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			~~September 30, 2020~~March 31, 2021


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


For the transition period from						to


Commission file number:			001-36011

Phillips 66 Partners LP

(Exact name of registrant as specified in its charter)


Delaware						38-3899432
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2331 CityWest Blvd., Houston, Texas 77042

(Address of principal executive offices) (Zip Code)

(855) 283-9237

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Units, Representing Limited 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 ~~September 30, 2020.~~March 31, 2021.

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PHILLIPS 66 PARTNERS LP

TABLE OF CONTENTS

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


Consolidated Statement of Income (Loss)			Phillips 66 Partners LP


		Millions of Dollars					Millions of Dollars
		Three Months Ended September 30			Nine Months Ended September 30			Three Months Ended March 31
		2020		2019	2020	2019				2021		2020
Revenues and Other Income	Revenues and Other Income								Revenues and Other Income
Operating revenues—related parties	Operating revenues—related parties	$	256	262	750	814			Operating revenues—related parties	$	245	258
Operating revenues—third parties	Operating revenues—third parties	9		8	23	21			Operating revenues—third parties	7		9
Equity in earnings of affiliates	Equity in earnings of affiliates	129		139	369	395			Equity in earnings of affiliates	124		136
Gain from equity interest transfer		0		0	84	0
Other income	Other income	0		2	2	5			Other income	0		1
Total revenues and other income	Total revenues and other income	394		411	1,228	1,235			Total revenues and other income	376		404

Costs and Expenses	Costs and Expenses								Costs and Expenses
Operating and maintenance expenses	Operating and maintenance expenses	85		91	257	315			Operating and maintenance expenses	95		88
Depreciation	Depreciation	35		30	96	88			Depreciation	34		30
Impairments									Impairments	198		0
General and administrative expenses	General and administrative expenses	16		16	50	51			General and administrative expenses	17		17
Taxes other than income taxes	Taxes other than income taxes	9		10	30	30			Taxes other than income taxes	10		11
Interest and debt expense	Interest and debt expense	32		26	89	80			Interest and debt expense	33		29
Other expenses	Other expenses	0		0	7	0			Other expenses	0		2
Total costs and expenses	Total costs and expenses	177		173	529	564			Total costs and expenses	387		177
Income before income taxes		217		238	699	671
Income (loss) before income taxes									Income (loss) before income taxes	(11)		227
Income tax expense	Income tax expense	1		1	2	3			Income tax expense	0		1
Net Income		216		237	697	668
Net Income (Loss)									Net Income (Loss)	(11)		226
Less: Net income attributable to noncontrolling interest	Less: Net income attributable to noncontrolling interest	10		0	10	0			Less: Net income attributable to noncontrolling interest	7		0
Net Income Attributable to the Partnership		206		237	687	668
Less: Preferred unitholders’ interest in net income attributable to the Partnership		10		9	29	28
Less: General partner’s interest in net income attributable to the Partnership		0		0	0	140
Limited Partners’ Interest in Net Income Attributable to the Partnership		$	196	228	658	500
Net Income (Loss) Attributable to the Partnership									Net Income (Loss) Attributable to the Partnership	(18)		226
Less: Preferred unitholders’ interest in net income (loss) attributable to the Partnership									Less: Preferred unitholders’ interest in net income (loss) attributable to the Partnership	12		10
Limited Partners’ Interest in Net Income (Loss) Attributable to the Partnership									Limited Partners’ Interest in Net Income (Loss) Attributable to the Partnership	$	(30)	216

Net Income Attributable to the Partnership Per Limited Partner Unit (dollars)
Net Income (Loss) Attributable to the Partnership Per Limited Partner Unit (dollars)									Net Income (Loss) Attributable to the Partnership Per Limited Partner Unit (dollars)
Common units—basic	Common units—basic	$	0.86	1.18	2.88	3.39			Common units—basic	$	(0.13)	0.95
Common units—diluted	Common units—diluted	0.85		1.15	2.84	3.25			Common units—diluted	(0.13)		0.93

Weighted-Average Limited Partner Units Outstanding (thousands)	Weighted-Average Limited Partner Units Outstanding (thousands)								Weighted-Average Limited Partner Units Outstanding (thousands)
Common units—basic	Common units—basic	228,340		192,274	228,331	147,368			Common units—basic	228,340		228,312
Common units—diluted	Common units—diluted	242,160		206,093	242,151	161,187			Common units—diluted	228,340		242,132

See Notes to Consolidated Financial Statements.	See Notes to Consolidated Financial Statements.								See Notes to Consolidated Financial Statements.

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Consolidated Statement of Comprehensive Income (Loss)			Phillips 66 Partners LP


		Millions of Dollars					Millions of Dollars
		Three Months Ended September 30			Nine Months Ended September 30			Three Months Ended March 31
		2020		2019	2020	2019				2021		2020

Net Income		$	216	237	697	668

Net Income (Loss)									Net Income (Loss)	$	(11)	226
Defined benefit plans	Defined benefit plans								Defined benefit plans
Plan sponsored by equity affiliates, net of income taxes	Plan sponsored by equity affiliates, net of income taxes	0		0	0	0			Plan sponsored by equity affiliates, net of income taxes	(1)		0

Other comprehensive income		0		0	0	0
Comprehensive Income		216		237	697	668
Other comprehensive loss									Other comprehensive loss	(1)		0
Comprehensive Income (Loss)									Comprehensive Income (Loss)	(12)		226
Less: Comprehensive income attributable to noncontrolling interest	Less: Comprehensive income attributable to noncontrolling interest	10		0	10	0			Less: Comprehensive income attributable to noncontrolling interest	7		0
Comprehensive Income Attributable to the Partnership		$	206	237	687	668
Comprehensive Income (Loss) Attributable to the Partnership									Comprehensive Income (Loss) Attributable to the Partnership	$	(19)	226
See Notes to Consolidated Financial Statements.	See Notes to Consolidated Financial Statements.								See Notes to Consolidated Financial Statements.

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Consolidated Balance Sheet			Phillips 66 Partners LP


		Millions of Dollars				Millions of Dollars
		September 30 2020		December 31 2019		March 31 2021		December 31 2020
Assets	Assets				Assets
Cash and cash equivalents	Cash and cash equivalents	$	2	286	Cash and cash equivalents	$	3	7
Accounts receivable—related parties	Accounts receivable—related parties	85		101	Accounts receivable—related parties	104		103
Accounts receivable—third parties	Accounts receivable—third parties	3		4	Accounts receivable—third parties	3		3
Materials and supplies	Materials and supplies	14		13	Materials and supplies	16		16
Prepaid expenses and other current assets	Prepaid expenses and other current assets	7		10	Prepaid expenses and other current assets	17		11

Total current assets	Total current assets	111		414	Total current assets	143		140
Equity investments	Equity investments	3,373		2,961	Equity investments	3,029		3,244
Net properties, plants and equipment	Net properties, plants and equipment	3,575		3,349	Net properties, plants and equipment	3,646		3,639
Goodwill	Goodwill	185		185	Goodwill	185		185

Other assets	Other assets	50		52	Other assets	50		50
Total Assets	Total Assets	$	7,294	6,961	Total Assets	$	7,053	7,258

Liabilities	Liabilities				Liabilities
Accounts payable—related parties	Accounts payable—related parties	$	17	19	Accounts payable—related parties	$	20	19
Accounts payable—third parties	Accounts payable—third parties	104		84	Accounts payable—third parties	54		73

Accrued interest	Accrued interest	39		42	Accrued interest	39		35
Deferred revenues	Deferred revenues	22		16	Deferred revenues	38		27

Short-term debt	Short-term debt	340		25	Short-term debt	500		465
Accrued property and other taxes	Accrued property and other taxes	28		10	Accrued property and other taxes	12		11
Other current liabilities	Other current liabilities	3		3	Other current liabilities	3		3
Total current liabilities	Total current liabilities	553		199	Total current liabilities	666		633

Long-term debt	Long-term debt	3,443		3,491	Long-term debt	3,444		3,444
Obligation from equity interest transfer		0		343
Other liabilities	Other liabilities	91		94	Other liabilities	90		90

Total Liabilities	Total Liabilities	4,087		4,127	Total Liabilities	4,200		4,167

Equity	Equity				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)		2,734		2,717
Common unitholder—Phillips 66 (2020 and 2019—169,760,137 units issued and outstanding)		(578)		(628)

Preferred unitholders (2021 and 2020—13,819,791 units issued and outstanding)					Preferred unitholders (2021 and 2020—13,819,791 units issued and outstanding)	749		749
Common unitholders—public (2021 and 2020—58,580,009 units issued and outstanding)					Common unitholders—public (2021 and 2020—58,580,009 units issued and outstanding)	2,647		2,706
Common unitholder—Phillips 66 (2021 and 2020—169,760,137 units issued and outstanding)					Common unitholder—Phillips 66 (2021 and 2020—169,760,137 units issued and outstanding)	(828)		(656)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1)		(1)	Accumulated other comprehensive loss	(2)		(1)
Total unitholders’ equity	Total unitholders’ equity	2,902		2,834	Total unitholders’ equity	2,566		2,798
Noncontrolling interest	Noncontrolling interest	305		0	Noncontrolling interest	287		293
Total Equity	Total Equity	3,207		2,834	Total Equity	2,853		3,091
Total Liabilities and Equity	Total Liabilities and Equity	$	7,294	6,961	Total Liabilities and Equity	$	7,053	7,258
See Notes to Consolidated Financial Statements.	See Notes to Consolidated Financial Statements.				See Notes to Consolidated Financial Statements.

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Consolidated Statement of Cash Flows			~~Phillips~~ Phillips��66 Partners LP


		Millions of Dollars				Millions of Dollars
		Nine Months Ended September 30				Three Months Ended March 31
		2020		2019		2021		2020
Cash Flows From Operating Activities	Cash Flows From Operating Activities				Cash Flows From Operating Activities
Net income		$	697	668
Adjustments to reconcile net income to net cash provided by operating activities
Net income (loss)					Net income (loss)	$	(11)	226
Adjustments to reconcile net income (loss) to net cash provided by operating activities					Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation	Depreciation	96		88	Depreciation	34		30

Impairments					Impairments	198		0
Undistributed equity earnings	Undistributed equity earnings	9		7	Undistributed equity earnings	(5)		4
Gain from equity interest transfer		(84)		0
Other	Other	7		8	Other	0		2
Working capital adjustments	Working capital adjustments				Working capital adjustments
Accounts receivable	Accounts receivable	17		(7)	Accounts receivable	(1)		10
Materials and supplies		(1)		0

Prepaid expenses and other current assets	Prepaid expenses and other current assets	3		15	Prepaid expenses and other current assets	(6)		(4)
Accounts payable	Accounts payable	20		7	Accounts payable	2		(3)
Accrued interest	Accrued interest	(3)		(3)	Accrued interest	4		4
Deferred revenues	Deferred revenues	6		(44)	Deferred revenues	11		3

Other accruals	Other accruals	18		18	Other accruals	1		2
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	785		757	Net Cash Provided by Operating Activities	227		274

Cash Flows From Investing Activities	Cash Flows From Investing Activities				Cash Flows From Investing Activities

Cash capital expenditures and investments	Cash capital expenditures and investments	(796)		(924)	Cash capital expenditures and investments	(78)		(236)
Advances/loans—related party		0		(95)
Collection of advances/loans—related party		0		95
Liberty acquisition	Liberty acquisition	(75)		0	Liberty acquisition	0		(75)
Return of investment from equity affiliates	Return of investment from equity affiliates	124		52	Return of investment from equity affiliates	39		38
Proceeds from sale of equity interest		0		81

Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	(747)		(791)	Net Cash Used in Investing Activities	(39)		(273)

Cash Flows From Financing Activities	Cash Flows From Financing Activities				Cash Flows From Financing Activities

Issuance of debt	Issuance of debt	290		1,758	Issuance of debt	450		0
Repayment of debt	Repayment of debt	(25)		(985)	Repayment of debt	(415)		0
Issuance of common units	Issuance of common units	2		133	Issuance of common units	0		2

Debt issuance costs		0		(6)

Quarterly distributions to preferred unitholders	Quarterly distributions to preferred unitholders	(28)		(28)	Quarterly distributions to preferred unitholders	(12)		(9)
Quarterly distributions to common unitholders—public	Quarterly distributions to common unitholders—public	(153)		(142)	Quarterly distributions to common unitholders—public	(51)		(51)
Quarterly distributions to common unitholder—Phillips 66	Quarterly distributions to common unitholder—Phillips 66	(446)		(174)	Quarterly distributions to common unitholder—Phillips 66	(149)		(149)
Net proceeds from equity interest transfer					Net proceeds from equity interest transfer	0		12

Quarterly distributions to General Partner—Phillips 66		0		(206)
Net proceeds from equity interest transfer		40		341
Proceeds from noncontrolling interest		3		0
Distributions to noncontrolling interest	Distributions to noncontrolling interest	(13)		0	Distributions to noncontrolling interest	(13)		0
Other distributions from (to) Phillips 66		8		(3)
Net Cash Provided by (Used in) Financing Activities		(322)		688
Other distributions to Phillips 66					Other distributions to Phillips 66	(2)		0
Net Cash Used in Financing Activities					Net Cash Used in Financing Activities	(192)		(195)

Net Change in Cash and Cash Equivalents	Net Change in Cash and Cash Equivalents	(284)		654	Net Change in Cash and Cash Equivalents	(4)		(194)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	286		1	Cash and cash equivalents at beginning of period	7		286
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	2	655	Cash and Cash Equivalents at End of Period	$	3	92
See Notes to Consolidated Financial Statements.	See Notes to Consolidated Financial Statements.				See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Statement of Changes in Equity			Phillips 66 Partners LP


		Millions of Dollars									Millions of Dollars
		Three Months Ended September 30									Three Months Ended March 31
		Preferred Unitholders Public		Common Unitholders Public	Common Unitholder Phillips 66	General Partner Phillips 66	Accum. Other Comprehensive Loss	Noncontrolling Interest	Total		Partnership
											Preferred Unitholders Public		Common Unitholders Public	Common Unitholder Phillips 66	Accum. Other Comprehensive Loss	Noncontrolling Interest	Total
June 30, 2020		$	746	2,735	(572)	0	(1)	305	3,213

December 31, 2020										December 31, 2020	$	749	2,706	(656)	(1)	293	3,091
Net income (loss)										Net income (loss)	12		(8)	(22)	—	7	(11)
Other comprehensive loss										Other comprehensive loss	—		—	—	(1)	—	(1)
Quarterly cash distributions to unitholders ($0.875 per common unit)										Quarterly cash distributions to unitholders ($0.875 per common unit)	(12)		(51)	(149)	—	—	(212)

Distributions to noncontrolling interest										Distributions to noncontrolling interest	—		—	—	—	(13)	(13)
Other distributions to Phillips 66										Other distributions to Phillips 66	—		—	(1)	—	—	(1)
March 31, 2021										March 31, 2021	$	749	2,647	(828)	(2)	287	2,853

December 31, 2019										December 31, 2019	$	746	2,717	(628)	(1)	0	2,834
Issuance of common units										Issuance of common units	—		2	—	—	—	2
Net income	Net income	10		50	146	—	—	10	216	Net income	10		55	161	—	—	226
Quarterly cash distributions to unitholders ($0.875 per common unit)	Quarterly cash distributions to unitholders ($0.875 per common unit)	(9)		(51)	(149)	—	—	—	(209)	Quarterly cash distributions to unitholders ($0.875 per common unit)	(9)		(51)	(149)	—	—	(209)

Proceeds from noncontrolling interest		—		—	—	—	—	3	3
Distributions to noncontrolling interest		—		—	—	—	—	(13)	(13)
Other distributions to Phillips 66		—		—	(3)	—	—	—	(3)
September 30, 2020		$	747	2,734	(578)	0	(1)	305	3,207

June 30, 2019		$	746	2,555	626	(1,310)	(1)	0	2,616

Issuance of common units		—		91	—	—	—	—	91
Net income		9		67	161	—	—	—	237
Quarterly cash distributions to unitholders and General Partner ($0.855 per common unit)		(9)		(49)	(58)	(70)	—	—	(186)
Conversion of GP economic interest		—		—	(1,384)	1,381	—	—	(3)
Other distributions to Phillips 66		—		—	—	(1)	—	—	(1)
September 30, 2019		$	746	2,664	(655)	0	(1)	0	2,754
March 31, 2020										March 31, 2020	$	747	2,723	(616)	(1)	0	2,853

Units
Three Months Ended
September 30
Preferred Units
Public Common Units
Public Common Units
Phillips 66 General Partner
Units
Phillips 66 Total Units
June 30, 2020 13,819,791 58,580,009 169,760,137 0 242,159,937
Units issued in public equity offerings — 0 — — 0
September 30, 2020 13,819,791 58,580,009 169,760,137 0 242,159,937
June 30, 2019 13,819,791 56,178,286 68,760,137 2,480,051 141,238,265
Units issued in public equity offerings — 1,635,669 — — 1,635,669
Units issued in conversion of GP economic interest — — 101,000,000 (2,480,051) 98,519,949
September 30, 2019 13,819,791 57,813,955 169,760,137 0 241,393,883
See Notes to Consolidated Financial Statements.


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

December 31, 2020	13,819,791	58,580,009	169,760,137	242,159,937
Units issued in public equity offerings	—	—	—	0
March 31, 2021	13,819,791	58,580,009	169,760,137	242,159,937

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
See Notes to Consolidated Financial Statements.

~~Table of Contents~~


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

Millions of Dollars
Nine Months Ended
September 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) 0 (1) 0 2,834
Issuance of common units — 2 — — — — 2
Net income 29 168 490 — — 10 697
Quarterly cash distributions to unitholders ($2.625 per common unit) (28) (153) (446) — — — (627)
Transfer of equity interest — — — — — 305 305
Proceeds from noncontrolling interest — — — — — 3 3
Distributions to noncontrolling interest — — — — — (13) (13)
Other contributions from Phillips 66 — — 6 — — — 6
September 30, 2020 $ 747 2,734 (578) — (1) 305 3,207
December 31, 2018 $ 746 2,485 592 (1,313) (1) 0 2,509
Cumulative effect of accounting change — (1) — — — — (1)
Issuance of common units — 133 — — — — 133
Net income 28 189 311 140 — — 668
Quarterly cash distributions to unitholders and General Partner ($2.535 per common unit) (28) (142) (174) (206) — — (550)
Conversion of GP economic interest — — (1,384) 1,381 — — (3)
Other distributions to Phillips 66 — — — (2) — — (2)
September 30, 2019 $ 746 2,664 (655) 0 (1) 0 2,754

Units
Nine Months Ended
September 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 0 242,119,367
Units issued in public equity offerings — 40,570 — — 40,570
September 30, 2020 13,819,791 58,580,009 169,760,137 0 242,159,937
December 31, 2018 13,819,791 55,343,918 68,760,137 2,480,051 140,403,897
Units issued in public equity offerings — 2,470,037 — — 2,470,037
Units issued in conversion of GP economic interest — — 101,000,000 (2,480,051) 98,519,949
September 30, 2019 13,819,791 57,813,955 169,760,137 0 241,393,883
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” or “GP” 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 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~~2020 Annual Report on Form 10-K. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, are not necessarily indicative of the results to be expected for the full year.

The ~~Coronavirus Disease 2019 (COVID-19)~~COVID-19 pandemic continues to ~~result in~~disrupt economic ~~disruption~~activities globally. Reduced demand for petroleum products has resulted in decreased volumes through logistics infrastructure. The depth and duration of the economic consequences of the COVID-19 pandemic remain ~~unknown.~~uncertain. We ~~continue to assess~~continuously monitor our ~~long-lived assets~~asset and ~~equity investments~~investment portfolio for ~~impairment~~impairments in this challenging business environment. ~~Impairments~~We recorded an impairment totaling $198 million in the first quarter of 2021, and additional impairments may be required in the ~~future if there is a further deterioration in our projected cash flows.~~future. See Note 4—Equity Investments for additional information.

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.

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Total operating revenues disaggregated by asset type were as follows:


		Millions of Dollars						Millions of Dollars
		Three Months Ended September 30			Nine Months Ended September 30			Three Months Ended March 31
		2020		2019	2020	2019		2021		2020

Pipelines	Pipelines	$	117	121	325	347	Pipelines	$	104	111
Terminals	Terminals	36		41	112	120	Terminals	39		43
Storage, processing and other revenues	Storage, processing and other revenues	112		108	336	368	Storage, processing and other revenues	109		113
Total operating revenues	Total operating revenues	$	265	270	773	835	Total operating revenues	$	252	267

The majority of our agreements with Phillips 66 are considered operating leases under GAAP. The classification of a lease as either an operating or a 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 apply the 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						Millions of Dollars
		Three Months Ended September 30			Nine Months Ended September 30			Three Months Ended March 31
		2020		2019	2020	2019		2021		2020

Lease revenues	Lease revenues	$	209	217	622	688	Lease revenues	$	207	218
Service revenues	Service revenues	56		53	151	147	Service revenues	45		49
Total operating revenues	Total operating revenues	$	265	270	773	835	Total operating revenues	$	252	267

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				Millions of Dollars
		September 30 2020		December 31 2019		March 31 2021		December 31 2020

Lease receivables	Lease receivables	$	69	87	Lease receivables	$	89	87
Service receivables	Service receivables	19		18	Service receivables	18		19

Total accounts receivable	Total accounts receivable	$	88	105	Total accounts receivable	$	107	106

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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				Millions of Dollars
		September 30 2020		December 31 2019		March 31 2021		December 31 2020

Deferred lease revenues	Deferred lease revenues	$	41	41	Deferred lease revenues	$	54	45
Deferred service revenues	Deferred service revenues	3		1	Deferred service revenues	4		4
Total deferred revenues	Total deferred revenues	$	44	42	Total deferred revenues	$	58	49

Future Minimum Lease Payments from Customers

At ~~September 30, 2020,~~March 31, 2021, future minimum payments to be received under our lease agreements with customers, mainly Phillips 66, were estimated to be:


		Millions of Dollars			Millions of Dollars

Remainder of 2020		$	178
2021		706
Remainder of 2021				Remainder of 2021	$	575
2022	2022	694		2022	752
2023	2023	648		2023	706
2024	2024	526		2024	588
2025				2025	530
Remaining years	Remaining years	1,389		Remaining years	1,297
Total future minimum lease payments from customers	Total future minimum lease payments from customers	$	4,141	Total future minimum lease payments from customers	$	4,448

Remaining Performance Obligations

We typically have long-term service contracts with our customers, mainly Phillips 66, of which the original durations range from 5 to 15 years. The weighted-average remaining duration of these contracts is 109 years. These contracts include both fixed and variable transaction price components. At ~~September 30, 2020,~~March 31, 2021, future service revenues expected to be recognized for the fixed component of the transaction price of our remaining performance obligations from service contracts with our customers that have an original expected duration of greater than one year were:


		Millions of Dollars			Millions of Dollars

Remainder of 2020		$	39
2021		152
Remainder of 2021				Remainder of 2021	$	99
2022	2022	151		2022	124
2023	2023	151		2023	123
2024	2024	132		2024	99
2025				2025	95
Remaining years	Remaining years	756		Remaining years	381
Total future service revenues	Total future service revenues	$	1,381	Total future service revenues	$	921

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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

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


				Millions of Dollars						Millions of Dollars
		Percentage Ownership		September 30 2020		December 31 2019		Percentage Ownership		March 31 2021		December 31 2020

Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)	Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)	25.00	%	$	578	592	Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)	25.00	%	$	575	577
Bayou Bridge Pipeline, LLC (Bayou Bridge)	Bayou Bridge Pipeline, LLC (Bayou Bridge)	40.00		292		294	Bayou Bridge Pipeline, LLC (Bayou Bridge)	40.00		281		288
DCP Sand Hills Pipeline, LLC (Sand Hills)	DCP Sand Hills Pipeline, LLC (Sand Hills)	33.34		586		595	DCP Sand Hills Pipeline, LLC (Sand Hills)	33.34		585		582
DCP Southern Hills Pipeline, LLC (Southern Hills)	DCP Southern Hills Pipeline, LLC (Southern Hills)	33.34		215		215	DCP Southern Hills Pipeline, LLC (Southern Hills)	33.34		217		217
Explorer Pipeline Company (Explorer)	Explorer Pipeline Company (Explorer)	21.94		98		105	Explorer Pipeline Company (Explorer)	21.94		89		92
Gray Oak Pipeline, LLC	Gray Oak Pipeline, LLC	65.00		896		759	Gray Oak Pipeline, LLC	65.00		843		860
Liberty Pipeline LLC (Liberty)	Liberty Pipeline LLC (Liberty)	50.00		239		0	Liberty Pipeline LLC (Liberty)	50.00		46		241
Paradigm Pipeline LLC (Paradigm)	Paradigm Pipeline LLC (Paradigm)	50.00		141		143	Paradigm Pipeline LLC (Paradigm)	50.00		140		141
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)	Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)	70.00		66		70	Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)	70.00		15		15
South Texas Gateway Terminal LLC (South Texas Gateway Terminal)	South Texas Gateway Terminal LLC (South Texas Gateway Terminal)	25.00		152		74	South Texas Gateway Terminal LLC (South Texas Gateway Terminal)	25.00		175		167
STACK Pipeline LLC (STACK)	STACK Pipeline LLC (STACK)	50.00		110		114	STACK Pipeline LLC (STACK)	50.00		63		64
Total equity investments	Total equity investments			$	3,373	2,961	Total equity investments			$	3,029	3,244

Earnings from our equity investments were as follows:


		Millions of Dollars					Millions of Dollars
		Three Months Ended September 30			Nine Months Ended September 30			Three Months Ended March 31
		2020		2019	2020	2019				2021		2020

Bakken Pipeline	Bakken Pipeline	$	37	58	124	167			Bakken Pipeline	$	44	57
Bayou Bridge	Bayou Bridge	6		9	23	21			Bayou Bridge	7		10
Sand Hills	Sand Hills	33		39	111	113			Sand Hills	27		41
Southern Hills	Southern Hills	11		10	32	34			Southern Hills	12		11
Explorer	Explorer	6		12	17	26			Explorer	3		7
Gray Oak Pipeline, LLC	Gray Oak Pipeline, LLC	30		(2)	49	(2)			Gray Oak Pipeline, LLC	21		5
Liberty	Liberty	0		0	0	0			Liberty	0		0
Paradigm	Paradigm	4		4	10	10			Paradigm	5		4
Phillips 66 Partners Terminal	Phillips 66 Partners Terminal	(1)		6	(2)	18			Phillips 66 Partners Terminal	0		0
South Texas Gateway Terminal	South Texas Gateway Terminal	2		0	2	0			South Texas Gateway Terminal	4		0
STACK	STACK	1		3	3	8			STACK	1		1
Total equity in earnings of affiliates	Total equity in earnings of affiliates	$	129	139	369	395			Total equity in earnings of affiliates	$	124	136

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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~~issued $2.5 billion aggregate principal amount of senior unsecured ~~notes, consisting of:~~

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

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

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

notes. 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 ~~September 30, 2020,~~March 31, 2021, our share of the maximum potential equity contributions under the CECU was approximately $631 million.

In ~~March~~July 2020, the trial court presiding over ~~this~~the litigation ~~ordered the USACE to prepare an Environmental Impact Statement (EIS),~~vacated Dakota Access’ easement under Lake Oahe 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 trial court~~ ordered the Dakota Access Pipeline to be shut down and emptied of crude oil ~~within 30 days, and that the pipeline should remain shut down~~ pending the preparation of ~~the EIS~~an Environmental Impact Statement (EIS) by the USACE, which had been ordered by the court in March 2020 and is now expected to be completed by March 2022. In August 2020, pending an appeal of the trial court’s decisions, an appellate court denied Dakota Access’ motion to stay the order vacating the easement, but granted its motion to stay the order that the pipeline be shut down while the EIS is prepared. In January 2021, the appellate court affirmed the trial court’s order vacating the easement and directing the USACE ~~has indicated is expected~~ to take approximately 13 months. Dakota Access filed an appeal and a request for a stay of the order, which was granted. The case is now on an expedited appellate track and oral arguments regarding whether the pipeline easement is valid and whether the USACE must prepare an EIS ~~are set for early November 2020, with a decision expected in late 2020 or early 2021. In addition~~and reversed the order directing the pipeline to be shut down. Notwithstanding that the ~~proceedings in the appellate court, the trial court~~easement has been ~~asked~~vacated, in April 2021, the USACE indicated that it currently intends to ~~issue an~~allow the pipeline to continue to operate while it proceeds with the EIS. Currently, there is a motion for a permanent injunction to shut down the pipeline ~~until~~before the ~~USACE completes the EIS, which~~trial court that could be ~~ruled on as early as late December 2020~~decided at any time. Additionally, Dakota Access has requested the appellate court to stay its January 2021 decision pending a filing and disposition of a petition for writ of certiorari to the U.S. Supreme Court.

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


		Millions of Dollars						Millions of Dollars
		Three Months Ended September 30			Nine Months Ended September 30			Three Months Ended March 31
		2020		2019		2020	2019			2021		2020

Revenues	Revenues	$	196	258		623	748		Revenues	$	215	258
Income before income taxes	Income before income taxes	121		189		401	527		Income before income taxes	142		186
Net income	Net income	121		189		401	527		Net income	142		186

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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. InIn December 2018, a third party exercised its option to acquire a 35% interest in the holding company. Because the holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which was considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP at that time. The Gray Oak Pipeline commenced full operations in the second quarter of 2020 and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the sale under GAAP. Accordingly, at June 30, 2020, the co-venturer’s 35% interest in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet, and the premium of $84 million previously paid by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of income. For the nine months ended September 30, 2020, the co-venturer contributed an aggregate of $64 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls.sheet. We have an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC, after considering our co-venturer’s 35% interest in the consolidated holding company.

~~In September 2020, Gray Oak~~Liberty

At March 31, 2021, we held a 50% interest in Liberty, a joint venture formed to develop and construct the Liberty Pipeline LLC closed its offering of $1.4 billion aggregate principal amount of senior unsecured notes with maturities ranging from 2023 to 2027. These senior notes are not guaranteed by the Partnership or any of its co-venturers. Net proceeds from the offering were used to repay a third-party term loan of $1,379 million, and for general company purposes. Concurrent with the full repayment of the third-party term loan facility, the associated guarantee we issued through an equity contribution agreement was terminated.

~~During its development phase, Gray Oak Pipeline, LLC~~system. Liberty was considered a ~~variable interest entity (VIE)~~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~~co-venturer 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 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.

In the first quarter of 2021, we decided to exit the Liberty Pipeline project, which had previously been deferred due to the challenging business environment created by the COVID-19 pandemic. As a result, we recorded a $198 million impairment to reduce the book value of our investment in Liberty at March 31, 2021, to our share of the estimated fair value of the joint venture’s pipeline assets and net working capital. The impairment is included in the “Impairments” line item on our consolidated statement of income (loss). This valuation resulted in a Level 3 nonrecurring fair value measurement. At ~~September 30, 2020,~~March 31, 2021, the book value of our investment in Liberty, and our maximum exposure to loss, was ~~$239 million, which represented the aggregate~~$46 million.

In April 2021, we transferred our ownership interest in Liberty to our co-venturer for cash and certain pipeline assets with an estimated fair value that approximated our book value of our equity investment in Liberty. At September 30, 2020, Phillips 66 had an outstanding guarantee of $13 million to vendors for our proportionate share of the payment of certain purchase obligations of Liberty.at March 31, 2021.

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Note 5—Net Income (Loss) Per Limited Partner Unit

~~Net~~We calculate net income (loss) attributable to the Partnership per limited partner unit ~~applicable to common units is computed~~ by dividing the limited partners’ interest in net income (loss) by the weighted-average number of common units outstanding for the period. ~~Prior~~After considering the period’s cash distributions declared, the remaining undistributed earnings or excess distributions declared over earnings, if any, are allocated 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 nine months ended September 30, 2020 and 2019, our preferred units are potentially dilutive securities and were dilutive to net income per limited partner unit.

~~Table of Contents~~

~~Net income earned by the Partnership is allocated between the classes of~~ participating securities in accordance with the contractual terms of our partnership agreement ~~after giving effect to priority income allocations to~~and as prescribed under the ~~holders of the~~two-class method for those periods in which we have participating securities. Our preferred ~~units. First, earnings are allocated based~~units became participating securities effective October 1, 2020. See Note 9—Equityfor additional information 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. preferred units.

For the diluted net income (loss) 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 1-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 declared which would not have been paid after conversion.Any potentially dilutive securities are excluded from the diluted earnings per unit computation if the effect of including such securities would be anti-dilutive.


		Millions of Dollars						Millions of Dollars
		Three Months Ended September 30			Nine Months Ended September 30				Three Months Ended March 31
		2020		2019		2020	2019				2021		2020

Net income attributable to the Partnership		$	206	237		687	668
Net income (loss) attributable to the Partnership										Net income (loss) attributable to the Partnership	$	(18)	226
Less:	Less:									Less:
General partners’ distributions declared (including IDRs)*		0		0		0	139
Limited partners’ distributions declared on preferred units*	Limited partners’ distributions declared on preferred units*	10		9		29	28			Limited partners’ distributions declared on preferred units*	12		10
Limited partners’ distributions declared on common units*	Limited partners’ distributions declared on common units*	200		197		599	409			Limited partners’ distributions declared on common units*	200		199
Distributions less than (more than) net income attributable to the Partnership		$	(4)	31		59	92
Distributions less than (more than) net income (loss) attributable to the Partnership										Distributions less than (more than) net income (loss) attributable to the Partnership	$	(230)	17

*Distributions declared are attributable to the indicated periods.

Limited
Partners’
Common
Units Limited
Partners’
Preferred
Units Total
Three Months Ended September 30, 2020
Net income attributable to the Partnership (millions):
Distributions declared $ 200 10 210
Distributions more than net income attributable to the Partnership (4) 0 (4)
Net income attributable to the Partnership (basic) 196 10 206
Dilutive effect of preferred units 10
Net income attributable to the Partnership (diluted) $ 206
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 attributable to the Partnership per limited partner unit—basic (dollars)
$ 0.86
Net income attributable to the Partnership per limited partner unit—diluted (dollars)
0.85


	Limited Partners’ Common Units		Limited Partners’ Preferred Units	Total
Three Months Ended March 31, 2021
Net income (loss) attributable to the Partnership (millions):
Distributions declared	$	200	12	212
Distributions more than net income (loss) attributable to the Partnership	(230)		0	(230)
Net income (loss) attributable to the Partnership—basic	(30)		12	(18)
Dilutive effect of preferred units	0
Net income (loss) attributable to the Partnership—diluted	$	(30)

Weighted-average units outstanding—basic	228,340,146
Dilutive effect of preferred units	0
Weighted-average units outstanding—diluted	228,340,146

Net income (loss) attributable to the Partnership per limited partner unit—basic (dollars)	$	(0.13)
Net income (loss) attributable to the Partnership per limited partner unit—diluted (dollars)	(0.13)

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Limited
Partners’
Common
Units Limited
Partners’
Preferred
Units Total
Three Months Ended September 30, 2019
Net income attributable to the Partnership (millions):
Distributions declared $ 197 9 206
Distributions less than net income attributable to the Partnership 31 0 31
Net income attributable to the Partnership (basic) 228 9 237
Dilutive effect of preferred units 9
Net income attributable to the Partnership (diluted) $ 237
Weighted-average units outstanding—basic 192,273,672
Dilutive effect of preferred units 13,819,792
Weighted-average units outstanding—diluted 206,093,464
Net income attributable to the Partnership per limited partner unit—basic (dollars)
$ 1.18
Net income attributable to the Partnership per limited partner unit—diluted (dollars)
1.15

Limited
Partners’
Common
Units Limited
Partners’
Preferred
Units Total
Nine Months Ended September 30, 2020
Net income attributable to the Partnership (millions):
Distributions declared $ 599 29 628
Distributions less than net income attributable to the Partnership 59 0 59
Net income attributable to the Partnership (basic) 658 29 687
Dilutive effect of preferred units 29
Net income attributable to the Partnership (diluted) $ 687
Weighted-average units outstanding—basic 228,330,885
Dilutive effect of preferred units 13,819,791
Weighted-average units outstanding—diluted 242,150,676
Net income attributable to the Partnership per limited partner unit—basic (dollars)
$ 2.88
Net income attributable to the Partnership per limited partner unit—diluted (dollars)
2.84

~~Table of Contents~~


		Limited Partners’ Common Units		General Partner (including IDRs)	Limited Partners’ Preferred Units	Total		Limited Partners’ Common Units		Limited Partners’ Preferred Units	Total
Nine Months Ended September 30, 2019
Three Months Ended March 31, 2020							Three Months Ended March 31, 2020
Net income attributable to the Partnership (millions):	Net income attributable to the Partnership (millions):						Net income attributable to the Partnership (millions):
Distributions declared	Distributions declared	$	409	139	28	576	Distributions declared	$	199	10	209
Distributions less than net income attributable to the Partnership	Distributions less than net income attributable to the Partnership	91		1	0	92	Distributions less than net income attributable to the Partnership	17		0	17
Net income attributable to the Partnership (basic)		500		140	28	668
Dilutive effect of preferred units*		23
Net income attributable to the Partnership (diluted)		$	523
Net income attributable to the Partnership—basic							Net income attributable to the Partnership—basic	216		10	226
Dilutive effect of preferred units							Dilutive effect of preferred units	10
Net income attributable to the Partnership—diluted							Net income attributable to the Partnership—diluted	$	226

Weighted-average units outstanding—basic	Weighted-average units outstanding—basic	147,367,681					Weighted-average units outstanding—basic	228,312,261
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	Weighted-average units outstanding—diluted	161,187,472					Weighted-average units outstanding—diluted	242,132,052

Net income attributable to the Partnership per limited partner unit—basic (dollars)	Net income attributable to the Partnership per limited partner unit—basic (dollars)	$	3.39				Net income attributable to the Partnership per limited partner unit—basic (dollars)	$	0.95
Net income attributable to the Partnership per limited partner unit—diluted (dollars)	Net income attributable to the Partnership per limited partner unit—diluted (dollars)	3.25					Net income attributable to the Partnership per limited partner unit—diluted (dollars)	0.93
*The dilutive effect of preferred units assumes the reallocation of net income attributable to the partnership to the limited and general partners, including a reallocation associated with IDRs, pursuant to the available cash formula in the partnership agreement.

On ~~October~~April 20, ~~2020,~~2021, the Board of Directors of our General Partner declared a quarterly cash distribution of $0.875 per common unit, which will result in a total distribution of $200 million attributable to the ~~third~~first quarter of ~~2020.~~2021. This distribution is payable on ~~November 13, 2020,~~May 14, 2021, to common unitholders of record as of ~~October~~April 30, ~~2020.~~2021.

Beginning with the distribution to preferred unitholders attributable to the fourth quarter of 2020, the preferred unitholders are entitled to receive cumulative quarterly distributions equal to the greater of $0.678375 per unit, or the per-unit distribution amount paid to the common unitholders. Preferred unitholders will receive $12 million of distributions attributable to the first quarter of 2021. This distribution is payable May 14, 2021, to preferred unitholders of record as of April 30, 2021.

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Note 6—Properties, Plants and Equipment

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


		Millions of Dollars				Millions of Dollars
		September 30 2020		December 31 2019		March 31 2021		December 31 2020

Land	Land	$	19	19	Land	$	19	19
Buildings and improvements	Buildings and improvements	95		94	Buildings and improvements	116		115
Pipelines and related assets*	Pipelines and related assets*	1,522		1,424	Pipelines and related assets*	1,527		1,518
Terminals and related assets*	Terminals and related assets*	840		741	Terminals and related assets*	849		847
Rail racks and related assets*	Rail racks and related assets*	137		137	Rail racks and related assets*	137		137
Processing and related assets*	Processing and related assets*	1,058		1,041	Processing and related assets*	1,064		1,063
Caverns and related assets*	Caverns and related assets*	742		585	Caverns and related assets*	733		732
Construction-in-progress	Construction-in-progress	312		367	Construction-in-progress	420		394
Gross PP&E	Gross PP&E	4,725		4,408	Gross PP&E	4,865		4,825
Accumulated depreciation	Accumulated depreciation	(1,150)		(1,059)	Accumulated depreciation	(1,219)		(1,186)
Net PP&E	Net PP&E	$	3,575	3,349	Net PP&E	$	3,646	3,639
*Assets for which we are the lessor.

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Note 7—Debt


		Millions of Dollars				Millions of Dollars
		September 30 2020		December 31 2019		March 31 2021		December 31 2020

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

Tax-exempt bonds due April 2020 and April 2021 at 0.535% and 1.85% at September 30, 2020, and December 31, 2019, respectively		50		75
Revolving credit facility borrowings due October 2020 at 1.401%		290		0
Tax-exempt bonds due April 2021, at weighted-average rates of 0.260% and 0.360% at March 31, 2021, and December 31, 2020, respectively					Tax-exempt bonds due April 2021, at weighted-average rates of 0.260% and 0.360% at March 31, 2021, and December 31, 2020, respectively	50		50
Revolving credit facility borrowings due April 2021 at weighted-average rate of 1.345%					Revolving credit facility borrowings due April 2021 at weighted-average rate of 1.345%	450		415
Debt at face value	Debt at face value	3,815		3,550	Debt at face value	3,975		3,940
Net unamortized discounts and debt issuance costs	Net unamortized discounts and debt issuance costs	(32)		(34)	Net unamortized discounts and debt issuance costs	(31)		(31)
Total debt	Total debt	3,783		3,516	Total debt	3,944		3,909
Short-term debt	Short-term debt	(340)		(25)	Short-term debt	(500)		(465)
Long-term debt	Long-term debt	$	3,443	3,491	Long-term debt	$	3,444	3,444

The fair value of our fixed-rate and floating-rate debt is estimated based on observable market prices and is classified as Level 2 of the fair value hierarchy. The fair value of our fixed-rate debt was ~~$3,567~~$3,679 million and ~~$3,650~~$3,752 million at ~~September 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, respectively. The fair value of our floating-rate debt approximated carrying value of ~~$340~~$500 million and ~~$75~~$465 million at ~~September 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, respectively.

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At ~~September 30,~~March 31, 2021, and December 31, 2020, borrowings of ~~$290~~$450 million and $415 million were outstanding under our $750 million revolving credit facility, respectively. At both March 31, 2021, and $3December 31, 2020, $1 million in letters of credit had been ~~drawn~~issued that were supported by this facility.

Debt Repayment

On April 1, 2021, we repaid the 2 remaining $25 million tranches of tax-exempt bonds due April 2021, totaling $50 million.

Debt Issuance

On April 6, 2021, we entered into a $450 million term loan agreement and borrowed the full amount. The term loan agreement has a maturity date of April 5, 2022, and the outstanding borrowings can be repaid at any time and from time to time, in whole or in part, without premium or penalty. Borrowings bear interest at a floating rate based on either a Eurodollar rate or a reference rate, plus a margin of 0.875%. Proceeds were primarily used to repay amounts borrowed under our $750 million revolving credit facility.

~~On April 1, 2020, we repaid the $25 million tranche of tax-exempt bonds due April 2020. The 2 remaining tranches, totaling $50 million, mature in 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.~~uncertain.

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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.

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. At March 31, 2021, and December 31, 2020, our total environmental accruals were not material.

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

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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 ~~September 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, 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.

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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~~2 programs concluded in June 2018 and December 2019, respectively. We suspended issuances under the ATM program in the first quarter of 2020 due to low common unit prices. We did 0t issue any common units under the current ATM program during the three months ended September 30, 2020. For the nine months ended September 30, 2020, on a settlement date basis, we issued an aggregate of 40,570 common units, generating net proceeds of $2 million. For the three and nine months ended September 30, 2019, we issued an aggregate of 1,635,669 and 2,470,037 common units, respectively, generating net proceeds of $91 million and $133 million, respectively. Since inception in June 2016 through September 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.March 31, 2021.

~~Restructuring Transaction~~Preferred Units

~~On August 1, 2019, we closed on~~Beginning with the ~~transactions contemplated by~~distribution to preferred unitholders attributable to the ~~Partnership Interests Restructuring Agreement, dated July 24, 2019, entered~~fourth quarter of 2020, the preferred unitholders are entitled to receive cumulative quarterly distributions equal to the greater of $0.678375 per unit, or the per-unit distribution amount paid to the common unitholders as if such preferred units had converted into ~~with our General Partner. Pursuant~~common units immediately prior to ~~this agreement, all~~the record date. The holders of the ~~outstanding IDRs held by our General Partner were eliminated and its approximately 2% general partner interest in us was converted~~preferred units may convert their preferred units into ~~a non-economic general partner interest; both in exchange for an aggregate of 101 million~~ common units, ~~issued~~on a 1-for-one basis, at any time, in full or in part, subject to Phillips 66 PDI. Because these transactions were between entities under common control, the common units issued to Phillips 66 PDI were not assigned any value; rather, our General Partner’s negative equity balance of $1.4 billion at August 1, 2019, was transferred to Phillips 66’s limited partner equity account.minimum conversion amounts and conditions.

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.

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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.

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

Tax Sharing Agreement

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

Related Party Transactions

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


		Millions of Dollars						Millions of Dollars
		Three Months Ended September 30			Nine Months Ended September 30				Three Months Ended March 31
		2020		2019		2020	2019				2021		2020

Operating and maintenance expenses	Operating and maintenance expenses	$	46	48		136	203			Operating and maintenance expenses	$	58	48
General and administrative expenses	General and administrative expenses	15		14		46	47			General and administrative expenses	15		17

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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				Millions of Dollars
		September 30 2020		December 31 2019		March 31 2021		December 31 2020

Prepaid expenses and other current assets	Prepaid expenses and other current assets	$	4	7	Prepaid expenses and other current assets	$	11	7
Other assets	Other assets	48		44	Other assets	47		47
Deferred revenues	Deferred revenues	22		16	Deferred revenues	38		27
Other current liabilities	Other current liabilities	1		1	Other current liabilities	1		1
Other liabilities	Other liabilities	66		70	Other liabilities	63		64

Equity Affiliate Arrangements

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

In September 2020, concurrent with the full repayment of a third-party term loan facility by Gray Oak Pipeline, LLC, the associated guarantee we issued through an equity contribution agreement was terminated. See Note 4—Equity Investments, for additional information.

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Note 11—Cash Flow Information

Capital Expenditures and Investments

Our capital expenditures and investments consisted of:


		Millions of Dollars				Millions of Dollars
		Nine Months Ended September 30				Three Months Ended March 31
		2020		2019		2021		2020

Cash capital expenditures and investments	Cash capital expenditures and investments	$	796	924	Cash capital expenditures and investments	$	78	236
Change in capital expenditure accruals	Change in capital expenditure accruals	(1)		(17)	Change in capital expenditure accruals	(20)		(2)
Total capital expenditures and investments	Total capital expenditures and investments	$	795	907	Total capital expenditures and investments	$	58	234

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

Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” refer to Phillips 66 Partners GP LLC, and references to “Phillips 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.

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, 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.”

EXECUTIVE OVERVIEW AND 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.

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Operating and Maintenance Expenses

Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses primarily consist of labor expenses (including contractor services), utility costs, and repair and maintenance expenses. Operating and maintenance expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the mix of activities, particularly maintenance activities, performed during the period. Our processing assets are periodically subject to major maintenance, or turnaround activities, which can significantly increase operating and maintenance expenses in a given year. 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 attributable to the Partnership after deducting the adjusted EBITDA attributable to noncontrolling interest, further adjusted for:

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

•Transaction costs associated with acquisitions.

•Certain other noncash items, including ~~expenses indemnified by Phillips 66.~~gains and losses on asset sales and asset impairments.

Distributable cash flow is defined as adjusted EBITDA less (i) equity affiliate distributions less than proportional adjusted 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.

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

Business Environment

We do not own any of the crude oil, refined petroleum products and NGL we handle and do not engage in the trading of those commodities, and 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 Coronavirus Disease 2019 (COVID-19) pandemic continues to ~~result in~~disrupt economic ~~disruption~~activities globally. Actions taken by governments to prevent the spread of the disease, ~~have included~~including travel and business restrictions, ~~which~~ have resulted in substantial decreases in the demand for ~~crude oil and~~ many refined petroleum products, particularly gasoline and jet fuel. ~~The lack of demand~~Demand for refined petroleum products started to recover following the distribution of COVID-19 vaccines at the beginning of 2021, and consequently, refining margins have improved. Ongoing market discipline of OPEC producers has reduced excess supplies of crude oil and the current balance has supported higher crude oil and NGL prices. During the first quarter of 2021, however, winter storms significantly impacted the Central and Gulf Coast regions, which resulted in ~~low crude oil prices and refining margins. As a result, crude oil producers have shut in high cost production and refiners have reduced crude oil processing rates. These actions have~~ reduced throughput volumes on both our and our joint ventures’ ~~assets.~~assets, as well as higher costs.

~~The near-term outlook for petroleum product demand remains highly uncertain, and margins and volumes remain challenged.~~ Our customers, including Phillips 66, may continue to experience adverse economic effects in the near term as the depth and duration of the economic consequences of the COVID-19 pandemic remain ~~unknown.~~uncertain. We ~~continue to assess~~continuously monitor our ~~long-lived assets~~asset and ~~equity investments~~investment portfolio for ~~impairment~~impairments in this challenging business environment. ~~Impairments~~We recorded an impairment totaling $198 million in the first quarter of 2021, and additional impairments may be required in the ~~future if there is a further deterioration in our projected cash flows.~~future.

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 included in our commercial ~~agreements 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 nine~~ months ended ~~September 30, 2020,~~March 31, 2021, is based on a comparison with the corresponding ~~periods~~period of ~~2019.~~2020.


		Millions of Dollars						Millions of Dollars
		Three Months Ended September 30			Nine Months Ended September 30				Three Months Ended March 31
		2020		2019		2020	2019				2021		2020
Revenues and Other Income	Revenues and Other Income									Revenues and Other Income
Operating revenues—related parties	Operating revenues—related parties	$	256	262		750	814			Operating revenues—related parties	$	245	258
Operating revenues—third parties	Operating revenues—third parties	9		8		23	21			Operating revenues—third parties	7		9
Equity in earnings of affiliates	Equity in earnings of affiliates	129		139		369	395			Equity in earnings of affiliates	124		136
Gain from equity interest transfer		—		—		84	—
Other income	Other income	—		2		2	5			Other income	—		1
Total revenues and other income	Total revenues and other income	394		411		1,228	1,235			Total revenues and other income	376		404

Costs and Expenses	Costs and Expenses									Costs and Expenses
Operating and maintenance expenses	Operating and maintenance expenses	85		91		257	315			Operating and maintenance expenses	95		88
Depreciation	Depreciation	35		30		96	88			Depreciation	34		30
Impairments										Impairments	198		—
General and administrative expenses	General and administrative expenses	16		16		50	51			General and administrative expenses	17		17
Taxes other than income taxes	Taxes other than income taxes	9		10		30	30			Taxes other than income taxes	10		11
Interest and debt expense	Interest and debt expense	32		26		89	80			Interest and debt expense	33		29
Other expenses	Other expenses	—		—		7	—			Other expenses	—		2
Total costs and expenses	Total costs and expenses	177		173		529	564			Total costs and expenses	387		177
Income before income taxes		217		238		699	671
Income (loss) before income taxes										Income (loss) before income taxes	(11)		227
Income tax expense	Income tax expense	1		1		2	3			Income tax expense	—		1
Net Income		216		237		697	668
Net Income (Loss)										Net Income (Loss)	(11)		226
Less: Net income attributable to noncontrolling interest	Less: Net income attributable to noncontrolling interest	10		—		10	—			Less: Net income attributable to noncontrolling interest	7		—

Net Income Attributable to the Partnership		206		237		687	668
Less: Preferred unitholders’ interest in net income attributable to the Partnership		10		9		29	28
Less: General partner’s interest in net income attributable to the Partnership		—		—		—	140
Limited Partners’ Interest in Net Income Attributable to the Partnership		$	196	228		658	500
Net Income (Loss) Attributable to the Partnership										Net Income (Loss) Attributable to the Partnership	(18)		226
Less: Preferred unitholders’ interest in net income (loss) attributable to the Partnership										Less: Preferred unitholders’ interest in net income (loss) attributable to the Partnership	12		10
Limited Partners’ Interest in Net Income (Loss) Attributable to the Partnership										Limited Partners’ Interest in Net Income (Loss) Attributable to the Partnership	$	(30)	216

Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	$	296	276		785	757			Net Cash Provided by Operating Activities	$	227	274

Adjusted EBITDA	Adjusted EBITDA	$	313	323		903	923			Adjusted EBITDA	$	289	321

Distributable Cash Flow	Distributable Cash Flow	$	243	255		730	735			Distributable Cash Flow	$	233	269

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		Three Months Ended September 30			Nine Months Ended September 30			Three Months Ended March 31
		2020		2019		2020	2019			2021		2020
Wholly Owned Operating Data	Wholly Owned Operating Data								Wholly Owned Operating Data
Pipelines	Pipelines								Pipelines
Pipeline revenues (millions of dollars)	Pipeline revenues (millions of dollars)	$	117	121		325	347		Pipeline revenues (millions of dollars)	$	104	111
Pipeline volumes(1) (thousands of barrels daily)	Pipeline volumes(1) (thousands of barrels daily)								Pipeline volumes(1) (thousands of barrels daily)
Crude oil	Crude oil	867		998		871	986		Crude oil	796		941
Refined petroleum products and NGL	Refined petroleum products and NGL	907		990		866	918		Refined petroleum products and NGL	809		866
Total	Total	1,774		1,988		1,737	1,904		Total	1,605		1,807

Average pipeline revenue per barrel (dollars)	Average pipeline revenue per barrel (dollars)	$	0.71	0.66		0.68	0.67		Average pipeline revenue per barrel (dollars)	$	0.71	0.67

Terminals	Terminals								Terminals
Terminal revenues (millions of dollars)	Terminal revenues (millions of dollars)	$	36	41		112	120		Terminal revenues (millions of dollars)	$	39	43
Terminal throughput (thousands of barrels daily)	Terminal throughput (thousands of barrels daily)								Terminal throughput (thousands of barrels daily)
Crude oil(2)	Crude oil(2)	296		493		378	473		Crude oil(2)	374		460
Refined petroleum products	Refined petroleum products	700		819		713	788		Refined petroleum products	657		748
Total	Total	996		1,312		1,091	1,261		Total	1,031		1,208

Average terminaling revenue per barrel (dollars)	Average terminaling revenue per barrel (dollars)	$	0.39	0.33		0.37	0.34		Average terminaling revenue per barrel (dollars)	$	0.41	0.39

Storage, processing and other revenues (millions of dollars)	Storage, processing and other revenues (millions of dollars)	$	112	108		336	368		Storage, processing and other revenues (millions of dollars)	$	109	113
Total Operating Revenues (millions of dollars)	Total Operating Revenues (millions of dollars)	$	265	270		773	835		Total Operating Revenues (millions of dollars)	$	252	267

Joint Venture Operating Data(3)	Joint Venture Operating Data(3)								Joint Venture Operating Data(3)
Crude oil, refined petroleum products and NGL (thousands of barrels daily)	Crude oil, refined petroleum products and NGL (thousands of barrels daily)	1,142		786		975	749		Crude oil, refined petroleum products and NGL (thousands of barrels daily)	1,052		838

(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.

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The following tables present reconciliations of EBITDA and adjusted EBITDA to net income (loss), 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 September 30			Nine Months Ended September 30				Three Months Ended March 31
		2020		2019		2020	2019				2021		2020
Reconciliation to Net Income Attributable to the Partnership
Net Income Attributable to the Partnership		$	206	237		687	668
Reconciliation to Net Income (Loss) Attributable to the Partnership										Reconciliation to Net Income (Loss) Attributable to the Partnership
Net Income (Loss) Attributable to the Partnership										Net Income (Loss) Attributable to the Partnership	$	(18)	226
Plus:	Plus:									Plus:
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	10		—		10	—			Net income attributable to noncontrolling interest	7		—
Net Income		216		237		697	668
Net Income (Loss)										Net Income (Loss)	(11)		226
Plus:	Plus:									Plus:
Depreciation	Depreciation	35		30		96	88			Depreciation	34		30
Net interest expense	Net interest expense	31		25		88	78			Net interest expense	33		28
Income tax expense	Income tax expense	1		1		2	3			Income tax expense	—		1
EBITDA	EBITDA	283		293		883	837			EBITDA	56		285
Plus:	Plus:									Plus:
Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization		45		30		118	85
Expenses indemnified or prefunded by Phillips 66		1		—		1	1
Proportional share of equity affiliates’ net interest, taxes, depreciation and amortization, and impairments										Proportional share of equity affiliates’ net interest, taxes, depreciation and amortization, and impairments	49		35

Transaction costs associated with acquisitions	Transaction costs associated with acquisitions	—		—		1	—			Transaction costs associated with acquisitions	—		1
Impairments										Impairments	198		—
Less:	Less:									Less:
Gain from equity interest transfer		—		—		84	—
Adjusted EBITDA attributable to noncontrolling interest	Adjusted EBITDA attributable to noncontrolling interest	16		—		16	—			Adjusted EBITDA attributable to noncontrolling interest	14		—
Adjusted EBITDA	Adjusted EBITDA	313		323		903	923			Adjusted EBITDA	289		321
Plus:	Plus:									Plus:
Deferred revenue impacts*†	Deferred revenue impacts*†	(3)		—		4	(4)			Deferred revenue impacts*†	9		2
Less:	Less:									Less:
Equity affiliate distributions less than (more than) proportional EBITDA		4		9		(5)	31
Equity affiliate distributions less than proportional adjusted EBITDA										Equity affiliate distributions less than proportional adjusted EBITDA	14		1
Maintenance capital expenditures†	Maintenance capital expenditures†	21		25		64	46			Maintenance capital expenditures†	6		15
Net interest expense	Net interest expense	31		25		88	78			Net interest expense	33		28
Preferred unit distributions	Preferred unit distributions	10		9		29	28			Preferred unit distributions	12		10
Income taxes paid		1		—		1	1

Distributable Cash Flow	Distributable Cash Flow	$	243	255		730	735			Distributable Cash Flow	$	233	269

*Difference between cash receipts and revenue recognition.

†Excludes Merey Sweeny capital reimbursements and turnaround impacts.

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		Millions of Dollars						Millions of Dollars
		Three Months Ended September 30			Nine Months Ended September 30				Three Months Ended March 31
		2020		2019		2020	2019				2021		2020
Reconciliation to Net Cash Provided by Operating Activities	Reconciliation to Net Cash Provided by Operating Activities									Reconciliation to Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	$	296	276		785	757			Net Cash Provided by Operating Activities	$	227	274
Plus:	Plus:									Plus:
Net interest expense	Net interest expense	31		25		88	78			Net interest expense	33		28
Income tax expense	Income tax expense	1		1		2	3			Income tax expense	—		1
Changes in working capital	Changes in working capital	(45)		(9)		(60)	14			Changes in working capital	(11)		(12)
Undistributed equity earnings	Undistributed equity earnings	—		(4)		(9)	(7)			Undistributed equity earnings	5		(4)
Gain from equity interest transfer		—		—		84	—
Deferred revenues and other liabilities		1		2		3	(6)
Impairments										Impairments	(198)		—

Other	Other	(1)		2		(10)	(2)			Other	—		(2)
EBITDA	EBITDA	283		293		883	837			EBITDA	56		285
Plus:	Plus:									Plus:
Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization		45		30		118	85
Expenses indemnified or prefunded by Phillips 66		1		—		1	1
Proportional share of equity affiliates’ net interest, taxes, depreciation and amortization, and impairments										Proportional share of equity affiliates’ net interest, taxes, depreciation and amortization, and impairments	49		35

Transaction costs associated with acquisitions	Transaction costs associated with acquisitions	—		—		1	—			Transaction costs associated with acquisitions	—		1
Impairments										Impairments	198		—
Less:	Less:									Less:
Gain from equity interest transfer		—		—		84	—
Adjusted EBITDA attributable to noncontrolling interest	Adjusted EBITDA attributable to noncontrolling interest	16		—		16	—			Adjusted EBITDA attributable to noncontrolling interest	14		—

Adjusted EBITDA	Adjusted EBITDA	313		323		903	923			Adjusted EBITDA	289		321
Plus:	Plus:									Plus:
Deferred revenue impacts*†	Deferred revenue impacts*†	(3)		—		4	(4)			Deferred revenue impacts*†	9		2

Less:	Less:									Less:
Equity affiliate distributions less than (more than) proportional EBITDA		4		9		(5)	31
Equity affiliate distributions less than proportional adjusted EBITDA										Equity affiliate distributions less than proportional adjusted EBITDA	14		1
Maintenance capital expenditures†	Maintenance capital expenditures†	21		25		64	46			Maintenance capital expenditures†	6		15
Net interest expense	Net interest expense	31		25		88	78			Net interest expense	33		28
Preferred unit distributions	Preferred unit distributions	10		9		29	28			Preferred unit distributions	12		10
Income taxes paid		1		—		1	1

Distributable Cash Flow	Distributable Cash Flow	$	243	255		730	735			Distributable Cash Flow	$	233	269

*Difference between cash receipts and revenue recognition.

†Excludes Merey Sweeny capital reimbursements and turnaround impacts.

Statement of Income (Loss) Analysis

Operating revenues decreased ~~$62~~$15 million, or 7%6%, in the ~~nine-month period~~first quarter of ~~2020.~~2021. The decrease was primarily attributable to reduced volumes resulting from market demand and the ~~recognition~~effects of ~~deferred revenues related to turnaround activity at Merey Sweeny LLC (Merey Sweeny) in~~winter storms impacting the ~~first quarter of 2019, as well as lower volumes,~~Central and Gulf Coast regions, partially offset by ~~increased rates.~~additional assets placed in operation, including additional storage capacity at the Clemens Caverns in mid-2020.

Equity in earnings of affiliates decreased ~~$10~~$12 million, or ~~7%, and decreased $26 million, or 7%,~~9% in the ~~third~~first quarter ~~and nine-month period~~ of ~~2020, respectively.~~2021. The ~~decreases in both periods were~~decrease was primarily due to ~~decreased~~reduced volumes, partially offset by an increase in equity earnings from Gray Oak Pipeline, LLC, which commenced full operations during the second quarter of ~~2020. See Note 4—Equity Investments,~~2020, and South Texas Gateway Terminal, which commenced partial operations in the ~~Notes to Consolidated Financial Statements, for additional information.~~

~~Table~~third quarter of ~~Contents~~

~~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.2020. See Note 4—Equity Investments, in the Notes to Consolidated Financial Statements, for additional information.

Operating and maintenance expenses ~~decreased $58~~increased $7 million, or ~~18%~~8%, in the ~~nine-month period~~first quarter of ~~2020.~~2021. The ~~decrease~~increase was primarily due to ~~turnaround activity at Merey Sweeny in 2019.~~higher utility costs as a result of winter storms impacting the Central and Gulf Coast regions.

~~Depreciation~~Table of Contents

Impairments ~~increased $5 million, or 17%, and increased $8 million, or 9%,~~reflects the first-quarter 2021 impairment of our investment in Liberty Pipeline LLC. See Note 4—Equity Investments, in the ~~third quarter and nine-month period of 2020, respectively. The increases in both periods were attributable~~Notes to Consolidated Financial Statements, for additional ~~assets placed in operation, including the isomerization unit at the Phillips 66 Lake Charles Refinery and additional storage capacity at Clemens Caverns.~~

~~Interest and debt expense~~ increased $6 million, or 23%, and increased $9 million, or 11%, in the third quarter and nine-month period of 2020, respectively. The increases in both periods were attributable to lower capitalized interest and increased borrowings on our revolving credit facility.information.

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 ~~$785~~$227 million in cash from operations during the first ~~nine~~three months of ~~2020, an improvement~~2021, a decrease of ~~$28~~$47 million compared with the corresponding period of ~~2019.~~2020. The ~~improvement~~decrease was primarily driven by lower operating revenue, higher operating and maintenance expenses, ~~partly offset by~~and lower operating distributions from equity affiliates.

Equity Affiliate ~~Operating~~ Distributions

Our operating and investing cash flows are ~~also~~ impacted by distribution decisions made by our equity affiliates. During the first ~~nine~~three months of ~~2020, cash from operations included~~2021, we received aggregate distributions ~~of $378 million~~ from our equity affiliates of $158 million, compared with ~~$402~~$178 million during the same period of ~~2019.~~2020. We cannot control the amount or timing of future distributions from equity affiliates; therefore, future distributions are not assured.

Revolving Credit Facility

At March 31, 2021, and December 31, 2020, borrowings of $450 million and $415 million were outstanding under our $750 million revolving credit facility, respectively. At both March 31, 2021, and December 31, 2020, $1 million in letters of credit had been issued that were supported by this facility.

Debt Issuance

ATM ~~Programs~~Program

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. We suspended issuances under the ATM program in the first quarter of 2020 due to low common unit prices. We did not issue any common units under the current ATM program during the three months ended September 30, 2020. For the nine months ended September 30, 2020, on a settlement date basis, we issued an aggregate of 40,570 common units, generating net proceeds of $2 million. For the three and nine months ended September 30, 2019, we issued an aggregate of 1,635,669 and 2,470,037 common units, respectively, generating net proceeds of $91 million and $133 million, respectively. Since inception in June 2016 through September 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.March 31, 2021.

~~Revolving Credit Facility~~

~~At September 30, 2020, borrowings of $290 million were outstanding and $3 million in letters of credit had been drawn under our $750 million revolving credit facility.~~

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~~Transfer of Equity Interest~~

Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. 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 second quarter of 2020 and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the sale under GAAP. Accordingly, at June 30, 2020, the co-venturer’s 35% interest in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet, and the premium of $84 million previously paid by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of income. For the nine months ended September 30, 2020, the co-venturer contributed an aggregate of $64 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls. We have an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC, after considering our co-venturer’s 35% interest in the consolidated holding company.

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~~issued $2.5 billion aggregate principal amount of senior unsecured ~~notes, consisting of:~~

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

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

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

In ~~March~~July 2020, the trial court presiding over ~~this~~the litigation ~~ordered the USACE to prepare an Environmental Impact Statement (EIS),~~vacated Dakota Access’ easement under Lake Oahe 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 trial court~~ ordered the Dakota Access Pipeline to be shut down and emptied of crude oil ~~within 30 days, and that the pipeline should remain shut down~~ pending the preparation of ~~the EIS~~an Environmental Impact Statement (EIS) by the USACE, which had been ordered by the court in March 2020 and is now expected to be completed by March 2022. In August 2020, pending an appeal of the trial court’s decisions, an appellate court denied Dakota Access’ motion to stay the order vacating the easement, but granted its motion to stay the order that the pipeline be shut down while the EIS is prepared. In January 2021, the appellate court affirmed the trial court’s order vacating the easement and directing the USACE ~~has indicated is expected~~ to take approximately 13 months. Dakota Access filed an appeal and a request for a stay of the order, which was granted. The case is now on an expedited appellate track and oral arguments regarding whether the pipeline easement is valid and whether the USACE must prepare an EIS ~~are set for early November 2020, with a decision expected in late 2020 or early 2021. In addition~~and reversed the order directing the pipeline to be shut down. Notwithstanding that the ~~proceedings in the appellate court, the trial court~~easement has been ~~asked~~vacated, in April 2021, the USACE indicated that it currently intends to ~~issue an~~allow the pipeline to continue to operate while it proceeds with the EIS. Currently, there is a motion for a permanent injunction to shut down the pipeline ~~until~~before the ~~USACE completes the EIS, which~~trial court that could be ~~ruled on as early as late December 2020.~~ decided at any time. Additionally, Dakota Access has requested the appellate court to stay its January 2021 decision pending a filing and disposition of a petition for writ of certiorari to the U.S. Supreme Court.

If the pipeline is required to cease operations, either permanently or pending the preparation of the EIS, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we also could be ~~asked~~required to support our share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually, in addition to the potential obligations under the CECU. If we are required to perform under the CECU, we would expect to fund such performance with cash, capacity available under our revolving credit facility, third-party debt financing, and/or sponsor loans from Phillips 66.

~~Table of Contents~~

~~Gray Oak Pipeline, LLC~~

Gray Oak Pipeline, LLC had a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Borrowings under the facility were 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. In September 2020, Gray Oak Pipeline, LLC fully repaid the outstanding balance of the term loan facility and the associated guarantee we issued through an equity contribution agreement was terminated.

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 operating and capital 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
Nine Months Ended
September 30
2020 2019
Capital Expenditures and Investments
Capital expenditures and investments $ 795 907
Capital expenditures and investments funded by certain joint venture partners* (64) (422)
Adjusted Capital Spending $ 731 485
Expansion $ 667 433
Maintenance 64 52

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

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Our capital expenditures and investments were:


	Millions of Dollars
	Three Months Ended March 31
	2021		2020
Capital Expenditures and Investments
Capital expenditures and investments	$	58	234
Capital expenditures and investments funded by certain joint venture partners	—		(23)
Adjusted Capital Spending	$	58	211

Expansion	$	52	196
Maintenance	6		15

Our capital expenditures and investments for the first ~~nine~~three months of ~~2020~~2021 were primarily associated with the following activities:

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

•~~Contributions to Liberty Pipeline LLC for its previous commitments related to the development and construction of the crude oil pipeline system.~~

•Construction activities related to the C2G Pipeline, a new 16-inch ethane pipeline ~~from the~~that connects our Clemens Caverns storage facility to petrochemical facilities in Gregory, Texas, near ~~Corpus Christi.~~

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

•~~Completion of construction activities related~~Contributions to ~~increasing capacity on~~complete the ~~Sweeny to Pasadena refined petroleum products pipeline.~~

•~~Completion of construction activities related to increasing storage capacity at Clemens Caverns.~~South Texas Gateway Terminal development activities.

•Spending associated with other return, reliability and maintenance projects.

~~2021 Capital Budget~~

~~We currently expect our 2021 capital budget to be approximately $300 million.~~

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 million of distributions attributable to the third quarter of 2020. This distribution is payable on November 13, 2020, to preferred unitholders of record as of October 30, 2020.2021.

Beginning with the distribution to preferred unitholders attributable to the fourth quarter of 2020, the preferred unitholders are entitled to receive acumulative quarterly ~~distribution~~distributions equal to the greater of $0.678375 per unit, or the per-unit distribution amount paid to the common unitholders. Preferred unitholders will receive $12 million of distributions attributable to the first quarter of 2021. This distribution is payable May 14, 2021, to preferred unitholders of record as of April 30, 2021.

Debt Repayment

On April 1, ~~2020,~~2021, we repaid the two remaining $25 million ~~tranche~~tranches of tax-exempt bonds due April ~~2020. The two remaining tranches,~~2021, totaling $50 ~~million, mature in April 2021.~~million.

Contingencies

uncertain.

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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 ~~September 30, 2020,~~March 31, 2021, and December 31, ~~2019,~~2020, 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.

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

Indemnification and Excluded Liabilities

Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize 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, 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 or our equity affiliates transport, fractionate, process, terminal and store.~~

•~~Changes to the tariff rates with respect to volumes transported through 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.~~

•~~The~~ continuing effects of the COVID-19 pandemic and its negative impact on the demand for crude oil and refined petroleum products, as well as the extent and duration of recovery of economies and the demand for crude oil and refined petroleum products after the pandemic subsides.

•~~Actions~~Reductions in the volume of crude oil, refined petroleum products and NGL we or our equity affiliates transport, fractionate, process, terminal and store.

•The continued ability of Phillips 66 to satisfy its obligations under our commercial and other agreements.

•Fluctuations in the prices and demand for crude oil, refined petroleum products and NGL, including as a result of actions taken by OPEC and other countries impacting supply and demand and, correspondingly, commodity prices.

•Changes in governmental policies relating to crude oil, refined petroleum products or NGL pricing, regulation, taxation, or exports.

•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 (including as a result of climate change) disruption or natural disasters; riots, strikes, lockouts or other industrial disturbances.

•~~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 equity affiliates, suppliers or customers.

•Our, and our equity affiliates’, inability to obtain or maintain permits, in a timely manner, or at all, and the possibility of the revocation or modification of such permits.

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

•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, cost overruns associated with such projects, and the ability to obtain or maintain permits necessary for 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.

•Failure of information technology systems due to various causes, including unauthorized access or attack.

•Changes to the tariff rates with respect to volumes transported through 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.

•Costs associated with compliance with evolving environmental laws and regulations on climate change.

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•Costs associated with compliance with safety regulations, including pipeline integrity management program testing and related repairs.

~~Table of Contents~~

•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, social unrest, insurrections, and other political, economic or diplomatic developments, including those caused by public health issues and outbreaks of diseases and pandemics.

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

•Our ability to comply with the terms of our credit facility, indebtedness and other financing arrangements, which, if accelerated, we may not be able to repay.

•Our ability to incur additional indebtedness or our ability to obtain financing on terms that we deem acceptable, including the refinancing of our current obligations; higher interest rates and costs of financing would increase our expenses.

•Changes in tax, environmental and other laws and regulations.

•The factors generally described in Item 1A. Risk Factors in our ~~2019~~2020 Annual Report on Form ~~10-K and in Item 1A.— Risk Factors of Part II in this Quarterly Report on Form 10-Q.~~10-K.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our commodity price risk and interest rate risk at ~~September 30, 2020,~~March 31, 2021, did not differ materially from that disclosed under Item 7A of our ~~2019~~2020 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 ~~September 30, 2020,~~March 31, 2021, 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 ~~September 30, 2020.~~March 31, 2021.

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 ~~September 30, 2020,~~March 31, 2021, 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.

In this section, we identify 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

~~Except as provided below, there~~There were no material changes from the risk factors disclosed in Item 1A of our ~~2019~~2020 Annual Report on Form 10-K.

The Coronavirus Disease 2019 (COVID-19) pandemic 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 flow. The impacts of COVID-19 also may have materially adverse effects on our equity affiliates as well as our customers, suppliers and other counterparties.

The COVID-19 pandemic has had, and is continuing to have, a negative impact on 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 equity affiliates, as well as 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 equity affiliates, as well as our customers, including Phillips 66, suppliers or counterparties, 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

~~Exhibit~~

~~Number~~

~~Exhibit Description~~

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).~~

Incorporated by Reference

Exhibit

Number

Exhibit Description

Form

Exhibit Number

Filing Date

SEC File No.

10.1

Credit Agreement, dated as of April 6, 2021, by and among Phillips 66 Partners LP, Phillips 66 Partners Holdings LLC, the lenders party thereto, The Bank of Nova Scotia, Houston Branch, as administrative agent, and The Bank of Nova Scotia, BofA Securities, Inc. and Sumitomo Mitsui Banking Corporation as joint lead arrangers and joint bookrunners.

8-K

10.1

4/12/2021

001-36011

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

			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: ~~October~~April 30, ~~2020~~2021

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			Page
Part I – Financial Information			1

Item 1. Financial Statements			1
Consolidated Statement of Income (Loss)			1
Consolidated Statement of Comprehensive Income (Loss)			2
Consolidated Balance Sheet			3
Consolidated Statement of Cash Flows			4
Consolidated Statement of Changes in Equity			5
Notes to Consolidated Financial Statements			76

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2119

Item 3. Quantitative and Qualitative Disclosures About Market Risk			3633

Item 4. Controls and Procedures			3633

Part II – Other Information			3734

Item 1. Legal Proceedings			3734

Item 1A. Risk Factors			3734

Item 6. Exhibits			3835

Signatures			3936