UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



~~For the quarterly period ended~~	~~March 31, 2020~~



For the quarterly period ended	March 31, 2021	or


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from



Commission file number:			001-35349

Phillips 66

(Exact name of registrant as specified in its charter)



Delaware						45-3779385
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2331 CityWest ~~Blvd~~.Blvd., Houston,, Texas77042

(Address of principal executive offices) (Zip Code)

~~281~~-~~293-6600~~281-293-6600

(Registrant’s telephone number, including area code)

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.

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 ~~436,674,707~~437,867,054 shares of common stock, $0.01 par value, outstanding as of March 31, ~~2020.~~2021.

Table of Contents

PHILLIPS 66

TABLE OF CONTENTS

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS



Consolidated Statement of Operations			Phillips 66

Millions of Dollars
Three Months Ended
March 31
2020
2019
Revenues and Other Income
Sales and other operating revenues $ 20,878
23,103
Equity in earnings of affiliates 365
516
Net gain on dispositions 1
1
Other income —
38
Total Revenues and Other Income 21,244
23,658

Costs and Expenses
Purchased crude oil and products 18,440
21,055
Operating expenses 1,341
1,307
Selling, general and administrative expenses 319
366
Depreciation and amortization 342
331
Impairments 3,006
1
Taxes other than income taxes 157
128
Accretion on discounted liabilities 6
6
Interest and debt expense 111
119
Foreign currency transaction losses —
5
Total Costs and Expenses 23,722
23,318
Income (loss) before income taxes (2,478 ) 340
Income tax expense (benefit) (51 ) 70
Net Income (Loss) (2,427 ) 270
Less: net income attributable to noncontrolling interests 69
66
Net Income (Loss) Attributable to Phillips 66 $ (2,496 ) 204

Net Income (Loss) Attributable to Phillips 66 Per Share of Common Stock (dollars)

Basic $ (5.66 ) 0.44
Diluted (5.66 ) 0.44

Weighted-Average Common Shares Outstanding (thousands)

Basic 441,345
457,599
Diluted 441,345
459,289
See Notes to Consolidated Financial Statements.


	Millions of Dollars
	Three Months Ended March 31
	2021		2020
Revenues and Other Income
Sales and other operating revenues	$	21,627	20,878
Equity in earnings of affiliates	285		365
Net gain on dispositions	0		1
Other income	15		0
Total Revenues and Other Income	21,927		21,244

Costs and Expenses
Purchased crude oil and products	20,065		18,440
Operating expenses	1,380		1,341
Selling, general and administrative expenses	408		319
Depreciation and amortization	356		342
Impairments	198		3,006
Taxes other than income taxes	139		157
Accretion on discounted liabilities	6		6
Interest and debt expense	146		111

Total Costs and Expenses	22,698		23,722
Loss before income taxes	(771)		(2,478)
Income tax benefit	(132)		(51)
Net Loss	(639)		(2,427)
Less: net income attributable to noncontrolling interests	15		69
Net Loss Attributable to Phillips 66	$	(654)	(2,496)

Net Loss Attributable to Phillips 66 Per Share of Common Stock (dollars)
Basic	$	(1.49)	(5.66)
Diluted	(1.49)		(5.66)



Weighted-Average Common Shares Outstanding (thousands)
Basic	439,504		441,345
Diluted	439,504		441,345

See Notes to Consolidated Financial Statements.

Table of Contents



Consolidated Statement of Comprehensive ~~Income (Loss)~~Loss			Phillips 66

Millions of Dollars
Three Months Ended
March 31
2020
2019

Net Income (Loss) $ (2,427 ) 270
Other comprehensive income (loss)
Defined benefit plans
Amortization to income of net actuarial loss, net prior service credit and settlements 23
19
Plans sponsored by equity affiliates 2
4
Income taxes on defined benefit plans (5 ) (5 )
Defined benefit plans, net of income taxes 20
18
Foreign currency translation adjustments (222 ) 57
Income taxes on foreign currency translation adjustments 1
—
Foreign currency translation adjustments, net of income taxes (221 ) 57
Cash flow hedges (9 ) (4 )
Income taxes on hedging activities 2
1
Hedging activities, net of income taxes (7 ) (3 )
Other Comprehensive Income (Loss), Net of Income Taxes (208 ) 72
Comprehensive Income (Loss) (2,635 ) 342
Less: comprehensive income attributable to noncontrolling interests 69
66
Comprehensive Income (Loss) Attributable to Phillips 66 $ (2,704 ) 276

~~See Notes to Consolidated Financial Statements.~~



~~Consolidated Balance Sheet~~	~~Phillips 66~~

Millions of Dollars
March 31
2020
December 31
2019
Assets
Cash and cash equivalents $ 1,221
1,614
Accounts and notes receivable (net of allowances of $41 million in 2020 and 2019) 4,046
7,376
Accounts and notes receivable—related parties 513
1,134
Inventories 5,331
3,776
Prepaid expenses and other current assets 594
495
Total Current Assets 11,705
14,395
Investments and long-term receivables 13,635
14,571
Net properties, plants and equipment 24,051
23,786
Goodwill 1,425
3,270
Intangibles 880
869
Other assets 1,764
1,829
Total Assets $ 53,460
58,720

Liabilities
Accounts payable $ 4,882
8,043
Accounts payable—related parties 440
532
Short-term debt 2,243
547
Accrued income and other taxes 703
979
Employee benefit obligations 301
710
Other accruals 1,960
835
Total Current Liabilities 10,529
11,646
Long-term debt 10,720
11,216
Asset retirement obligations and accrued environmental costs 635
638
Deferred income taxes 5,487
5,553
Employee benefit obligations 1,000
1,044
Other liabilities and deferred credits 1,450
1,454
Total Liabilities 29,821
31,551

Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value)
Issued (2020—648,446,534 shares; 2019—647,416,633 shares)

Par value 6
6
Capital in excess of par 20,305
20,301
Treasury stock (at cost: 2020—211,771,827 shares; 2019—206,390,806 shares) (17,116 ) (16,673 )
Retained earnings 19,168
22,064
Accumulated other comprehensive loss (991 ) (788 )
Total Stockholders’ Equity 21,372
24,910
Noncontrolling interests 2,267
2,259
Total Equity 23,639
27,169
Total Liabilities and Equity $ 53,460
58,720

~~See Notes to Consolidated Financial Statements.~~



~~Consolidated Statement of Cash Flows~~	~~Phillips 66~~

Millions of Dollars
Three Months Ended
March 31
2020
2019
Cash Flows From Operating Activities
Net income (loss) $ (2,427 ) 270
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization 342
331
Impairments 3,006
1
Accretion on discounted liabilities 6
6
Deferred income taxes (47 ) 179
Undistributed equity earnings (4 ) 95
Net gain on dispositions (1 ) (1 )
Other (139 ) 42
Working capital adjustments
Accounts and notes receivable 3,900
(1,170 )
Inventories (1,620 ) (1,790 )
Prepaid expenses and other current assets (90 ) (438 )
Accounts payable (3,239 ) 2,466
Taxes and other accruals 530
(469 )
Net Cash Provided by (Used in) Operating Activities 217
(478 )

Cash Flows From Investing Activities
Capital expenditures and investments (923 ) (1,097 )
Return of investments in equity affiliates 38
21
Proceeds from asset dispositions 1
82
Advances/loans—related parties (8 ) —
Other 15
(18 )
Net Cash Used in Investing Activities (877 ) (1,012 )

Cash Flows From Financing Activities
Issuance of debt 1,199
725
Repayment of debt (7 ) (592 )
Issuance of common stock 6
8
Repurchase of common stock (443 ) (344 )
Dividends paid on common stock (396 ) (364 )
Distributions to noncontrolling interests (61 ) (56 )
Net proceeds from issuance of Phillips 66 Partners LP common units 2
32
Other (24 ) 307
Net Cash Provided by (Used in) Financing Activities 276
(284 )

Effect of Exchange Rate Changes on Cash and Cash Equivalents (9 ) 8

Net Change in Cash and Cash Equivalents (393 ) (1,766 )
Cash and cash equivalents at beginning of period 1,614
3,019
Cash and Cash Equivalents at End of Period $ 1,221
1,253


	Millions of Dollars
	Three Months Ended March 31
	2021		2020

Net Loss	$	(639)	(2,427)
Other comprehensive income (loss)
Defined benefit plans


Amortization of net actuarial loss and prior service credit	22		23


Plans sponsored by equity affiliates	6		2
Income taxes on defined benefit plans	(6)		(5)
Defined benefit plans, net of income taxes	22		20
Foreign currency translation adjustments	(15)		(222)
Income taxes on foreign currency translation adjustments	0		1
Foreign currency translation adjustments, net of income taxes	(15)		(221)
Cash flow hedges	2		(9)

Income taxes on hedging activities	0		2
Hedging activities, net of income taxes	2		(7)
Other Comprehensive Income (Loss), Net of Income Taxes	9		(208)
Comprehensive Loss	(630)		(2,635)
Less: comprehensive income attributable to noncontrolling interests	15		69
Comprehensive Loss Attributable to Phillips 66	$	(645)	(2,704)

See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Balance Sheet			Phillips 66


	Millions of Dollars
	March 31 2021		December 31 2020
Assets
Cash and cash equivalents	$	1,351	2,514
Accounts and notes receivable (net of allowances of $51 million in 2021 and $37 million in 2020)	7,161		5,688
Accounts and notes receivable—related parties	1,004		834
Inventories	4,273		3,893
Prepaid expenses and other current assets	629		347
Total Current Assets	14,418		13,276
Investments and long-term receivables	13,376		13,624
Net properties, plants and equipment	23,677		23,716
Goodwill	1,425		1,425
Intangibles	836		843
Other assets	1,764		1,837
Total Assets	$	55,496	54,721

Liabilities
Accounts payable	$	7,484	5,171
Accounts payable—related parties	762		378
Short-term debt	516		987
Accrued income and other taxes	1,149		1,351
Employee benefit obligations	316		573
Other accruals	1,204		1,058
Total Current Liabilities	11,431		9,518
Long-term debt	14,906		14,906
Asset retirement obligations and accrued environmental costs	682		657
Deferred income taxes	5,547		5,644
Employee benefit obligations	1,351		1,341
Other liabilities and deferred credits	1,122		1,132
Total Liabilities	35,039		33,198

Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2021—649,638,881 shares; 2020—648,643,223 shares)
Par value	6		6
Capital in excess of par	20,420		20,383
Treasury stock (at cost: 2021 and 2020—211,771,827 shares)	(17,116)		(17,116)
Retained earnings	15,449		16,500
Accumulated other comprehensive loss	(780)		(789)
Total Stockholders’ Equity	17,979		18,984
Noncontrolling interests	2,478		2,539
Total Equity	20,457		21,523
Total Liabilities and Equity	$	55,496	54,721

See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Statement of Cash Flows			Phillips 66


	Millions of Dollars
	Three Months Ended March 31
	2021		2020
Cash Flows From Operating Activities
Net loss	$	(639)	(2,427)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	356		342
Impairments	198		3,006
Accretion on discounted liabilities	6		6
Deferred income taxes	(103)		(47)
Undistributed equity earnings	217		(4)
Net gain on dispositions	0		(1)


Other	138		(139)
Working capital adjustments
Accounts and notes receivable	(1,740)		3,900
Inventories	(377)		(1,620)
Prepaid expenses and other current assets	(283)		(90)
Accounts payable	2,779		(3,239)
Taxes and other accruals	(281)		530


Net Cash Provided by Operating Activities	271		217

Cash Flows From Investing Activities
Capital expenditures and investments	(331)		(923)
Return of investments in equity affiliates	58		38
Proceeds from asset dispositions	0		1
Advances/loans—related parties	(155)		(8)


Other	(39)		15


Net Cash Used in Investing Activities	(467)		(877)

Cash Flows From Financing Activities
Issuance of debt	450		1,199
Repayment of debt	(925)		(7)
Issuance of common stock	20		6
Repurchase of common stock	0		(443)
Dividends paid on common stock	(394)		(396)
Distributions to noncontrolling interests	(76)		(61)

Other	(20)		(22)


Net Cash Provided by (Used in) Financing Activities	(945)		276

Effect of Exchange Rate Changes on Cash and Cash Equivalents	(22)		(9)

Net Change in Cash and Cash Equivalents	(1,163)		(393)
Cash and cash equivalents at beginning of period	2,514		1,614
Cash and Cash Equivalents at End of Period	$	1,351	1,221

See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Statement of Changes in Equity			Phillips 66


	Millions of Dollars
	Three Months Ended March 31
	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, 2020	$	6	20,383	(17,116)	16,500	(789)	2,539	21,523
Net income (loss)	—		—	—	(654)	—	15	(639)
Other comprehensive income	—		—	—	—	9	—	9
Dividends paid on common stock ($0.90 per share)	—		—	—	(394)	—	—	(394)

Benefit plan activity	—		37	—	(3)	—	—	34
Distributions to noncontrolling interests	—		—	—	—	—	(76)	(76)

March 31, 2021	$	6	20,420	(17,116)	15,449	(780)	2,478	20,457



December 31, 2019	$	6	20,301	(16,673)	22,064	(788)	2,259	27,169
Net income (loss)	—		—	—	(2,496)	—	69	(2,427)
Other comprehensive loss	—		—	—	—	(208)	—	(208)
Dividends paid on common stock ($0.90 per share)	—		—	—	(396)	—	—	(396)
Repurchase of common stock	—		—	(443)	—	—	—	(443)
Benefit plan activity	—		4	—	(2)	—	—	2


Distributions to noncontrolling interests	—		—	—	—	—	(61)	(61)
Other	—		—	—	(2)	5	—	3
March 31, 2020	$	6	20,305	(17,116)	19,168	(991)	2,267	23,639


	Shares
	Three Months Ended March 31
	Common Stock Issued	Treasury Stock

December 31, 2020	648,643,223	211,771,827
Repurchase of common stock	—	0
Shares issued—share-based compensation	995,658	—
March 31, 2021	649,638,881	211,771,827

December 31, 2019	647,416,633	206,390,806
Repurchase of common stock	—	5,381,021
Shares issued—share-based compensation	1,029,901	—
March 31, 2020	648,446,534	211,771,827










See Notes to Consolidated Financial Statements.



~~Consolidated Statement of Changes in Equity~~			~~Phillips 66~~

Millions of Dollars
Three Months Ended March 31
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) —
—
—
(2,496 ) —
69
(2,427 )
Other comprehensive loss —
—
—
—
(208 ) —
(208 )
Dividends paid on common stock ($0.90 per share) —
—
—
(396 ) —
—
(396 )
Repurchase of common stock —
—
(443 ) —
—
—
(443 )
Benefit plan activity —
4
—
(2 ) —
—
2
Distributions to noncontrolling interests —
—
—
—
—
(61 ) (61 )
Other —
—
—
(2 ) 5
—
3
March 31, 2020 $ 6
20,305
(17,116 ) 19,168
(991 ) 2,267
23,639

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 —
—
—
204
—
66
270
Other comprehensive income —
—
—
—
72
—
72
Dividends paid on common stock ($0.80 per share) —
—
—
(364 ) —
—
(364 )
Repurchase of common stock —
—
(344 ) —
—
—
(344 )
Benefit plan activity —
4
—
(2 ) —
—
2
Issuance of Phillips 66 Partners LP common units —
2
—
—
—
19
21
Distributions to noncontrolling interests —
—
—
—
—
(56 ) (56 )
March 31, 2019 $ 6
19,879
(15,367 ) 20,408
(709 ) 2,528
26,745

Shares in Thousands
Common Stock Issued
Treasury Stock

December 31, 2019 647,417
206,391
Repurchase of common stock —
5,381
Shares issued—share-based compensation 1,030
—
March 31, 2020 648,447
211,772

December 31, 2018 645,692
189,526
Repurchase of common stock —
3,639
Shares issued—share-based compensation 1,024
—
March 31, 2019 646,716
193,165
See Notes to Consolidated Financial Statements.

Table of Contents


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 ~~2019~~2020 Annual Report on Form 10-K. The results of operations for the three months ended March 31, ~~2020,~~2021, are not necessarily indicative of the results expected for the full year.

Note 2—Sales and Other Operating Revenues

Disaggregated Revenues

The following tables present our disaggregated sales and other operating revenues:

Millions of Dollars
Three Months Ended
March 31
2020
2019
Product Line and Services
Refined petroleum products $ 16,157
18,793
Crude oil resales 2,877
3,038
Natural gas liquids (NGL) 979
1,304
Services and other*
865
(32 )
Consolidated sales and other operating revenues $ 20,878
23,103

Geographic Location**
United States $ 15,710
17,575
United Kingdom 2,309
2,431
Germany 858
957
Other foreign countries 2,001
2,140
Consolidated sales and other operating revenues $ 20,878
23,103
* 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 March 31
	2021		2020
Product Line and Services
Refined petroleum products	$	16,343	16,157
Crude oil resales	3,189		2,877
Natural gas liquids (NGL)	1,774		979
Services and other*	321		865
Consolidated sales and other operating revenues	$	21,627	20,878

Geographic Location**
United States	$	16,612	15,710
United Kingdom	2,287		2,309
Germany	817		858
Other foreign countries	1,911		2,001
Consolidated sales and other operating revenues	$	21,627	20,878
* 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 March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, receivables from contracts with customers were ~~$3,344~~$5,375 million and ~~$6,902~~$3,911 million, respectively. Significant noncustomer balances, such as buy/sell receivables and excise tax receivables, were excluded from these amounts.

Our contract-related assets also include payments we make to our marketing customers related to incentive programs. An incentive payment is initially recognized as an asset and subsequently amortized as a reduction to revenue over the contract term, which generally ranges from 5 to 15 years. At March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, our asset balances related to such payments were ~~$357~~$414 million and ~~$336~~$404 million, respectively.

Our contract liabilities represent advances from our customers prior to product or service delivery. At March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, contract liabilities were ~~0t material.~~immaterial.

Table of Contents

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 anthe unsatisfied performance ~~obligation.~~obligations. We also have certain contracts in our Midstream segment that include minimum volume commitments with fixed pricing, which mostly expire by ~~2021.~~2022. At March 31, ~~2020,~~2021, the remaining performance obligations related to these minimum volume commitment contracts were ~~0t material.~~immaterial.

Note 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 reconciliations, dispute resolution and payment confirmations. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

The ~~recent decline in commodity prices, weak petroleum product demand, and~~ negative economic impacts associated with Coronavirus Disease 2019 (COVID-19) ~~increase~~have increased the probability that certain of our counterparties may not be able to ~~fully~~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 March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, we reported ~~$4,559~~$8,165 million and ~~$8,510~~$6,522 million of accounts and notes receivable, ~~respectively,~~ net of allowances of ~~$41~~$51 million ~~for both periods.~~and $37 million, respectively. Based on an aging analysis at March 31, ~~2020,~~2021, more than ~~98%~~95% of our accounts receivable were outstanding less than 60 days.

We are also exposed to credit losses from off-balance sheet exposures, such as guarantees of joint venture debt 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 4—Inventories

Inventories consisted of the following:

Millions of Dollars
March 31
2020
December 31
2019

Crude oil and petroleum products $ 5,008
3,452
Materials and supplies 323
324
$ 5,331
3,776


	Millions of Dollars
	March 31 2021		December 31 2020

Crude oil and petroleum products	$	3,915	3,536
Materials and supplies	358		357
	$	4,273	3,893

Inventories valued on the last-in, first-out (LIFO) basis totaled ~~$4,879~~$3,740 million and ~~$3,331~~$3,368 million at March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, respectively. ~~We performed a lower-of-cost-or-market evaluation for our crude oil~~The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $4.2 billion and ~~petroleum products inventory~~$2.7 billion at ~~March~~March��31, 2021, and December 31, 2020, and determined that a write-down was not required based on forward prices. Should crude oil and petroleum product forward prices have a sustained decline, a future lower-of-cost-or-market write‑down may be required.

respectively.

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Note 5—Investments, Loans and Long-Term Receivables

Equity Investments

~~DCP Midstream, LLC (DCP Midstream)~~

The fair value of our investment in DCP Midstream depends on the market value of DCP Midstream, LP (DCP Partners) common units. The market value of DCP Partners common units 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 significantly lower than its book value. We concluded the difference between its fair value and book value was not temporary primarily due to its magnitude. Accordingly, we recorded a $1,161 million before-tax impairment of our investment in the first quarter of 2020. This charge is included in the “Impairments” line item on our consolidated statement of operations. Following the impairment, our investment in DCP Midstream had a book value of $245 million at March 31, 2020. The impairment increased the basis difference for our investment in DCP Midstream, which indicates the carrying value of our investment is lower than our share of DCP Midstream’s recorded net assets. The basis difference of $1,795 million is expected to be 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. See Note 13—Fair Value Measurements, for additional information on the techniques used to determine the fair value of our investment in DCP Midstream.

~~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 LP (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 the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At March 31, 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.

Gray Oak Pipeline, LLC is considered a variable interest entity (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-venturers jointly direct the activities of Gray Oak Pipeline, LLC that most significantly impact economic performance. On April 1, 2020, the Gray Oak Pipeline commenced full operations from West Texas to Texas Gulf Coast destinations. The Eagle Ford segment of the pipeline commenced operations later in April. At March 31, 2020, Phillips 66 Partners’ effective ownership interest in the Gray Oak Pipeline was 42.25%, and Phillips 66 Partners’ maximum exposure to loss was $1,382 million, which represented the book value of the investment in Gray Oak Pipeline, LLC of $799 million and the term loan guarantee of $583 million. See Note 19—Phillips 66 Partners LP, for additional information regarding Phillips 66 Partners’ ownership in Gray Oak Pipeline, LLC.

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 $2,500 million~~issued $2.5 billion aggregate principal amount of senior unsecured ~~senior~~ notes. Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners LP (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 in the litigation related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access ~~and ETCO up~~if there is an unfavorable final judgment in the ongoing litigation related to an ~~aggregate maximum~~easement granted by the U.S. Army Corps of ~~approximately $2,525 million.~~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 March 31, 2021, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU iswas approximately $631 million.

In ~~March~~July 2020, the trial court ~~in such~~presiding over the litigation ~~requested~~vacated Dakota Access’ easement under Lake Oahe and ordered the Dakota Access Pipeline to be shut down and emptied of crude oil pending the preparation of an Environmental Impact Statement ~~from~~(EIS) by the ~~U.S. Army Corps~~USACE, which had been ordered by the court in March 2020 and is now expected to be completed by March 2022. In August 2020, pending an appeal of ~~Engineers, and requested additional information~~the trial court’s decisions, an appellate court denied Dakota Access’ motion to ~~make a further decision regarding whether~~stay the ~~Dakota Access Pipeline should~~order vacating the easement, but granted its motion to stay the order that the pipeline be shut down while the ~~Environmental Impact Statement~~EIS is ~~being~~ prepared. In January 2021, the appellate court affirmed the trial court’s order vacating the easement and directing the USACE to prepare an EIS and reversed the order directing the pipeline to be shut down. Notwithstanding that the easement has been vacated, in April 2021, the USACE indicated that it currently intends to allow the pipeline to continue to operate while it proceeds with the EIS. Currently, ~~this ruling does not have~~there is a motion for a permanent injunction to shut down the pipeline before the trial court that could be decided at any ~~immediate impact on~~time. Additionally, Dakota Access has requested the appellate court to stay its January 2021 decision pending a filing and disposition of a petition for writ of certiorari to the U.S. Supreme Court.

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

At March 31, 2021, the aggregate book value of Phillips 66 Partners’ investments in Dakota Access and ETCO was $575 million.

CF United LLC ~~(United)~~(CF United)

~~In the fourth quarter of 2019, we acquired~~We hold a 50% voting interest 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~~variable interest entity (VIE) because our ~~co‑venturer~~co-venturer has an option to ~~sell~~require us to purchase 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 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 March 31, ~~2020,~~2021, our maximum exposure to loss was comprised of our ~~$250~~$334 million investment in CF United, and any potential future loss resulting from the put option ifshould the purchase price based on a fixed multiple ~~exceeds~~exceed the then-current fair value of CF United.

~~Liberty Pipeline LLC (Liberty)~~

Liberty is a 50%-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

Table of all assets required for principal operations. We have determined we are not the primary beneficiary because we and our co-venturer jointly direct the activities of Liberty that most significantly impact economic performance. On March 2, 2020, Phillips 66 Partners closed a transaction to acquire our 50% interest in Liberty for $75 million. Phillips 66 Partners and its co-venturer subsequently deferred the development and construction of the Liberty Pipeline system as a result of the current challenging business environment. At March 31, 2020, our maximum exposure to loss was $216 million, which represented the book value of Phillips 66 Partners’ investment in Liberty of $103 million and our outstanding proportionate vendor guarantees of $113 million.Contents

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 March 31, ~~2020,~~2021, our maximum exposure to loss was ~~$148~~$178 million, which represented the book value of our investment in OnCue of ~~$79~~$99 million and guaranteed debt obligations of ~~$69~~$79 million.

~~Red Oak~~Liberty Pipeline LLC ~~(Red Oak)~~(Liberty)

~~We hold~~At March 31, 2021, Phillips 66 Partners held a 50% interest in Liberty, a joint venture formed to develop and construct the ~~Red Oak~~Liberty 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 issystem. Liberty was considered a VIE because it ~~does~~did not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. ~~We have~~It was determined ~~we are~~that Phillips 66 Partners was not the primary beneficiary because wePhillips 66 Partners and ~~our~~its co-venturer jointly ~~direct~~directed the activities of ~~Red Oak~~Liberty that most significantly impact economic performance.

In the first quarter of 2021, Phillips 66 Partners’ decision to exit the Liberty Pipeline project resulted in a $198 million before-tax impairment of its investment in Liberty. The ~~development~~impairment is included in the “Impairments” line item on our consolidated statement of operations for the three months ended March 31, 2021. See Note 7—Impairments, and ~~construction~~Note 13—Fair Value Measurements, for additional information regarding the impairment and the techniques used to determine the fair value of ~~the Red Oak Pipeline system have been deferred as a result of the current challenging business environment.~~Phillips 66 Partners’ investment in Liberty. At March 31, ~~2020, our maximum exposure to loss was $66 million, which represented~~2021, the book value of ~~our~~Phillips 66 Partners’ investment in ~~Red Oak~~Liberty was $46 million.

In April 2021, Phillips 66 Partners transferred its ownership interest in Liberty to its co-venturer for cash and certain pipeline assets with an estimated fair value that approximated its book value at March 31, 2021.

Related Party Loans

We and our co-venturer provided member loans to WRB Refining LP (WRB). At March 31, 2021, our 50% share of ~~$54 million and an~~the outstanding member loan ~~to Red Oak of $12~~balance, including accrued interest, was $434 million.

Note 6—Properties, Plants and Equipment

Our gross investment in ~~PP&E~~properties, plants and equipment (PP&E) and the associated accumulated depreciation and amortization (Accum. D&A) balances were as follows:

Millions of Dollars
March 31, 2020 December 31, 2019

Gross
PP&E

Accum.
D&A

Net
PP&E

Gross
PP&E

Accum.
D&A

Net
PP&E

Midstream $ 11,605
2,467
9,138
11,221
2,391
8,830
Chemicals —
—
—
—
—
—
Refining 23,956
10,521
13,435
23,692
10,336
13,356
Marketing and Specialties (M&S) 1,660
917
743
1,847
959
888
Corporate and Other 1,352
617
735
1,311
599
712
$ 38,573
14,522
24,051
38,071
14,285

23,786


	Millions of Dollars
	March 31, 2021				December 31, 2020
	Gross PP&E		Accum. D&A	Net PP&E	Gross PP&E	Accum. D&A	Net PP&E

Midstream	$	12,184	2,796	9,388	12,313	2,815	9,498
Chemicals	0		0	0	0	0	0
Refining	25,095		12,351	12,744	24,647	12,019	12,628
Marketing and Specialties	1,770		994	776	1,815	1,007	808
Corporate and Other	1,455		686	769	1,448	666	782
	$	40,504	16,827	23,677	40,223	16,507	23,716

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Note 7—Impairments

~~Goodwill~~


	Millions of Dollars
	Three Months Ended March 31
	2021		2020








Midstream	$	198	1,161






Refining	0		1,845


Total impairments	$	198	3,006

Equity Investments

Liberty

In the first quarter of 2021, Phillips 66 Partners decided to exit the Liberty Pipeline project, which had previously been deferred due to the challenging business environment caused by the COVID-19 pandemic. As a result, Phillips 66 Partners recorded a $198 million before-tax impairment to reduce the book value of its investment in Liberty at March 31, 2021, to estimated fair value.

DCP Midstream, LLC (DCP Midstream)

In the first quarter of 2020, the market value of DCP Partners, LP (DCP Partners) common units declined by approximately 85%. As a result, at March 31, 2020, the fair value of our investment in DCP Midstream was significantly lower than its book value. We concluded this difference was not temporary primarily due to its magnitude, and we recorded a $1,161 million before-tax impairment of our investment in the first quarter of 2020.

Goodwill

Our stock price declined significantly in the first quarter of 2020, mainly due to the ~~volatility~~disruption in global commodity and equity markets related to the COVID-19 ~~pandemic and other factors.~~pandemic. 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 before-tax goodwill impairment charge of $1,845 million in our Refining ~~segment. This charge is~~segment during the first quarter of 2020.

These impairment charges are included inwithin the “Impairments” line item on our consolidated statement of operations. ~~The fair value of our other reporting units continued to exceed their carrying values by a significant percentage.~~ See Note 13—Fair Value Measurements, for additional information on the ~~techniques~~determination of fair value used to ~~determine the fair value of our Refining reporting unit.~~record these impairments.

~~The carrying amount of goodwill by segment at March 31, 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 March 31, 2020 $ 626
—
799
1,425

Outlook

The COVID-19 pandemic continues to disrupt economic activities globally. Reduced demand for petroleum products has resulted in low refining margins and decreased volumes through refineries and logistics infrastructure. Demand for refined petroleum products started to recover following the distribution of COVID-19 vaccines at the beginning of 2021, and consequently, refining margins have improved. However, the depth and duration of the economic consequences of the COVID-19 pandemic remain uncertain. We continuously monitor our asset and investment portfolio for impairments, as well as optimization opportunities, in this challenging business environment. As such, additional impairments may be required in the future.

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Note 8—Earnings (Loss) Per Share

The numerator of basic earnings (loss) per share (EPS) is net income (loss) attributable to Phillips 66, ~~reduced by~~adjusted 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)~~(loss) 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 March 31
	2021			2020
	Basic		Diluted	Basic	Diluted
Amounts Attributed to Phillips 66 Common Stockholders (millions):
Net loss attributable to Phillips 66	$	(654)	(654)	(2,496)	(2,496)
Income allocated to participating securities	(2)		(2)	(1)	(1)
Net loss available to common stockholders	$	(656)	(656)	(2,497)	(2,497)

Weighted-average common shares outstanding (thousands):	437,369		439,504	439,014	441,345
Effect of share-based compensation	2,135		0	2,331	0
Weighted-average common shares outstanding—EPS	439,504		439,504	441,345	441,345

Loss Per Share of Common Stock (dollars)	$	(1.49)	(1.49)	(5.66)	(5.66)

Three Months Ended
March 31
2020 2019
Basic
Diluted
Basic
Diluted
Amounts Attributed to Phillips 66 Common Stockholders (millions):

Net income (loss) attributable to Phillips 66 $ (2,496 ) (2,496 ) 204
204
Income allocated to participating securities (1 ) (1 ) (1 ) (1 )
Net income (loss) available to common stockholders $ (2,497 ) (2,497 )
203
203

Weighted-average common shares outstanding (thousands):
439,014
441,345
454,886
457,599
Effect of share-based compensation 2,331
—
2,713
1,690
Weighted-average common shares outstanding—EPS 441,345
441,345
457,599
459,289

Earnings (Loss) Per Share of Common Stock (dollars)
$ (5.66 ) (5.66 ) 0.44
0.44

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Note 9—Debt

2021 Debt Issuances and Repayments

~~On April 9, 2020,~~At March 31, 2021, borrowings of $450 million were outstanding and $1 million in letters of credit had been drawn under Phillips 66 ~~closed~~Partners’ $750 million revolving credit facility.

In April 2021, Phillips 66 Partners entered into a $450 million term loan agreement and borrowed the full amount. The term loan agreement has a maturity date of April 5, 2022, and the outstanding borrowings can be repaid at any time and from time to time, in whole or in part, without premium or penalty. Borrowings bear interest at a floating rate based on either a ~~public offering~~Eurodollar rate or a reference rate, plus a margin of ~~$1 billion aggregate~~0.875%. Proceeds were primarily used to repay amounts borrowed under Phillips 66 Partners’ $750 million revolving credit facility.

In February 2021, Phillips 66 repaid $500 million outstanding principal ~~amount~~balance of its floating-rate senior ~~unsecured~~ notes ~~consisting of:~~due February 2021.

~~$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. Interest on the Senior Notes due 2025 is payable semiannually on April 9 and October 9 of each year, commencing on October 9, 2020. Proceeds of $993 million, net of underwriters’ discounts and commissions and debt issuance costs, are being used for general corporate purposes.

2020 Term Loan Facility

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~~and in June 2020, the Facility was amended to extend the commitment period to September 19, 2020. We did not draw additional amounts under the Facility before the end of ~~capacity~~the commitment period or further extend the commitment period. In November 2020, we repaid $500 million of borrowings outstanding under the Facility, and the Facility was amended to extend the maturity date of the remaining ~~undrawn.~~$500 million outstanding borrowings from March 18, 2021, to November 20, 2023. Borrowings under the Facility bear interest at a floating rate based on either ~~the~~a Eurodollar rate or ~~the~~a reference rate, plus a margin determined by the credit rating of Phillips 66’s senior unsecured ~~long‑term~~long-term debt. Phillips 66 ~~is using~~used the proceeds ~~from the debt issuance~~ for general corporate purposes.

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Note 10—Guarantees

At March 31, 2020, borrowings of $200 million were outstanding under Phillips 66’s uncommitted $5 billion commercial paper program, compared with 0 borrowings outstanding under the commercial paper program at December 31, 2019. At March 31, 2020, and December 31, 2019, 0 amount had been directly drawn under Phillips 66 Partners’ $750 million revolving credit facility; however, $3 million and $1 million in letters of credit had been issued under this facility at March 31, 2020, and December 31, 2019, respectively.

~~Debt Repayments~~

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.

~~Note 10—Guarantees~~

~~At March 31, 2020,~~2021, 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.

Lease Residual Value Guarantees

Under the operating lease agreement onfor our headquarters facility in Houston, Texas, we have ~~a residual value guarantee with a maximum future exposure of $554 million at March 31, 2020. The operating lease term ends in~~ ~~June 2021~~ ~~and provides us~~ the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at March 31, 2021. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling ~~$362~~$371 million. These operating leases have remaining terms of up to ~~four~~nine years.

~~Contingent Equity Contribution Undertaking~~Guarantees of Joint Venture and Other Obligations

In March 2019, Phillips 66 Partners and its co-venturers in Dakota Access provided a ~~Contingent Equity Contribution Undertaking~~CECU in conjunction with ana senior unsecured ~~senior~~ notes offering. See Note 5—Investments, Loans and Long-Term Receivables, for additional information on Dakota ~~Access.~~

~~Guarantees of Joint Venture Obligations~~Access and the CECU.

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 addition, at~~At March 31, ~~2020,~~2021, we also had other guarantees outstanding for our portion of certain joint venture debt ~~obligations~~ and purchase obligations, which have remaining terms of up to ~~eight~~seven years. The maximum potential amount of future payments to third parties under these guarantees was approximately ~~$331~~$197 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~~and 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 March 31, 2020, and December 31, 2019, the~~The carrying amount of recorded indemnifications was ~~$159~~$145 million at both March 31, 2021, and ~~$153 million, respectively.~~December 31, 2020.

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 the 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 March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, environmental accruals for known contamination of ~~$111~~$103 million and ~~$105~~$104 million, respectively, were included in the carrying amount of the recorded indemnifications noted above. These environmental accruals were primarily included in the “Asset retirement obligations and accrued environmental costs” line item on our consolidated balance sheet. For additional information about environmental liabilities, see Note 11—Contingencies and Commitments.

Indemnification and Release Agreement

In 2012, in connection with our separation from ConocoPhillips, we entered into ~~the~~an 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~~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.

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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-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is ~~less than certain.~~uncertain.

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)~~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 atfor 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 March 31, ~~2020,~~2021, our total environmental accruals were ~~$442~~$437 million, compared with ~~$441~~$427 million at December 31, ~~2019.~~2020. 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.

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Legal Proceedings

Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required.

Other Contingencies

We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized.

At March 31, ~~2020,~~2021, we had performance obligations secured by letters of credit and bank guarantees of ~~$463~~$791 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 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 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 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.

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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
March 31, 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 $ 6,826
(6,173 ) (455 ) 198
23
—
—
23
Other assets 10
(6 ) —
4
3
—
—
3
Liabilities

Other accruals —
(36 ) —
(36 ) 1,188
(1,281 ) 80
(13 )
Other liabilities and deferred credits —
—
—
—
—
(1 ) —
(1 )
Total $ 6,836
(6,215 ) (455 ) 166
1,214
(1,282 ) 80
12


	Millions of Dollars
	March 31, 2021					December 31, 2020
	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	$	652	(595)	(8)	49		13	0	0	13
Other assets	17		(16)	0	1		5	(4)	0	1
Liabilities
Other accruals	437		(529)	78	(14)		665	(721)	46	(10)

Total	$	1,106	(1,140)	70	36		683	(725)	46	4

At March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, 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 operations, were:


	Millions of Dollars
	Three Months Ended March 31
	2021		2020

Sales and other operating revenues	$	(123)	679
Other income	1		3
Purchased crude oil and products	(135)		441
Net gain (loss) from commodity derivative activity	$	(257)	1,123

Millions of Dollars
Three Months Ended
March 31
2020
2019

Sales and other operating revenues $ 679
(177 )
Other income 3
13
Purchased crude oil and products 441
(155 )
Net gain (loss) from commodity derivative activity $ 1,123
(319 )

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 nonderivative positions such as inventory volumes. Financial derivative contracts may also offset physical derivative contracts, such as forward purchase and sales contracts. The percentage of our derivative contract volumes expiring within the next 12 months was ~~at least 98%~~more than 95% at March 31, ~~2020,~~2021, and December 31, ~~2019.~~2020.

Open Position
Long / (Short)
March 31
2020
December 31
2019
Commodity
Crude oil, refined petroleum products and NGL (millions of barrels)
(33 ) (16 )


	Open Position Long / (Short)
	March 31 2021	December 31 2020
Commodity
Crude oil, refined petroleum products and NGL (millions of barrels)	(25)	(13)

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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 ~~LIBOR~~London Interbank Offered Rate (LIBOR) and changes, if any, in our credit ~~rating over the five-year term of the lease.~~rating. The pay-fixed, receive-floating interest rate swaps have an aggregate notional value of $650 million and ~~end~~ended in April 2021. We have designated these swaps as cash flow hedges.

The aggregate net fair value of these swaps was immaterial at March 31, ~~2020,~~2021, and December 31, ~~2019.~~2020. 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 (loss) in the same period during which the hedged transaction affects ~~earnings.~~earnings (loss). Net realized gains and losses from settlements of the swaps were immaterial for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

We currently estimate that before-tax losses of $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 March 31, ~~2020,~~2021, and December 31, ~~2019.~~

2020.

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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.

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. •~~—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 midmarket pricing convention (the midpoint 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 observable 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.

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•	~~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
March 31, 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 $ 5,251
1,545
—
6,796
(6,179 ) (455 ) —
162
Physical forward contracts —
40
—
40
—
—
—
40
Rabbi trust assets 116
—
—
116
N/A
N/A
—
116
$ 5,367
1,585
—
6,952
(6,179 ) (455 ) —
318

Commodity Derivative Liabilities
Exchange-cleared instruments $ 4,589
1,590
—
6,179
(6,179 ) —
—
—
OTC instruments —
4
—
4
—
—
—
4
Physical forward contracts —
32
—
32
—
—
—
32
Interest rate derivatives —
8
—
8
—
—
—
8
Floating-rate debt —
2,097
—
2,097
N/A
N/A
—
2,097
Fixed-rate debt, excluding finance leases —
10,560
—
10,560
N/A
N/A
17
10,577
$ 4,589
14,291
—
18,880
(6,179 ) —
17
12,718

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
	March 31, 2021
	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	$	746	337	0	1,083	(1,048)	(8)	0	27

Physical forward contracts	0		23	0	23	0	0	0	23

Rabbi trust assets	150		0	0	150	N/A	N/A	0	150
	$	896	360	0	1,256	(1,048)	(8)	0	200

Commodity Derivative Liabilities
Exchange-cleared instruments	$	794	332	0	1,126	(1,048)	(78)	0	0
OTC instruments	0		1	0	1	0	0	0	1
Physical forward contracts	0		13	0	13	0	0	0	13
Interest-rate derivatives	0		1	0	1	0	0	0	1
Floating-rate debt	0		1,475	0	1,475	N/A	N/A	0	1,475
Fixed-rate debt, excluding finance leases	0		15,064	0	15,064	N/A	N/A	(1,391)	13,673
	$	794	16,886	0	17,680	(1,048)	(78)	(1,391)	15,163


	Millions of Dollars
	December 31, 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	$	314	356	0	670	(669)	0	0	1

Physical forward contracts	0		13	0	13	0	0	0	13

Rabbi trust assets	143		0	0	143	N/A	N/A	0	143
	$	457	369	0	826	(669)	0	0	157

Commodity Derivative Liabilities
Exchange-cleared instruments	$	351	364	0	715	(669)	(46)	0	0
Physical forward contracts	0		10	0	10	0	0	0	10
Interest-rate derivatives	0		3	0	3	0	0	0	3

Floating-rate debt	0		1,940	0	1,940	N/A	N/A	0	1,940
Fixed-rate debt, excluding finance leases	0		15,597	0	15,597	N/A	N/A	(1,927)	13,670
	$	351	17,914	0	18,265	(669)	(46)	(1,927)	15,623

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” line 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.

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Nonrecurring Fair Value Measurements

~~The~~Equity Investments

In the first quarter of 2021, Phillips 66 Partners wrote down the book value of its investment in Liberty to estimated fair value using a Level 3 nonrecurring fair value measurement. This nonrecurring measurement was based on the estimated fair value of Phillip 66 Partners’ share of the joint venture’s pipeline assets and net working capital. See Note 5—Investments, Loans and Long-Term Receivables, for more information regarding Phillips 66 Partners’ transfer of its ownership in Liberty to its co-venturer in April 2021.

In the first quarter of 2020, the nonrecurring fair value measurement used to record an impairment of our DCP Midstream investment was the fair value of our share of DCP Midstream’s limited partner interest in DCP Partners, which was estimated based on average market prices of DCP Partners common units for a ~~15-day~~multi-day trading period encompassing March 31, 2020. This valuation resulted in a Level 2 nonrecurring fair value measurement. ~~See Note 5—Investments, Loans and Long-Term Receivables, for additional information on the impairment.~~

Goodwill

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~~used a discounted cash flow model that ~~requires~~included various observable and nonobservable inputs, such as prices, volumes, expenses, capital expenditures, discount rates and projected ~~long‑term~~long-term growth rates and terminal values. The market approach ~~uses~~used 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 Level 3 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’s goodwill was impaired 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,~~Impairments, for additional information on the ~~goodwill impairment.~~

above impairments.

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Note 14—Pension and Postretirement Plans

The components of net periodic benefit cost for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, were as follows:


	Millions of Dollars
	Pension Benefits					Other Benefits
	2021			2020		2021	2020
	U.S.		Int’l.	U.S.	Int’l.
Components of Net Periodic Benefit Cost
Three Months Ended March 31
Service cost	$	37	9	33	7	1	1
Interest cost	20		5	25	6	1	2
Expected return on plan assets	(41)		(15)	(41)	(13)	0	0
Amortization of prior service credit	0		0	0	0	(1)	(1)
Recognized net actuarial loss	15		6	14	4	0	0

Net periodic benefit cost*	$	31	5	31	4	1	2









* 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
2020 2019 2020
2019
U.S.
Int’l.
U.S.
Int’l.

Components of Net Periodic Benefit Cost
Three Months Ended March 31
Service cost $ 33
7
32
6
1
1
Interest cost 25
6
27
6
2
2
Expected return on plan assets (41 ) (13 ) (36 ) (11 ) —
—
Amortization of prior service credit —
—
—
—
(1 ) —
Recognized net actuarial loss 14
4
13
2
—
—
Settlements —
—
4
—
—
—
Net periodic benefit cost* $ 31

4

40

3

2

3
* Included in the “Operating expenses” and “Selling, general and administrative expenses” line items on our consolidated statement of operations.

During the three months ended March 31, ~~2020,~~2021, we contributed $4$5 million to our U.S. pension and other postretirement benefit plans and $7 million to our international pension plans. We currently expect to make additional contributions of approximately ~~$42~~$35 million to our U.S. pension and other postretirement benefit plans and ~~$20~~$23 million to our international pension plans during the remainder of ~~2020.~~

2021.

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Note 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, 2019 $ (656 ) (131 ) (1 ) (788 )
Other comprehensive income (loss) before reclassifications 1
(221 ) (7 ) (227 )
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss and net prior service credit 19
—
—
19
Foreign currency translation —
—
—
—
Hedging —
—
—
—
Net current period other comprehensive income (loss) 20
(221 ) (7 ) (208 )
Other —
5
—
5
March 31, 2020 $ (636 ) (347 ) (8 ) (991 )

December 31, 2018 $ (472 ) (228 ) 8
(692 )
Other comprehensive income (loss) before reclassifications 3
57
(1 ) 59
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss and settlements 15
—
—
15
Foreign currency translation —
—
—
—
Hedging —
—
(2 ) (2 )
Net current period other comprehensive income (loss) 18
57
(3 ) 72
Income taxes reclassified to retained earnings** (93 ) 2
2
(89 )
March 31, 2019 $ (547 ) (169 ) 7
(709 )
* 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.


	Millions of Dollars
	Defined Benefit Plans		Foreign Currency Translation	Hedging	Accumulated Other Comprehensive Loss

December 31, 2020	$	(809)	25	(5)	(789)
Other comprehensive income (loss) before reclassifications	5		(15)	0	(10)
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss and prior service credit	17		—	—	17
Foreign currency translation	—		0	—	0
Hedging	—		—	2	2
Net current period other comprehensive income (loss)	22		(15)	2	9
March 31, 2021	$	(787)	10	(3)	(780)

December 31, 2019	$	(656)	(131)	(1)	(788)
Other comprehensive income (loss) before reclassifications	1		(221)	(7)	(227)
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss and prior service credit	19		—	—	19
Foreign currency translation	—		0	—	0
Hedging	—		—	0	0
Net current period other comprehensive income (loss)	20		(221)	(7)	(208)
Other	0		5	0	5
March 31, 2020	$	(636)	(347)	(8)	(991)
* Included in the computation of net periodic benefit cost. See Note 14—Pension and Postretirement Plans, for additional information.

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Note 16—Related Party Transactions

Significant transactions with related parties were:


	Millions of Dollars
	Three Months Ended March 31
	2021		2020

Operating revenues and other income (a)	$	770	534
Purchases (b)	2,357		2,126
Operating expenses and selling, general and administrative expenses (c)	68		51

(a)We sold NGL, other petrochemical feedstocks and solvents to Chevron Phillips Chemical Company LLC (CPChem), NGL and certain feedstocks to DCP Midstream, gas oil and hydrogen feedstocks to Excel Paralubes (Excel), and refined petroleum products to several of our equity affiliates in the Marketing and Specialties segment, including OnCue and CF United. We also sold certain feedstocks and intermediate products to WRB and acted as an 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, NGL and solvents from WRB. 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
March 31
2020
2019

Operating revenues and other income (a) $ 534
683
Purchases (b) 2,126
2,668
Operating expenses and selling, general and administrative expenses (c) 51
9

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~~(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 affiliates in the M&S segment, including OnCue and 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 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 consignment fees to United, and utility and processing fees to various affiliates.~~

Note 17—Segment Disclosures and Related Information

Our operating segments are:

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, 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.~~

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

Intersegment sales are at prices that we believe approximate market.

Table of Contents

Analysis of Results by Operating Segment

Millions of Dollars
Three Months Ended
March 31
2020
2019
Sales and Other Operating Revenues*

Midstream
Total sales $ 1,538
1,897
Intersegment eliminations (495 ) (584 )
Total Midstream 1,043
1,313
Chemicals 1
1
Refining
Total sales 13,781
16,861
Intersegment eliminations (7,633 ) (9,768 )
Total Refining 6,148
7,093
Marketing and Specialties
Total sales 14,249
15,242
Intersegment eliminations (570 ) (553 )
Total Marketing and Specialties 13,679
14,689
Corporate and Other 7
7
Consolidated sales and other operating revenues $ 20,878
23,103
* 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 $ (702 ) 316
Chemicals 169
227
Refining (2,261 ) (198 )
Marketing and Specialties 513
205
Corporate and Other (197 ) (210 )
Consolidated income (loss) before income taxes $ (2,478 ) 340


	Millions of Dollars
	Three Months Ended March 31
	2021		2020
Sales and Other Operating Revenues*
Midstream
Total sales	$	2,384	1,538
Intersegment eliminations	(627)		(495)
Total Midstream	1,757		1,043
Chemicals	1		1
Refining
Total sales	15,053		13,781
Intersegment eliminations	(8,456)		(7,633)
Total Refining	6,597		6,148
Marketing and Specialties
Total sales	13,598		14,249
Intersegment eliminations	(333)		(570)
Total Marketing and Specialties	13,265		13,679
Corporate and Other	7		7
Consolidated sales and other operating revenues	$	21,627	20,878
* 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	$	76	(702)
Chemicals	154		169
Refining	(1,040)		(2,261)
Marketing and Specialties	290		513
Corporate and Other	(251)		(197)
Consolidated loss before income taxes	$	(771)	(2,478)

Millions of Dollars
March 31
2020
December 31
2019
Total Assets
Midstream $ 14,846
15,716
Chemicals 6,376
6,249
Refining 22,516
25,150
Marketing and Specialties 7,108
8,659
Corporate and Other 2,614
2,946
Consolidated total assets $ 53,460
58,720


	Millions of Dollars
	March 31 2021		December 31 2020
Total Assets
Midstream	$	15,296	15,596
Chemicals	6,133		6,183
Refining	21,893		20,404
Marketing and Specialties	7,962		7,180
Corporate and Other	4,212		5,358
Consolidated total assets	$	55,496	54,721

Table of Contents

Note 18—Income Taxes

Our effective income tax rate for the three months ended March 31, ~~2020,~~2021, was 2%17%, compared with ~~21%~~2% for the corresponding period of ~~2019.~~2020. The ~~decrease~~increase in our effective tax rate for the three months ended March 31, 2021, was primarily attributable to the current-year impact of our foreign operations and income attributable to noncontrolling interests and the prior-year impact of a nondeductible goodwill impairment and a net operating loss carryback to a year with a 35% tax rate.

The effective income tax rate for the three months ended March 31, ~~2020,~~2021, varied from the U.S. federal statutory income tax rate of 21%, primarily due to ~~the impact of our~~ foreign operations and income attributable to noncontrolling ~~interests, a nondeductible goodwill impairment~~interests.

An income tax receivable of $1.5 billion, which reflects tax refunds we expect to receive within the next 12 months, is included in the “Accounts and ~~a net operating loss carryback to a year with a 35% tax rate. These items have a disproportionate impact~~notes receivable” line item on our ~~effective income tax rate in a period with a before-tax loss.~~consolidated balance sheet as of March 31, 2021.

Note 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, 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 March 31, ~~2020,~~2021, we owned 170 million Phillips 66 Partners common units, representing a 74% limited partner interest in Phillips 66 Partners, while the public owned a 26% limited partner interest and 13.8 million perpetual convertible preferred units.

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
March 31
2020
December 31
2019

Cash and cash equivalents $ 92
286
Equity investments* 3,136
2,961
Net properties, plants and equipment 3,410
3,349
Short-term debt 25
25
Long-term debt 3,491
3,491
* Included in “Investments and long-term receivables” line item on the Phillips 66 consolidated balance sheet.


	Millions of Dollars
	March 31 2021		December 31 2020


Equity investments*	$	3,029	3,244
Net properties, plants and equipment	3,646		3,639
Short-term debt	500		465
Long-term debt	3,444		3,444
* Included in the “Investments and long-term receivables” line item on the Phillips 66 consolidated balance sheet.

For the three months ended March 31, 2020 and 2019, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $2 million and $32 million, respectively, from common units issued under its continuous offering of common units, or at-the-market (ATM) programs. Since inception in June 2016 and through March 31, 2020, the ATM programs have generated net proceeds of $494 million.

Phillips 66 Partners has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. After deducting a co-venturer’s pending acquisition of a 35% interest in the consolidated holding company, Phillips 66 Partners has an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC. 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. On April 1, 2020, the Gray Oak Pipeline commenced full operations from West Texas to Texas Gulf Coast destinations. The Eagle Ford segment of the pipeline commenced operations later in April. Accordingly, the co-venturer’s 35% interest in the holding company is expected to be recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet in the second quarter. Also at that time, the premium paid by the co-venturer will be recharacterized from a long-term obligation to a gain in our consolidated statement of operations. For the three months ended March 31, 2020, the co-venturer contributed an aggregate of $23 million to the holding company to fund its portion of Gray Oak Pipeline LLC’s cash calls. See Note 5—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillips 66 Partners’ ~~investment in Gray Oak Pipeline, LLC.~~

~~Note 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 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).~~Dakota Access and ETCO, and Liberty.

~~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 March 31, 2020
Statement of Operations Phillips 66
Phillips 66 Company
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
Revenues and Other Income
Sales and other operating revenues $ —
15,510
5,368
—
20,878
Equity in earnings (losses) of affiliates (2,420 ) (361 ) 239
2,907
365
Net gain on dispositions —
1
—
—
1
Other income (loss) —
(2 ) 2
—
—
Intercompany revenues —
930
2,418
(3,348 ) —
Total Revenues and Other Income (Loss) (2,420 ) 16,078
8,027
(441 ) 21,244

Costs and Expenses
Purchased crude oil and products —
14,986
6,689
(3,235 ) 18,440
Operating expenses —
1,117
254
(30 ) 1,341
Selling, general and administrative expenses 3
211
107
(2 ) 319
Depreciation and amortization —
235
107
—
342
Impairments —
1,805
1,201
—
3,006
Taxes other than income taxes —
123
34
—
157
Accretion on discounted liabilities —
5
1
—
6
Interest and debt expense 78
36
78
(81 ) 111
Total Costs and Expenses 81
18,518
8,471
(3,348 ) 23,722
Loss before income taxes (2,501 ) (2,440 ) (444 ) 2,907
(2,478 )
Income tax benefit (5 ) (20 ) (26 ) —
(51 )
Net Loss (2,496 ) (2,420 ) (418 ) 2,907
(2,427 )
Less: net income attributable to noncontrolling interests —
—
69
—
69
Net Loss Attributable to Phillips 66 $ (2,496 ) (2,420 ) (487 ) 2,907
(2,496 )

Comprehensive Loss $ (2,704 ) (2,628 ) (627 ) 3,324
(2,635 )

Millions of Dollars
Three Months Ended March 31, 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 $ —
17,415
5,688
—
23,103
Equity in earnings of affiliates 281
431
165
(361 ) 516
Net gain on dispositions —
—
1
—
1
Other income —
20
18
—
38
Intercompany revenues —
1,161
3,215
(4,376 ) —
Total Revenues and Other Income 281
19,027
9,087
(4,737 ) 23,658

Costs and Expenses
Purchased crude oil and products —
17,080
8,254
(4,279 ) 21,055
Operating expenses —
1,000
326
(19 ) 1,307
Selling, general and administrative expenses 3
255
110
(2 ) 366
Depreciation and amortization —
227
104
—
331
Impairments —
—
1
—
1
Taxes other than income taxes —
95
33
—
128
Accretion on discounted liabilities —
4
1
1
6
Interest and debt expense 93
36
67
(77 ) 119
Foreign currency transaction losses —
—
5
—
5
Total Costs and Expenses 96
18,697
8,901
(4,376 ) 23,318
Income before income taxes 185
330
186
(361 ) 340
Income tax expense (benefit) (19 ) 49
40
—
70
Net Income 204
281
146
(361 ) 270
Less: net income attributable to noncontrolling interests —
—
66
—
66
Net Income Attributable to Phillips 66 $ 204
281
80
(361 ) 204

Comprehensive Income $ 276
353
211
(498 ) 342

Table of Contents

Millions of Dollars
March 31, 2020
Balance Sheet Phillips 66
Phillips 66 Company
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
Assets
Cash and cash equivalents $ —
809
412
—
1,221
Accounts and notes receivable —
3,114
3,726
(2,281 ) 4,559
Inventories —
3,821
1,510
—
5,331
Prepaid expenses and other current assets —
387
207
—
594
Total Current Assets —
8,131
5,855
(2,281 ) 11,705
Investments and long-term receivables 30,738
24,454
10,173
(51,730 ) 13,635
Net properties, plants and equipment —
13,738
10,313
—
24,051
Goodwill —
1,047
378
—
1,425
Intangibles —
744
136
—
880
Other assets 13
4,239
662
(3,150 ) 1,764
Total Assets $ 30,751
52,353
27,517
(57,161 ) 53,460

Liabilities and Equity
Accounts payable $ —
5,296
2,307
(2,281 ) 5,322
Short-term debt 2,196
16
31
—
2,243
Accrued income and other taxes —
303
400
—
703
Employee benefit obligations —
271
30
—
301
Other accruals 134
1,620
548
(342 ) 1,960
Total Current Liabilities 2,330
7,506
3,316
(2,623 ) 10,529
Long-term debt 6,936
165
3,619
—
10,720
Asset retirement obligations and accrued environmental costs —
460
175
—
635
Deferred income taxes —
3,863
1,627
(3 ) 5,487
Employee benefit obligations —
787
213
—
1,000
Other liabilities and deferred credits 83
9,782
5,799
(14,214 ) 1,450
Total Liabilities 9,349
22,563
14,749
(16,840 ) 29,821
Common stock 3,195
25,859
9,527
(35,386 ) 3,195
Retained earnings 19,198
4,922
1,453
(6,405 ) 19,168
Accumulated other comprehensive loss (991 ) (991 ) (479 ) 1,470
(991 )
Noncontrolling interests —
—
2,267
—
2,267
Total Liabilities and Equity $ 30,751
52,353
27,517
(57,161 ) 53,460

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
Three Months Ended March 31, 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 $ 643
(364 ) 494
(556 ) 217

Cash Flows From Investing Activities
Capital expenditures and investments —
(292 ) (631 ) —
(923 )
Return of investments in equity affiliates —
—
38
—
38
Proceeds from asset dispositions —
1
—
—
1
Intercompany lending activities (973 ) 1,914
(941 ) —
—
Advances/loans—related parties —
—
(8 ) —
(8 )
Other —
(25 ) 40
—
15
Net Cash Provided by (Used in) Investing Activities (973 ) 1,598
(1,502 ) —
(877 )

Cash Flows From Financing Activities
Issuance of debt 1,199
—
—
—
1,199
Repayment of debt —
(5 ) (2 ) —
(7 )
Issuance of common stock 6
—
—
—
6
Repurchase of common stock (443 ) —
—
—
(443 )
Dividends paid on common stock (396 ) (556 ) —
556
(396 )
Distributions to noncontrolling interests —
—
(61 ) —
(61 )
Net proceeds from issuance of Phillips 66 Partners LP common units —
—
2
—
2
Other (36 ) —
12
—
(24 )
Net Cash Provided by (Used in) Financing Activities 330
(561 ) (49 ) 556
276

Effect of Exchange Rate Changes on Cash and Cash Equivalents —
—
(9 ) —
(9 )

Net Change in Cash and Cash Equivalents —
673
(1,066 ) —
(393 )
Cash and cash equivalents at beginning of period —
136
1,478
—
1,614
Cash and Cash Equivalents at End of Period $ —
809
412
—
1,221

Millions of Dollars
Three Months Ended March 31, 2019
Statement of Cash Flows Phillips 66
Phillips 66 Company
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
Cash Flows From Operating Activities
Net Cash Provided by (Used in) Operating Activities $ 3
(384 ) 21
(118 ) (478 )

Cash Flows From Investing Activities
Capital expenditures and investments —
(234 ) (863 ) —
(1,097 )
Return of investments in equity affiliates —
—
21
—
21
Proceeds from asset dispositions —
—
82
—
82
Intercompany lending activities 731
(806 ) 75
—
—
Other —
(26 ) 8
—
(18 )
Net Cash Provided by (Used in) Investing Activities 731
(1,066 ) (677 ) —
(1,012 )

Cash Flows From Financing Activities
Issuance of debt —
—
725
—
725
Repayment of debt —
(5 ) (587 ) —
(592 )
Issuance of common stock 8
—
—
—
8
Repurchase of common stock (344 ) —
—
—
(344 )
Dividends paid on common stock (364 ) —
(118 ) 118
(364 )
Distributions to noncontrolling interests —
—
(56 ) —
(56 )
Net proceeds from issuance of Phillips 66 Partners LP common units —
—
32
—
32
Other (34 ) —
341
—
307
Net Cash Provided by (Used in) Financing Activities (734 ) (5 ) 337
118
(284 )

Effect of Exchange Rate Changes on Cash and Cash Equivalents —
—
8
—
8

Net Change in Cash and Cash Equivalents —
(1,455 ) (311 ) —
(1,766 )
Cash and cash equivalents at beginning of period —
1,648
1,371
—
3,019
Cash and Cash Equivalents at End of Period $ —
193
1,060
—
1,253

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, 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 “results,” “before-tax income” or “before-tax loss” as used in Management’s Discussion and Analysis refer to income (loss) before income taxes.

EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT

Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. At March 31, ~~2020,~~2021, we had total assets of ~~$53.5~~$55.5 billion. Our common stock trades on the New York Stock Exchange under the symbol PSX.

Executive Overview

The ~~global markets for crude oil and petroleum products were materially disrupted during the first quarter of 2020 by two significant events:~~

~~The outbreak of~~ Coronavirus Disease 2019 (COVID-19) ~~and its development into a~~ pandemic ~~resulted in significant~~continues to disrupt economic ~~disruption~~activities globally. Actions taken by governments to prevent the spread of the disease, ~~included severe~~including travel and business restrictions, ~~which~~have resulted in substantial decreases in the demand for many refined petroleum products, particularly gasoline and jet fuel. ~~This drop in demand led refiners~~Demand for refined petroleum products started to ~~reduce crude oil processing rates~~recover following the distribution of COVID-19 vaccines at the beginning of 2021, and ~~eventually led to lower crude oil demand and prices.~~

~~The dispute over production levels between Russia and the members~~consequently, refining margins have improved. Ongoing market discipline of ~~the Organization of Petroleum Exporting Countries (OPEC), including Saudi Arabia, resulted in an oversupply~~OPEC producers has reduced excess supplies of crude oil ~~which exacerbated~~and the ~~decline in~~current balance has supported higher crude oil ~~prices~~ and ~~eventually led to lower petroleum product~~natural gas liquids (NGL) prices.

~~These events resulted in significant reductions in realized margins and materially impacted our results of operations in~~ During the first quarter of ~~2020. Our first quarter results of~~2021, winter storms significantly impacted refining, midstream and chemical operations also reflect a $1.8 billion goodwill impairment, a $1.2 billion before-tax impairment of our investment in DCP Midstream, LLC (DCP Midstream), and approximately $50 million of lower-of-cost-or-market inventory charges recorded by certain of our equity affiliates.

~~In March and April 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 $1 billion of senior unsecured notes in equal tranches of three- and five-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.~~

OPEC has agreed to crude oil production cuts into 2022, but the near-term outlook for petroleum product demand remains highly uncertain, prices remain volatile, and margins and volumes remain challenged. The depth and duration of the economic consequences of the COVID-19 pandemic are currently unknown. However, the adverse economic effects on our company have continued into the second quarter and will likely continue to be significant in the ~~near term.~~Central and Gulf Coast regions, which resulted in lower asset utilization, as well as higher costs.

In the first quarter of ~~2020,~~2021, we reported a loss of ~~$2.5 billion,~~$654 million and generated cash from operating activities of ~~$217 million, borrowed $1.0 billion under a new term loan facility and borrowed $200 million of commercial paper.~~$271 million. We used available cash ~~to fund~~for capital expenditures and investments of ~~$923~~$331 million, ~~repurchase $443~~repayment of $500 million of maturing debt, dividend payments on our common stock of $394 million, and ~~pay dividends~~an additional member loan to an equity affiliate of ~~$396~~$155 million. We ended the first quarter of ~~2020~~2021 with ~~$1.2~~$1.4 billion of cash and cash equivalents and approximately ~~$5.7~~$5.3 billion of total committed capacity available under our revolving credit facilities.

Our results in the first quarter of 2021 reflect the adverse effects of the COVID-19 pandemic and severe winter storms that occurred in the Central and Gulf Coast regions in February 2021. The adverse effects of the COVID-19 pandemic may continue to be significant in the near term, and the depth and duration of the resulting economic consequences remain unknown. We continuously monitor our asset and investment portfolio for impairments, as well as optimization opportunities, in this challenging business environment. As such, additional asset and investment impairments may be required in the future.

Table of Contents

Business Environment

The Midstream segment includes our Transportation and ~~Natural Gas Liquids (NGL)~~NGL businesses. Our Transportation business contains fee-based operations that are not directly exposed to commodity price risk. Our NGL business ~~results~~contains both fee-based operations and operations that are ~~primarily driven~~directly impacted by ~~fractionation and terminaling margins, throughput volumes, and impacts from~~ NGL prices. The Midstream segment also includes our 50% equity investment in DCP ~~Midstream. Compared~~Midstream, LLC (DCP Midstream). During the first quarter of 2021, NGL prices increased, compared with the first quarter of ~~2019, NGL prices have experienced significant volatility~~2020, due to higher demand and ~~declined~~supply disruptions caused by the winter storms that occurred in the ~~first quarter of 2020 resulting from the negative economic impacts from the response to the COVID-19 pandemic.~~Central and Gulf Coast regions in February 2021.

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 first quarter of ~~2020,~~2021, the benchmark high-density polyethylene chain margin ~~decreased,~~increased significantly, compared with the first quarter of ~~2019,~~2020. This increase was driven by ~~continued~~strong demand, low inventories, and tight supply ~~increases~~due to operational impacts from the ~~startup of new polyethylene plants~~winter storms that occurred in ~~2019~~the Central and ~~trade policy uncertainty.~~Gulf Coast regions in February 2021.

Our Refining segment results are driven by several factors, including refining margins, refinery throughput, feedstock costs, product yields, turnaround activity, and other operating costs. The price of U.S. benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, ~~decreased~~increased to an average of ~~$45.97~~$57.84 per barrel during the first quarter of ~~2020,~~2021, compared with an average of ~~$54.87~~$45.97 per barrel in the first quarter of 2019, driven by a significant decline in global demand for petroleum products in March 2020, as a result of the negative global economic impacts in response to the COVID-19 pandemic, combined with increased crude supply from Russia and OPEC.2020. Market crack spreads are used as indicators of refining margins and measure the difference between market prices for refined petroleum products and crude oil. During the first quarter of ~~2020, the~~2021, worldwide market crack spreads were ~~relatively flat~~significantly higher than the first quarter of 2020. The increases in crude oil prices and market crack spreads were mainly driven by an increase in demand for refined petroleum products and crude oil in the first quarter of 2021 following the distribution of COVID-19 vaccines. Additionally, product prices increased due to operational impacts from the winter storms that occurred in the Central and Gulf Coast regions in February 2021. However, during the first quarter of 2021, the improved market crack spreads were partially offset by a significant increase in cost of RINs, compared with the first quarter of 2019. However, starting in mid-March, the gasoline and jet fuel crack spreads have significantly decreased, mainly driven by a sharp decline in demand for refined petroleum products resulting from significant global economic disruption in response to the COVID-19 pandemic.2020.

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 sales.~~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 ~~decline~~global disruption caused by the COVID-19 pandemic has resulted in reduced demand for ~~gasoline~~refined petroleum and ~~jet fuel led~~specialty products since March 2020. With the distribution of COVID-19 vaccines in 2021, the global economy has begun to ~~lower revenues derived from selling those products.~~recover, and demand for refined petroleum and specialty products is improving.

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RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three months ended March 31, ~~2020~~,2021, is based on a comparison with the corresponding period of 2020.

~~2019~~.

Consolidated Results

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


	Millions of Dollars
	Three Months Ended March 31
	2021		2020

Midstream	$	76	(702)
Chemicals	154		169
Refining	(1,040)		(2,261)
Marketing and Specialties	290		513
Corporate and Other	(251)		(197)
Loss before income taxes	(771)		(2,478)
Income tax benefit	(132)		(51)
Net loss	(639)		(2,427)
Less: net income attributable to noncontrolling interests	15		69
Net loss attributable to Phillips 66	$	(654)	(2,496)

Millions of Dollars
Three Months Ended
March 31
2020
2019

Midstream $ (702 ) 316
Chemicals 169
227
Refining (2,261 ) (198 )
Marketing and Specialties 513
205
Corporate and Other (197 ) (210 )
Income (loss) before income taxes (2,478 ) 340
Income tax expense (benefit) (51 ) 70
Net income (loss) (2,427 ) 270
Less: net income attributable to noncontrolling interests 69
66
Net income (loss) attributable to Phillips 66 $ (2,496 ) 204

Our ~~earnings decreased $2,700~~net loss attributable to Phillips 66 in the first quarter of 2021 was $654 million, compared with $2,496 million in the first quarter of ~~2020, mainly reflecting:~~

~~A $1,845 million goodwill~~2020. The lower net loss attributable to Phillips 66 reflects a before-tax impairment in the first quarter of 2021 of $198 million, compared with before-tax impairments of $3,006 million in the first quarter of 2020. Excluding these impairments, our ~~Refining segment.~~

~~A $1,161 million before-tax impairment~~results for the first quarter of ~~our investment in DCP Midstream.~~

~~Lower refinery production.~~

~~Lower equity in earnings of affiliates in our Refining and Chemicals segments.~~

~~These decreases were partially offset by:~~

~~Higher~~2021 decreased, primarily driven by lower realized refining margins, decreased realized marketing ~~margins.~~

~~Improved results from our NGL~~fuel margins and ~~Other business.~~

~~Higher equity in earnings of affiliates in our Midstream segment.~~

~~An income tax benefit~~lower sales volumes in the ~~current period.~~first quarter of 2021.

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

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Statement of Operations Analysis

Sales and other operating revenues and purchased crude oil and products ~~decreased 10%~~increased 4% and ~~12%~~9%, respectively, in the first quarter of ~~2020.~~2021. These ~~decreases~~increases were mainly due to ~~lower~~higher prices for refined petroleum products, crude oil and ~~NGL.~~NGL, partially offset by lower volumes.

Equity in earnings of affiliates decreased ~~29%~~22% in the first quarter of ~~2020.~~2021. The decrease was ~~mainly~~primarily due to lower realized refining margins and decreased refinery production at WRB Refining LP (WRB), as well as lower earnings from CPChem caused by the adverse impacts from the winter storms that occurred in the Central and ~~lower polyethylene margins at CPChem, partially offset by improved results~~Gulf Coast regions in February 2021. See Chemicals segment analysis in the “Segment Results” section for additional information on CPChem.

Selling, general and administrative expenses increased 28% in the first quarter of 2021. The increase was primarily due to higher employee-related expenses and increased selling expenses reflecting a benefit received from ~~our Midstream joint venture assets.~~a legal settlement in the first quarter of 2020.

~~Other income~~Impairments decreased ~~$38~~$2,808 million in the first quarter of ~~2020. The decrease~~2021. During the first quarter of 2021, a before-tax impairment of $198 million was ~~primarily driven by a decrease~~recorded relating to Phillips 66 Partners LP’s investment in the ~~fair value of deferred compensation investments in~~Liberty Pipeline project. In the first quarter of 2020, ~~compared with an increase~~before-tax impairments of $3,006 million were recorded for our investment in ~~the fair value of deferred compensation investments~~DCP Midstream and goodwill in ~~the first quarter of 2019.~~ our Refining segment. See Note 7—Impairments, and Note 13—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information ~~on the fair value of the deferred compensation investments.~~regarding these impairments.

~~Selling, general~~Interest and ~~administrative expenses~~debt expense ~~decreased 13%~~increased 32% in the first quarter of 2021. The increase was primarily driven by higher average debt principal balances, reflecting new debt issuances during 2020, ~~mainly~~and lower capitalized interest due to ~~lower selling costs in our M&S segment~~the completion of capital projects and ~~lower employee-related expenses.~~the placement of assets into service.

~~Impairments~~ were $3.0 billion in the first quarter of 2020, consisting of a before-tax impairment of $1.2 billion associated with our investment in DCP Midstream, and a $1.8 billion before-tax 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~~Our income tax benefit ~~of $51~~was $132 million in the first quarter of ~~2020,~~2021, compared with ~~an income tax expense of $70~~$51 million in the ~~first quarter~~corresponding period of ~~2019. The benefit in the first quarter of 2020 was attributable to a loss before income taxes.~~ 2020. See Note 18—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our effective income tax rates.

Net income attributable to noncontrolling interests decreased 78% in the first quarter of 2021. The decrease was primarily driven by a net loss from Phillips 66 Partners LP (Phillips 66 Partners) due to the before-tax impairment associated with Phillips 66 Partners’ investment in the Liberty Pipeline project described above.

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Segment Results

Midstream


	Three Months Ended March 31
	2021		2020

	Millions of Dollars
Income (Loss) Before Income Taxes
Transportation	$	7	200
NGL and Other	35		179
DCP Midstream	34		(1,081)
Total Midstream	$	76	(702)

Three Months Ended
March 31
2020
2019

Millions of Dollars
Income (Loss) Before Income Taxes
Transportation $ 200
203
NGL and Other 179
90
DCP Midstream (1,081 ) 23
Total Midstream $ (702 ) 316


	Thousands of Barrels Daily			Thousands of Barrels Daily
Transportation Volumes			Transportation Volumes
Pipelines*	3,178	3,176	Pipelines*	2,801	3,178
Terminals	3,148	3,063	Terminals	2,675	3,148
Operating Statistics			Operating Statistics
NGL fractionated**	198	234	NGL fractionated**	363	198
NGL production***	396	428	NGL production***	356	396

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

** Excludes DCP Midstream.

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


	Dollars Per Gallon
Weighted-Average NGL Price*

DCP Midstream	$	0.69	0.39
* 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 $ 0.39
0.60
* 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.

~~The~~Results from our Midstream segment ~~had a before-tax loss of $702~~increased $778 million in the first quarter of ~~2020, compared with before-tax income of $316~~2021.

Results from our Transportation business decreased $193 million in the first quarter of ~~2019.~~2021. The decrease was primarily ~~driven by~~attributable to a ~~$1,161 million~~ before-tax impairment of ~~our equity investment in DCP Midstream, partially offset by improved results~~$198 million associated with Phillips 66 Partners’ decision to exit the Liberty Pipeline project.

Results from our NGL and Other business ~~and higher equity earnings from DCP Midstream.~~

~~Before-tax income from our Transportation business~~ decreased ~~slightly in the first quarter of 2020.~~

~~Before-tax income from our NGL and Other business increased $89~~$144 million in the first quarter of ~~2020.~~2021. The ~~increase~~decrease was ~~mainly~~primarily due to ~~improved~~higher operating expenses driven by the winter storms that occurred in the Gulf Coast region in February 2021, lower results from our trading activities, reduced cargo margins ~~and volumes~~ at the Sweeny Hub, ~~a favorable impact~~and decreased equity earnings. These decreases were partially offset by increased fractionation volumes from ~~our trading activities associated with NGL inventory management,~~ the ~~start-up~~startup of ~~a new isomerization unit~~Fracs 2 and 3 at ~~our Lake Charles Refinery~~the Sweeny Hub in ~~the second half~~late 2020, leading to higher exported cargoes.

Table of ~~2019, and higher equity earnings.~~Contents

~~The before-tax loss~~Results from our investment in DCP Midstream ~~was $1,081~~increased $1,115 million in the first quarter of ~~2020, compared with before-tax income of $23 million in the first quarter of 2019.~~2021. The ~~current period loss was primarily due to a $1,161 million before-tax impairment of our equity investment in DCP Midstream. Excluding the impairment, equity earnings from DCP Midstream~~ increased $57 million in the first quarter of 2020, primarily driven by favorable impacts from its commodity price risk management activities, and DCP Midstream’s increased ownership interest in DCP Partners associated with the Incentive Distribution Rights elimination transaction in the fourth quarter of 2019.

The fair value of our investment in DCP Midstream depends on the market value of DCP Partners common units. The market value of DCP Partners common units 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 significantly lower than its book value. We concluded the difference between its fair value and book value was not temporary primarily due to its magnitude. Accordingly, we recordedresults reflect a $1,161 million before-tax impairment of our investment in DCP Midstream recorded in the first quarter of 2020. ~~This charge is included in the “Impairments” line item on our consolidated statement of operations. Following the~~Excluding this impairment, results from our investment in DCP Midstream ~~had a book value~~decreased in the first quarter of ~~$245 million at March 31, 2020. The impairment increased the basis difference for our investment in DCP Midstream, which indicates the carrying value of our investment is lower than our share of~~2021, mainly due to unfavorable impacts from DCP Midstream’s ~~recorded net assets. The basis difference of $1,795 million is expected to be amortized~~commodity price risk management activities.

See Note 7—Impairments, 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. See~~ Note 13—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information onregarding the ~~techniques used to determine the fair value of our~~Liberty Pipeline project and DCP Midstream investment ~~in DCP Midstream.~~impairments.

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

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Chemicals

Three Months Ended
March 31
2020
2019

Millions of Dollars

Income Before Income Taxes $ 169
227


	Three Months Ended March 31
	2021		2020

	Millions of Dollars

Income Before Income Taxes	$	154	169


	Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins	4,570	5,113
Specialties, Aromatics and Styrenics	981	1,188
	5,551	6,301
* 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 4,600
4,692
Specialties, Aromatics and Styrenics 1,188
1,069
5,788
5,761
* 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)	79	%	98

~~Olefins and Polyolefins Capacity Utilization (percent) 98 % 98~~

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).

~~Before-tax income~~Results from the Chemicals segment decreased ~~$58~~$15 million in the first quarter of ~~2020.~~2021. The decrease was ~~mainly~~primarily due to ~~decreased polyethylene margins~~higher utility, maintenance and repair costs, as well as lower ~~equity earnings from CPChem’s equity affiliates~~sales volumes, resulting from ~~their higher turnaround activities~~the winter storms that occurred in the Central and lower margins. In addition, CPChem recorded a lower-of-cost-or-market write-down of inventories valued on the last-in, first-out (LIFO) basis, and our portion of the write-down reduced our equity earnings from CPChem by $24 million, before-tax.Gulf Coast regions in February 2021. These ~~decreases~~negative effects were partially offset by higher ~~polyethylene sales volumes, lower utility expenses~~margins and ~~lower maintenance activities during the first quarter of 2020.~~increased earnings from CPChem’s equity affiliates.

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

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Refining


	Three Months Ended March 31
	2021		2020

	Millions of Dollars
Loss Before Income Taxes
Atlantic Basin/Europe	$	(153)	(637)
Gulf Coast	(253)		(843)
Central Corridor	(248)		(227)
West Coast	(386)		(554)
Worldwide	$	(1,040)	(2,261)

Three Months Ended
March 31
2020
2019

Millions of Dollars
Income (Loss) Before Income Taxes
Atlantic Basin/Europe $ (637 ) (7 )
Gulf Coast (843 ) (118 )
Central Corridor (227 ) 77
West Coast (554 ) (150 )
Worldwide $ (2,261 ) (198 )


							Dollars Per Barrel
	Dollars Per Barrel
Income (Loss) Before Income Taxes
Loss Before Income Taxes						Loss Before Income Taxes
Atlantic Basin/Europe	$	(15.41	)	(0.17	)	Atlantic Basin/Europe	$	(3.57)	(15.41)
Gulf Coast	(13.16		)	(1.80	)	Gulf Coast	(4.64)		(13.16)
Central Corridor	(9.72		)	3.22		Central Corridor	(12.55)		(9.72)
West Coast	(19.87		)	(4.89	)	West Coast	(14.89)		(19.87)
Worldwide	(14.44		)	(1.22	)	Worldwide	(7.27)		(14.44)

Realized Refining Margins*						Realized Refining Margins*
Atlantic Basin/Europe	$	2.38		7.76		Atlantic Basin/Europe	$	4.86	2.38
Gulf Coast	6.76			5.44		Gulf Coast	3.39		6.76
Central Corridor	13.50			10.23		Central Corridor	5.97		13.50
West Coast	4.80			6.25		West Coast	3.33		4.80
Worldwide	7.11			7.23		Worldwide	4.36		7.11

Thousands of Barrels Daily
Three Months Ended
March 31
Operating Statistics 2020
2019
Refining operations*
Atlantic Basin/Europe
Crude oil capacity 537
537
Crude oil processed 437
427
Capacity utilization (percent) 81 % 80
Refinery production 456
467
Gulf Coast
Crude oil capacity 769
764
Crude oil processed 645
654
Capacity utilization (percent) 84 % 85
Refinery production 703
722
Central Corridor
Crude oil capacity 530
515
Crude oil processed 471
445
Capacity utilization (percent) 89 % 86
Refinery production 488
468
West Coast
Crude oil capacity 364
364
Crude oil processed 279
307
Capacity utilization (percent) 77 % 84
Refinery production 306
342
Worldwide
Crude oil capacity 2,200
2,180
Crude oil processed 1,832
1,833
Capacity utilization (percent) 83 % 84
Refinery production 1,953
1,999
* Includes our share of equity affiliates.

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The Refining segment 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.

~~The before-tax loss~~Results from our Refining segment ~~increased $2,063~~improved by $1,221 million in the first quarter of ~~2020, primarily driven by~~2021. The improved results reflect a $1,845 million before-tax goodwill impairment ~~of $1,845 million~~recorded in the first quarter of 2020, combined with lower refinery production and higher operating expenses due to higher turnaround costs in the current quarter, partially offset by higher realized refining margins in the Gulf Coast and Central Corridor regions. Lower refinery production was mainly driven by a sharp decline in demand for petroleum products in March 2020 in response to the COVID-19 pandemic.

~~Our stock price declined significantly~~ 2020. Excluding this impairment, results from our Refining segment decreased in the first quarter of ~~2020~~2021, mainly due to lower realized refining margins and decreased refinery production. Decreased refinery production was primarily driven by the ~~volatility in global commodity and equity markets related to~~reduced demand resulting from the COVID-19 pandemic and ~~other factors. We assessed our goodwill for impairment~~unplanned downtime caused by the winter storms that occurred in the Central and Gulf Coast regions in February 2021.

Our worldwide refining crude oil capacity utilization rate was 74% in the first quarter of 2021, compared with 83% in the first quarter of 2020. The decrease in the current quarter was primarily due to refinery run cuts resulting from the COVID-19 pandemic and unplanned downtime 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. This charge is included in the “Impairments” line item on our consolidated statement of operations. The fair value of our other reporting units continued to exceed their carrying values by a significant percentage. See Note 13—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on the techniques used to determine the fair value of our Refining reporting unit.winter storms.

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 83% in the first quarter~~

Table of ~~2020, compared with 84% in the first quarter of 2019. The decrease in the current quarter was primarily due to refinery economic run cuts in March 2020 in response to the COVID-19 pandemic.~~Contents

Marketing and Specialties


	Three Months Ended March 31
	2021		2020

	Millions of Dollars
Income Before Income Taxes
Marketing and Other	$	211	471
Specialties	79		42
Total Marketing and Specialties	$	290	513

Three Months Ended
March 31
2020
2019

Millions of Dollars
Income Before Income Taxes
Marketing and Other $ 471
138
Specialties 42
67
Total Marketing and Specialties $ 513
205


	Dollars Per Barrel				Dollars Per Barrel
Income Before Income Taxes				Income Before Income Taxes
U.S.	$	1.79	0.60	U.S.	$	1.36	1.79
International	6.58		2.25	International	2.24		6.58

Realized Marketing Fuel Margins*				Realized Marketing Fuel Margins*
U.S.	$	2.08	1.06	U.S.	$	1.94	2.08
International	8.53		3.80	International	4.01		8.53

* See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel.




	Dollars Per Gallon
U.S. Average Wholesale Prices*
Gasoline	$	2.01	1.77
Distillates	1.98		1.76
* On third-party branded petroleum product sales, excluding excise taxes.

Dollars Per Gallon
U.S. Average Wholesale Prices*
Gasoline $ 1.77
1.86
Distillates 1.76
2.04
* On third-party branded petroleum product sales, excluding excise taxes.


	Thousands of Barrels Daily


Marketing Petroleum Products Sales Volumes
Gasoline	1,023	1,066
Distillates	818	1,037
Other	18	20
Total	1,859	2,123

Thousands of Barrels Daily
Marketing Petroleum Products Sales Volumes
Gasoline 1,066
1,151
Distillates 1,037
940
Other 20
18
Total 2,123
2,109

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 ~~increased $308~~decreased $223 million in the first quarter of ~~2020.~~2021. The ~~increase~~decrease was primarily due to ~~higher~~lower realized marketing fuel ~~margins.~~margins driven by an increase in spot prices in the first quarter of 2021, compared with a significant decline in spot prices in the first quarter of 2020, as well as reduced demand caused by the COVID-19 pandemic.

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

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Corporate and Other


	Millions of Dollars
	Three Months Ended March 31
	2021		2020
Loss Before Income Taxes
Net interest expense	$	(143)	(103)
Corporate overhead and other	(108)		(94)



Total Corporate and Other	$	(251)	(197)

Millions of Dollars
Three Months Ended
March 31
2020
2019
Loss Before Income Taxes
Net interest expense $ (103 ) (108 )
Corporate overhead and other (94 ) (102 )
Total Corporate and Other $ (197 ) (210 )

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. ~~Corporate overhead and other decreased $8~~

Net interest expense increased $40 million in the first quarter of ~~2020, mainly~~2021, primarily driven by higher average debt principal balances, reflecting new debt issuances during 2020, and lower capitalized interest due to the completion of capital projects and the placement of assets into service.

Corporate overhead and other increased $14 million in the first quarter of 2021, reflecting higher employee-related expenses.

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CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators


	Millions of Dollars, Except as Indicated
	March 31 2021		December 31 2020

Cash and cash equivalents	$	1,351	2,514
Short-term debt	516		987
Total debt	15,422		15,893
Total equity	20,457		21,523
Percent of total debt to capital*	43%		42
Percent of floating-rate debt to total debt	10%		12
* Capital includes total debt and total equity.

Millions of Dollars,
Except as Indicated
March 31
2020
December 31
2019

Cash and cash equivalents $ 1,221
1,614
Short-term debt 2,243
547
Total debt 12,963
11,763
Total equity 23,639
27,169
Percent of total debt to capital* 35 % 30
* Capital includes total debt and total equity.

To meet our short- and long-term liquidity requirements, we ~~seek~~use 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 three months of ~~2020,~~2021, we generated ~~$217~~$271 million of cash from ~~operations, borrowed $1 billion under our new term loan facility, and borrowed $200 million under our commercial paper facility.~~operations. We used available cash primarily for capital expenditures and investments of ~~$923 million; repurchases~~$331 million, repayment of ~~our common stock~~$500 million of ~~$443 million; and~~maturing debt, dividend payments on our common stock of ~~$396~~$394 million, and an additional member loan to an equity affiliate of $155 million. During the first three months of ~~2020,~~2021, cash and cash equivalents decreased ~~$393~~$1,163 million to ~~$1.2 billion.~~$1,351 million.

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 three months of ~~2020,~~2021, cash generated by operating activities was ~~$217~~$271 million, compared with ~~cash used in operating activities of $478~~$217 million for the first three months of ~~2019.~~2020. The increase ~~in the first three months of 2020, compared with the same period in 2019,~~ was ~~mainly~~primarily due to higher distributions from equity affiliates and favorable working capital impacts, partially offset by ~~decreased cash distributions from our equity affiliates.~~lower realized refining margins and sales volumes.

Our short- and long-term operating cash flows are highly dependent upon refining and marketing margins, NGL prices and ~~chemical~~chemicals margins. Prices and margins in our industry are typically volatile, and are driven by market conditions over which we have little or no control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding change in our operating cash flows. The recent decline in demand for petroleum products has led to a significant 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 a significant unfavorable impact on our future operating cash flows.

The level and quality of output from our refineries also ~~impacts~~impact our cash flows. Factors such as operating efficiency, maintenance turnarounds, market conditions, feedstock availability, and weather conditions can affect output. We actively manage the operations of our refineries, and any variability in their operations typically has not been as significant to cash flows as that caused by margins and prices. However, the recent decline in demand for 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 a significant 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 three months of ~~2020,~~2021, cash from operations included distributions of ~~$361~~$502 million from our equity affiliates, compared with ~~$611~~$361 million during the same period of ~~2019.~~2020. 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,~~

Tax Refunds

An income tax receivable of $1.5 billion, which reflects tax refunds we expect ~~lower distributions from~~to receive within the next 12 months, is included in the “Accounts and notes receivable” line item on our ~~equity affiliates.~~consolidated balance sheet as of March 31, 2021.

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Phillips 66 Partners’ Unit Issuances

Phillips 66 Partners LP

~~Unit Issuances~~

~~During the first three months of 2020, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $2 million from common units issued~~suspended issuances under its ~~active~~current continuous offering of common units, or at-the-market (ATM) ~~program. Since inception~~program in ~~June 2016 through March 31,~~the first quarter of 2020 ~~net proceeds~~due to low common unit prices. During the first three months of ~~$494 million have been received under its ATM programs.~~

~~Transfer of Equity Interests~~

2021, Phillips 66 Partners ~~has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. After deducting a co-venturer’s pending acquisition of a 35% interest in~~did not issue any common units under the consolidated holding company, Phillips 66 Partners has an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC. 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. On April 1, 2020, the Gray Oak Pipeline commenced full operations from West Texas to Texas Gulf Coast destinations. The Eagle Ford segment of the pipeline commenced operations later in April. Accordingly, the co-venturer’s 35% interest in the holding company is expected to be recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet in the second quarter. Also at that time, the premium paid by the co-venturer will be recharacterized from a long-term obligation to a gain in our consolidated statement of operations. For the three months ended March 31, 2020, the co-venturer contributed an aggregate of $23 million to the holding company to fund its portion of Gray Oak Pipeline LLC’s cash calls. 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.ATM program.

Revolving Credit Facilities and Commercial Paper

At March 31, ~~2020,~~2021, borrowings of $450 million were outstanding and $1 million in letters of credit had been drawn under Phillips 66 Partners’ $750 million revolving credit facility. At March 31, 2021, no amount had been drawn under Phillips 66’s $5 billion revolving credit facility and no amount had been directly drawn under Phillips 66 Partners’ $750 million revolving credit facility; however, $3 million in letters of credit had been issued under Phillips 66 Partners’ revolving credit facility. As a result, we had approximately $5.7 billion of total committed capacity available under our revolving credit facilities at March 31, 2020. In addition, at March 31, 2020, borrowings of $200 million were outstanding under Phillips 66’sor uncommitted $5 billion commercial paper program.

~~Other Debt Issuances and Financings~~Term Loan Agreement

On April ~~9, 2020,~~6, 2021, Phillips 66 ~~closed on a 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.~~

~~On March 19, 2020, Phillips 66~~Partners entered into a ~~$1 billion 364-day delayed draw~~$450 million term loan agreement ~~(the Facility)~~ and borrowed ~~$1 billion under~~ the ~~Facility shortly thereafter. On~~full amount. The term loan agreement has a maturity date of April ~~6, 2020, Phillips 66 increased~~5, 2022, and the ~~size of the Facility~~outstanding borrowings can be repaid at any time and from time to ~~$2 billion, with $1 billion of capacity remaining undrawn.~~time, in whole or in part, without premium or penalty. Borrowings ~~under the Facility~~ bear interest at a floating rate based on either ~~the~~a Eurodollar rate or ~~the~~a reference rate, plus a margin ~~determined by the credit rating~~ of ~~Phillips 66’s senior unsecured long‑term debt.~~0.875%. Proceeds were primarily used to repay amounts borrowed under Phillips 66 ~~is using the proceeds from the debt issuance for general corporate purposes.~~Partners’ $750 million revolving credit facility.

Table of Contents

Off-Balance Sheet Arrangements

Lease Residual Value Guarantees

Under the operating lease agreement onfor our headquarters facility in Houston, Texas, we have ~~a residual value guarantee with a maximum future exposure of $554 million at March 31, 2020. The operating lease term ends in~~ ~~June 2021~~ ~~and provides us~~ the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at March 31, 2021. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling ~~$362 million at March 31, 2020, which~~$371 million. These operating leases have remaining terms of up to ~~four~~nine 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 $2,500 million~~issued $2.5 billion aggregate principal amount of senior unsecured ~~senior~~ notes. Dakota Access and ~~Energy Transfer Crude Oil Company, LLC (ETCO)~~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 in the litigation related to certain disputed construction permits and Dakota Access determines that an equity contribution trigger event has occurred, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access ~~and ETCO up~~if there is an unfavorable final judgment in the ongoing litigation related to an ~~aggregate maximum~~easement granted by the U.S. Army Corps of ~~approximately $2,525 million.~~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 March 31, 2021, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU iswas approximately $631 million.

If the pipeline is required to cease operations, either permanently or pending the preparation of the EIS, and should Dakota Access and ~~ETCO.~~

~~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.~~ETCO not have sufficient funds to pay ongoing expenses, Phillips 66 Partners ~~and~~also could be required to support its ~~co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up~~share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually, in addition to the ~~total outstanding loan amount, plus any additional accrued interest and associated fees, if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its~~potential obligations ~~thereunder. At March 31, 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.~~ CECU.

~~Other Guarantees~~

At March 31, 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 $331 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.

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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 March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, was ~~$13.0~~$15.4 billion and ~~$11.8~~$15.9 billion, respectively. Our total debt-to-capital ratio was ~~35%~~43% and ~~30%~~42% at March 31, ~~2020,~~2021, and December 31, ~~2019,~~2020, respectively.

~~In April 2020, Phillips 66 repaid~~Joint Venture Loans

We and our co-venturer provided member loans to WRB. At March 31, 2021, our 50% share of the ~~$300 million~~ outstanding ~~principal~~member loan balance, including accrued interest, was $434 million. The need for additional loans to WRB in the remainder 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 2020.2021, as well as WRB’s repayment schedule, will depend on market conditions.

Dividends

On February ~~5, 2020,~~10, 2021, our Board of Directors declared a quarterly cash dividend of $0.90 per common share. The dividend was paid on March ~~2, 2020,~~1, 2021, to ~~shareholders~~holders of record at the close of business on February ~~18, 2020.~~22, 2021.

Share Repurchases

Since July 2012, our Board of Directors has ~~at various times,~~ authorized an aggregate of $15 billion of repurchases of our outstanding common ~~stock under our share repurchase programs, which aggregate to a total of $15 billion.~~stock. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. ~~The~~We are not obligated to repurchase any shares ~~under~~of common stock pursuant to these authorizations ~~are repurchased from time to time in the open market~~and may commence, suspend or terminate repurchases at ~~our discretion, subject to market conditions and other factors, and in accordance with applicable regulatory requirements.~~any time. Since the inception of our share repurchase ~~programs~~program 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 global economic ~~effects of~~disruption caused by the COVID-19 ~~pandemic and other factors, and will evaluate timing to resume share repurchases.~~pandemic.

Table of Contents

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~~a joint venture ~~partners.~~partner.


	Millions of Dollars				Millions of Dollars
	Three Months Ended March 31				Three Months Ended March 31
	2020		2019		2021		2020
Capital Expenditures and Investments				Capital Expenditures and Investments
Midstream	$	603	841	Midstream	$	100	603
Chemicals	—		—	Chemicals	—		—
Refining	245		194	Refining	184		245
Marketing and Specialties	25		19	Marketing and Specialties	22		25
Corporate and Other	50		43	Corporate and Other	25		50
Total Capital Expenditures and Investments	923		1,097	Total Capital Expenditures and Investments	331		923
Less: capital spending funded by certain joint venture partners*	23		422
Less: capital spending funded by a joint venture partner*				Less: capital spending funded by a joint venture partner*	—		23
Adjusted Capital Spending	$	900	675	Adjusted Capital Spending	$	331	900

Selected Equity Affiliates**				Selected Equity Affiliates**
DCP Midstream	$	46	150	DCP Midstream	$	7	46
CPChem	126		103	CPChem	79		126
WRB	37		37	WRB	59		37
	$	209	290		$	145	209


			Page
Part I – Financial Information

			~~Page~~
~~Part I – Financial Information~~

Item 1. Financial Statements
Consolidated Statement of Operations			1
Consolidated Statement of Comprehensive ~~Income (Loss)~~Loss			2
Consolidated Balance Sheet			3
Consolidated Statement of Cash Flows			4
Consolidated Statement of Changes in Equity			5
Notes to Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3427

Item 3. Quantitative and Qualitative Disclosures About Market Risk			5953

Item 4. Controls and Procedures			5953

Part II – Other Information

Item 1. Legal Proceedings			6054

Item 1A. Risk Factors			6154

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			6254

Item 6. Exhibits			6355

Signatures			6456



	Millions of Dollars
	March 31 2020			December 31 2019
Assets
Cash and cash equivalents	$	1,221		1,614
Accounts and notes receivable (net of allowances of $41 million in 2020 and 2019)	4,046			7,376
Accounts and notes receivable—related parties	513			1,134
Inventories	5,331			3,776
Prepaid expenses and other current assets	594			495
Total Current Assets	11,705			14,395
Investments and long-term receivables	13,635			14,571
Net properties, plants and equipment	24,051			23,786
Goodwill	1,425			3,270
Intangibles	880			869
Other assets	1,764			1,829
Total Assets	$	53,460		58,720

Liabilities
Accounts payable	$	4,882		8,043
Accounts payable—related parties	440			532
Short-term debt	2,243			547
Accrued income and other taxes	703			979
Employee benefit obligations	301			710
Other accruals	1,960			835
Total Current Liabilities	10,529			11,646
Long-term debt	10,720			11,216
Asset retirement obligations and accrued environmental costs	635			638
Deferred income taxes	5,487			5,553
Employee benefit obligations	1,000			1,044
Other liabilities and deferred credits	1,450			1,454
Total Liabilities	29,821			31,551

Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2020—648,446,534 shares; 2019—647,416,633 shares)
Par value	6			6
Capital in excess of par	20,305			20,301
Treasury stock (at cost: 2020—211,771,827 shares; 2019—206,390,806 shares)	(17,116		)	(16,673	)
Retained earnings	19,168			22,064
Accumulated other comprehensive loss	(991		)	(788	)
Total Stockholders’ Equity	21,372			24,910
Noncontrolling interests	2,267			2,259
Total Equity	23,639			27,169
Total Liabilities and Equity	$	53,460		58,720



	Shares in Thousands
	Common Stock Issued	Treasury Stock

December 31, 2019	647,417	206,391
Repurchase of common stock	—	5,381
Shares issued—share-based compensation	1,030	—
March 31, 2020	648,447	211,772

December 31, 2018	645,692	189,526
Repurchase of common stock	—	3,639
Shares issued—share-based compensation	1,024	—
March 31, 2019	646,716	193,165
See Notes to Consolidated Financial Statements.



	Millions of Dollars
	Three Months Ended March 31, 2020
Statement of Operations	Phillips 66			Phillips 66 Company		All Other Subsidiaries		Consolidating Adjustments		Total Consolidated
Revenues and Other Income
Sales and other operating revenues	$	—		15,510		5,368		—		20,878
Equity in earnings (losses) of affiliates	(2,420		)	(361	)	239		2,907		365
Net gain on dispositions	—			1		—		—		1
Other income (loss)	—			(2	)	2		—		—
Intercompany revenues	—			930		2,418		(3,348	)	—
Total Revenues and Other Income (Loss)	(2,420		)	16,078		8,027		(441	)	21,244

Costs and Expenses
Purchased crude oil and products	—			14,986		6,689		(3,235	)	18,440
Operating expenses	—			1,117		254		(30	)	1,341
Selling, general and administrative expenses	3			211		107		(2	)	319
Depreciation and amortization	—			235		107		—		342
Impairments	—			1,805		1,201		—		3,006
Taxes other than income taxes	—			123		34		—		157
Accretion on discounted liabilities	—			5		1		—		6
Interest and debt expense	78			36		78		(81	)	111
Total Costs and Expenses	81			18,518		8,471		(3,348	)	23,722
Loss before income taxes	(2,501		)	(2,440	)	(444	)	2,907		(2,478	)
Income tax benefit	(5		)	(20	)	(26	)	—		(51	)
Net Loss	(2,496		)	(2,420	)	(418	)	2,907		(2,427	)
Less: net income attributable to noncontrolling interests	—			—		69		—		69
Net Loss Attributable to Phillips 66	$	(2,496	)	(2,420	)	(487	)	2,907		(2,496	)

Comprehensive Loss	$	(2,704	)	(2,628	)	(627	)	3,324		(2,635	)



	Millions of Dollars
	Three Months Ended March 31, 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	$	—		17,415	5,688	—		23,103
Equity in earnings of affiliates	281			431	165	(361	)	516
Net gain on dispositions	—			—	1	—		1
Other income	—			20	18	—		38
Intercompany revenues	—			1,161	3,215	(4,376	)	—
Total Revenues and Other Income	281			19,027	9,087	(4,737	)	23,658

Costs and Expenses
Purchased crude oil and products	—			17,080	8,254	(4,279	)	21,055
Operating expenses	—			1,000	326	(19	)	1,307
Selling, general and administrative expenses	3			255	110	(2	)	366
Depreciation and amortization	—			227	104	—		331
Impairments	—			—	1	—		1
Taxes other than income taxes	—			95	33	—		128
Accretion on discounted liabilities	—			4	1	1		6
Interest and debt expense	93			36	67	(77	)	119
Foreign currency transaction losses	—			—	5	—		5
Total Costs and Expenses	96			18,697	8,901	(4,376	)	23,318
Income before income taxes	185			330	186	(361	)	340
Income tax expense (benefit)	(19		)	49	40	—		70
Net Income	204			281	146	(361	)	270
Less: net income attributable to noncontrolling interests	—			—	66	—		66
Net Income Attributable to Phillips 66	$	204		281	80	(361	)	204

Comprehensive Income	$	276		353	211	(498	)	342



	Millions of Dollars
	March 31, 2020
Balance Sheet	Phillips 66			Phillips 66 Company		All Other Subsidiaries		Consolidating Adjustments		Total Consolidated
Assets
Cash and cash equivalents	$	—		809		412		—		1,221
Accounts and notes receivable	—			3,114		3,726		(2,281	)	4,559
Inventories	—			3,821		1,510		—		5,331
Prepaid expenses and other current assets	—			387		207		—		594
Total Current Assets	—			8,131		5,855		(2,281	)	11,705
Investments and long-term receivables	30,738			24,454		10,173		(51,730	)	13,635
Net properties, plants and equipment	—			13,738		10,313		—		24,051
Goodwill	—			1,047		378		—		1,425
Intangibles	—			744		136		—		880
Other assets	13			4,239		662		(3,150	)	1,764
Total Assets	$	30,751		52,353		27,517		(57,161	)	53,460

Liabilities and Equity
Accounts payable	$	—		5,296		2,307		(2,281	)	5,322
Short-term debt	2,196			16		31		—		2,243
Accrued income and other taxes	—			303		400		—		703
Employee benefit obligations	—			271		30		—		301
Other accruals	134			1,620		548		(342	)	1,960
Total Current Liabilities	2,330			7,506		3,316		(2,623	)	10,529
Long-term debt	6,936			165		3,619		—		10,720
Asset retirement obligations and accrued environmental costs	—			460		175		—		635
Deferred income taxes	—			3,863		1,627		(3	)	5,487
Employee benefit obligations	—			787		213		—		1,000
Other liabilities and deferred credits	83			9,782		5,799		(14,214	)	1,450
Total Liabilities	9,349			22,563		14,749		(16,840	)	29,821
Common stock	3,195			25,859		9,527		(35,386	)	3,195
Retained earnings	19,198			4,922		1,453		(6,405	)	19,168
Accumulated other comprehensive loss	(991		)	(991	)	(479	)	1,470		(991	)
Noncontrolling interests	—			—		2,267		—		2,267
Total Liabilities and Equity	$	30,751		52,353		27,517		(57,161	)	53,460



	Millions of Dollars
	Three Months Ended March 31, 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	$	643		(364	)	494		(556	)	217

Cash Flows From Investing Activities
Capital expenditures and investments	—			(292	)	(631	)	—		(923	)
Return of investments in equity affiliates	—			—		38		—		38
Proceeds from asset dispositions	—			1		—		—		1
Intercompany lending activities	(973		)	1,914		(941	)	—		—
Advances/loans—related parties	—			—		(8	)	—		(8	)
Other	—			(25	)	40		—		15
Net Cash Provided by (Used in) Investing Activities	(973		)	1,598		(1,502	)	—		(877	)

Cash Flows From Financing Activities
Issuance of debt	1,199			—		—		—		1,199
Repayment of debt	—			(5	)	(2	)	—		(7	)
Issuance of common stock	6			—		—		—		6
Repurchase of common stock	(443		)	—		—		—		(443	)
Dividends paid on common stock	(396		)	(556	)	—		556		(396	)
Distributions to noncontrolling interests	—			—		(61	)	—		(61	)
Net proceeds from issuance of Phillips 66 Partners LP common units	—			—		2		—		2
Other	(36		)	—		12		—		(24	)
Net Cash Provided by (Used in) Financing Activities	330			(561	)	(49	)	556		276

Effect of Exchange Rate Changes on Cash and Cash Equivalents	—			—		(9	)	—		(9	)

Net Change in Cash and Cash Equivalents	—			673		(1,066	)	—		(393	)
Cash and cash equivalents at beginning of period	—			136		1,478		—		1,614
Cash and Cash Equivalents at End of Period	$	—		809		412		—		1,221


Summarized Combined Statement of Operations	Millions of Dollars
Sales and other operating revenues	$	16,191
Revenues and other income—non-guarantor subsidiaries	1,125
Purchased crude oil and products—third parties	10,768
Purchased crude oil and products—related parties	2,316
Purchased crude oil and products—non-guarantor subsidiaries	3,323

Loss before income taxes	(895)
Net loss	(741)


	Millions of Dollars
Summarized Combined Balance Sheet	March 31 2021		December 31 2020
Accounts and notes receivable—third parties	$	4,664	4,060
Accounts and notes receivable—related parties	970		804
Due from non-guarantor subsidiaries, current	494		288
Total current assets	10,061		8,965
Investments and long-term receivables	9,269		9,229
Net properties, plants and equipment	12,852		12,815
Goodwill	1,047		1,047
Due from non-guarantor subsidiaries, noncurrent	6,070		6,173
Other assets associated with non-guarantor subsidiaries	2,815		2,870
Total noncurrent assets	33,928		34,034
Total assets	43,989		42,999

Due to non-guarantor subsidiaries, current	$	2,724	2,203
Total current liabilities	9,467		7,938
Long-term debt	11,330		11,330
Due to non-guarantor subsidiaries, noncurrent	9,937		9,316
Total noncurrent liabilities	26,600		26,044
Total liabilities	36,067		33,982
Total equity	7,922		9,017
Total liabilities and equity	43,989		42,999


	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 March 31, 2021												Three Months Ended March 31, 2021
Loss before income taxes												Loss before income taxes	$	(153)	(253)	(248)	(386)	(1,040)
Plus:												Plus:

Taxes other than income taxes												Taxes other than income taxes	20		27	15	23	85
Depreciation, amortization and impairments												Depreciation, amortization and impairments	52		77	34	54	217
Selling, general and administrative expenses												Selling, general and administrative expenses	14		10	7	11	42
Operating expenses												Operating expenses	230		321	205	382	1,138
Equity in losses of affiliates												Equity in losses of affiliates	2		3	117	—	122
Other segment (income) expense, net												Other segment (income) expense, net	—		—	(2)	2	—
Proportional share of refining gross margins contributed by equity affiliates												Proportional share of refining gross margins contributed by equity affiliates	43		—	86	—	129

Realized refining margins												Realized refining margins	$	208	185	214	86	693

Total processed inputs (thousands of barrels)												Total processed inputs (thousands of barrels)	42,826		54,560	19,754	25,917	143,057
Adjusted total processed inputs (thousands of barrels)*												Adjusted total processed inputs (thousands of barrels)*	42,826		54,560	35,711	25,917	159,014

Loss before income taxes per barrel (dollars per barrel)**												Loss before income taxes per barrel (dollars per barrel)**	$	(3.57)	(4.64)	(12.55)	(14.89)	(7.27)
Realized refining margins (dollars per barrel)***												Realized refining margins (dollars per barrel)***	4.86		3.39	5.97	3.33	4.36

Three Months Ended March 31, 2020												Three Months Ended March 31, 2020
Loss before income taxes	$	(637	)	(843	)	(227	)	(554	)	(2,261	)	Loss before income taxes	$	(637)	(843)	(227)	(554)	(2,261)
Plus:												Plus:

Taxes other than income taxes	19			37		17		31		104		Taxes other than income taxes	19		37	17	31	104
Depreciation, amortization and impairments	492			741		469		364		2,066		Depreciation, amortization and impairments	492		741	469	364	2,066
Selling, general and administrative expenses	13			7		6		10		36		Selling, general and administrative expenses	13		7	6	10	36
Operating expenses	194			492		136		283		1,105		Operating expenses	194		492	136	283	1,105
Equity in (earnings) losses of affiliates	2			(1	)	51		—		52		Equity in (earnings) losses of affiliates	2		(1)	51	—	52
Other segment (income) expense, net	(2		)	1		(3	)	1		(3	)	Other segment (income) expense, net	(2)		1	(3)	1	(3)
Proportional share of refining gross margins contributed by equity affiliates	16			—		113		—		129		Proportional share of refining gross margins contributed by equity affiliates	16		—	113	—	129
Special items:												Special items:

Lower-of-cost-or-market inventory adjustments	—			—		35		—		35		Lower-of-cost-or-market inventory adjustments	—		—	35	—	35

Realized refining margins	$	97		434		597		135		1,263		Realized refining margins	$	97	434	597	135	1,263

Total processed inputs (thousands of barrels)	41,335			64,066		23,345		27,877		156,623		Total processed inputs (thousands of barrels)	41,335		64,066	23,345	27,877	156,623
Adjusted total processed inputs (thousands of barrels)*	41,335			64,066		44,291		27,877		177,569		Adjusted total processed inputs (thousands of barrels)*	41,335		64,066	44,291	27,877	177,569

Loss before income taxes per barrel (dollars per barrel)**	$	(15.41	)	(13.16	)	(9.72	)	(19.87	)	(14.44	)	Loss before income taxes per barrel (dollars per barrel)**	$	(15.41)	(13.16)	(9.72)	(19.87)	(14.44)
Realized refining margins (dollars per barrel)***	2.38			6.76		13.50		4.80		7.11		Realized refining margins (dollars per barrel)***	2.38		6.76	13.50	4.80	7.11

Three Months Ended March 31, 2019
Income (loss) before income taxes	$	(7	)	(118	)	77		(150	)	(198	)
Plus:
Taxes other than income taxes	15			23		13		24		75
Depreciation and amortization	50			67		33		62		212
Selling, general and administrative expenses	7			(2	)	1		5		11
Operating expenses	233			384		145		249		1,011
Equity in (earnings) losses of affiliates	3			—		(84	)	—		(81	)
Other segment (income) expense, net	6			1		(2	)	2		7
Proportional share of refining gross margins contributed by equity affiliates	17			—		267		—		284
Special items:
Pending claims and settlements	—			—		(21	)	—		(21	)
Realized refining margins	$	324		355		429		192		1,300

Total processed inputs (thousands of barrels)	41,682			65,434		23,893		30,703		161,712
Adjusted total processed inputs (thousands of barrels)*	41,682			65,434		41,896		30,703		179,715

Income (loss) before income taxes per barrel (dollars per barrel)**	$	(0.17	)	(1.80	)	3.22		(4.89	)	(1.22	)
Realized refining margins (dollars per barrel)***	7.76			5.44		10.23		6.25		7.23
* 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.
** 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.



	Millions of Dollars, Except as Indicated
	Three Months Ended March 31, 2020					Three Months Ended March 31, 2019
	U.S.			International		U.S.		International
Realized Marketing Fuel Margins
Income before income taxes	$	299		171		98		58
Plus:
Taxes other than income taxes	2			1		2		2
Depreciation and amortization	3			17		2		16
Selling, general and administrative expenses	127			63		155		62
Equity in earnings of affiliates	—			(22	)	(1	)	(22	)
Other operating revenues*	(84		)	2		(82	)	(6	)
Other segment (income) expense, net	—			—		—		(2	)
Marketing margins	347			232		174		108
Less: margin for nonfuel related sales	—			10		—		10
Realized marketing fuel margins	$	347		222		174		98

Total fuel sales volumes (thousands of barrels)	167,178			25,979		164,058		25,796

Income before income taxes per barrel (dollars per barrel)	$	1.79		6.58		0.60		2.25
Realized marketing fuel margins (dollars per barrel)**	2.08			8.53		1.06		3.80
* 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.


	Millions of Dollars, Except as Indicated
	Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
	U.S.		International	U.S.	International
Realized Marketing Fuel Margins
Income before income taxes	$	199	48	299	171
Plus:

Taxes other than income taxes	4		2	2	1
Depreciation and amortization	3		19	3	17
Selling, general and administrative expenses	165		60	127	63
Equity in earnings of affiliates	(2)		(24)	—	(22)
Other operating revenues*	(86)		(5)	(84)	2
Other segment income, net	—		(1)	—	—


Marketing margins	283		99	347	232
Less: margin for nonfuel related sales	—		13	—	10
Realized marketing fuel margins	$	283	86	347	222

Total fuel sales volumes (thousands of barrels)	145,794		21,474	167,178	25,979

Income before income taxes per barrel (dollars per barrel)	$	1.36	2.24	1.79	6.58
Realized marketing fuel margins (dollars per barrel)**	1.94		4.01	2.08	8.53
* 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.



					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
January 1-31, 2020	1,652,838	$	103.72	1,652,838	$	2,786
February 1-29, 2020	1,494,854	89.39		1,494,854	2,652
March 1-31, 2020	2,233,329	61.54		2,233,329	2,514
Total	5,381,021	$	82.23	5,381,021
* 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 March 31, 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.



		Incorporate by Reference
Exhibit Number	Exhibit Description	Form	Exhibit Number	Filing Date	SEC File No.

	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.

10.1	Credit Agreement dated as of March 19, 2020, among Phillips 66, Phillips 66 Company, the lenders party thereto, Mizuho Bank, Ltd., as administrative agent.	8-K	10.1	03/24/2020	001-35349

10.2	Master New Lender Agreement dated as of April 6, 2020, among Phillips 66, Phillips 66 Company, the lenders party thereto, Mizuho Bank, Ltd., as administrative agent.	8-K	10.1	04/07/2020	001-35349

31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32*	Certifications pursuant to 18 U.S.C. Section 1350.

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.

101.SCH*	Inline XBRL Schema Document.

101.CAL*	Inline XBRL Calculation Linkbase Document.

101.LAB*	Inline XBRL Labels Linkbase Document.

101.PRE*	Inline XBRL Presentation Linkbase Document.

101.DEF*	Inline XBRL Definition Linkbase Document.

104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.


						PHILLIPS 66

						~~PHILLIPS 66~~

		/s/ Chukwuemeka A. Oyolu
						Chukwuemeka A. Oyolu Vice President and Controller (Chief Accounting and Duly Authorized Officer)