Chief Financial Officer carried out an evaluation, pursuant to Rule 13a-15(b) of the Act, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our Chairman and Chief Executive Officer and our Executive Vice President, Finance and Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of SeptemberJune 30, 2019.2020.
There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the quarterly period ended SeptemberJune 30, 2019,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Item 103 of Regulation S-K promulgated by the U.S. Securities and Exchange Commission (SEC) Regulation S-K requires disclosure of certain environmental matters when a governmental authority is a party to the proceedings orand such proceedings are known to be contemplated, unlessinvolve potential monetary sanctions that we reasonably believe will be in excess of $100,000. The following matters are disclosed in accordance with that therequirement. There was one new matter will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $100,000. There were no such new matters that arose duringimmediately after the thirdsecond quarter of 2019. In addition, there were no2020, as well as material developments that occurred with respect to matters previously reported in our 20182019 Annual Report on Form 10-K for the quarterly period ended December 31, 2018, or for any matter2019. There were no material developments that occurred with respect to matters previously reported in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019, or June 30, 2019.2020. We do not currently believe that the eventual outcome of any matters previously 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 U.S. Environmental Protection Agency (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 SEC reporting threshold described aboveset 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
On July 2, 2020, the South Coast Air Quality Management District (SCAQMD) issued a demand for penalties totaling $2,696,575. 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 working with SCAQMD to resolve these NOVs.
Matters Previously Reported
On January 6, 2020, the California State Water Resources Control (Water Board) issued a penalty demand of $558,300 to resolve the Rodeo Refinery’s National Pollutant Discharge Elimination System permit requirement exceedance for total suspended solids that occurred following heavy rains on February 14, 2019. We have reached agreement with the Water Board to resolve this matter with a penalty payment of $142,500 and a monetary contribution of $142,500 for the San Francisco Estuary Institute’s San Francisco Bay Regional Monitoring Program. Final Water Board acceptance of the agreement is subject to a 30-day public comment period that will occur in the third quarter of 2020.
Item 1A. RISK FACTORS
ThereExcept as provided below, there were no material changes from the risk factors disclosed in Item 1A of our 20182019 Annual Report on Form 10-K.
The outbreak of Coronavirus Disease 2019 (COVID-19) has materially adversely affected, and may continue to materially adversely affect, general economic, financial and business conditions, and could materially and adversely affect our business, financial condition, results of operations and cash flows and those of our customers, suppliers and other counterparties.
The outbreak of COVID-19 continues to negatively impact worldwide economic and commercial activity and financial markets, and uncertainty over economic and business recovery caused by COVID-19 has increased concerns over a prolonged economic slowdown and recession. Responses of governmental authorities, companies and individuals to prevent the spread of COVID-19, including travel restrictions, business and school closures, and stay at home orders, have significantly reduced global economic activity. These actions have resulted in substantial decreases in the demand for many refined petroleum products we manufacture and sell, particularly gasoline and jet fuel. Additionally, disputes over production levels resulted in an oversupply of crude oil, further exacerbating the decline in crude oil prices and lower petroleum product prices. Refinery utilization rates and operating margins in our Refining business have already been negatively impacted by these developments. Any prolonged period of economic slowdown or recession, as well as depressed oil prices, may also have a material adverse impact on the financial results of our Midstream, Chemicals, and Marketing and Specialties businesses. These events also could result in an increased risk that our customers and other counterparties may be unable to fulfill their obligations in a timely manner, or at all, which could negatively affect our financial condition and cash flows. The extent to which COVID-19 will continue to negatively impact our business and operations will depend on how quickly and to what extent economic conditions improve and normal business and operating conditions resume.
Due to declines in the market prices of products held in inventories, certain of our equity affiliates recorded lower-of-cost-or-market inventory charges during the first half of 2020. Depending on future movements of market prices for products held in inventories, we could be required to make future inventory valuation adjustments, which could affect our financial results.
Any of the foregoing events or conditions, or other consequences of COVID-19, could significantly adversely affect our business and financial condition and the business and financial condition of our customers and other counterparties. Moreover, many risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019, should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
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| | | | | | Millions of Dollars |
Period | Total Number of Shares Purchased* | | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs** | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
April 1-30, 2020 | — | | $ | — | | — | | $ | 2,514 | |
May 1-31, 2020 | — | | — | | — | | 2,514 | |
June 1-30, 2020 | — | | — | | — | | 2,514 | |
Total | — | | $ | — | | — | | |
* Includes repurchase of shares of common stock from company employees in connection with the company’s broad-based employee incentive plans, when applicable. | | | | | | |
** As of June 30, 2020, our Board of Directors has authorized repurchases of our outstanding common stock under our share repurchase programs totaling $15 billion. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. The shares under these authorizations are repurchased from time to time in the open market at our discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. We are not obligated to acquire any particular amount of common stock and may commence, suspend or discontinue purchases at any time or from time to time without prior notice. Shares of stock repurchased are held as treasury shares. Effective March 18, 2020, share repurchases under our share purchase programs were temporarily suspended. | | | | | | |
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| | | | | | Millions of Dollars |
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Period | Total Number of Shares Purchased* | | Average Price Paid per Share |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs** | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
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July 1-31, 2019 | 1,207,472 | | $ | 98.74 |
| 1,207,472 | | $ | 689 |
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August 1-31, 2019 | 1,804,388 | | 98.45 |
| 1,804,388 | | 511 |
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September 1-30, 2019 | 1,394,841 | | 101.82 |
| 1,394,841 | | 369 |
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Total | 4,406,701 | | $ | 99.59 |
| 4,406,701 | |
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* Includes repurchase of shares of common stock from company employees in connection with the company’s broad-based employee incentive plans, when applicable. |
** As of September 30, 2019, our Board of Directors has authorized repurchases totaling up to $12 billion of our outstanding common stock since the inception of our share repurchase program in July 2012. The authorizations do not have expiration dates. On October 4, 2019, our Board of Directors approved a new share repurchase program that authorizes us to repurchase up to $3 billion of our common stock, bringing the total amount of share repurchases authorized by our Board of Directors since July 2012 to an aggregate of $15 billion. The share repurchases are expected to be funded primarily through available cash. The shares under these authorizations will be repurchased from time to time in the open market at the company’s discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements. We are not obligated to acquire any particular amount of common stock and may commence, suspend or discontinue purchases at any time or from time to time without prior notice. Shares of stock repurchased are held as treasury shares. |
Item 6. EXHIBITS
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| | | Incorporate by Reference | | | | | | | |
Exhibit Number | | Exhibit Description | Form | Exhibit Number | Filing Date | SEC File No. | | | | |
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| | As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the company has not filed with this Quarterly Report on Form 10-Q certain instruments defining the rights of holders of long-term debt of the company and its subsidiaries because the total amount of securities authorized thereunder does not exceed 10% of the total assets of the company and its subsidiaries on a consolidated basis. The company agrees to furnish a copy of such agreements to the Commission upon request. | | | | | | | | |
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| | | 8-K | 10.1 | 04/07/2020 | 001-35349 | | | | |
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101.INS* | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | | | | |
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101.SCH* | | Inline XBRL Schema Document. | | | | | | | | |
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101.CAL* | | Inline XBRL Calculation Linkbase Document. | | | | | | | | |
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101.LAB* | | Inline XBRL Labels Linkbase Document. | | | | | | | | |
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101.PRE* | | Inline XBRL Presentation Linkbase Document. | | | | | | | | |
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101.DEF* | | Inline XBRL Definition Linkbase Document. | | | | | | | | |
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104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | | | | | |
* Filed herewith. | | | | | | | | | | |
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| | | Incorporate by Reference |
Exhibit Number | | Exhibit Description | Form | Exhibit Number | Filing Date | SEC File No. |
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| | As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the company has not filed with this Quarterly Report on Form 10-Q certain instruments defining the rights of holders of long-term debt of the company and its subsidiaries because the total amount of securities authorized thereunder does not exceed 10% of the total assets of the company and its subsidiaries on a consolidated basis. The company agrees to furnish a copy of such agreements to the Commission upon request. | | | | |
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| | | 8-K | 10.1 | 7/26/2019 | 001-35349 |
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| | | 8-K | 10.1 | 8/1/2019 | 001-35349 |
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101.INS* | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | |
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101.SCH* | | Inline XBRL Schema Document. | | | | |
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101.CAL* | | Inline XBRL Calculation Linkbase Document. | | | | |
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101.PRE* | | Inline XBRL Presentation Linkbase Document. | | | | |
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101.DEF* | | Inline XBRL Definition Linkbase Document. | | | | |
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104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | |
* Filed herewith. | | | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | PHILLIPS 66 |
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| | PHILLIPS 66 |
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| | /s/ Chukwuemeka A. Oyolu |
| | Chukwuemeka A. Oyolu Vice President and Controller (Chief Accounting and Duly Authorized Officer) |
Date: October 25, 2019
Date: July 31, 2020