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
June 30, 2019March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to 
Commission file number:001-36011

Phillips 66 Partners LP
(Exact name of registrant as specified in its charter)
 
Delaware 38-3899432
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

2331 CityWest Blvd., Houston, Texas 77042
(Address of principal executive offices) (Zip Code)
(855) 283-9237
(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 Units, Representing Limited Partnership Interests
PSXP 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”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filefiler
Non-accelerated filerSmaller 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 124,938,423228,340,146 common units outstanding as of June 30, 2019.March 31, 2020.




PHILLIPS 66 PARTNERS LP

TABLE OF CONTENTS
 

 Page
  
  
  
  
  
  
  
  
  





PART I. FINANCIAL INFORMATION
 
Item 1. FINANCIAL STATEMENTS
 

Consolidated Statement of IncomePhillips 66 Partners LP
 
Millions of DollarsMillions of Dollars
Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
Revenues and Other Income       
Operating revenues—related parties$256
244
 552
493
$258
 296
Operating revenues—third parties7
10
 13
17
9
 6
Equity in earnings of affiliates137
100
 256
198
136
 119
Other income1

 3
1
1
 2
Total revenues and other income401
354
 824
709
404
 423

       
Costs and Expenses       
Operating and maintenance expenses85
85
 224
182
88
 139
Depreciation29
29
 58
57
30
 29
General and administrative expenses17
16
 35
32
17
 18
Taxes other than income taxes9
9
 20
19
11
 11
Interest and debt expense27
29
 54
59
29
 27
Other expenses2
 
Total costs and expenses167
168
 391
349
177
 224
Income before income taxes234
186
 433
360
227
 199
Income tax expense1

 2
2
1
 1
Net income233
186
 431
358
226
 198
Less: Preferred unitholders’ interest in net income9
10
 19
19
10
 10
Less: General partner’s interest in net income71
55
 140
108

 69
Limited partners’ interest in net income$153
121
 272
231
$216
 119
       
Net Income Per Limited Partner Unit (dollars)
       
Common units—basic$1.23
0.99
 2.19
1.89
$0.95
 0.96
Common units—diluted1.15
0.94
 2.07
1.80
0.93
 0.92
       
Weighted-Average Limited Partner Units Outstanding (thousands)
       
Common units—basic124,824
122,189
 124,543
121,901
228,312
 124,258
Common units—diluted138,644
136,008
 138,362
135,720
242,132
 138,078
See Notes to Consolidated Financial Statements.



Consolidated Statement of Comprehensive IncomePhillips 66 Partners LP

Millions of DollarsMillions of Dollars
Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
       
Net Income$233
186
 431
358
$226
 198
Defined benefit plans       
Plan sponsored by equity affiliates, net of income taxes

 


 
Other comprehensive income

 


 
Comprehensive Income$233
186
 431
358
$226
 198
See Notes to Consolidated Financial Statements.



Consolidated Balance SheetPhillips 66 Partners LP
 
Millions of DollarsMillions of Dollars
June 30
2019

 December 31
2018

March 31
2020

 December 31
2019

Assets      
Cash and cash equivalents$130
 1
$92
 286
Accounts receivable—related parties85
 90
91
 101
Accounts receivable—third parties3
 5
4
 4
Materials and supplies13
 13
13
 13
Prepaid expenses and other current assets9
 20
14
 10
Total current assets240
 129
214
 414
Equity investments2,912
 2,448
3,136
 2,961
Net properties, plants and equipment3,158
 3,052
3,410
 3,349
Goodwill185
 185
185
 185
Other assets49
 5
52
 52
Total Assets$6,544
 5,819
$6,997
 6,961
      
Liabilities      
Accounts payable—related parties$19
 22
$24
 19
Accounts payable—third parties74
 88
75
 84
Accrued interest37
 36
46
 42
Deferred revenues17
 60
19
 16
Short-term debt150
 50
25
 25
Accrued property and other taxes18
 9
12
 10
Other current liabilities2
 5
3
 3
Total current liabilities317
 270
204
 199
Long-term debt3,174
 2,998
3,491
 3,491
Obligation from equity interest transfer341
 
356
 343
Other liabilities96
 42
93
 94
Total Liabilities3,928
 3,310
4,144
 4,127
      
Equity      
Preferred unitholders (2019 and 2018—13,819,791 units issued and outstanding)746
 746
Common unitholders—public (2019—56,178,286 units issued and outstanding;
2018—55,343,918 units issued and outstanding)
2,555
 2,485
Common unitholder—Phillips 66 (2019 and 2018—68,760,137 units issued and outstanding)626
 592
General partner—Phillips 66 (2019 and 2018—2,480,051 units issued and outstanding)(1,310) (1,313)
Preferred unitholders (2020 and 2019—13,819,791 units issued and outstanding)747
 746
Common unitholders—public (2020—58,580,009 units issued and outstanding;
2019—58,539,439 units issued and outstanding)
2,723
 2,717
Common unitholder—Phillips 66 (2020 and 2019—169,760,137 units issued and outstanding)(616) (628)
Accumulated other comprehensive loss(1) (1)(1) (1)
Total Equity2,616
 2,509
2,853
 2,834
Total Liabilities and Equity$6,544
 5,819
$6,997
 6,961
See Notes to Consolidated Financial Statements.



Consolidated Statement of Cash FlowsPhillips 66 Partners LP


Millions of DollarsMillions of Dollars

Six Months Ended
June 30
Three Months Ended
March 31

2019
 2018
2020
 2019
Cash Flows From Operating Activities
 


 

Net income$431
 358
$226
 198
Adjustments to reconcile net income to net cash provided by operating activities
 

 
Depreciation58
 57
30
 29
Undistributed equity earnings3
 (7)4
 2
Other liabilities12
 (38)
Other2
 10
Working capital adjustments
 

 
Accounts receivable6
 (3)10
 4
Prepaid expenses and other current assets12
 
(4) 9
Accounts payable(3) (3)(3) (4)
Accrued interest
 2
4
 (5)
Deferred revenues(46) 30
3
 (40)
Other accruals8
 1
2
 2
Net Cash Provided by Operating Activities481
 397
274
 205

 

 
Cash Flows From Investing Activities
 

 
Cash capital expenditures and investments(759) (234)(236) (634)
Advances/loans—related party(95) 
Collection of advances/loans—related party95
 
Liberty acquisition(75) 
Return of investment from equity affiliates35
 22
38
 20
Proceeds from sale of equity interest81
 

 81
Net Cash Used in Investing Activities(643) (212)(273) (533)

 

 
Cash Flows From Financing Activities
 

 
Proceeds from equity interest transfer341
 
Net proceeds from equity interest transfer12
 341
Issuance of debt860
 

 725
Repayment of debt(585) 

 (585)
Issuance of common units42
 67
2
 32
Quarterly distributions to preferred unitholders(19) (18)(9) (9)
Quarterly distributions to common unitholders—public(93) (74)(51) (46)
Quarterly distributions to common unitholder—Phillips 66(116) (96)(149) (58)
Quarterly distributions to General Partner—Phillips 66(136) (98)
 (67)
Other distributions to Phillips 66(3) 

 (4)
Net Cash Provided by (Used in) Financing Activities291
 (219)(195) 329


 



 

Net Change in Cash and Cash Equivalents129
 (34)(194) 1
Cash and cash equivalents at beginning of period1
 185
286
 1
Cash and Cash Equivalents at End of Period$130
 151
$92
 2
See Notes to Consolidated Financial Statements.



Consolidated Statement of Changes in EquityPhillips 66 Partners LP
 Millions of Dollars
 
Three Months Ended
June 30
 Preferred Unitholders Public
Common Unitholders
Public

Common Unitholder
Phillips 66

General Partner
Phillips 66

Accum. Other
Comprehensive Loss

Total
       
March 31, 2019$747
2,523
600
(1,315)(1)2,554
Issuance of common units
10



10
Net income9
69
84
71

233
Quarterly cash distributions to unitholders and General Partner ($0.845 per common unit)(10)(47)(58)(69)
(184)
Other contributions from Phillips 66


3

3
June 30, 2019$746
2,555
626
(1,310)(1)2,616
       
March 31, 2018$746
2,308
519
(1,338)(1)2,234
Cumulative effect of accounting change

1


1
Issuance of common units
58



58
Net income10
53
68
55

186
Quarterly cash distributions to unitholders and General Partner ($0.714 per common unit)(9)(38)(50)(51)
(148)
Other contributions from Phillips 66


2

2
June 30, 2018$747
2,381
538
(1,332)(1)2,333
 Millions of Dollars
 Three Months Ended
March 31
 Preferred Unitholders Public
Common Unitholders
Public

Common Unitholder
Phillips 66

General Partner
Phillips 66

Accum. Other
Comprehensive Loss

Total
       
December 31, 2019$746
2,717
(628)
(1)2,834
Issuance of common units
2



2
Net income10
55
161


226
Quarterly cash distributions to unitholders ($0.875 per common unit)(9)(51)(149)

(209)
March 31, 2020$747
2,723
(616)
(1)2,853
       
December 31, 2018$746
2,485
592
(1,313)(1)2,509
Cumulative effect of accounting change
(1)


(1)
Issuance of common units
32



32
Net income10
53
66
69

198
Quarterly cash distributions to unitholders and General Partner ($0.835 per common unit)(9)(46)(58)(67)
(180)
Other contributions to Phillips 66


(4)
(4)
March 31, 2019$747
2,523
600
(1,315)(1)2,554


UnitsUnits
Three Months Ended
June 30
Three Months Ended
March 31
Preferred Units Public
Common Units Public
Common Units Phillips 66
General Partners Units Phillips 66
Total Units
Preferred Units Public
Common Units Public
Common Units Phillips 66
General Partner Units
Phillips 66

Total Units
  
December 31, 201913,819,791
58,539,439
169,760,137

242,119,367
Units issued in public equity offerings
40,570


40,570
March 31, 202013,819,791
58,580,009
169,760,137

242,159,937
 
December 31, 201813,819,791
55,343,918
68,760,137
2,480,051
140,403,897
Units issued in public equity offerings
622,032


622,032
March 31, 201913,819,791
55,965,950
68,760,137
2,480,051
141,025,929
13,819,791
55,965,950
68,760,137
2,480,051
141,025,929
Units issued in public equity offerings
212,336


212,336
June 30, 201913,819,791
56,178,286
68,760,137
2,480,051
141,238,265
 
March 31, 201813,819,791
53,000,637
68,760,137
2,480,051
138,060,616
Units issued in public equity offerings
1,152,119


1,152,119
June 30, 201813,819,791
54,152,756
68,760,137
2,480,051
139,212,735
See Notes to Consolidated Financial Statements.



 Millions of Dollars
 
Six Months Ended
June 30
 Preferred Unitholders Public
Common Unitholders Public
Common Unitholder Phillips 66
General Partner Phillips 66
Accum. Other Comprehensive Loss
Total
       
December 31, 2018746
2,485
592
(1,313)(1)2,509
Cumulative effect of accounting change
(1)


(1)
Issuance of common units
42



42
Net income19
122
150
140

431
Quarterly cash distributions to unitholders and General Partner ($1.680 per common unit)(19)(93)(116)(136)
(364)
Other distributions to Phillips 66


(1)
(1)
June 30, 2019746
2,555
626
(1,310)(1)2,616
       
December 31, 2017746
2,274
487
(1,345)(1)2,161
Cumulative effect of accounting change
13
17
1

31
Issuance of common units
67



67
Net income19
101
130
108

358
Quarterly cash distributions to unitholders and General Partner ($1.392 per common unit)(18)(74)(96)(98)
(286)
Other contributions from Phillips 66


2

2
June 30, 2018747
2,381
538
(1,332)(1)2,333


 Units
 
Six Months Ended
June 30
 Preferred Units Public
Common Units Public
Common Units Phillips 66
General Partners Units Phillips 66
Total Units
      
December 31, 201813,819,791
55,343,918
68,760,137
2,480,051
140,403,897
Units issued in public equity offerings
834,368


834,368
June 30, 201913,819,791
56,178,286
68,760,137
2,480,051
141,238,265
      
December 31, 201713,819,791
52,811,822
68,760,137
2,480,051
137,871,801
Units issued in public equity offerings
1,340,934


1,340,934
June 30, 201813,819,791
54,152,756
68,760,137
2,480,051
139,212,735
See Notes to Consolidated Financial Statements.


Notes to Consolidated Financial StatementsPhillips 66 Partners LP
 
Note 1—Description of the Business
Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” refer to Phillips 66 Partners GP LLC, and references to Phillips“Phillips 66 PDIPDI” refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us and wholly owns our General Partner.

We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. Our operations consist of crude oil, refined petroleum products and natural gas liquids (NGL) transportation, terminaling, processing and storage assets. We conduct our operations through both wholly owned and joint venture operations. The majority of our wholly owned assets are associated with, and are integral to the operation of, nine9 of Phillips 66’s owned or joint venture refineries. Our operations consist of 1 reportable segment.

We primarily generate revenue by providing fee-based transportation, terminaling, processing, storage and fractionation services to Phillips 66 and other customers. Our equity affiliates primarily generate revenue from transporting and terminaling crude oil, refined petroleum products and NGL. Since we do not own any of the crude oil, refined petroleum products and NGL we handle and do not engage in the trading of crude oil, refined petroleum products and NGL, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.


Note 2—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 our financial position, 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 audited consolidated financial statements and notes included in our 20182019 Annual Report on Form 10-K. The results of operations for the three and six months ended June 30, 2019March 31, 2020, are not necessarily indicative of the results to be expected for the full year. Certain prior period financial information has been recast to reflect the current year’s presentation.


Note 3—Changes in Accounting Principles

Effective January 1, 2019, we early adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments and off-balance sheet credit exposures. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. The adoption of the ASU did not have a material impact on our consolidated financial statements.

Effective January 1, 2019, we adopted ASU 2016-02, “Leases (Topic 842)” using the modified retrospective transition method. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and corresponding lease liability on the consolidated balance sheet for all operating leases with terms longer than 12 months. Leases will continue to be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated income statement.


We elected the package of practical expedients that allowed us to carry forward the determination of whether an arrangement contains a lease and lease classification, as well as our accounting for initial direct costs for existing contracts. We recorded a noncash cumulative effect adjustment to our opening consolidated balance sheet as of January 1, 2019, to record an aggregate operating lease ROU asset and a corresponding lease liability of $45 million. See Note 5—Lease Assets and Liabilities, for the new lease disclosures required by this ASU for lessees.

For arrangements where we are the lessor, effective for periods after January 1, 2019, we elected to account for lease and service elements of contracts classified as leases on a combined basis under the provisions of ASU No. 2016-02, except for leases of processing-type assets, which contain non-ratable fees related to turnaround activity. For these types of leases, we continued to separate the lease and service elements based on relative standalone prices and applied the new lease standard to the lease element and the revenue standard to the service element. We recorded a noncash cumulative effect adjustment of $1 million to decrease our opening equity balance as of January 1, 2019. See Note 4—Operating Revenues, for additional impacts of adopting this ASU, including new lease disclosures required for lessors.


Note 4—3—Operating Revenues

Operating revenues are primarily generated from long-term pipeline transportation, terminaling, storage, processing and fractionation lease and service agreements, mainly with Phillips 66. These agreements typically include escalation clauses to adjust transportation tariffs and terminaling and storage fees to reflect changes in price indices. In addition, most of these agreements contain renewal options, which typically require the mutual consent of both our customers and us.
Total operating revenues disaggregated by asset type were as follows:
Millions of DollarsMillions of Dollars
Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
       
Pipelines$117
111
 226
213
$111
 109
Terminals39
38
 79
77
43
 40
Storage, processing and other revenues107
105
 260
220
113
 153
Total operating revenues$263
254
 565
510
$267
 302



The majority of our agreements with Phillips 66 are considered operating leases under GAAP. For reporting periods prior to our adoption ofThe lease’s classification as either an operating or financing lease requires judgment in assessing the new lease accounting standard, ASU No. 2016-02, as of January 1, 2019, thecontract’s lease and service elements includedcomponents and in these contracts were separated withdetermining the lease element recognized in accordance with the existing lease accounting standard and the service element recognized in accordance with the revenue accounting standard. Effective for periods after January 1, 2019, weasset’s fair value. We have elected to account for lease and service elements of contracts classified as leases on a combined basis, under the provisions of ASU No. 2016-02, except for leases of processing-type assets, which contain non-ratable fees related to turnaround activity. For these types of leases, we continuedcontinue to separate the lease and service elements based on relative standalone prices and applied the new lease standard to the lease element and the revenue standard to the service element. As a result of our change in accounting policy, our lease and service revenues, lease and service accounts receivable and lease and service deferred revenues reported for the three and six months ended June 30, 2019, are not prepared on the same basis as the amounts reported for the three and six months ended June 30, 2018.

Total operating revenues disaggregated by lease and service revenues were as follows:
Millions of DollarsMillions of Dollars
Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
       
Lease revenues$214
143
 471
287
$218
 257
Service revenues49
111
 94
223
49
 45
Total operating revenues$263
254
 565
510
$267
 302




Accounts Receivable
We bill our customers, mainly Phillips 66, under our lease and service contracts generally on a monthly basis.

Total accounts receivable by revenue type was as follows:

Millions of DollarsMillions of Dollars
June 30
2019

 
December 31
2018

March 31
2020

 December 31
2019

      
Lease receivables$69
 53
$74
 87
Service receivables19
 41
20
 18
Other receivables
 1
1
 
Total accounts receivables$88

95
Total accounts receivable$95

105



Deferred Revenues
Our deferred revenues represent payments received from our customers, mainly Phillips 66, in advance of the period in which lease and service contract performance obligations have been fulfilled. The majority of our deferred revenues relate to a tolling agreement and a storage agreement that are classified as leases. The remainder of our deferred revenues relate to lease and service agreements that contain minimum volume commitments with recovery provisions. Our deferred revenues are recorded in the “Deferred revenues” and “Other liabilities” linesline items on our consolidated balance sheet.
Total deferred revenues under our lease and service agreements were as follows:
Millions of DollarsMillions of Dollars
June 30
2019

 
December 31
2018

March 31
2020

 December 31
2019

      
Deferred lease revenues$42
 73
$41
 41
Deferred service revenues1
 6
2
 1
Total deferred revenues$43

79
$43

42



Future Minimum Lease Payments from Customers
At June 30, 2019,March 31, 2020, future minimum payments to be received under our lease agreements with customers were estimated to be:
Millions
of Dollars

Millions
of Dollars

  
Remainder of 2019$325
2020644
Remainder of 2020$527
2021639
698
2022627
685
2023585
642
2024521
Remaining years1,570
1,386
Total future minimum lease payments from customers$4,390
$4,459


Remaining Service Performance Obligations
We typically have long-term service contracts with our customers, of which the original durations range from 5 to 15 years. The weighted-average remaining duration of these contracts is 11 years. These contracts include both fixed and variable transaction price components. At June 30, 2019,March 31, 2020, future service revenues expected to be recognized for the fixed component of the transaction price of our remaining performance obligations from service contracts with our customers that have an original expected duration of greater than one year were:

Millions
of Dollars

Millions
of Dollars

  
Remainder of 2019$72
2020139
Remainder of 2020$109
2021131
137
2022130
136
2023130
136
2024116
Remaining years754
671
Total future service revenues$1,356
$1,305



For the remaining service performance obligations, we applied the exemption for variable prices allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer distinct services as part of a performance obligation.


Note 5—Lease Assets and Liabilities

We have agreements with Phillips 66 to lease land underlying or associated with certain of our assets that are classified as operating leases. Due to the economic infeasibility of canceling these leases, we consider them non-cancellable. Certain leases include escalation clauses for adjusting rental payments to reflect changes in price indices. There are no significant restrictions imposed on us in our lease agreements with regards to distribution payments, asset dispositions or borrowing ability.
Effective with our implementation of ASU No. 2016-02, we elected to discount lease obligations using our incremental borrowing rate. For all leases, we elected the practical expedient to not separate service and lease costs. Our right-of-way agreements in effect prior to January 1, 2019, were not accounted for as leases as they were not initially determined

to be leases at their commencement dates. However, modifications to these agreements or new agreements will be assessed and accounted for accordingly under ASU No. 2016-02. For short-term leases, which are leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that is reasonably certain to be exercised, we elected to not recognize the ROU asset and corresponding lease liability on our consolidated balance sheet.

Operating lease ROU assets are recorded in the “Other assets” line and lease liabilities are recorded in the “Other current liabilities” and “Other liabilities” lines on our consolidated balance sheet. At June 30, 2019, the total operating lease ROU asset was $44 million.
Future minimum lease payments and recorded short- and long-term lease liabilities at June 30, 2019, for operating leases were:
 
Millions
of Dollars

  
Remainder of 2019$2
20203
20213
20223
20233
Remaining years93
Future minimum lease payments107
Amount representing interest or discounts(63)
Total lease liabilities44
Short-term lease liabilities(1)
Long-term lease liabilities$43



Operating lease costs and operating cash outflows for the three and six months ended June 30, 2019, were $1 million.

The weighted-average remaining lease term for our operating leases as of June 30, 2019, was 36 years. The weighted-average discount rate for our operating leases as of June 30, 2019, was 5.9%.



Note 6—4—Equity Investments and Loans

Equity Investments
The following table summarizes the carrying value of our equity investments:

  Millions of Dollars  Millions of Dollars
Percentage Ownership
 June 30
2019

 December 31
2018

Percentage Ownership
 March 31
2020

 December 31
2019

          
Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)25.00% $590
 608
25.00% $595
 592
Bayou Bridge Pipeline, LLC (Bayou Bridge)40.00
 296
 277
40.00
 296
 294
DCP Sand Hills Pipeline, LLC (Sand Hills)33.34
 600
 601
33.34
 598
 595
DCP Southern Hills Pipeline, LLC (Southern Hills)33.34
 209
 206
33.34
 218
 215
Explorer Pipeline Company (Explorer)21.94
 107
 115
21.94
 102
 105
Gray Oak Pipeline, LLC (Gray Oak)65.00
 745
 288
Gray Oak Pipeline, LLC65.00
 799
 759
Liberty Pipeline LLC (Liberty)50.00
 103
 
Paradigm Pipeline LLC (Paradigm)50.00
 145
 145
50.00
 143
 143
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)70.00
 70
 71
70.00
 67
 70
South Texas Gateway Terminal LLC (South Texas Gateway Terminal)25.00
 36
 20
25.00
 102
 74
STACK Pipeline LLC (STACK)50.00
 114
 117
50.00
 113
 114
Total equity investments  $2,912
 2,448
  $3,136
 2,961



Earnings from our equity investments were as follows:

Millions of DollarsMillions of Dollars
Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
       
Bakken Pipeline$58
39
 109
71
$57
 51
Bayou Bridge8
3
 12
8
10
 4
Sand Hills38
31
 74
56
41
 36
Southern Hills11
9
 24
16
11
 13
Explorer11
8
 14
24
7
 3
Gray Oak

 

Gray Oak Pipeline, LLC5
 
Liberty
 
Paradigm3
2
 6
4
4
 3
Phillips 66 Partners Terminal6
6
 12
15

 6
South Texas Gateway Terminal

 


 
STACK2
2
 5
4
1
 3
Total equity in earnings of affiliates$137
100
 256
198
$136
 119




Gray OakLiberty
In April 2018,February 2020, we entered into a Purchase and Sale Agreement with Phillips 66 PDI to acquire its 100%50% interest in the Liberty Pipeline joint venture for $75 million. The purchase price reflected the reimbursement of project costs incurred by Phillips 66 prior to the effective date of the transaction. The transaction was funded through a combination of cash on hand and our revolving credit facility and closed on March 2, 2020. Liberty was 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. On March 24, 2020, we and our co-venturer announced we are deferring the development and construction of the Liberty Pipeline system as a result of the current challenging business environment.
Liberty 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-venturer jointly direct the activities of Liberty that most significantly impact economic performance. At March 31, 2020, our maximum exposure to loss was $103 million, which represented the aggregate book value of our equity investment in Liberty. At March 31, 2020, Phillips 66 had an outstanding guarantee of $113 million to vendors for our proportionate share of the payment of certain purchase obligations of Liberty.

Gray Oak Pipeline, LLC
We have 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, we have an effective ownership interest of 42.25% in Gray Oak Holdings LLC (Holdings LLC), a limited liability company that, at that time, owned a 100% interest in Gray Oak.Pipeline, LLC. Gray Oak is developingPipeline, LLC was formed to develop and constructingconstruct the Gray Oak Pipeline which upon completion, will providetransports crude oil transportation from the Permian and Eagle Ford to Texas Gulf Coast destinations inthat include Corpus Christi Texas, and the Sweeny Texas, area, including the Phillips 66 Sweeny Refinery. The pipeline system is anticipatedRefinery, as well as access to be in service by the end of 2019. We accounted for the acquisition of Holdings LLC as an acquisition of assets under common control accounting. Also inHouston market. On April 2018, a co-venturer acquired a 25% interest in Gray Oak, along with sufficient voting rights over key governance provisions such that we no longer could assert control over Gray Oak. As a result, we (through our consolidated subsidiary Holdings LLC) began using the equity method of accounting for our investment in Gray Oak at that time.

In December 2018, a third party exercised its option to acquire a 35% interest in Holdings LLC. Because Holdings LLC’s sole asset was its 75% ownership interest in Gray Oak, which is considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in Holdings LLC during the construction of1, 2020, the Gray Oak Pipeline the legal salecommenced 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 did not qualify as a sale under GAAP. Rather, the third party’s cash contributions to Holdings LLC in 2019 to fund its share of previously incurred and future construction costs plus a premium to us are reflected as a long-term obligation in the “Obligation from equity interest transfer” line on our consolidated balance sheet and financing cash inflows in the “Proceeds from equity interest transfer” line on our consolidated statement of cash flows. After construction of the Gray Oak Pipelineholding company is fully completed, these restrictions expire, and the sale will be recognized under GAAP. We will continueexpected to control and consolidate Holdings LLC after sale recognition, and therefore the third party’s 35% interest will be recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet at that time.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 income. DuringFor the sixthree months ended June 30, 2019,March 31, 2020, the third partyco-venturer contributed an aggregate of $341$23 million into Holdings LLC, which Holdings LLC usedto the holding company to fund its portion of Gray Oak’sOak Pipeline, LLC’s cash calls.

In February 2019, Holdings LLC transferred a 10% interest in Gray Oak to a third party that exercised a purchase option, for proceeds of $81 million. This transfer was accounted for as a sale and resulted in a decrease in Holdings LLC’s ownership interest in Gray Oak from 75% to 65% and the recognition of an immaterial gain. The proceeds received from this sale are reflected as an investing cash inflow in the “Proceeds from sale of equity interest” line on our consolidated statement of cash flows. At June 30, 2019, our effective ownership interest in the Gray Oak Pipeline, was 42.25%.

In June 2019, Gray Oak entered intoLLC has a third-party term loan facility with an initiala borrowing capacity of $1,230$1,379 million, which was increased in July 2019 to $1,317 million.inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. We and our co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount.  Under the agreement, our maximum potential amount, of future obligations is $556 million, plus any additional accrued interest and associated fees, which would be required if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations.obligations thereunder. At June 30, 2019,March 31, 2020, the term loan facility was fully utilized by Gray Oak had borrowings of $551 million outstanding,Pipeline, LLC and our 42.25% proportionate exposure under the equity contribution agreement was $233$583 million.  The net proceeds from the term loan were used by Gray Oak for construction of the Gray Oak Pipeline and repayment of amounts borrowed under a related party loan agreement that we and our co-venturers executed in March 2019 and terminated upon the repayment by Gray Oak in June.  Our total related party loan to and repayment received from Gray Oak was $95 million during the second quarter of 2019.  

Gray Oak Pipeline, LLC is considered a variable interest entityVIE 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. At June 30, 2019,March 31, 2020, our maximum exposure to loss was $978$1,382 million, which represented our guarantee of the third-party term loan facility of $233$583 million and the aggregate book value of our equity method investment in Gray Oak Pipeline, LLC of $745$799 million.

Bakken Pipeline
In March 2019, a wholly owned subsidiary of Dakota Access, LLC (Dakota Access) closed on an offering of $2,500 million aggregate principal amount of unsecured senior notes. The net proceeds from the issuance of these notes were used to repay amounts outstanding under existing credit facilities of Dakota Access and Energy Transfer Crude Oil Company, LLC (ETCO).  Dakota Access and ETCO have guaranteed repayment of the notes.  In addition, we and our

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 venturersco-venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million. Our share of the maximum potential equity contributions under the CECU is approximately $631 million.million at March 31, 2020. In March 2020, the court in such litigation requested an Environmental Impact Statement from the U.S. Army Corps of Engineers, and requested additional information to make a further decision regarding whether the

Dakota Access Pipeline should be shut down while the Environmental Impact Statement is being prepared. Currently, this ruling does not have any immediate impact on the operations of Dakota Access and ETCO.

Summarized financial information for 100% of Dakota Access is as follows:

 Millions of Dollars
 Three Months Ended
March 31
 2020
 2019
    
Revenues$258
 236
Income before income taxes186
 157
Net income186
 157



Note 7—5—Net Income Per Limited Partner Unit

Net income per limited partner unit applicable to common units is computed by dividing the limited partners’ interest in net income by the weighted-average number of common units outstanding for the period. BecausePrior to August 1, 2019, we havehad more than one class of participating securities we useand used the two-class method to calculate the net income per unit applicable to the limited partners. As of June 30, 2019, theThe classes of participating securities prior to August 1, 2019, included common units, general partner units and incentive distribution rights (IDRs). Effective August 1, 2019, common units are the only participating securities. For the three and six months ended June 30,March 31, 2020 and 2019, and 2018, our preferred units are potentially dilutive securities and were dilutive to net income per limited partner unit.

Net income earned by the Partnership is allocated between the limited partners and the General Partner (including the General Partner’s IDRs)classes of participating securities in accordance with our partnership agreement, after giving effect to priority income allocations to the holders of the preferred units. First, earnings are allocated based on actual cash distributions declared to our unitholders, including those attributable to the General Partner’s IDRs.unitholders. To the extent net income exceeds or is less than cash distributions declared, this difference is allocated based on the unitholders’ respective ownership percentages, after consideration of any priority allocations of earnings. For the diluted net income per limited partner unit calculation, the preferred units are assumed to be converted at the beginning of the period into common limited partner units on a one-for-one basis, and the distribution formula for available cash in our partnership agreement is recalculated, using the original available cash amount increased only for the preferred distributions which would not have been paid after conversion. 


Millions of DollarsMillions of Dollars
Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
       
Net income$233
186
 431
358
$226
 198
Less:       
General partner’s distributions declared (including IDRs)*70
57
 139
108

 69
Limited partners’ distributions declared on preferred units*9
10
 19
19
10
 10
Limited partners’ distributions declared on common units*107
91
 212
179
199
 105
Distributions less than net income$47
28
 61
52
$17
 14
*Distributions declared are attributable to the indicated periods.



 
Limited Partners’
Common Units

Limited Partners’
Preferred Units

Total
Three Months Ended March 31, 2020   
Net income (millions):
   
Distributions declared$199
10
209
Distributions less than (more than) net income17

17
Net income (basic)216
10
226
Dilutive effect of preferred units10
  
Net income (diluted)$226
  
    
Weighted-average units outstanding—basic228,312,261
  
Dilutive effect of preferred units13,819,791
  
Weighted-average units outstanding—diluted242,132,052
  
    
Net income per limited partner unit—basic (dollars)
$0.95
  
Net income per limited partner unit—diluted (dollars)
0.93
  
 
Limited Partners’
Common Units

General Partner
(including IDRs)

Limited Partners’
Preferred Units

Total
Three Months Ended June 30, 2019    
Net income (millions):
    
Distributions declared$107
70
9
186
Distributions less than net income46
1

47
Net income (basic)153
71
9
233
Dilutive effect of preferred units*6
   
Net income (diluted)$159
   
     
Weighted-average units outstanding—basic124,824,010
   
Dilutive effect of preferred units*13,819,791
   
Weighted-average units outstanding—diluted138,643,801
   
     
Net income per limited partner unit—basic (dollars)
$1.23
   
Net income per limited partner unit—diluted (dollars)
1.15
   


Three Months Ended June 30, 2018  
Limited Partners’
Common Units

General Partner
(including IDRs)

Limited Partners’
Preferred Units

Total
Three Months Ended March 31, 2019  
Net income (millions):
    
Distributions declared$91
57
10
158
$105
69
10
184
Distributions less than (more than) net income30
(2)
28
Distributions less than net income14


14
Net income (basic)121
55
10
186
119
69
10
198
Dilutive effect of preferred units*7
 8
 
Net income (diluted)$128
 $127
 
    
Weighted-average units outstanding—basic122,188,646
 124,257,933
 
Dilutive effect of preferred units*13,819,791
 13,819,791
 
Weighted-average units outstanding—diluted136,008,437
 138,077,724
 
    
Net income per limited partner unit—basic (dollars)
$0.99
 $0.96
 
Net income per limited partner unit—diluted (dollars)
0.94
 0.92
 
*The dilutive effect of preferred units assumes the reallocation of net income to the limited and general partners, including a reallocation associated with
IDRs, pursuant to the available cash formula in the partnership agreement.

*The dilutive effect of preferred units assumes the reallocation of net income to the limited and general partners, including a reallocation associated with
IDRs, pursuant to the available cash formula in the partnership agreement.

*The dilutive effect of preferred units assumes the reallocation of net income to the limited and general partners, including a reallocation associated with IDRs, pursuant to the available cash formula in the partnership agreement.


 
Limited Partners’
Common Units

General Partner
(including IDRs)

Limited Partners’
Preferred Units

Total
Six Months Ended June 30, 2019    
Net income (millions):
    
Distributions declared$212
139
19
370
Distributions less than net income60
1

61
Net income (basic)272
140
19
431
Dilutive effect of preferred units*14
   
Net income (diluted)$286
   
     
Weighted-average units outstanding—basic124,542,536
   
Dilutive effect of preferred units*13,819,791
   
Weighted-average units outstanding—diluted138,362,327
   
     
Net income per limited partner unit—basic (dollars)
$2.19
   
Net income per limited partner unit—diluted (dollars)
2.07
   

Six Months Ended June 30, 2018    
Net income (millions):
    
Distributions declared$179
108
19
306
Distributions less than net income52


52
Net income (basic)231
108
19
358
Dilutive effect of preferred units*14
   
Net income (diluted)$245
   
     
Weighted-average units outstanding—basic121,900,683
   
Dilutive effect of preferred units*13,819,791
   
Weighted-average units outstanding—diluted135,720,474
   
     
Net income per limited partner unit—basic (dollars)
$1.89
   
Net income per limited partner unit—diluted (dollars)
1.80
   
*The dilutive effect of preferred units assumes the reallocation of net income to the limited and general partners, including a reallocation associated with
   IDRs, pursuant to the available cash formula in the partnership agreement.


On July 17, 2019,April 21, 2020, the Board of Directors of our General Partner declared a quarterly cash distribution of $0.855$0.875 per common unit which, excluding distributions to holders of our preferred units, will result in a total distribution of $199 million attributable to the secondfirst quarter of 2019.2020. This distribution is payable on August 13, 2019,May 14, 2020, to unitholders of record as of July 31, 2019.May 1, 2020.



Note 8—6—Properties, Plants and Equipment

Our investment in properties, plants and equipment (PP&E), with the associated accumulated depreciation, was:

Millions of DollarsMillions of Dollars
June 30
2019

 December 31
2018

March 31
2020

 December 31
2019

      
Land$19
 19
$19
 19
Buildings and improvements92
 89
94
 94
Pipelines and related assets*
1,405
 1,398
1,447
 1,424
Terminals and related assets*
717
 710
761
 741
Rail racks and related assets*
137
 137
137
 137
Processing and related assets*
889
 842
1,047
 1,041
Caverns and related assets*
585
 584
585
 585
Construction-in-progress314
 216
409
 367
Gross PP&E4,158
 3,995
4,499
 4,408
Accumulated depreciation(1,000) (943)(1,089) (1,059)
Net PP&E$3,158
 3,052
$3,410
 3,349
*Assets for which we are the lessor.


Note 9—7—Debt

Millions of DollarsMillions of Dollars
June 30
2019

 December 31
2018

March 31
2020

 December 31
2019

      
2.646% Senior Notes due February 2020$300
 300
2.450% Senior Notes due December 2024$300
 300
3.605% Senior Notes due February 2025500
 500
500
 500
3.550% Senior Notes due October 2026500
 500
500
 500
3.750% Senior Notes due March 2028500
 500
500
 500
3.150% Senior Notes due December 2029600
 600
4.680% Senior Notes due February 2045450
 450
450
 450
4.900% Senior Notes due October 2046625
 625
625
 625
Term loans due March 2020 at 3.167% at June 30, 2019400
 
Tax-exempt bonds due April 2020 and April 2021 at 2.105% and 1.885% at June 30, 2019, and December 31, 2018, respectively75
 75
Revolving credit facility due January 2019 at 3.669% at December 31, 2018
 125
Tax-exempt bonds due April 2020 and April 2021 at 1.465% and 1.85% at
March 31, 2020, and December 31, 2019, respectively
75
 75
Debt at face value3,350
 3,075
3,550
 3,550
Net unamortized discounts and debt issuance costs(26) (27)(34) (34)
Total debt3,324
 3,048
3,516
 3,516
Short-term debt(150) (50)(25) (25)
Long-term debt$3,174
 2,998
$3,491
 3,491



On March 22, 2019, we entered into a senior unsecured term loan facility with a borrowing capacity of $400 million that matures on March 20, 2020. At June 30, 2019, term loans totaling $400 million were outstanding under this facility. Borrowings under this facility bear interest at a floating rate based on either the Eurodollar rate or the reference rate, plus a margin determined by our credit ratings. Proceeds from term loans made under this facility were used for general partnership purposes, including repayment of amounts borrowed under our $750 million revolving credit facility.

As of June 30, 2019, no amount had been directly drawn under our $750 million revolving credit facility; however, $1 million in letters of credit had been issued that were supported by this facility. As of December 31, 2018, we had an aggregate of $125 million borrowed and outstanding under the credit facility.

At June 30, 2019, $575 million of debt due within a year was classified as long-term debt based on our intent to refinance the obligation on a long-term basis and ability to do so under our revolving credit facility.

The fair value of our fixed-rate and floating-rate debt is estimated based on observable market prices and is classified in level 2 of the fair value hierarchy. The fair value of our fixed-rate debt amounted to $2,962was $3,083 million and $2,660$3,650 million at June 30, 2019,March 31, 2020, and December 31, 2018,2019, respectively. The fair value of our floating-rate debt approximated carrying value of $475 million and $200$75 million at June 30, 2019,March 31, 2020, and December 31, 2018,2019.


At March 31, 2020, and December 31, 2019, 0 amount had been directly drawn under our $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.

On April 1, 2020, we repaid at maturity a $25 million tranche of tax-exempt bonds that was included in short-term debt at March 31, 2020.


Note 10—Equity

ATM Programs
Our initial $250 million continuous offering of common units, or at-the-market (ATM) program, was completed in June 2018. At that time, we commenced issuing common units under our second $250 million ATM program. For the three and six months ended June 30, 2019, on a settlement date basis, we issued an aggregate of 212,336 and 834,368 common units under our ATM programs, generating net proceeds of $10 million and $42 million, respectively. For the three and six months ended June 30, 2018, we issued an aggregate of 1,152,119 and 1,340,934 common units under our ATM programs, generating net proceeds of $58 million and $67 million, respectively. Since inception in June 2016 through June 30, 2019, we issued an aggregate of 7,085,332 common units under our ATM programs, generating net proceeds of $361 million, after broker commissions of $4 million. The net proceeds from sales under the ATM programs are used for general partnership purposes, which may include debt repayment, acquisitions, capital expenditures and additions to working capital.


Note 11—8—Contingencies

From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against 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 sites. We regularly assess the need for accounting 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.

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 any 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 federal, state and local environmental laws and regulations. We record accruals for contingent environmental liabilities based on management’s best estimates, using all information that is available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring 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 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.

In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

Legal Proceedings
Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal support services, and we pay an operational and administrative support fee for these services. Phillips 66’s 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. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables 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, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. As of June 30, 2019,March 31, 2020, and December 31, 2018,2019, we did not have any material accrued contingent liabilities associated with litigation matters.


Indemnification and Excluded Liabilities
Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize noncash expenses and associated noncash capital contributions from our General Partner, as these are considered liabilities paid for by a principal unitholder.


Note 12—Cash Flow Information9—Equity

Capital ExpendituresATM Programs
We have authorized an aggregate of $750 million under 3 $250 million continuous offerings of common units, or at-the-market (ATM) programs. The first two programs concluded in June 2018 and Investments
OurDecember 2019, respectively. For the three months ended March 31, 2020, on a settlement date basis, we issued an aggregate of 40,570 common units under our ATM programs, generating net proceeds of $2 million. For the three months ended March 31, 2019, we issued an aggregate of 622,032 common units under our ATM programs, generating net proceeds of $32 million. Since inception in June 2016 through March 31, 2020, we issued an aggregate of 9,487,055 common units under our ATM programs, and generated net proceeds of $494 million, after broker commissions of $5 million and other costs of $3 million. The net proceeds from sales under the ATM programs are used for general partnership purposes, which may include debt repayment, acquisitions, capital expenditures and investments consisted of:
 Millions of Dollars
 Six Months Ended
June 30
 2019
 2018
    
Cash capital expenditures and investments$759
 234
Change in capital expenditure accruals(13) 14
Total capital expenditures and investments$746
 248

additions to working capital.



Note 13—10—Related Party Transactions

Commercial Agreements
We have entered into long-term, fee-based commercial agreements with Phillips 66 to provide transportation, terminaling, storage, stevedoring, fractionation, processing, and rail terminal services. Under these agreements, Phillips 66 commits to provide us with minimum transportation, throughput or storage volumes, or minimum monthly service fees. If Phillips 66 does not meet its minimum volume commitments under an agreement, Phillips 66 pays us a deficiency payment based on the calculation described in the agreement.

Amended and Restated Operational Services Agreement
Under our amended and restated operational services agreement, we reimburse Phillips 66 for certain operational services provided in support of our pipelines, terminaling, processing, and storage facilities. These services include routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as we and Phillips 66 may mutually agree upon from time to time.

Amended Omnibus Agreement
The amended omnibus agreement addresses our payment of an operating and administrative support fee and our obligation to reimburse Phillips 66 for all other direct or allocated costs and expenses incurred by Phillips 66 in providing general and administrative services. Additionally, the omnibus agreement addresses Phillips 66’s indemnification to us and our indemnification to Phillips 66 for certain environmental and other liabilities. Further, it addresses the granting of a license from Phillips 66 to us with respect to the use of certain Phillips 66 trademarks.

The operational and administrative support fee is for the provision of certain services, including: logistical services; asset oversight, such as operational management and supervision; corporate engineering services, including asset integrity and regulatory services; business development services; executive services; financial and administrative services (including treasury and accounting); information technology; legal services; corporate health, safety and environmental services; facility services; human resources services; procurement services; investor relations; tax matters; and public company reporting services. We pay Phillips 66 an operational and administrative support fee under the terms of our amended omnibus agreement in the amount of $8 million per month.


We also reimburse Phillips 66 for all other direct or allocated costs incurred on behalf of us, pursuant to the terms of our amended omnibus agreement. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the functional nature of the services performed for our operations. Under our amended and restated operational services agreement, we reimburse Phillips 66 for the provision of certain operational services in support of our operating assets. Additionally, we pay Phillips 66 for insurance services provided to us, and recoveries under these policies are recorded as an offset to our expenses. Operating and maintenance expenses also include volumetric gains and losses associated with volumes transported by Phillips 66.

Tax Sharing Agreement
Under our tax sharing agreement, we reimburse Phillips 66 for our share of state and local income and other taxes incurred by Phillips 66 due to our results of operations being included in a combined or consolidated tax return filed by Phillips 66. Any reimbursement is limited to the tax that we (and our subsidiaries) would have paid had we not been included in a combined group with Phillips 66. Phillips 66 may use its tax attributes to cause its combined or consolidated group to owe no tax; however, we would nevertheless reimburse Phillips 66 for the tax we would have owed, even though Phillips 66 had no cash expense for that period.

Related Party Transactions
Significant related party transactions included in our total costs and expenses were:

Millions of DollarsMillions of Dollars
Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
        
Operating and maintenance expenses$50
50
 155
115
$48
 105
General and administrative expenses16
15
 33
30
17
 17
Total$66
65
 188
145
$65
 122




We pay Phillips 66 a monthly operational and administrative support fee under the terms of our amended omnibus agreement in the amount of $8 million. The operational and administrative support fee is for the provision of certain services, including: logistical services; asset oversight, such as operational management and supervision; corporate engineering services, including asset integrity and regulatory services; business development services; executive services; financial and administrative services (including treasury and accounting); information technology; legal services; corporate health, safety and environmental services; facility services; human resources services; procurement services; investor relations; tax matters; and public company reporting services. We also reimburse Phillips 66 for all other direct or allocated costs incurred on behalf of us, pursuant to the terms of our amended omnibus agreement. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the functional nature of the services performed for our operations. Under our amended and restated operational services agreement, we reimburse Phillips 66 for the provision of certain operational services in support of our operating assets. Additionally, we pay Phillips 66 for insurance services provided to us, and recoveries under these policies are recorded as an offset to our expenses. Operating and maintenance expenses also include volumetric gains and losses associated with volumes transported by Phillips 66.

Other related party balances were included in the following line items on our consolidated balance sheet, all of which were related to commercial agreements with Phillips 66:

Millions of DollarsMillions of Dollars
June 30
2019

 December 31
2018

March 31
2020

 December 31
2019

      
Prepaid expenses and other current assets$4
 4
$12
 7
Other assets44
 
48
 44
Deferred revenues16
 60
18
 16
Other current liabilities1
 
1
 1
Other liabilities70
 18
68
 70



Equity Affiliate GuaranteeArrangements
In March 2019, we and our co-venturers in Dakota Access provided a CECU in conjunction with an unsecured senior notes offering. See Note 4—Equity Investments and Loans, for additional information.

In June 2019, we issued a guarantee through an equity contribution agreement for 42.25% of the third-party term loan facility for Gray Oak.Oak Pipeline, LLC. See Note 6—4—Equity Investments and Loans, for additional information.



Note 14—Subsequent Event11—Cash Flow Information

On July 24, 2019, we executed a definitive agreement to eliminate all of Phillips 66’s IDRsCapital Expenditures and its general partner economic interest in exchange for 101 million newly issued common units.  Pursuant to the definitive agreement, the IDRs will be eliminatedInvestments
Our capital expenditures and the general partner economic interest will be converted into a non-economic general partner interest.  After the transaction closes, Phillips 66 will own approximately 170 million PSXP common units, representing approximately 75% of our outstanding common units.  As a result of the transaction, the General Partner’s negative equity balance of approximately $1.3 billion will transfer to Phillips 66’s limited partner equity account.  The transaction is scheduled to close on August 1, 2019.investments consisted of:
 Millions of Dollars
 Three Months Ended
March 31
 2020
 2019
    
Cash capital expenditures and investments$236
 634
Change in capital expenditure accruals(2) (2)
Total capital expenditures and investments$234
 632




Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” refer to Phillips 66 Partners GP LLC, and references to Phillips“Phillips 66 PDIPDI” refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us and wholly owns our General Partner.

Management’s Discussion and Analysis is the Partnership’s analysis of its financial performance, financial condition, and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the Partnership’s plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The Partnership 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 Partnership’s disclosures under the heading: “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.”


BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW

Partnership Overview
We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. Our operations consist of crude oil, refined petroleum products and natural gas liquids (NGL) transportation, terminaling, processing and storage assets. We conduct our operations through both wholly owned and joint venture operations. The majority of our wholly owned assets are associated with, and are integral to the operation of, nine of Phillips 66’s owned or joint venture refineries.

We primarily generate revenue by providing fee-based transportation, terminaling, processing, storage and fractionation services to Phillips 66 and other customers. Our equity affiliates primarily generate revenue from transporting and terminaling crude oil, refined petroleum products and NGL.

Our common units trade on the New York Stock Exchange under the symbol PSXP.

How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our performance, including: (1) volumes handled; (2) operating and maintenance expenses; (3) net income (loss) before net interest expense, income taxes, depreciation and amortization (EBITDA); (4) adjusted EBITDA; and (5) distributable cash flow.

Volumes Handled
The amount of revenue we generate primarily depends on the volumes of crude oil, refined petroleum products and NGL that we handle in our pipeline, terminal, rail rack, processing, storage and fractionator systems. In addition, our equity affiliates generate revenue from transporting and terminaling crude oil, refined petroleum products and NGL. These volumes are primarily affected by the supply of, and demand for, crude oil, refined petroleum products and NGL in the markets served directly or indirectly by our assets, as well as the operational status of the refineries served by our assets. Phillips 66 has committed to minimum throughput volumes under many of our commercial agreements.

Operating and Maintenance Expenses
Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses primarily consist of labor expenses (including contractor services), utility costs, and repair and maintenance expenses. Operating and maintenance expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the mix of activities,

particularly maintenance activities, performed during the period. Although we seek to manage our maintenance expenditures on our facilities to avoid significant variability in our quarterly cash flows, we balance this approach with our high standards of safety and environmental stewardship, such that critical maintenance is regularly performed.

Our operating and maintenance expenses are also affected by volumetric gains/losses resulting from variances in meter readings and other measurement methods, as well as volume fluctuations due to pressure and temperature changes. Under certain commercial agreements with Phillips 66, the value of any crude oil, refined petroleum product and NGL volumetric gains and losses are determined by reference to the monthly average reference price for the applicable commodity. Any gains/losses under these provisions decrease or increase, respectively, our operating and maintenance expenses in the period in which they are realized. These contractual volumetric gain/loss provisions could increase variability in our operating and maintenance expenses.

EBITDA, Adjusted EBITDA and Distributable Cash Flow
We define EBITDA as net income (loss) plus net interest expense, income taxes, depreciation and amortization.

Adjusted EBITDA is EBITDA, further adjusted for:

The proportional share of equity affiliates’ net interest expense, income taxes and depreciation and amortization.

Transaction costs associated with acquisitions.

Certain other noncash items, including expenses indemnified by Phillips 66.

Distributable cash flow is defined as adjusted EBITDA less (i) equity affiliate distributions less than proportional EBITDA, (ii) maintenance capital expenditures, (iii) net interest expense, (iv) income taxes paid and (v) preferred unit distributions;distributions, plus adjustments for deferred revenue impacts.

EBITDA, adjusted EBITDA, and distributable cash flow are not presentations made in accordance with generally accepted accounting principles in the United States (GAAP). EBITDA, adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management believes external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may find useful to assess:

Our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA and adjusted EBITDA, financing methods.

The ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders.

Our ability to incur and service debt and fund capital expenditures.

The viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

The GAAP performance measure most directly comparable to EBITDA and adjusted EBITDA is net income. The GAAP liquidity measure most directly comparable to EBITDA and distributable cash flow is net cash provided by operating activities. These non-GAAP financial measures should not be considered alternatives to GAAP net income or net cash provided by operating activities. They have important limitations as analytical tools because they exclude some items that affect net income and net cash provided by operating activities. Additionally, because EBITDA, adjusted EBITDA, and distributable cash flow may be defined differently by other companies in our industry, our definition of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.



Business Environment
Since we do not own any of the crude oil, refined petroleum products and NGL we handle and do not engage in the trading of crude oil, refined petroleum products and NGL, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.

Our throughput volumes primarily depend on the volume of crude oil processed and refined petroleum products produced at Phillips 66’s owned or operated refineries with which our assets are integrated. These volumes are primarily dependent on Phillips 66’s refining margins and maintenance schedules. Refining margins depend on the price of crude oil or other feedstocks and the price of refined petroleum products. These prices are affected by numerous factors beyond our or Phillips 66’s control, including the domestic and global supply of and demand for crude oil and refined petroleum products. Throughput volumes of our equity affiliates primarily depend on upstream drilling activities, refinery performance and product supply and demand.

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 the Coronavirus Disease 2019 (COVID-19) and its development into a pandemic resulted in significant economic disruption globally. Actions taken by governments to prevent the spread of the disease included severe travel and business restrictions, which resulted in substantial decreases in the demand for many refined petroleum products, particularly gasoline and jet fuel. This drop in demand led refiners to reduce crude oil processing rates and eventually to lower crude oil demand and prices.

The dispute over production levels between Russia and the members of the Organization of Petroleum Exporting Countries (OPEC), including Saudi Arabia, resulted in an oversupply of crude oil, which exacerbated the decline in crude oil prices and eventually led to lower petroleum product prices as well.

We expect these events may result in reduced transportation and terminaling volumes in the near term.  In March 2020, we announced that we were reducing our planned capital spending in 2020, including deferring the Liberty Pipeline project and postponing a final investment decision on the ACE Pipeline.

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 customers, including Phillips 66, will likely be significant in the near term.

While we believe we have substantially mitigated our indirect exposure to commodity price fluctuations through the minimum volume commitments in our commercial agreements with Phillips 66 and a majority of our joint ventures during the respective terms of those agreements, our ability to execute our growth strategy will depend, in part, on the availability of attractively priced crude oil in the areas served by our crude oil pipelines and rail racks, demand for refined petroleum products in the markets served by our refined petroleum product pipelines and terminals, and the general demand for midstream services, including NGL transportation and fractionation.



RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three and six months ended June 30, 2019March 31, 2020, is based on a comparison with the corresponding period of 2018.2019.

Millions of DollarsMillions of Dollars
Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
Revenues and Other Income       
Operating revenues—related parties$256
244
 552
493
$258
 296
Operating revenues—third parties7
10
 13
17
9
 6
Equity in earnings of affiliates137
100
 256
198
136
 119
Other income1

 3
1
1
 2
Total revenues and other income401
354
 824
709
404
 423
       
Costs and Expenses       
Operating and maintenance expenses85
85
 224
182
88
 139
Depreciation29
29
 58
57
30
 29
General and administrative expenses17
16
 35
32
17
 18
Taxes other than income taxes9
9
 20
19
11
 11
Interest and debt expense27
29
 54
59
29
 27
Other expenses2
 
Total costs and expenses167
168
 391
349
177
 224
Income before income taxes234
186
 433
360
227
 199
Income tax expense1

 2
2
1
 1
Net income233
186
 431
358
226
 198
Less: Preferred unitholders’ interest in net income9
10
 19
19
10
 10
Less: General partner’s interest in net income71
55
 140
108

 69
Limited partners’ interest in net income$153
121
 272
231
$216
 119
       
Net cash provided by operating activities$276
226
 481
397
$274
 205
       
Adjusted EBITDA$319
276
 600
523
$321
 281
       
Distributable cash flow$254
204
 480
398
$269
 226

Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
Wholly Owned Operating Data       
Pipelines       
Pipeline revenues (millions of dollars)
$117
111
 226
213
$111
 109
Pipeline volumes(1) (thousands of barrels daily)
       
Crude oil1,000
1,020
 980
984
941
 959
Refined petroleum products and NGL995
920
 882
859
866
 768
Total1,995
1,940
 1,862
1,843
1,807
 1,727
       
Average pipeline revenue per barrel (dollars)
$0.64
0.63
 0.67
0.64
$0.67
 0.70
       
Terminals       
Terminal revenues (millions of dollars)
$39
38
 79
77
$43
 40
Terminal throughput (thousands of barrels daily)
       
Crude oil(2)
456
471
 463
477
460
 471
Refined petroleum products809
806
 773
763
748
 736
Total1,265
1,277
 1,236
1,240
1,208
 1,207
       
Average terminaling revenue per barrel (dollars)
$0.33
0.33
 0.34
0.34
$0.39
 0.36
       
Storage, processing and other revenues (millions of dollars)
$107
105
 260
220
$113
 153
Total operating revenues (millions of dollars)
$263
254
 565
510
$267
 302
       
Joint Venture Operating Data(3)
       
Crude oil, refined petroleum products and NGL (thousands of barrels daily)
772
638
 730
621
838
 687
(1) Represents the sum of volumes transported through each separately tariffed pipeline segment.
(2) Bayway and Ferndale rail rack volumes included in crude oil terminals.
(3) Proportional share of total pipeline and terminal volumes of joint ventures consistent with recognized equity in earnings of affiliates.



The following tables present reconciliations of EBITDA and adjusted EBITDA to net income, and EBITDA and distributable cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
 
Millions of DollarsMillions of Dollars
Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
Reconciliation to Net Income       
Net income$233
186
 431
358
$226
 198
Plus:       
Depreciation29
29
 58
57
30
 29
Net interest expense26
29
 53
58
28
 27
Income tax expense1

 2
2
1
 1
EBITDA289
244
 544
475
285
 255
Plus:       
Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization29
28
 55
43
35
 26
Expenses indemnified or prefunded by Phillips 661
1
 1
1

 
Transaction costs associated with acquisitions
3
 
4
1
 
Adjusted EBITDA319
276
 600
523
321
 281
Plus:       
Deferred revenue impacts*
(4)(5) (4)
2
 
Less:       
Equity affiliate distributions less than proportional EBITDA13
18
 22
28
1
 9
Maintenance capital expenditures
12
10
 21
20
15
 9
Net interest expense26
29
 53
58
28
 27
Preferred unit distributions9
10
 19
19
10
 10
Income taxes paid1

 1

Distributable cash flow$254
204
 480
398
$269
 226
*Difference between cash receipts and revenue recognition.
Excludes Merey Sweeny capital reimbursements and turnaround impacts.

Millions of DollarsMillions of Dollars
Three Months Ended
June 30
 Six Months Ended
June 30
Three Months Ended
March 31
2019
2018
 2019
2018
2020
 2019
Reconciliation to Net Cash Provided by Operating Activities       
Net cash provided by operating activities$276
226
 481
397
$274
 205
Plus:       
Net interest expense26
29
 53
58
28
 27
Income tax expense1

 2
2
1
 1
Changes in working capital(11)(10) 23
(27)(12) 34
Undistributed equity earnings(1)(1) (3)7
(4) (2)
Deferred revenues and other liabilities1
5
 (8)43

 (9)
Other(3)(5) (4)(5)(2) (1)
EBITDA289
244
 544
475
285
 255
Plus:       
Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization29
28
 55
43
35
 26
Expenses indemnified or prefunded by Phillips 661
1
 1
1

 
Transaction costs associated with acquisitions
3
 
4
1
 
Adjusted EBITDA319
276
 600
523
321
 281
Plus:       
Deferred revenue impacts*
(4)(5) (4)
2
 
Less:   
   
Equity affiliate distributions less than proportional EBITDA13
18
 22
28
1
 9
Maintenance capital expenditures
12
10
 21
20
15
 9
Net interest expense26
29
 53
58
28
 27
Preferred unit distributions9
10
 19
19
10
 10
Income taxes paid1

 1

Distributable cash flow$254
204
 480
398
$269
 226
*Difference between cash receipts and revenue recognition.
Excludes Merey Sweeny capital reimbursements and turnaround impacts.


Statement of Income Analysis

Operating revenues increased $55decreased $35 million, or 11%12%, in the six-month periodfirst quarter of 2019.2020. The increasedecrease was attributable to the recognition of previously deferred revenues associated with fees charged to Phillips 66in the first quarter of 2019 related to turnaround activity at Merey Sweeny LLC (Merey Sweeny) in the first quarter of 2019, and, partially offset by higher volumes on wholly owned assets.assets during the three-month period of 2020.

Equity in earnings of affiliates increased $37$17 million, or 37%, and increased $58 million, or 29%14%, in the secondfirst quarter and six-month period of 2019, respectively.2020. The increases in both periods wereincrease was attributable to higher earnings from Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO), together referred to as the BakkenBayou Bridge Pipeline, LLC, Gray Oak Pipeline, LLC and DCP Sand Hills Pipeline, LLC, (Sand Hills), and Bayou Bridge Pipeline, LLC (Bayou Bridge), primarily due to improved volumes. These higher volumes. In addition, the increase in the six-month period of 2019 wasearnings were partially offset by a decrease in earnings from Explorer Pipeline CompanyPhillips 66 Partners Terminal due to a one-time benefit from U.S. tax reform in the first quarter of 2018.lower contractual rates.

Operating and maintenance expenses increaseddecreased by $42$51 million, or 23%37%, in the six-month periodfirst quarter of 2019.2020. The increasedecrease was primarily due to turnaround activity at Merey Sweeny.Sweeny in 2019.


CAPITAL RESOURCES AND LIQUIDITY
Significant Sources of Capital
Our sources of liquidity include cash generated from operations, distributions from our equity affiliates, borrowings from related parties and under our revolving credit facility, and issuances of additional debt and equity securities.securities, and funding from joint venture partners. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements, long-term capital expenditure requirements and our quarterly cash distributions.

Operating Activities
We generated $481$274 million in cash from operations during the first sixthree months of 2019,2020, an improvement over cash from operations of $397$205 million for the corresponding period of 2018.2019. The improvement was primarily driven by lower deferred revenue impacts, lower operating and maintenance expenses and higher distributions from equity affiliates.

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, cash from operations included distributions of $141 million from our equity affiliates, compared with $121 million during the same period of 2019. We cannot control the amount or timing of future dividends from equity affiliates; therefore, future dividend payments by these and other equity affiliates are not assured.

ATM Programs
Our initialWe have authorized an aggregate of $750 million under three $250 million continuous offeringofferings of common units, or at-the-market (ATM) program, was completedprograms. The first two programs concluded in June 2018. At that time, we commenced issuing common units under our second $250 million ATM program.2018 and December 2019, respectively. For the three and six months ended June 30, 2019,March 31, 2020, on a settlement date basis, we issued an aggregate of 212,336 and 834,36840,570 common units under our ATM programs, generating net proceeds of $10 million and $42 million, respectively.$2 million. For the three and six months ended June 30, 2018,March 31, 2019, we issued an aggregate of 1,152,119 and 1,340,934622,032 common units under our ATM programs, generating net proceeds of $58 million and $67 million, respectively.$32 million. Since inception in June 2016 through June 30, 2019,March 31, 2020, we issued an aggregate of 7,085,3329,487,055 common units under our ATM programs, generatingand generated net proceeds of $361$494 million, after broker commissions of $4$5 million and other costs of $3 million. The net proceeds from sales under the ATM programs are used for general partnership purposes, which may include debt repayment, acquisitions, capital expenditures and additions to working capital.

Revolving Credit Facility
As of June 30,At March 31, 2020, and December 31, 2019, no amount had been directly drawn under our $750 million revolving credit facility; however, $3 million and $1 million in letters of credit had been issued that were supported by this facility.

Term Loan Facility
On March 22, 2019, we entered into a senior unsecured term loan facility with a borrowing capacity of $400 million that matures on March 20, 2020. At June 30, 2019, term loans totaling $400 million were outstanding under this facility. Borrowings under this facility bear interest at a floating rate based on either the Eurodollar rate or the reference rate, plus a margin determined by our credit ratings. Proceeds from term loans made under this facility were used for general partnership purposes, including repayment of amounts borrowed under our $750 million revolving credit facility.March 31, 2020, and December 31, 2019, respectively.

TransfersTransfer of Equity Interests
In December 2018,We have a third party exercised an option to acquireconsolidated 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, we have an effective ownership interest of 42.25% in Gray Oak Holdings LLC (Holdings LLC), a consolidated subsidiary. This transfer did not qualify as a sale under GAAP because of certain restrictions placed on the acquirer. The contributions received by Holdings LLC from the third party to cover capital calls fromPipeline, LLC. Gray Oak Pipeline, LLC (Gray Oak) are presentedwas 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 and financing cash inflows onin 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 cash flows until construction ofincome. For the Gray Oak Pipeline is completed and the restrictions expire. During the first three months of 2019,ended March 31, 2020, the third partyco-venturer contributed an aggregate of $341$23 million into Holdings LLC, which Holdings LLC usedto the holding company to fund its portion of Gray Oak’sOak Pipeline, LLC’s cash calls.

In February 2019, Holdings LLC sold a 10% ownership interest in Gray Oak to a third party that exercised a purchase option, for proceeds of $81 million. The proceeds received from this sale are presented as an investing cash inflow on our consolidated statement of cash flows.

See Note 6—4—Equity Investments and Loans, in the Notes to Consolidated Financial Statements, for additional information regarding these transactions.


Shelf Registration
We have a universal shelf registration statement on file with the U.S. Securities and Exchange Commission (SEC) under which we, as a well-known seasoned issuer, have the ability to issue and sell an indeterminate amount of common units representing limited partner interests, preferred units representing limited partner interests, and debt securities.


Off-Balance Sheet Arrangements
In March 2019, a wholly owned subsidiary of Dakota Access closed on an offering of $2,500 million aggregate principal amount of unsecured senior notes.  The net proceeds from the issuance of these notes were used to repay amounts outstanding under existing credit facilities of Dakota Access and ETCO. Dakota Access and ETCO have guaranteed repayment of the notes.  In addition, we and our 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 venturersco-venturers may be severally required to make proportionate equity contributions to Dakota Access and ETCO up to an aggregate maximum of approximately $2,525 million. Our share of the maximum potential equity contributions under the CECU is approximately $631 million.million at March 31, 2020. In March 2020, the court in such litigation requested an Environmental Impact Statement from the U.S. Army Corps of Engineers, and requested additional information to make a further decision regarding whether the Dakota Access Pipeline should be shut down while the Environmental Impact Statement is being prepared. Currently, this ruling does not have any immediate impact on the operations of Dakota Access and ETCO.

In June 2019, Gray Oak entered intoPipeline, LLC has a third-party term loan facility with an initiala borrowing capacity of $1,230$1,379 million, which was increased in July 2019 to $1,317 million.inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. We and our co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount.  Under the agreement, our maximum potential amount, of future obligations is $556 million, plus any additional accrued interest and associated fees, which would be required if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations.obligations thereunder. At June 30, 2019,March 31, 2020, the term loan facility was fully utilized by Gray Oak had borrowings of $551 million outstanding,Pipeline, LLC and our 42.25% proportionate exposure under the equity contribution agreement was $233$583 million.  The net proceeds from the term loan were used by Gray Oak for construction of the Gray Oak Pipeline and repayment of amounts borrowed under a related party loan agreement that we and our co-venturers executed in March 2019 and terminated upon the repayment by Gray Oak in June.  Our total related party loan to and repayment received from Gray Oak was $95 million during the second quarter of 2019.  


Capital Requirements

Liberty Acquisition
In February 2020, we entered into a Purchase and Sale Agreement with Phillips 66 PDI to acquire its 50% interest in the Liberty Pipeline joint venture for $75 million. The purchase price reflected the reimbursement of project costs incurred by Phillips 66 prior to the effective date of the transaction. The transaction was funded through a combination of cash on hand and our revolving credit facility and closed on March 2, 2020. Liberty Pipeline LLC was 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. On March 24, 2020, we and our co-venturer announced we are deferring the development and construction of the Liberty Pipeline system as a result of the current challenging business environment.

Capital Expenditures and Investments
Our operations are capital intensive and require investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational requirements of our wholly owned and joint venture entities. Our capital requirements consist of maintenance and expansion capital expenditures, as well as contributions to our joint ventures. ExpansionMaintenance capital expenditures are those made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or to maintain existing system volumes and related cash flows. In contrast, expansion capital expenditures are those made to expand and upgrade our systems and facilities and to construct or acquire new systems or facilities to grow our business, including contributions to joint ventures that are using the contributed funds for such purposes. In contrast, maintenance capital expenditures are those made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or to maintain existing system volumes and related cash flows.


Our capital expenditures and investments represent the total spending for our capital requirements. 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 consolidated capital spending funded by certain of our Gray Oak joint venture partners from our sale or transfer of equity interests to them.partners. Additionally, the disaggregation of adjusted capital spending between expansion and maintenance is not a distinction recognized under GAAP. We disaggregate adjusted capital spending because our partnership agreement requires that we treat expansion and maintenance capital differently for certain surplus determinations. Further, we generally fund expansion capital spending with both operating and financing cash flows and fund maintenance capital spending with operating cash flows.


Our capital expenditures and investments were:

Millions of DollarsMillions of Dollars
Six Months Ended
June 30
Three Months Ended
March 31
2019
 2018
2020
 2019
Capital expenditures and investments      
Capital expenditures and investments$746
 248
$234
 632
Capital expenditures and investments funded by Gray Oak joint venture partners*(422) 
Capital expenditures and investments funded by certain joint venture partners*(23) (422)
Adjusted capital spending$324
 248
$211
 210
      
Expansion$297
 226
$196
 195
Maintenance27
 22
15
 15
*See Note 6—4—Equity Investments and Loans, in the Notes to Consolidated Financial Statements, for additional information.


Our capital expenditures and investments for the first sixthree months of 20192020 were primarily associated with the following activities:

Contributions to Gray Oak Pipeline, LLC to progress construction of the pipeline which will provide crude oil transportation from the Permian Basin and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market.system.

Construction activities relatedContributions to a new isomerization unit atLiberty Pipeline LLC to progress construction of the Phillips 66 Lake Charles Refinery.

Construction activities relatedLiberty Pipeline, which will transport crude oil from the Rockies and Bakken production areas to increasing storage capacity at Clemens Caverns.Cushing, Oklahoma. As discussed below, this project has been deferred.

Contributions to Bayou Bridge to completethe pipeline segment from Lake Charles to St. James, Louisiana.

Contributions to South Texas Gateway Terminal for construction activities related to the marine export terminal that will connect to the Gray Oak Pipeline in Corpus Christi, Texas.

Construction activities related to increasing capacity on the Lake CharlesSweeny to Pasadena refined petroleum products pipeline that connects storage in Lake Charles to its Clifton Ridge Marine Terminal.pipeline.    

Construction activities related to a new ethane pipeline from the Clemens Caverns to petrochemical facilities in Gregory, Texas, near Corpus Christi.

Construction activities related to increasing storage capacity at Clemens Caverns.

Spending associated with other return, reliability and maintenance projects.

2020 Budget Update
In late March 2020, we announced an update to the 2020 capital budget that was included in our 2019 Annual Report on Form 10-K. In response to the current challenging business environment, we reduced our 2020 capital spending plans from $962 million to $932 million. Capital spending net of cash capital contributions from certain joint venture partners (adjusted capital spending) is expected to be $863 million. The development and construction of the Liberty Pipeline system has been deferred and we are postponing our final investment decision regarding the ACE Pipeline. We will continue to fund Liberty Pipeline’s cash calls in 2020, primarily for its committed purchases from vendors.


Cash Distributions
On July 17, 2019,April 21, 2020, the Board of Directors of our General Partner declared a quarterly cash distribution of $0.855$0.875 per common unit which, combined with distributions to our General Partner, and excluding distributions to holders of our preferred units, resultedwill result in a total distribution of $177$199 million attributable to the secondfirst quarter of 2019.2020. This distribution is payable on August 13, 2019,May 14, 2020, to unitholders of record as of July 31, 2019.May 1, 2020.

Cash distributions are made to our General Partner in respect of its general partner interest and its ownership of all incentive distribution rights (IDRs), which entitle our General Partner to receive increasing percentages, up to 50%, of quarterly cash distributions in excess of $0.244375 per unit. Accordingly, based on the per-unit distribution declared on July 17, 2019, our General Partner will receive 40% of the second-quarter 2019 cash distribution, excluding preferred unit distributions, in respect of its general partner interest and its ownership of all IDRs.


The holders of our preferred units are entitled to receive cumulative quarterly distributions equal to $0.678375 per preferred unit. Preferred unitholders will receive $9$10 million of distributions attributable to the secondfirst quarter of 2019.2020. This distribution is payable on August 13, 2019,May 14, 2020, to preferred unitholders of record as of July 31, 2019.May 1, 2020.

Incentive Distribution Rights EliminationDebt Repayment
On July 24, 2019,April 1, 2020, we executedrepaid at maturity a definitive agreement to eliminate all$25 million tranche of Phillips 66’s IDRs and its general partner economic interesttax-exempt bonds that was included in exchange for 101 million newly issued common units.  Pursuant to the definitive agreement, the IDRs will be eliminated and the general partner economic interest will be converted into a non-economic general partner interest.  After the transaction closes, Phillips 66 will own approximately 170 million PSXP common units, representing approximately 75% of our outstanding common units.  As a result of the transaction, the General Partner’s negative equity balance of approximately $1.3 billion will transfer to Phillips 66’s limited partner equity account.  The transaction is scheduled to close on August 1, 2019.short-term debt at March 31, 2020.


Contingencies
From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against 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 sites. We regularly assess the need for accounting 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.

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 any 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.

Regulatory Matters
Our interstate common carrier crude oil and refined petroleum products pipeline operations are subject to rate regulation by the Federal Energy Regulatory Commission under the Interstate Commerce Act and Energy Policy Act of 1992, and certain of our pipeline systems providing intrastate service are subject to rate regulation by applicable state authorities under their respective laws and regulations. Our pipeline, rail rack and terminal operations are also subject to safety regulations adopted by the Department of Transportation, as well as to state regulations.

Legal and Tax Matters
Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal and tax support services, and we pay an operational and administrative support fee for these services. Phillips 66’s legal and tax organizations apply their knowledge, experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. Phillips 66’s legal organization employs a litigation management process to manage and monitor the legal proceedings against us. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables 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, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and recommends if adjustment of existing accruals, or establishment of new accruals, is required. As of June 30, 2019,March 31, 2020, and December 31, 2018,2019, we did not have any material accrued contingent liabilities associated with litigation matters.


Environmental
We are subject to extensive federal, state and local environmental laws and regulations. These requirements, which frequently change, regulate the discharge of materials into the environment or otherwise relate to protection of the environment. Compliance with these laws and regulations may require us to remediate environmental damage from any discharge of petroleum or chemical substances from our facilities or require us to install additional pollution control equipment at or on our facilities. Our failure to comply with these or any other environmental or safety-related regulations could result in the assessment of administrative, civil, or criminal penalties, the imposition of investigatory and remedial liabilities, and the issuance of governmental orders that may subject us to additional operational constraints. Future expenditures may be required to comply with the Federal Clean Air Act and other federal, state and local requirements in respect of our various sites, including our pipelines and storage assets. The impact of legislative and regulatory developments, if enacted or adopted, could result in increased compliance costs and additional operating restrictions on our business, each of which could have an adverse impact on our financial position, results of operations and liquidity.

As with all costs, if these expenditures are not ultimately recovered in the tariffs and other fees we receive for our services, our operating results will be adversely affected. We believe that substantially all similarly situated parties and holders of comparable assets must comply with similar environmental laws and regulations. However, the specific impact on each may vary depending on a number of factors, including, but not limited to, the age and location of its operating facilities.

We accrue for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs can be reasonably estimated. As environmental remediation matters proceed toward ultimate resolution or as additional remediation obligations arise, charges in excess of those previously accrued may be required. New or expanded environmental requirements, which could increase our environmental costs, may arise in the future. We believe we are in substantial compliance with all legal obligations regarding the environment and have established the environmental accruals that are currently required; however, it is not possible to predict all of the ultimate costs of compliance, including remediation costs that may be incurred and penalties that may be imposed, because not all of the costs are fixed or presently determinable (even under existing legislation) and the costs may be affected by future legislation or regulations.

Indemnification and Excluded Liabilities
Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize noncashnon-cash expenses and associated noncashnon-cash capital contributions from our General Partner, as these are considered liabilities paid for by a principal unitholder.



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions.

We based the forward-looking statements on our current expectations, estimates and projections about us and the industries in which we operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:

The continued ability of Phillips 66 to satisfy its obligations under our commercial and other agreements.
Reductions in the volume of crude oil, refined petroleum products and NGL we transport, fractionate, process, terminal and store.
Changes to the tariff rates with respect to volumes that we transport through our regulated assets, which rates are subject to review and possible adjustment by federal and state regulators.
Changes in revenue we realize under the loss allowance provisions of our regulated tariffs resulting from changes in underlying commodity prices.
Fluctuations in the prices and demand for crude oil, refined petroleum products and NGL.
Changes in global economic conditions and the effects of a global economic downturn on the business of Phillips 66 and the business of its suppliers, customers, business partners and credit lenders.
Potential liabilities associated with the risks and operational hazards inherent in transporting, fractionating, processing, terminaling and storing crude oil, refined petroleum products and NGL.
Curtailment of operations due to severe weather disruption or natural disasters; riots, strikes, lockouts or other industrial disturbances; or failure of information technology systems due to various causes, including unauthorized access or attack.
Accidents or other unscheduled shutdowns affecting our pipelines, processing, fractionating, terminaling, and storage facilities or equipment, or those of our suppliers or customers.
Our inability to obtain or maintain permits in a timely manner, if at all, including those necessary for capital projects, or the revocation or modification of existing permits.
Our inability to comply with government regulations or make capital expenditures required to maintain compliance.
The failure to complete construction of announced and future capital projects in a timely manner and any cost overruns associated with such projects.
Our ability to successfully execute growth strategies, whether through organic growth or acquisitions.
The operation, financing and distribution decisions of our joint ventures.
Costs or liabilities associated with federal, state, and local laws and regulations relating to environmental protection and safety, including spills, releases and pipeline integrity.
Costs associated with compliance with evolving environmental laws and regulations on climate change.
Costs associated with compliance with safety regulations, including pipeline integrity management program testing and related repairs.
Changes in the cost or availability of third-party vessels, pipelines, railcars and other means of delivering and transporting crude oil, refined petroleum products and NGL.
General domestic and international economic and political developments including: armed hostilities; expropriation of assets; changes in governmental policies relating to crude oil, refined petroleum products or NGL pricing, regulation or taxation; actions taken by the members of OPEC affecting the production and pricing of crude oil; and other political, economic or diplomatic developments, including those caused by public health issues and outbreaks of diseases.
Direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war.
Our ability to comply with the terms of our credit facility, indebtedness and other financing arrangements, which, if accelerated, we may not be able to repay.

Our ability to incur additional indebtedness or our ability to obtain financing on terms that we deem acceptable, including the refinancing of our current obligations; higher interest rates and costs of financing would increase our expenses.
Changes in tax, environmental and other laws and regulations.
The factors generally described in “Item 1A. Risk Factors” in our 20182019 Annual Report on Form 10-K filed with the SEC on February 22, 2019.21, 2020 and in Item 1A. of Part II of this Quarterly Report on Form 10-Q.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our commodity price risk and interest rate risk at June 30, 2019,March 31, 2020, did not differ materially from that disclosed under Item 7A of our 20182019 Annual Report on Form 10-K.


Item 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported within the time periods specified in U.S. Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our General Partner’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of June 30, 2019,March 31, 2020, our General Partner’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer, with the participation of the General Partner’s management, carried out an evaluation, pursuant to Rule 13a-15(b) of the Act, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our General Partner’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of June 30, 2019.March 31, 2020.

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the quarterly period ended June 30, 2019,March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

Under our amended omnibus agreement, and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 indemnifies us or assumes responsibility for certain liabilities relating to litigation and environmental matters attributable to the ownership or operation of our assets prior to their contribution to us from Phillips 66. See Note 11—Contingencies,10—Related Party Transactions, in the Notes to Consolidated Financial Statements, for additional information.

This section identifies reportable legal proceedings attributable to the ownership or operation of our assets, including those involving governmental authorities under federal, state and local laws regulating the discharge of materials into the environment, for this reporting period. There are no new matters to report.


Item 1A.  RISK FACTORS

There were no material changes fromThe following risk factor should be read in conjunction with the risk factors disclosedincluded in Item 1A of our 20182019 Annual Report on Form 10-K.

The outbreak of Coronavirus Disease 2019 (COVID-19) has materially adversely affected, and may continue to materially adversely affect, general economic, financial and business conditions, and could materially and adversely affect our business, financial condition, results of operations and cash flows and those of our customers, suppliers and other counterparties.

The outbreak of COVID-19 is negatively impacting worldwide economic and commercial activity and financial markets. Responses of governmental authorities, companies and individuals to prevent the spread of COVID-19, including travel restrictions, business and school closures, and stay at home orders have significantly reduced global economic activity. The reduction in economic activity has resulted in substantial decreases in the demand for many refined petroleum products, which has led refiners to reduce crude oil processing rates and also to lower crude oil demand and prices. These events have negatively impacted the volumes of products we transport and terminal.

The extent to which COVID-19 will continue to negatively impact our business and operations, as well as the business and operations of our customers, including Phillips 66, will depend on the severity, location and duration of the effects and spread of COVID-19, related impacts on overall economic activity, including the actions undertaken by national, regional and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume.

To the extent COVID-19 adversely affects our business, financial condition, results of operations and liquidity, or the business, financial condition, results of operation and liquidity of our customers, including Phillips 66, counterparties or suppliers, it may also have the effect of heightening many of the other risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.



Item 6. EXHIBITS
Exhibit
Number
Exhibit Description
101.INS*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*XBRL Taxonomy Extension Schema Document.
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document.
* Filed herewith
   Incorporated by Reference
Exhibit
Number
 Exhibit DescriptionFormExhibit NumberFiling DateSEC File No.
       
 8-K1.12/25/2020001-36011
       
  As permitted by Item 601(b)(4)(iii)(A) of
Regulation S-K, the partnership has not filed with this Quarterly Report on Form 10- Q certain instruments defining the rights of holders of long-term debt of the partnership and its subsidiaries because the total amount of securities authorized thereunder does not exceed 10 percent of the total assets of the partnership and its subsidiaries on a consolidated basis. The partnership agrees to furnish a copy of such agreements to the Commission upon request.
    
       
     
       
     
       
     
       
     
       
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 Taxonomy Extension Schema Document.    
       
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.    
       
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.    
       
101.LAB* Inline XBRL Taxonomy Extension Labels Linkbase Document.    
       
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.    
       
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).    
       
* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 

 PHILLIPS 66 PARTNERS LP
  
 By: Phillips 66 Partners GP LLC, its general partner
  
 /s/ Chukwuemeka A. Oyolu
 
Chukwuemeka A. Oyolu
Vice President and Controller
(Chief Accounting and Duly Authorized Officer)
  
Date: July 26, 2019May 1, 2020

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