~~Table~~T able of ~~Contents~~Conten ts

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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



For the quarterly period ended			~~March 31,~~June 30, 2020



☐			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~~.Blvd., Houston,, Texas77042

(Address of principal executive offices) (Zip Code)

(~~855~~) (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~~Partner 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,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 228,340,146 common units outstanding as of ~~March 31,~~June 30, 2020.

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PHILLIPS 66 PARTNERS LP

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS



Consolidated Statement of Income			Phillips 66 Partners LP

Millions of Dollars
Three Months Ended
March 31
2020
2019
Revenues and Other Income
Operating revenues—related parties $ 258
296
Operating revenues—third parties 9
6
Equity in earnings of affiliates 136
119
Other income 1
2
Total revenues and other income 404
423

Costs and Expenses
Operating and maintenance expenses 88
139
Depreciation 30
29
General and administrative expenses 17
18
Taxes other than income taxes 11
11
Interest and debt expense 29
27
Other expenses 2
—
Total costs and expenses 177
224
Income before income taxes 227
199
Income tax expense 1
1
Net income 226
198
Less: Preferred unitholders’ interest in net income 10
10
Less: General partner’s interest in net income —
69
Limited partners’ interest in net income $ 216
119

Net Income Per Limited Partner Unit (dollars)

Common units—basic $ 0.95
0.96
Common units—diluted 0.93
0.92

Weighted-Average Limited Partner Units Outstanding (thousands)

Common units—basic 228,312
124,258
Common units—diluted 242,132
138,078
See Notes to Consolidated Financial Statements.


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019
Revenues and Other Income
Operating revenues—related parties	$	236	256	494	552
Operating revenues—third parties	5		7	14	13
Equity in earnings of affiliates	104		137	240	256
Gain from equity interest transfer	84		—	84	—
Other income	1		1	2	3
Total revenues and other income	430		401	834	824

Costs and Expenses
Operating and maintenance expenses	84		85	172	224
Depreciation	31		29	61	58
General and administrative expenses	17		17	34	35
Taxes other than income taxes	10		9	21	20
Interest and debt expense	28		27	57	54
Other expenses	5		—	7	—
Total costs and expenses	175		167	352	391
Income before income taxes	255		234	482	433
Income tax expense	—		1	1	2
Net income	255		233	481	431


Less: Preferred unitholders’ interest in net income	9		9	19	19
Less: General partner’s interest in net income	—		71	—	140
Limited partners’ interest in net income	$	246	153	462	272

Net Income Per Limited Partner Unit (dollars)
Common units—basic	$	1.07	1.23	2.02	2.19
Common units—diluted	1.05		1.15	1.99	2.07



Weighted-Average Limited Partner Units Outstanding (thousands)
Common units—basic	228,340		124,824	228,326	124,543
Common units—diluted	242,160		138,644	242,146	138,362

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Comprehensive Income			Phillips 66 Partners LP

Millions of Dollars
Three Months Ended
March 31
2020
2019

Net Income $ 226
198
Defined benefit plans
Plan sponsored by equity affiliates, net of income taxes —
—
Other comprehensive income —
—
Comprehensive Income $ 226
198
See Notes to Consolidated Financial Statements.


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

Net Income	$	255	233	481	431

Defined benefit plans
Plan sponsored by equity affiliates, net of income taxes	—		—	—	—


Other comprehensive income	—		—	—	—


Comprehensive Income	$	255	233	481	431
See Notes to Consolidated Financial Statements.

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Consolidated Balance Sheet			Phillips 66 Partners LP

Millions of Dollars
March 31
2020
December 31
2019
Assets
Cash and cash equivalents $ 92
286
Accounts receivable—related parties 91
101
Accounts receivable—third parties 4
4
Materials and supplies 13
13
Prepaid expenses and other current assets 14
10
Total current assets 214
414
Equity investments 3,136
2,961
Net properties, plants and equipment 3,410
3,349
Goodwill 185
185
Other assets 52
52
Total Assets $ 6,997
6,961

Liabilities
Accounts payable—related parties $ 24
19
Accounts payable—third parties 75
84
Accrued interest 46
42
Deferred revenues 19
16
Short-term debt 25
25
Accrued property and other taxes 12
10
Other current liabilities 3
3
Total current liabilities 204
199
Long-term debt 3,491
3,491
Obligation from equity interest transfer 356
343
Other liabilities 93
94
Total Liabilities 4,144
4,127

Equity
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 )
Total Equity 2,853
2,834
Total Liabilities and Equity $ 6,997
6,961
See Notes to Consolidated Financial Statements.


	Millions of Dollars
	June 30 2020		December 31 2019
Assets
Cash and cash equivalents	$	7	286
Accounts receivable—related parties	93		101
Accounts receivable—third parties	4		4
Materials and supplies	14		13
Prepaid expenses and other current assets	10		10

Total current assets	128		414
Equity investments	3,340		2,961
Net properties, plants and equipment	3,500		3,349
Goodwill	185		185



Other assets	50		52
Total Assets	$	7,203	6,961

Liabilities
Accounts payable—related parties	$	18	19
Accounts payable—third parties	88		84

Accrued interest	34		42
Deferred revenues	24		16

Short-term debt	265		25
Accrued property and other taxes	22		10
Other current liabilities	4		3
Total current liabilities	455		199

Long-term debt	3,442		3,491
Obligation from equity interest transfer	—		343
Other liabilities	93		94

Total Liabilities	3,990		4,127

Equity
Preferred unitholders (2020 and 2019—13,819,791 units issued and outstanding)	746		746
Common unitholders—public (2020—58,580,009 units issued and outstanding; 2019—58,539,439 units issued and outstanding)	2,735		2,717
Common unitholder—Phillips 66 (2020 and 2019—169,760,137 units issued and outstanding)	(572)		(628)



Accumulated other comprehensive loss	(1)		(1)
Total unitholders’ equity	2,908		2,834
Noncontrolling interest	305		—
Total Equity	3,213		2,834
Total Liabilities and Equity	$	7,203	6,961
See Notes to Consolidated Financial Statements.

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Consolidated Statement of Cash Flows			Phillips 66 Partners LP

Millions of Dollars

Three Months Ended
March 31

2020
2019
Cash Flows From Operating Activities

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

Depreciation 30
29
Undistributed equity earnings 4
2
Other 2
10
Working capital adjustments

Accounts receivable 10
4
Prepaid expenses and other current assets (4 ) 9
Accounts payable (3 ) (4 )
Accrued interest 4
(5 )
Deferred revenues 3
(40 )
Other accruals 2
2
Net Cash Provided by Operating Activities 274
205

Cash Flows From Investing Activities

Cash capital expenditures and investments (236 ) (634 )
Liberty acquisition (75 ) —
Return of investment from equity affiliates 38
20
Proceeds from sale of equity interest —
81
Net Cash Used in Investing Activities (273 ) (533 )

Cash Flows From Financing Activities

Net proceeds from equity interest transfer 12
341
Issuance of debt —
725
Repayment of debt —
(585 )
Issuance of common units 2
32
Quarterly distributions to preferred unitholders (9 ) (9 )
Quarterly distributions to common unitholders—public (51 ) (46 )
Quarterly distributions to common unitholder—Phillips 66 (149 ) (58 )
Quarterly distributions to General Partner—Phillips 66 —
(67 )
Other distributions to Phillips 66 —
(4 )
Net Cash Provided by (Used in) Financing Activities (195 ) 329

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


	Millions of Dollars
	Six Months Ended June 30
	2020		2019
Cash Flows From Operating Activities
Net income	$	481	431
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	61		58



Undistributed equity earnings	9		3
Gain from equity interest transfer	(84)		—
Other	7		12
Working capital adjustments
Accounts receivable	8		6

Prepaid expenses and other current assets	—		12
Accounts payable	(7)		(3)
Accrued interest	(7)		—
Deferred revenues	8		(46)

Other accruals	13		8
Net Cash Provided by Operating Activities	489		481

Cash Flows From Investing Activities



Cash capital expenditures and investments	(601)		(759)
Advances/loans—related party	—		(95)
Collection of advances/loans—related party	—		95
Liberty acquisition	(75)		—
Return of investment from equity affiliates	86		35
Proceeds from sale of equity interest	—		81

Net Cash Used in Investing Activities	(590)		(643)

Cash Flows From Financing Activities



Net proceeds from equity interest transfer	40		341
Issuance of debt	215		860
Repayment of debt	(25)		(585)
Issuance of common units	2		42



Quarterly distributions to preferred unitholders	(19)		(19)
Quarterly distributions to common unitholders—public	(102)		(93)
Quarterly distributions to common unitholder—Phillips 66	(297)		(116)

Quarterly distributions to General Partner—Phillips 66	—		(136)
Other distributions from (to) Phillips 66	8		(3)
Net Cash Provided by (Used in) Financing Activities	(178)		291

Net Change in Cash and Cash Equivalents	(279)		129
Cash and cash equivalents at beginning of period	286		1
Cash and Cash Equivalents at End of Period	$	7	130
See Notes to Consolidated Financial Statements.

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Consolidated Statement of Changes in Equity			Phillips 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	Noncontrolling Interest	Total

March 31, 2020	$	747	2,723	(616)	—	(1)	—	2,853


Net income	9		63	183	—	—	—	255
Quarterly cash distributions to unitholders ($0.875 per common unit)	(10)		(51)	(148)	—	—	—	(209)
Transfer of equity interest	—		—	—	—	—	305	305
Other contributions from Phillips 66	—		—	9	—	—	—	9
June 30, 2020	$	746	2,735	(572)	—	(1)	305	3,213

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

Issuance of common units	—		10	—	—	—	—	10
Net income	9		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

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 income 10
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 income 10
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


	Units
	Three Months Ended June 30
	Preferred Units Public	Common Units Public	Common Units Phillips 66	General Partner Units Phillips 66	Total Units

March 31, 2020	13,819,791	58,580,009	169,760,137	—	242,159,937
Units issued in public equity offerings	—	—	—	—	—
June 30, 2020	13,819,791	58,580,009	169,760,137	—	242,159,937

March 31, 2019	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, 2019	13,819,791	56,178,286	68,760,137	2,480,051	141,238,265
See Notes to Consolidated Financial Statements.

Units
Three Months Ended
March 31
Preferred Units Public
Common Units Public
Common Units Phillips 66
General Partner Units
Phillips 66

Total Units

December 31, 2019 13,819,791
58,539,439
169,760,137
—
242,119,367
Units issued in public equity offerings —
40,570
—
—
40,570
March 31, 2020 13,819,791
58,580,009
169,760,137
—
242,159,937

December 31, 2018 13,819,791
55,343,918
68,760,137
2,480,051
140,403,897
Units issued in public equity offerings —
622,032
—
—
622,032
March 31, 2019 13,819,791
55,965,950
68,760,137
2,480,051
141,025,929

~~See Notes to Consolidated Financial Statements.~~

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~~Notes to~~ Consolidated ~~Financial Statements~~Statement of Changes in Equity			Phillips 66 Partners LP


	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	Noncontrolling Interest	Total

December 31, 2019	$	746	2,717	(628)	—	(1)	—	2,834
Issuance of common units	—		2	—	—	—	—	2
Net income	19		118	344	—	—	—	481
Quarterly cash distributions to unitholders ($0.875 per common unit)	(19)		(102)	(297)	—	—	—	(418)
Transfer of equity interest	—		—	—	—	—	305	305
Other contributions from Phillips 66	—		—	9	—	—	—	9
June 30, 2020	$	746	2,735	(572)	—	(1)	305	3,213

December 31, 2018	$	746	2,485	592	(1,313)	(1)	—	2,509
Cumulative effect of accounting change	—		(1)	—	—	—	—	(1)
Issuance of common units	—		42	—	—	—	—	42
Net income	19		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, 2019	$	746	2,555	626	(1,310)	(1)	—	2,616


	Units
	Six Months Ended June 30
	Preferred Units Public	Common Units Public	Common Units Phillips 66	General Partner Units Phillips 66	Total Units

December 31, 2019	13,819,791	58,539,439	169,760,137	—	242,119,367
Units issued in public equity offerings	—	40,570	—	—	40,570
June 30, 2020	13,819,791	58,580,009	169,760,137	—	242,159,937

December 31, 2018	13,819,791	55,343,918	68,760,137	2,480,051	140,403,897
Units issued in public equity offerings	—	834,368	—	—	834,368
June 30, 2019	13,819,791	56,178,286	68,760,137	2,480,051	141,238,265
See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements			Phillips 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 66 PDI” 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, 9 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,~~those commodities, 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 2019 Annual Report on Form 10-K. The results of operations for the three and six months ended ~~March 31,~~June 30, 2020,, are not necessarily indicative of the results to be expected for the full year.

Note 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.

T able of Conten ts

Total operating revenues disaggregated by asset type were as follows:


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

Pipelines	$	97	117	208	226
Terminals	33		39	76	79
Storage, processing and other revenues	111		107	224	260
Total operating revenues	$	241	263	508	565

Millions of Dollars
Three Months Ended
March 31
2020
2019

Pipelines $ 111
109
Terminals 43
40
Storage, processing and other revenues 113
153
Total operating revenues $ 267
302

The majority of our agreements with Phillips 66 are considered operating leases under GAAP. The lease’s classification as either an operating or financing lease requires judgment in assessing the contract’s lease and service components and in determining the asset’s fair value. We have elected to account for lease and service elements of contracts classified as leases on a combined basis, except for leases of processing-type assets, which contain non-ratable fees related to turnaround activity. For these types of leases, we continue to separate the lease and service elements based on relative standalone prices and ~~applied~~apply the ~~new~~ lease standard to the lease element and the revenue standard to the service element.

Total operating revenues disaggregated by lease and service revenues were as follows:


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

Lease revenues	$	195	214	413	471
Service revenues	46		49	95	94
Total operating revenues	$	241	263	508	565

Millions of Dollars
Three Months Ended
March 31
2020
2019

Lease revenues $ 218
257
Service revenues 49
45
Total operating revenues $ 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 Dollars
March 31
2020
December 31
2019

Lease receivables $ 74
87
Service receivables 20
18
Other receivables 1
—
Total accounts receivable $ 95

105


	Millions of Dollars
	June 30 2020		December 31 2019

Lease receivables	$	76	87
Service receivables	21		18

Total accounts receivable	$	97	105

T able of Conten ts

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” line items on our consolidated balance sheet.

Total deferred revenues under our lease and service agreements were as follows:


	Millions of Dollars
	June 30 2020		December 31 2019

Deferred lease revenues	$	44	41
Deferred service revenues	3		1
Total deferred revenues	$	47	42

Millions of Dollars
March 31
2020
December 31
2019

Deferred lease revenues $ 41
41
Deferred service revenues 2
1
Total deferred revenues $ 43

42

Future Minimum Lease Payments from Customers

At ~~March 31,~~June 30, 2020, future minimum payments to be received under our lease agreements with customers were estimated to be:


	Millions of Dollars

Remainder of 2020	$	354
2021	702
2022	690
2023	646
2024	525
Remaining years	1,389
Total future minimum lease payments from customers	$	4,306

Millions
of Dollars

Remainder of 2020 $ 527
2021 698
2022 685
2023 642
2024 521
Remaining years 1,386
Total future minimum lease payments from customers $ 4,459

Remaining 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 ~~March 31,~~June 30, 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

Remainder of 2020 $ 109
2021 137
2022 136
2023 136
2024 116
Remaining years 671
Total future service revenues $ 1,305


	Millions of Dollars

Remainder of 2020	$	80
2021	152
2022	152
2023	152
2024	132
Remaining years	756
Total future service revenues	$	1,424

T able of Conten ts

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 4—Equity Investments ~~and Loans~~

~~Equity Investments~~

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

Millions of Dollars
Percentage Ownership
March 31
2020
December 31
2019

Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline) 25.00 % $ 595
592
Bayou Bridge Pipeline, LLC (Bayou Bridge) 40.00
296
294
DCP Sand Hills Pipeline, LLC (Sand Hills) 33.34
598
595
DCP Southern Hills Pipeline, LLC (Southern Hills) 33.34
218
215
Explorer Pipeline Company (Explorer) 21.94
102
105
Gray Oak Pipeline, LLC 65.00
799
759
Liberty Pipeline LLC (Liberty) 50.00
103
—
Paradigm Pipeline LLC (Paradigm) 50.00
143
143
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal) 70.00
67
70
South Texas Gateway Terminal LLC (South Texas Gateway Terminal) 25.00
102
74
STACK Pipeline LLC (STACK) 50.00
113
114
Total equity investments $ 3,136
2,961


			Millions of Dollars
	Percentage Ownership		June 30 2020		December 31 2019

Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)	25.00	%	$	588	592
Bayou Bridge Pipeline, LLC (Bayou Bridge)	40.00		293		294
DCP Sand Hills Pipeline, LLC (Sand Hills)	33.34		595		595
DCP Southern Hills Pipeline, LLC (Southern Hills)	33.34		218		215
Explorer Pipeline Company (Explorer)	21.94		100		105
Gray Oak Pipeline, LLC	65.00		896		759
Liberty Pipeline LLC (Liberty)	50.00		202		—
Paradigm Pipeline LLC (Paradigm)	50.00		142		143
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)	70.00		66		70
South Texas Gateway Terminal LLC (South Texas Gateway Terminal)	25.00		129		74
STACK Pipeline LLC (STACK)	50.00		111		114
Total equity investments			$	3,340	2,961

Earnings from our equity investments were as follows:

Millions of Dollars
Three Months Ended
March 31
2020
2019

Bakken Pipeline $ 57
51
Bayou Bridge 10
4
Sand Hills 41
36
Southern Hills 11
13
Explorer 7
3
Gray Oak Pipeline, LLC 5
—
Liberty —
—
Paradigm 4
3
Phillips 66 Partners Terminal —
6
South Texas Gateway Terminal —
—
STACK 1
3
Total equity in earnings of affiliates $ 136
119


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

Bakken Pipeline	$	30	58	87	109
Bayou Bridge	7		8	17	12
Sand Hills	37		38	78	74
Southern Hills	10		11	21	24
Explorer	4		11	11	14
Gray Oak Pipeline, LLC	14		—	19	—
Liberty	—		—	—	—
Paradigm	2		3	6	6
Phillips 66 Partners Terminal	(1)		6	(1)	12
South Texas Gateway Terminal	—		—	—	—
STACK	1		2	2	5
Total equity in earnings of affiliates	$	104	137	240	256

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

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

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

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

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

Dakota Access and ETCO have guaranteed repayment of the notes. In addition, we and our co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the ongoing litigation related to an easement granted by the U.S. Army Corps of Engineers (USACE) to allow the pipeline to be constructed under Lake Oahe in North Dakota. Contributions may be required if Dakota Access determines that the issues included in any such final judgment cannot be remediated and Dakota Access has or is projected to have insufficient funds to satisfy repayment of the notes. If Dakota Access undertakes remediation to cure issues raised in a final judgment, contributions may be required if any series of the notes become due, whether by acceleration or at maturity, during such time, to the extent Dakota Access has or is projected to have insufficient funds to pay such amounts. At June 30, 2020, our share of the maximum potential equity contributions under the CECU was approximately $631 million.

In March 2020, the court presiding over this litigation ordered the USACE to prepare an Environmental Impact Statement (EIS), and requested additional information to enable a decision on whether the Dakota Access Pipeline should be shut down while the EIS is being prepared. On July 6, 2020, the court ordered the Dakota Access Pipeline to be shut down and emptied of crude oil by August 5, 2020, and that the pipeline should remain shut down pending the preparation of the EIS by the USACE, which the USACE has indicated is expected to take approximately 13 months. Dakota Access filed an appeal and a request for a stay of the order. On July 14, 2020, an appeals court granted a temporary stay of the lower court’s order directing the pipeline to be shut down and emptied of crude oil. The appeals court has not yet ruled on the motion for a stay during the appeals process. In addition to the potential obligations under the CECU, if the pipeline is required to cease operations pending the preparation of the EIS, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we also could be asked to support our share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually.

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


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

Revenues	$	169	254	427	490
Income before income taxes	94		181	280	338
Net income	94		181	280	338

Gray Oak Pipeline, LLC

Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. We have a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party exercised its option to acquire a 35% interest in the holding company. Because the holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which was considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP at that time. The Gray Oak Pipeline commenced full operations in the

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second quarter of 2020 and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the sale under GAAP. Accordingly, at June 30, 2020, the co-venturer’s 35% interest in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet. In addition, the premium of $84 million previously paid by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of income for the three and six months ended June 30, 2020. For the six months ended June 30, 2020, the co-venturer contributed an aggregate of $61 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls. Excluding the co-venturer’s 35% interest in the consolidated holding company, we have an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC.

Gray Oak Pipeline, LLC has a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. 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, plus any additional accrued interest and associated fees, if Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At June 30, 2020, the term loan facility was fully utilized by Gray Oak Pipeline, LLC and our 42.25% proportionate exposure under the equity contribution agreement was $583 million.

During its development phase, Gray Oak Pipeline, LLC was considered a variable interest entity (VIE) because it did not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We determined we were not the primary beneficiary because we and our co-venturers jointly directed the activities of Gray Oak Pipeline, LLC that most significantly impact economic performance. The Gray Oak Pipeline commenced full operations in the second quarter of 2020 and ceased being a VIE.

Liberty

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 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)~~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,~~June 30, 2020, our maximum exposure to loss was ~~$103~~$202 million, which represented the aggregate book value of our equity investment in Liberty. At ~~March 31,~~June 30, 2020, Phillips 66 had an outstanding guarantee of ~~$113~~$49 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 Pipeline, LLC. Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. On April 1, 2020, the Gray Oak Pipeline commenced full operations from West Texas to Texas Gulf Coast destinations. The Eagle Ford segment of the pipeline commenced operations later in April. Accordingly, the co-venturer’s 35% interest in the holding company is expected to be recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet in the second quarter. Also at that time, the premium paid by the co-venturer will be recharacterized from a long-term obligation to a gain in our consolidated statement of income. For the three months ended March 31, 2020, the co-venturer contributed an aggregate of $23 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls.

Gray Oak Pipeline, LLC has a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. 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, plus any additional accrued interest and associated fees, if the term loan facility is fully utilized and Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At March 31, 2020, the term loan facility was fully utilized by Gray Oak Pipeline, LLC and our 42.25% proportionate exposure under the equity contribution agreement was $583 million.

Gray Oak Pipeline, LLC is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. 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 March 31, 2020, our maximum exposure to loss was $1,382 million, which represented our guarantee of the third-party term loan facility of $583 million and the aggregate book value of our equity method investment in Gray Oak Pipeline, LLC of $799 million.

~~Bakken Pipeline~~

In March 2019, a wholly owned subsidiary of Dakota Access, LLC (Dakota Access) closed an offering of $2,500 million aggregate principal amount of unsecured senior notes. Dakota Access and Energy Transfer Crude Oil Company, LLC (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 co-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 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 taxes 186
157
Net income 186
157

Note 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. Prior to August 1, 2019, we had more than one class of participating securities and used the two-class method to calculate net income per unit applicable to the limited partners. The 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 ~~March 31,~~June 30, 2020 and 2019, our preferred units are potentially dilutive securities and were dilutive to net income per limited partner unit.

T able of Conten ts

Net income earned by the Partnership is allocated between the 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. 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 Dollars				Millions of Dollars
	Three Months Ended March 31				Three Months Ended June 30				Six Months Ended June 30
	2020		2019		2020		2019	2020	2019

Net income	$	226	198	Net income	$	255	233	481	431
Less:				Less:
General partner’s distributions declared (including IDRs)*	—		69
General partners’ distributions declared (including IDRs)*				General partners’ distributions declared (including IDRs)*	—		70	—	139
Limited partners’ distributions declared on preferred units*	10		10	Limited partners’ distributions declared on preferred units*	9		9	19	19
Limited partners’ distributions declared on common units*	199		105	Limited partners’ distributions declared on common units*	200		107	399	212
Distributions less than net income	$	17	14	Distributions less than net income	$	46	47	63	61

*Distributions declared are attributable to the indicated periods.


	Limited Partners’ Common Units		Limited Partners’ Preferred Units	Total
Three Months Ended June 30, 2020
Net income (millions):
Distributions declared	$	200	9	209
Distributions less than net income	46		—	46
Net income (basic)	246		9	255
Dilutive effect of preferred units	9
Net income (diluted)	$	255

Weighted-average units outstanding—basic	228,340,146
Dilutive effect of preferred units	13,819,791
Weighted-average units outstanding—diluted	242,159,937

Net income per limited partner unit—basic (dollars)	$	1.07
Net income per limited partner unit—diluted (dollars)	1.05

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 income 17
—
17
Net income (basic) 216
10
226
Dilutive effect of preferred units 10

Net income (diluted) $ 226

Weighted-average units outstanding—basic 228,312,261

Dilutive effect of preferred units 13,819,791

Weighted-average units outstanding—diluted 242,132,052

Net income per limited partner unit—basic (dollars)
$ 0.95

Net income per limited partner unit—diluted (dollars)
0.93

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	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 income	46		1	—	47
Net income (basic)	153		71	9	233
Dilutive effect of preferred units*	6
Net income (diluted)	$	159

Weighted-average units outstanding—basic	124,824,010
Dilutive effect of preferred units*	13,819,791
Weighted-average units outstanding—diluted	138,643,801

Net income per limited partner unit—basic (dollars)	$	1.23
Net income per limited partner unit—diluted (dollars)	1.15
*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		Limited Partners’ Preferred Units	Total
	Limited Partners’ Common Units		General Partner (including IDRs)	Limited Partners’ Preferred Units	Total
Three Months Ended March 31, 2019
Six Months Ended June 30, 2020						Six Months Ended June 30, 2020
Net income (millions):						Net income (millions):
Distributions declared	$	105	69	10	184	Distributions declared	$	399	19	418
Distributions less than net income	14		—	—	14	Distributions less than net income	63		—	63
Net income (basic)	119		69	10	198	Net income (basic)	462		19	481
Dilutive effect of preferred units*	8
Dilutive effect of preferred units						Dilutive effect of preferred units	19
Net income (diluted)	$	127				Net income (diluted)	$	481

Weighted-average units outstanding—basic	124,257,933					Weighted-average units outstanding—basic	228,326,203
Dilutive effect of preferred units*	13,819,791
Dilutive effect of preferred units						Dilutive effect of preferred units	13,819,791
Weighted-average units outstanding—diluted	138,077,724					Weighted-average units outstanding—diluted	242,145,994

Net income per limited partner unit—basic (dollars)	$	0.96				Net income per limited partner unit—basic (dollars)	$	2.02
Net income per limited partner unit—diluted (dollars)	0.92					Net income per limited partner unit—diluted (dollars)	1.99
*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.

T able of Conten ts


	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 income	60		1	—	61
Net income (basic)	272		140	19	431
Dilutive effect of preferred units*	14
Net income (diluted)	$	286

Weighted-average units outstanding—basic	124,542,536
Dilutive effect of preferred units*	13,819,791
Weighted-average units outstanding—diluted	138,362,327

Net income per limited partner unit—basic (dollars)	$	2.19
Net income per limited partner unit—diluted (dollars)	2.07
*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 ~~April~~July 21, 2020, the Board of Directors of our General Partner declared a quarterly cash distribution of $0.875 per common unit which, excluding distributions to holders of our preferred units, will result in a total distribution of ~~$199~~$200 million attributable to the ~~first~~second quarter of 2020. This distribution is payable on ~~May 14,~~August 13, 2020, to unitholders of record as of ~~May 1,~~July 31, 2020.

Note 6—Properties, Plants and Equipment

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

Millions of Dollars
March 31
2020
December 31
2019

Land $ 19
19
Buildings and improvements 94
94
Pipelines and related assets*
1,447
1,424
Terminals and related assets*
761
741
Rail racks and related assets*
137
137
Processing and related assets*
1,047
1,041
Caverns and related assets*
585
585
Construction-in-progress 409
367
Gross PP&E 4,499
4,408
Accumulated depreciation (1,089 ) (1,059 )
Net PP&E $ 3,410
3,349
*Assets for which we are the lessor.


	Millions of Dollars
	June 30 2020		December 31 2019

Land	$	19	19
Buildings and improvements	94		94
Pipelines and related assets*	1,452		1,424
Terminals and related assets*	779		741
Rail racks and related assets*	137		137
Processing and related assets*	1,059		1,041
Caverns and related assets*	636		585
Construction-in-progress	444		367
Gross PP&E	4,620		4,408
Accumulated depreciation	(1,120)		(1,059)
Net PP&E	$	3,500	3,349
*Assets for which we are the lessor.

~~Note 7—Debt~~

Millions of Dollars
March 31
2020
December 31
2019

2.450% Senior Notes due December 2024 $ 300
300
3.605% Senior Notes due February 2025 500
500
3.550% Senior Notes due October 2026 500
500
3.750% Senior Notes due March 2028 500
500
3.150% Senior Notes due December 2029 600
600
4.680% Senior Notes due February 2045 450
450
4.900% Senior Notes due October 2046 625
625
Tax-exempt bonds due April 2020 and April 2021 at 1.465% and 1.85% at
March 31, 2020, and December 31, 2019, respectively 75
75
Debt at face value 3,550
3,550
Net unamortized discounts and debt issuance costs (34 ) (34 )
Total debt 3,516
3,516
Short-term debt (25 ) (25 )
Long-term debt $ 3,491
3,491

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Note 7—Debt


	Millions of Dollars
	June 30 2020		December 31 2019

2.450% Senior Notes due December 2024	$	300	300
3.605% Senior Notes due February 2025	500		500
3.550% Senior Notes due October 2026	500		500
3.750% Senior Notes due March 2028	500		500
3.150% Senior Notes due December 2029	600		600
4.680% Senior Notes due February 2045	450		450
4.900% Senior Notes due October 2046	625		625

Tax-exempt bonds due April 2020 and April 2021 at 0.550% and 1.850% at June 30, 2020, and December 31, 2019, respectively	50		75
Revolving credit facility due July 2020 at 1.423%	215		—
Debt at face value	3,740		3,550
Net unamortized discounts and debt issuance costs	(33)		(34)
Total debt	3,707		3,516
Short-term debt	(265)		(25)
Long-term debt	$	3,442	3,491

The fair value of our fixed-rate and floating-rate debt is estimated based on observable market prices and is classified in ~~level~~Level 2 of the fair value hierarchy. The fair value of our fixed-rate debt was ~~$3,083~~$3,685 million and $3,650 million at ~~March 31,~~June 30, 2020, and December 31, 2019, respectively. The fair value of our floating-rate debt approximated carrying value of $265 million and $75 million at ~~March 31, 2020, and December 31, 2019.~~

~~At March 31,~~June 30, 2020, and December 31, 2019, ~~0 amount~~respectively.

At June 30, 2020, borrowings of $215 million were outstanding and $3 million in letters of credit 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.~~facility.

On April 1, 2020, we repaid ~~at maturity a~~the $25 million tranche of tax-exempt bonds ~~that was included~~due April 2020. The 2 remaining tranches, totaling $50 million, mature in ~~short-term debt at March 31, 2020.~~April 2021.

Note 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.

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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 ~~March 31,~~June 30, 2020, and December 31, 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 9—Equity

ATM 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 December 2019, respectively. ~~For~~We did 0t issue any common units under our ATM programs during the three months ended ~~March 31,~~June 30, 2020. For the six months ended June 30, 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 and six months ended ~~March 31,~~June 30, 2019, we issued an aggregate of ~~622,032~~212,336 and 834,368 common units under our ATM programs, respectively, generating net proceeds of ~~$32 million.~~$10 million and $42 million, respectively. Since inception in June 2016 through ~~March 31,~~June 30, 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 additions to working capital.

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Note 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.

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Related Party Transactions

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

Millions of Dollars
Three Months Ended
March 31
2020
2019

Operating and maintenance expenses $ 48
105
General and administrative expenses 17
17
Total $ 65
122


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019

Operating and maintenance expenses	$	42	50	90	155
General and administrative expenses	21		16	38	33

Total	$	63	66	128	188

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 Dollars
March 31
2020
December 31
2019

Prepaid expenses and other current assets $ 12
7
Other assets 48
44
Deferred revenues 18
16
Other current liabilities 1
1
Other liabilities 68
70


	Millions of Dollars
	June 30 2020		December 31 2019

Prepaid expenses and other current assets	$	6	7
Other assets	48		44
Deferred revenues	24		16
Other current liabilities	1		1
Other liabilities	67		70

Equity Affiliate Arrangements

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 Pipeline, LLC. See Note 4—Equity Investments, ~~and Loans,~~ for additional information.

Note 11—Cash Flow Information

Capital Expenditures and Investments

Our capital expenditures and investments consisted of:


	Millions of Dollars
	Six Months Ended June 30
	2020		2019

Cash capital expenditures and investments	$	601	759
Change in capital expenditure accruals	10		(13)
Total capital expenditures and investments	$	611	746

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

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

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 normally identify forward-looking ~~statements.~~statements, but the absence of these words does not mean that a statement is not forward-looking. 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.

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,

T able of Conten ts

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, 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.

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Business Environment

~~Since we~~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~~those commodities, and ~~NGL, we~~therefore 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~~continues to result 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~~The lack of 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,~~for petroleum products has resulted in ~~an oversupply of crude oil, which exacerbated the decline in~~low crude oil prices and ~~eventually led to lower petroleum product prices as well.~~

~~We expect these events may~~refining margins. As a 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 producers have shut in high cost production ~~cuts into 2022, but~~and refiners have reduced crude oil processing rates. These actions have reduced throughput volumes on both our and our joint ventures’ assets.

The depth and duration of the economic consequences of the COVID-19 pandemic are currently unknown. However, 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~~Our customers, including Phillips 66, ~~will likely be significant~~may continue to have adverse economic effects in the near term.

While we believe we and the majority of our joint ventures 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.

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RESULTS OF OPERATIONS

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


	Millions of Dollars
	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019
Revenues and Other Income
Operating revenues—related parties	$	236	256	494	552
Operating revenues—third parties	5		7	14	13
Equity in earnings of affiliates	104		137	240	256
Gain from equity interest transfer	84		—	84	—
Other income	1		1	2	3
Total revenues and other income	430		401	834	824

Costs and Expenses
Operating and maintenance expenses	84		85	172	224
Depreciation	31		29	61	58
General and administrative expenses	17		17	34	35
Taxes other than income taxes	10		9	21	20
Interest and debt expense	28		27	57	54
Other expenses	5		—	7	—
Total costs and expenses	175		167	352	391
Income before income taxes	255		234	482	433
Income tax expense	—		1	1	2
Net income	255		233	481	431



Less: Preferred unitholders’ interest in net income	9		9	19	19
Less: General partner’s interest in net income	—		71	—	140
Limited partners’ interest in net income	$	246	153	462	272

Net cash provided by operating activities	$	215	276	489	481

Adjusted EBITDA	$	269	319	590	600

Distributable cash flow	$	218	254	487	480

T able of Conten ts

Millions of Dollars
Three Months Ended
March 31
2020
2019
Revenues and Other Income
Operating revenues—related parties $ 258
296
Operating revenues—third parties 9
6
Equity in earnings of affiliates 136
119
Other income 1
2
Total revenues and other income 404
423

Costs and Expenses
Operating and maintenance expenses 88
139
Depreciation 30
29
General and administrative expenses 17
18
Taxes other than income taxes 11
11
Interest and debt expense 29
27
Other expenses 2
—
Total costs and expenses 177
224
Income before income taxes 227
199
Income tax expense 1
1
Net income 226
198
Less: Preferred unitholders’ interest in net income 10
10
Less: General partner’s interest in net income —
69
Limited partners’ interest in net income $ 216
119

Net cash provided by operating activities $ 274
205

Adjusted EBITDA $ 321
281

Distributable cash flow $ 269
226


	Three Months Ended June 30				Six Months Ended June 30
	2020		2019	2020	2019
Wholly Owned Operating Data
Pipelines
Pipeline revenues (millions of dollars)	$	97	117	208	226
Pipeline volumes⁽¹⁾ (thousands of barrels daily)
Crude oil	806		1,000	873	980
Refined petroleum products and NGL	825		995	846	882
Total	1,631		1,995	1,719	1,862

Average pipeline revenue per barrel (dollars)	$	0.65	0.64	0.66	0.67

Terminals
Terminal revenues (millions of dollars)	$	33	39	76	79
Terminal throughput (thousands of barrels daily)
Crude oil⁽²⁾	380		456	420	463
Refined petroleum products	690		809	719	773
Total	1,070		1,265	1,139	1,236

Average terminaling revenue per barrel (dollars)	$	0.33	0.33	0.36	0.34

Storage, processing and other revenues (millions of dollars)	$	111	107	224	260
Total operating revenues (millions of dollars)	$	241	263	508	565

Joint Venture Operating Data⁽³⁾
Crude oil, refined petroleum products and NGL (thousands of barrels daily)	942		772	890	730

Three Months Ended
March 31
2020
2019
Wholly Owned Operating Data
Pipelines
Pipeline revenues (millions of dollars)
$ 111
109
Pipeline volumes⁽¹⁾ (thousands of barrels daily)

Crude oil 941
959
Refined petroleum products and NGL 866
768
Total 1,807
1,727

Average pipeline revenue per barrel (dollars)
$ 0.67
0.70

Terminals
Terminal revenues (millions of dollars)
$ 43
40
Terminal throughput (thousands of barrels daily)

Crude oil⁽²⁾
460
471
Refined petroleum products 748
736
Total 1,208
1,207

Average terminaling revenue per barrel (dollars)
$ 0.39
0.36

Storage, processing and other revenues (millions of dollars)
$ 113
153
Total operating revenues (millions of dollars)
$ 267
302

Joint Venture Operating Data⁽³⁾

Crude oil, refined petroleum products and NGL (thousands of barrels daily)
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.

T able of Conten ts

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 Dollars				Millions of Dollars
	Three Months Ended March 31				Three Months Ended June 30				Six Months Ended June 30
	2020		2019		2020		2019	2020	2019
Reconciliation to Net Income				Reconciliation to Net Income

Net income	$	226	198	Net income	$	255	233	481	431
Plus:				Plus:
Depreciation	30		29	Depreciation	31		29	61	58
Net interest expense	28		27	Net interest expense	29		26	57	53
Income tax expense	1		1	Income tax expense	—		1	1	2
EBITDA	285		255	EBITDA	315		289	600	544
Plus:

Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization	35		26	Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization	38		29	73	55
Expenses indemnified or prefunded by Phillips 66	—		—	Expenses indemnified or prefunded by Phillips 66	—		1	—	1
Transaction costs associated with acquisitions	1		—	Transaction costs associated with acquisitions	—		—	1	—
Gain from equity interest transfer				Gain from equity interest transfer	(84)		—	(84)	—

Adjusted EBITDA	321		281	Adjusted EBITDA	269		319	590	600
Plus:				Plus:
Deferred revenue impacts*^†	2		—
Deferred revenue impacts^*†				Deferred revenue impacts^*†	5		(4)	7	(4)
Less:				Less:
Equity affiliate distributions less than proportional EBITDA	1		9
Equity affiliate distributions less than (more than) proportional EBITDA				Equity affiliate distributions less than (more than) proportional EBITDA	(10)		13	(9)	22
Maintenance capital expenditures^†	15		9	Maintenance capital expenditures^†	28		12	43	21
Net interest expense	28		27	Net interest expense	29		26	57	53
Preferred unit distributions	10		10	Preferred unit distributions	9		9	19	19
Income taxes paid				Income taxes paid	—		1	—	1
Distributable cash flow	$	269	226	Distributable cash flow	$	218	254	487	480

*Difference between cash receipts and revenue recognition.

^†Excludes Merey Sweeny capital reimbursements and turnaround impacts.

T able of Conten ts


	Millions of Dollars						Millions of Dollars
	Three Months Ended March 31						Three Months Ended June 30				Six Months Ended June 30
	2020			2019			2020		2019	2020	2019
Reconciliation to Net Cash Provided by Operating Activities						Reconciliation to Net Cash Provided by Operating Activities
Net cash provided by operating activities	$	274		205		Net cash provided by operating activities	$	215	276	489	481
Plus:						Plus:
Net interest expense	28			27		Net interest expense	29		26	57	53
Income tax expense	1			1		Income tax expense	—		1	1	2
Changes in working capital	(12		)	34		Changes in working capital	(3)		(11)	(15)	23
Undistributed equity earnings	(4		)	(2	)	Undistributed equity earnings	(5)		(1)	(9)	(3)
Gain from equity interest transfer						Gain from equity interest transfer	84		—	84	—
Deferred revenues and other liabilities	—			(9	)	Deferred revenues and other liabilities	2		1	2	(8)
Other	(2		)	(1	)	Other	(7)		(3)	(9)	(4)
EBITDA	285			255		EBITDA	315		289	600	544
Plus:

Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization	35			26		Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization	38		29	73	55
Expenses indemnified or prefunded by Phillips 66	—			—		Expenses indemnified or prefunded by Phillips 66	—		1	—	1
Transaction costs associated with acquisitions	1			—		Transaction costs associated with acquisitions	—		—	1	—
Gain from equity interest transfer						Gain from equity interest transfer	(84)		—	(84)	—

Adjusted EBITDA	321			281		Adjusted EBITDA	269		319	590	600
Plus:						Plus:
Deferred revenue impacts*^†	2			—
Deferred revenue impacts^*†						Deferred revenue impacts^*†	5		(4)	7	(4)

Less:						Less:
Equity affiliate distributions less than proportional EBITDA	1			9
Equity affiliate distributions less than (more than) proportional EBITDA						Equity affiliate distributions less than (more than) proportional EBITDA	(10)		13	(9)	22
Maintenance capital expenditures^†	15			9		Maintenance capital expenditures^†	28		12	43	21
Net interest expense	28			27		Net interest expense	29		26	57	53
Preferred unit distributions	10			10		Preferred unit distributions	9		9	19	19
Income taxes paid						Income taxes paid	—		1	—	1
Distributable cash flow	$	269		226		Distributable cash flow	$	218	254	487	480

*Difference between cash receipts and revenue recognition.

^†Excludes Merey Sweeny capital reimbursements and turnaround impacts.

Statement of Income Analysis

Operating revenues decreased ~~$35~~$22 million, or ~~12%~~8%, and decreased $57 million, or 10%, in the ~~first~~second quarter and six-month period of ~~2020.~~2020, respectively. The decrease in the second quarter was primarily attributable to lower volumes on wholly owned assets. The decrease in the six-month period was primarily attributable to the recognition of deferred revenues ~~in the first quarter of 2019~~ related to turnaround activity at Merey Sweeny LLC (Merey Sweeny)~~, partially offset by higher volumes on wholly owned assets during~~ in the ~~three-month period~~first quarter of ~~2020.~~2019, as well as lower volumes.

Equity in earnings of affiliates ~~increased $17~~decreased $33 million, or ~~14%~~24%, and decreased $16 million, or 6%, in the ~~first~~second quarter and six-month period of ~~2020.~~2020, respectively. The ~~increase was~~decreases in both periods were attributable to ~~higher~~lower earnings ~~from Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO), Bayou Bridge Pipeline, LLC, Gray Oak Pipeline, LLC and DCP Sand Hills Pipeline, LLC,~~ primarily due to ~~improved~~decreased volumes. These ~~higher~~lower earnings were partially offset by ~~a decrease~~an increase in earnings from ~~Phillips 66 Partners Terminal due~~Gray Oak Pipeline, LLC, as the pipeline commenced full operations during the second quarter of 2020. See Note 4—Equity Investments, in the Notes to ~~lower contractual rates.~~Consolidated Financial Statements, for additional information.

T able of Conten ts

Gain on equity interest transfer reflects the second-quarter 2020 gain recognition related to a co-venturer’s prior-year acquisition of a 35% interest in the consolidated holding company that owns an interest in Gray Oak Pipeline, LLC. See Note 4—Equity Investments, in the Notes to Consolidated Financial Statements, for additional information.

Operating and maintenance expenses decreased by ~~$51~~$52 million, or ~~37%~~23%, in the ~~first quarter~~six-month period of 2020. The decrease was primarily due to turnaround activity at Merey 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, issuances of additional debt and equity 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 ~~$274~~$489 million in cash from operations during the first ~~three~~six months of 2020, an improvement over cash from operations of ~~$205~~$481 million for the corresponding period of 2019. The improvement was primarily driven by lower deferred revenue impacts and lower operating and maintenance expenses, ~~and higher~~partly offset by lower operating 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~~six months of 2020, cash from operations included distributions of ~~$141~~$249 million from our equity affiliates, compared with ~~$121~~$259 million during the same period of 2019. We cannot control the amount or timing of future ~~dividends~~distributions from equity affiliates; therefore, future ~~dividend~~distribution payments by these and other equity affiliates are not assured.

ATM Programs

We have authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. The first two programs concluded in June 2018 and December 2019, respectively. ~~For~~We did not issue any common units under our ATM programs during the three months ended ~~March 31,~~June 30, 2020. For the six months ended June 30, 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 and six months ended ~~March 31,~~June 30, 2019, we issued an aggregate of ~~622,032~~212,336 and 834,368 common units under our ATM programs, respectively, generating net proceeds of ~~$32 million.~~$10 million and $42 million, respectively. Since inception in June 2016 through ~~March 31,~~June 30, 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 additions to working capital.

Revolving Credit Facility

At ~~March 31,~~June 30, 2020, borrowings of $215 million were outstanding and ~~December 31, 2019, no amount~~$3 million in letters of credit 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.~~facility.

Transfer of Equity ~~Interests~~Interest

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 Pipeline, LLC. Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. ~~On April 1, 2020,~~We have a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party exercised its option to acquire a 35% interest in the holding company. Because the holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which was considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP at that time. The Gray Oak Pipeline commenced full operations ~~from West Texas to Texas Gulf Coast destinations. The Eagle Ford segment~~in the second quarter of 2020 and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the ~~pipeline commenced operations later in April.~~sale under GAAP. Accordingly, at June 30, 2020, the co-venturer’s 35% interest in the holding

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company ~~is expected to be~~was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance ~~sheet in~~sheet. In addition, the ~~second quarter. Also at that time, the~~ premium of $84 million previously paid by the co-venturer ~~will be~~in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of ~~income.~~income for the three and six months ended June 30, 2020. For the ~~three~~six months ended ~~March 31,~~June 30, 2020, the co-venturer contributed an aggregate of ~~$23~~$61 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls.

~~See Note 4—Equity Investments and Loans,~~ Excluding the co-venturer’s 35% interest in the ~~Notes to Consolidated Financial Statements, for additional information regarding these transactions.~~consolidated holding company, we have an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC.

~~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

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

In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of ~~$2,500 million~~$2.5 billion aggregate principal amount of unsecured senior ~~notes.~~ notes, consisting of:

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

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

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

Dakota Access and ETCO have guaranteed repayment of the notes. In addition, 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 co-venturers may be severally required to make proportionate equity contributions to Dakota Access ~~and ETCO up~~if there is an unfavorable final judgment in the ongoing litigation related to an ~~aggregate maximum~~easement granted by the U.S. Army Corps of ~~approximately $2,525 million. Our~~Engineers (USACE) to allow the pipeline to be constructed under Lake Oahe in North Dakota. Contributions may be required if Dakota Access determines that the issues included in any such final judgment cannot be remediated and Dakota Access has or is projected to have insufficient funds to satisfy repayment of the notes. If Dakota Access undertakes remediation to cure issues raised in a final judgment, contributions may be required if any series of the notes become due, whether by acceleration or at maturity, during such time, to the extent Dakota Access has or is projected to have insufficient funds to pay such amounts. At June 30, 2020, our share of the maximum potential equity contributions under the CECU iswas approximately $631 ~~million at March 31, 2020.~~ million.

In March 2020, the court ~~in such~~presiding over this litigation ~~requested~~ordered the USACE to prepare an Environmental Impact Statement ~~from the U.S. Army Corps of Engineers,~~(EIS), and requested additional information to ~~make~~enable a ~~further~~ decision ~~regarding~~on whether the Dakota Access Pipeline should be shut down while the ~~Environmental Impact Statement~~EIS is being prepared. ~~Currently, this ruling does~~On July 6, 2020, the court ordered the Dakota Access Pipeline to be shut down and emptied of crude oil by August 5, 2020, and that the pipeline should remain shut down pending the preparation of the EIS by the USACE, which the USACE has indicated is expected to take approximately 13 months. Dakota Access filed an appeal and a request for a stay of the order. On July 14, 2020, an appeals court granted a temporary stay of the lower court’s order directing the pipeline to be shut down and emptied of crude oil. The appeals court has not ~~have any immediate impact~~yet ruled on the motion for a stay during the appeals process. In addition to the potential obligations under the CECU, if the pipeline is required to cease operations pending the preparation of the EIS, and should Dakota Access and ~~ETCO.~~ETCO not have sufficient funds to pay ongoing expenses, we also could be asked to support our share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually.

Gray Oak Pipeline, LLC

Gray Oak Pipeline, LLC has a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Borrowings under the facility are due on June 3, 2022. 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, plus any additional accrued interest and associated fees, if ~~the term loan facility is fully utilized and~~ Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. At ~~March 31,~~June 30, 2020, the term loan facility was fully utilized by Gray Oak Pipeline, LLC and our 42.25% proportionate exposure under the equity contribution agreement was $583 million.

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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. 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. 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.

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 joint venture 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 Dollars						Millions of Dollars
	Three Months Ended March 31						Six Months Ended June 30
	2020			2019			2020		2019
Capital expenditures and investments						Capital expenditures and investments
Capital expenditures and investments	$	234		632		Capital expenditures and investments	$	611	746
Capital expenditures and investments funded by certain joint venture partners*	(23		)	(422	)	Capital expenditures and investments funded by certain joint venture partners*	(61)		(422)
Adjusted capital spending	$	211		210		Adjusted capital spending	$	550	324

Expansion	$	196		195		Expansion	$	507	297
Maintenance	15			15		Maintenance	43		27

*See Note 4—Equity Investments, ~~and Loans,~~ in the Notes to Consolidated Financial Statements, for additional information.

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Our capital expenditures and investments for the first ~~three~~six months of 2020 were primarily associated with the following activities:

•Contributions to Gray Oak Pipeline, LLC to ~~progress~~complete construction of the pipeline system.

•Contributions to Liberty Pipeline LLC for its committed purchases.

•Construction activities related to ~~progress construction of the Liberty Pipeline, which will transport crude oil~~a new ethane pipeline from the ~~Rockies and Bakken production areas~~Clemens Caverns to ~~Cushing, Oklahoma. As discussed below, this project has been deferred.~~petrochemical facilities in Gregory, Texas, near Corpus Christi.

•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 Sweeny to Pasadena refined petroleum products 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

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

Debt Repayment

On April 1, 2020, we repaid ~~at maturity a~~the $25 million tranche of tax-exempt bonds ~~that was included~~due April 2020. The two remaining tranches, totaling $50 million, mature in ~~short-term debt at March 31, 2020.~~April 2021.

Contingencies

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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 ~~March 31,~~June 30, 2020, and December 31, 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

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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 non-cash expenses and associated non-cash capital contributions from our General Partner, as these are considered liabilities paid for by a principal unitholder.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements. You can normally identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar ~~expressions.~~expressions, although the absence of these words does not mean that a statement is not forward-looking.

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

~~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.~~diseases and pandemics, including the COVID-19 pandemic.

•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.

•The 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.

•The 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 our growth strategies, whether through organic growth or acquisitions.

•The operation, financing and distribution decisions of our joint ventures, which we may not control.

•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.

•Direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war.

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•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 2019 Annual Report on Form 10-K filed with the SEC on February 21, 2020, and in Item 1A. of Part II of this ~~Quarterly Report on Form 10-Q.~~report.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our commodity price risk and interest rate risk at ~~March 31,~~June 30, 2020, did not differ materially from that disclosed under Item 7A of our 2019 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 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

~~The following risk factor should be read in conjunction with~~Except as provided below, there were no material changes from the risk factors ~~included~~disclosed in Item 1A of our 2019 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.

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Item 6. EXHIBITS

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

1.1

Equity Distribution Agreement, dated as of February 25, 2020, by and among the Partnership and the General Partner, on the one hand, and RBC Capital Markets, LLC, BofA Securities, Inc., Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., BTIG, LLC, CIBC World Markets Corp., Citigroup Global Markets Inc., Commerz Markets LLC, Credit Agricole Securities (USA) Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC, HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, Jefferies LLC, Mizuho Securities USA LLC, MUFG Securities Americas Inc., Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc., SunTrust Robinson Humphrey, Inc., TD Securities (USA) LLC, and Wells Fargo Securities, LLC.
8-K 1.1 2/25/2020 001-36011

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.

10.1*

Eighth Amendment to the Omnibus Agreement, dated as of March 1, 2020, by and among Phillips 66 Partners LP, Phillips 66 Partners GP LLC, Phillips 66 Company, Phillips 66 Pipeline LLC, Phillips 66 Partners Holdings LLC, and Phillips 66 Carrier LLC.

31.1*

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

31.2*

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

32*

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

101.INS* Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH* Inline XBRL 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).

Exhibit

Number

Exhibit Description

10 .1 *

Contingent Equity Contribution Undertaking (Senior Notes), dated as of March 11, 2019, between Energy Transfer Operating, L.P., Phillips 66 Partners LP, Enbridge Inc.,and MPLX LP, as Contributors, and Midwest Connector Capital Company LLC, as the Company, and U.S. Bank National Association, as trustee, in respect of the Senior Notes.

31.1*

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

31.2*

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

32*

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

101.INS*

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

Inline XBRL 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.

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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

			~~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: ~~May 1,~~July 31, 2020


		Page
Part I – Financial Information		1

		~~Page~~
~~Part I – Financial Information~~	1

Item 1. Financial Statements	1
Consolidated Statement of Income		1
Consolidated Statement of Comprehensive Income		2
Consolidated Balance Sheet		3
Consolidated Statement of Cash Flows		4
Consolidated Statement of Changes in Equity		5
Notes to Consolidated Financial Statements		67

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1920

Item 3. Quantitative and Qualitative Disclosures About Market Risk		3335

Item 4. Controls and Procedures		3335

Part II – Other Information		3436

Item 1. Legal Proceedings		3436

Item 1A. Risk Factors		3436

Item 6. Exhibits		3537

Signatures		3638



	Millions of Dollars
	March 31 2020			December 31 2019
Assets
Cash and cash equivalents	$	92		286
Accounts receivable—related parties	91			101
Accounts receivable—third parties	4			4
Materials and supplies	13			13
Prepaid expenses and other current assets	14			10
Total current assets	214			414
Equity investments	3,136			2,961
Net properties, plants and equipment	3,410			3,349
Goodwill	185			185
Other assets	52			52
Total Assets	$	6,997		6,961

Liabilities
Accounts payable—related parties	$	24		19
Accounts payable—third parties	75			84
Accrued interest	46			42
Deferred revenues	19			16
Short-term debt	25			25
Accrued property and other taxes	12			10
Other current liabilities	3			3
Total current liabilities	204			199
Long-term debt	3,491			3,491
Obligation from equity interest transfer	356			343
Other liabilities	93			94
Total Liabilities	4,144			4,127

Equity
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	)
Total Equity	2,853			2,834
Total Liabilities and Equity	$	6,997		6,961
See Notes to Consolidated Financial Statements.



	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 income	10			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 income	10			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



	Units
	Three Months Ended March 31
	Preferred Units Public	Common Units Public	Common Units Phillips 66	General Partner Units Phillips 66	Total Units

December 31, 2019	13,819,791	58,539,439	169,760,137	—	242,119,367
Units issued in public equity offerings	—	40,570	—	—	40,570
March 31, 2020	13,819,791	58,580,009	169,760,137	—	242,159,937

December 31, 2018	13,819,791	55,343,918	68,760,137	2,480,051	140,403,897
Units issued in public equity offerings	—	622,032	—	—	622,032
March 31, 2019	13,819,791	55,965,950	68,760,137	2,480,051	141,025,929



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

1.1	Equity Distribution Agreement, dated as of February 25, 2020, by and among the Partnership and the General Partner, on the one hand, and RBC Capital Markets, LLC, BofA Securities, Inc., Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., BTIG, LLC, CIBC World Markets Corp., Citigroup Global Markets Inc., Commerz Markets LLC, Credit Agricole Securities (USA) Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC, HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, Jefferies LLC, Mizuho Securities USA LLC, MUFG Securities Americas Inc., Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc., SunTrust Robinson Humphrey, Inc., TD Securities (USA) LLC, and Wells Fargo Securities, LLC.	8-K	1.1	2/25/2020	001-36011

	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.

10.1*	Eighth Amendment to the Omnibus Agreement, dated as of March 1, 2020, by and among Phillips 66 Partners LP, Phillips 66 Partners GP LLC, Phillips 66 Company, Phillips 66 Pipeline LLC, Phillips 66 Partners Holdings LLC, and Phillips 66 Carrier LLC.

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

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

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

101.INS*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*	Inline XBRL 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).