What changed in this filing

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Item 1. Financial Statements

2021-10-29 compared with 2021-08-03 · 148 added, 103 removed, 700 unchanged (26% of the section changed)

3 unchanged sentences

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

17 unchanged sentences

Income (loss) before income taxes 448 ( 1,350 ) 113 ( 4,273 )

Income tax expense (benefit) 62 ( 378 ) ( 70 ) ( 429 )

Income tax benefit ( 40 ) ( 624 ) ( 110 ) ( 1,053 )

Net Income (Loss) 488 ( 726 ) 223 ( 3,220 )

2 unchanged sentences

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

$ 0.66 ( 0.33 ) ( 0.83 ) ( 6.00 )

0.66 ( 0.33 ) ( 0.83 ) ( 6.00 )

Basic $ 0.91 ( 1.82 ) 0.08 ( 7.83 )

Diluted 0.91 ( 1.82 ) 0.08 ( 7.83 )

Weighted-Average Common Shares Outstanding (thousands)

5 unchanged sentences

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

63 unchanged sentences

Millions of Dollars

Six Months Ended

Nine Months Ended

Cash Flows From Operating Activities

Net loss $ ( 265 ) ( 2,494 )

Adjustments to reconcile net loss to net cash provided by operating activities

Net income (loss) $ 223 ( 3,220 )

Adjustments to reconcile net income (loss) to net cash provided by operating

Depreciation and amortization 1,081 1,037

4 unchanged sentences

Net gain on dispositions ( 5 ) ( 87 )

Unrealized investment gain ( 224 ) —

Working capital adjustments

30 unchanged sentences

Millions of Dollars

Three Months Ended June 30

Three Months Ended September 30

Attributable to Phillips 66

1 unchanged sentence

Other Comprehensive Loss Noncontrolling Interests Total

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

June 30, 2021 $ 6 20,463 ( 17,116 ) 15,345 ( 549 ) 2,453 20,602

Net income — — — 402 — 86 488

Other comprehensive income — — — — 231 — 231

Other comprehensive loss — — — — ( 40 ) — ( 40 )

Dividends paid on common stock ($ 0.90 per share)

3 unchanged sentences

— — — — — ( 81 ) ( 81 )

Repurchase of noncontrolling interests — — — ( 2 ) — ( 21 ) ( 23 )

September 30, 2021 $ 6 20,488 ( 17,116 ) 15,350 ( 589 ) 2,458 20,597

June 30, 2020 $ 6 20,342 ( 17,116 ) 18,631 ( 1,148 ) 2,580 23,295

March 31, 2020 $ 6 20,305 ( 17,116 ) 19,168 ( 991 ) 2,267 23,639

Net income (loss) — — — ( 799 ) — 73 ( 726 )

Other comprehensive loss — — — — ( 157 ) — ( 157 )

Other comprehensive income — — — — 181 — 181

Dividends paid on common stock ($ 0.90 per share)

1 unchanged sentence

Benefit plan activity — 21 — ( 3 ) — — 18

Transfer of equity interest — — — — — 305 305

Distributions to noncontrolling interests — — — — — ( 66 ) ( 66 )

June 30, 2020 $ 6 20,342 ( 17,116 ) 18,631 ( 1,148 ) 2,580 23,295

Three Months Ended June 30

Net distributions to noncontrolling interests — — — — — ( 70 ) ( 70 )

September 30, 2020 $ 6 20,363 ( 17,116 ) 17,436 ( 967 ) 2,583 22,305

Three Months Ended September 30

Common Stock Issued Treasury Stock

March 31, 2021 649,638,881 211,771,827

June 30, 2021 649,761,235 211,771,827

Repurchase of common stock — —

Shares issued—share-based compensation 110,865 —

September 30, 2021 649,872,100 211,771,827

June 30, 2020 648,468,487 211,771,827

March 31, 2020 648,446,534 211,771,827

Repurchase of common stock — —

Shares issued—share-based compensation 103,525 —

June 30, 2020 648,468,487 211,771,827

September 30, 2020 648,572,012 211,771,827

See Notes to Consolidated Financial Statements.

1 unchanged sentence

Millions of Dollars

Six Months Ended June 30

Nine Months Ended September 30

Attributable to Phillips 66

2 unchanged sentences

December 31, 2020 $ 6 20,383 ( 17,116 ) 16,500 ( 789 ) 2,539 21,523

Net income (loss) — — — ( 358 ) — 93 ( 265 )

Net income — — — 44 — 179 223

Other comprehensive income — — — — 200 — 200

4 unchanged sentences

Repurchase of noncontrolling interests — — — ( 2 ) — ( 21 ) ( 23 )

June 30, 2021 $ 6 20,463 ( 17,116 ) 15,345 ( 549 ) 2,453 20,602

September 30, 2021 $ 6 20,488 ( 17,116 ) 15,350 ( 589 ) 2,458 20,597

December 31, 2019 $ 6 20,301 ( 16,673 ) 22,064 ( 788 ) 2,259 27,169

6 unchanged sentences

Transfer of equity interest — — — — — 305 305

Distributions to noncontrolling interests — — — — — ( 127 ) ( 127 )

Net distributions to noncontrolling interests — — — — — ( 197 ) ( 197 )

Other — — — ( 2 ) 5 — 3

June 30, 2020 $ 6 20,342 ( 17,116 ) 18,631 ( 1,148 ) 2,580 23,295

Six Months Ended June 30

September 30, 2020 $ 6 20,363 ( 17,116 ) 17,436 ( 967 ) 2,583 22,305

Nine Months Ended September 30

Common Stock Issued Treasury Stock

2 unchanged sentences

Shares issued—share-based compensation 1,228,877 —

June 30, 2021 649,761,235 211,771,827

September 30, 2021 649,872,100 211,771,827

December 31, 2019 647,416,633 206,390,806

1 unchanged sentence

Shares issued—share-based compensation 1,155,379 —

June 30, 2020 648,468,487 211,771,827

September 30, 2020 648,572,012 211,771,827

See Notes to Consolidated Financial Statements.

5 unchanged sentences

Therefore, these interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2020 Annual Report on Form 10-K.

The results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of the results expected for the full year.

The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results expected for the full year.

Note 2— Sales and Other Operating Revenues

3 unchanged sentences

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

18 unchanged sentences

Contract-Related Assets and Liabilities

At June 30, 2021, and December 31, 2020, receivables from contracts with customers were $ 5,948 million and $ 3,911 million, respectively.

At September 30, 2021, and December 31, 2020, receivables from contracts with customers were $ 6,341 million and $ 3,911 million, respectively.

Significant noncustomer balances, such as buy/sell receivables and excise tax receivables, were excluded from these amounts.

1 unchanged sentence

An incentive payment is initially recognized as an asset and subsequently amortized as a reduction to revenue over the contract term, which generally ranges from 5 to 15 years.

At June 30, 2021, and December 31, 2020, our asset balances related to such payments were $ 426 million and $ 404 million, respectively.

At September 30, 2021, and December 31, 2020, our asset balances related to such payments were $ 435 million and $ 404 million, respectively.

Our contract liabilities represent advances from our customers prior to product or service delivery.

At June 30, 2021, and December 31, 2020, contract liabilities were immaterial.

At September 30, 2021, and December 31, 2020, contract liabilities were immaterial.

Remaining Performance Obligations

2 unchanged sentences

We also have certain contracts in our Midstream segment that include minimum volume commitments with fixed pricing.

At June 30, 2021, the remaining performance obligations related to these minimum volume commitment contracts were immaterial.

At September 30, 2021, the remaining performance obligations related to these minimum volume commitment contracts were immaterial.

Note 3— Credit Losses

10 unchanged sentences

In response, we have enhanced our credit monitoring, sought collateral to support some transactions, and required prepayments from higher-risk counterparties.

At June 30, 2021, and December 31, 2020, we reported $ 8,062 million and $ 6,522 million of accounts and notes receivable, net of allowances of $ 46 million and $ 37 million, respectively.

Based on an aging analysis at June 30, 2021, more than 95 % of our accounts receivable were outstanding less than 60 days.

At September 30, 2021, and December 31, 2020, we reported $ 8,006 million and $ 6,522 million of accounts and notes receivable, net of allowances of $ 36 million and $ 37 million, respectively.

Based on an aging analysis at September 30, 2021, more than 95 % of our accounts receivable were outstanding less than 60 days.

We are also exposed to credit losses from off-balance sheet exposures, such as guarantees of joint venture debt and standby letters of credit.

7 unchanged sentences

$ 4,400 3,893

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 4,170 million and $ 3,368 million at June 30, 2021, and December 31, 2020, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 5.8 billion and $ 2.7 billion at June 30, 2021, and December 31, 2020, respectively.

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 3,828 million and $ 3,368 million at September 30, 2021, and December 31, 2020, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 6.1 billion and $ 2.7 billion at September 30, 2021, and December 31, 2020, respectively.

Certain planned reductions in inventory that are not expected to be replaced by the end of the year cause liquidations of LIFO inventory values.

LIFO inventory liquidations decreased our net income by $ 54 million in the second quarter of 2021, and increased our net loss by $ 82 million in the first six months of 2021.

LIFO inventory liquidations decreased our net income by $ 17 million and $ 99 million in the three and nine months ended September 30, 2021, respectively.

The impact was immaterial for the corresponding periods of 2020.

4 unchanged sentences

Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) relating to an easement under Lake Oahe in North Dakota and later vacated the easement.

Although the easement has been vacated, the USACE has indicated that it will not take action to stop pipeline operations while it proceeds with the EIS, which is expected to be completed in 2022.

Although the easement has been vacated, the USACE has indicated that it will not take action to stop pipeline operations while it proceeds with the EIS, which is expected to be completed in the second half of 2022.

In May 2021, the court denied a request for an injunction to shut down the pipeline while the EIS is being prepared and in June 2021, dismissed the litigation.

It is possible that the litigation could be reopened or new litigation challenging the EIS, once completed, could be filed.

In September 2021, Dakota Access filed a writ of certiorari, requesting the U.S.

Supreme Court to review the lower court’s judgment that ordered the EIS and vacated the easement.

Dakota Access and ETCO have guaranteed repayment of $ 2.5 billion aggregate principal amount of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access.

1 unchanged sentence

Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access in certain circumstances relating to the litigation described above.

At June 30, 2021, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU was approximately $ 631 million.

At September 30, 2021, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU was approximately $ 631 million.

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

At June 30, 2021, the aggregate book value of Phillips 66 Partners’ investments in Dakota Access and ETCO was $ 577 million.

At September 30, 2021, the aggregate book value of Phillips 66 Partners’ investments in Dakota Access and ETCO was $ 579 million.

CF United LLC (CF United)

4 unchanged sentences

We have determined that we are not the primary beneficiary because we and our co-venturer jointly direct the activities of CF United that most significantly impact economic performance.

At June 30, 2021, our maximum exposure to loss was comprised of our $ 267 million investment in CF United, and any potential future loss resulting from the put option should the purchase price based on a fixed multiple exceed the then-current fair value of CF United.

At September 30, 2021, our maximum exposure to loss was comprised of our $ 271 million investment in CF United, and any potential future loss resulting from the put option should the purchase price based on a fixed multiple exceed the then-current fair value of CF United.

OnCue Holdings, LLC (OnCue)

3 unchanged sentences

We have determined we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact economic performance.

At June 30, 2021, our maximum exposure to loss was $ 184 million, which represented the book value of our investment in OnCue of $ 106 million and guaranteed debt obligations of $ 78 million.

At September 30, 2021, our maximum exposure to loss was $ 183 million, which represented the book value of our investment in OnCue of $ 113 million and guaranteed debt obligations of $ 70 million.

Liberty Pipeline LLC (Liberty)

In the first quarter of 2021, Phillips 66 Partners’ decision to exit the Liberty Pipeline project resulted in a $ 198 million before-tax impairment of its investment in Liberty.

The impairment is included in the “Impairments” line item on our consolidated statement of operations for the six months ended June 30, 2021.

The impairment is included in the “Impairments” line item on our consolidated statement of operations for the nine months ended September 30, 2021.

See Note 7—Impairments, and Note 13—Fair Value Measurements, for additional information regarding the impairment and the techniques used to determine the fair value of Phillips 66 Partners’ investment in Liberty.

In April 2021, Phillips 66 Partners transferred its ownership interest in Liberty to its co-venturer for cash and certain pipeline assets with a value that approximated its book value of $ 46 million at March 31, 2021.

Other Investments

In September 2021, we acquired 78 million ordinary shares in NOVONIX Limited (NOVONIX), representing a 16 % ownership interest, for $ 150 million.

NOVONIX is a Brisbane, Australia-based company listed on the Australian Securities Exchange that develops and supplies materials for lithium-ion batteries.

Since we do not have significant influence over the operating and financial policies of NOVONIX and the shares we own have a readily determinable fair value, our investment is recorded at fair value at the end of each reporting period.

The fair value of our investment is recorded in the “Investments and long-term receivables” line item on our consolidated balance sheet, and the change in the fair value of our investment, or unrealized gain (loss), is recorded in the “Other income” line item on our consolidated statement of operations.

The fair value of our investment in NOVONIX was $ 374 million at September 30, 2021, and the unrealized investment gain was $ 224 million for the three and nine months ended September 30, 2021.

See Note 13—Fair Value Measurements, for additional information regarding the recurring fair value measurement of our investment in NOVONIX.

Related Party Loans

We and our co-venturer provided member loans to WRB Refining LP (WRB).

At June 30, 2021, our 50 % share of the outstanding member loan balance, including accrued interest, was $ 525 million.

At September 30, 2021, our 50 % share of the outstanding member loan balance, including accrued interest, was $ 593 million.

Note 6— Properties, Plants and Equipment

2 unchanged sentences

Millions of Dollars

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Midstream $ 12,435 2,975 9,460 12,313 2,815 9,498

4 unchanged sentences

$ 41,139 18,762 22,377 40,223 16,507 23,716

See Note 7—Impairments, for information regarding a PP&E impairment associated with our Alliance Refinery asset group.

Note 7— Impairments

1 unchanged sentence

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

1 unchanged sentence

Refining 1,288 911 1,288 2,756

Corporate and Other — 25 — 25

Total impairments $ 1,298 1,140 1,496 4,146

2 unchanged sentences

As a result, Phillips 66 Partners recorded a $ 198 million before-tax impairment to reduce the book value of its investment in Liberty at March 31, 2021, to estimated fair value.

Red Oak Pipeline LLC (Red Oak)

In the third quarter of 2020, the Red Oak Pipeline project was canceled.

As a result, we recorded an $ 84 million before-tax impairment to reduce the carrying value of our investment to our share of the estimated salvage value of the joint venture’s assets at September 30, 2020.

DCP Midstream, LLC (DCP Midstream)

2 unchanged sentences

We concluded this difference was not temporary primarily due to its magnitude, and we recorded a $ 1,161 million before-tax impairment of our investment in the first quarter of 2020.

PP&E and Intangible Assets

Alliance Refinery

In the third quarter of 2021, we identified impairment indicators related to our Alliance Refinery as a result of damages sustained from Hurricane Ida and our reassessment of the role this refinery will play in our refining portfolio.

Accordingly, we assessed the refinery asset group for impairment by performing an analysis that considered several usage scenarios, including selling or converting the asset group to an alternative use.

Based on our analysis, we concluded that the carrying value of the asset group was not recoverable.

As a result, we recorded a $ 1,298 million before-tax impairment to reduce the carrying value of net PP&E in this asset group to its fair value of approximately $ 200 million.

$ 1,288 million of the impairment charge was recorded in our Refining segment and $ 10 million was recorded in our Midstream segment.

San Francisco Refinery

In the third quarter of 2020, we announced a plan to reconfigure our San Francisco Refinery to produce renewable fuels at the Rodeo refining facility in Rodeo, California.

We assessed the San Francisco Refinery asset group for impairment and concluded that the carrying value of the asset group was not recoverable.

As a result, we recorded a $ 1,030 million before-tax impairment to reduce the carrying value of the net PP&E and intangible assets in this asset group to its fair value of $ 940 million.

The impairment resulted in a reduction of net PP&E totaling $ 1,009 million and intangible assets of $ 21 million.

This impairment was primarily related to our Refining segment, with the exception of $ 120 million that was related to PP&E in our Midstream segment.

Our stock price declined significantly in the first quarter of 2020, mainly due to the disruption in global commodity and equity markets related to the COVID-19 pandemic.

5 unchanged sentences

Reduced demand for refined petroleum products resulted in low refining margins and decreased volumes through refineries and logistics infrastructure in 2020.

Since the beginning of 2021, demand for refined petroleum products has started to recover following the administration of COVID-19 vaccines and the easing of pandemic restrictions.

Global refined product demand has been steadily recovering through 2021 due to the easing of pandemic restrictions and the administration of COVID-19 vaccines.

Consequently, refining margins have improved, as has volume throughput.

However, refining profitability remains challenged.

The depth and duration of the economic consequences of the COVID-19 pandemic remain uncertain and we continue to monitor our asset and investment portfolio.

7 unchanged sentences

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

12 unchanged sentences

$ 0.91 0.91 ( 1.82 ) ( 1.82 ) 0.08 0.08 ( 7.83 ) ( 7.83 )

2021 Activities

Debt Issuances and Repayments

At June 30, 2021, borrowings of $ 15 million were outstanding and $ 1 million in letters of credit had been drawn under Phillips 66 Partners’ $ 750 million revolving credit facility, compared with outstanding borrowings of $ 415 million and $ 1 million in letters of credit drawn under the facility at December 31, 2020.

In September 2021, Phillips 66 repaid the $ 500 million of outstanding borrowings under the delayed draw term loan facility due November 2023 described below under “Term Loan Facility.”

In April 2021, Phillips 66 Partners entered into a $ 450 million term loan agreement and borrowed the full amount.

3 unchanged sentences

In April 2021, Phillips 66 Partners repaid $ 50 million of its tax-exempt bonds upon maturity.

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

2020 Debt Issuances and Repayments

In February 2021, Phillips 66 repaid $ 500 million outstanding principal balance of its floating-rate senior notes upon maturity.

At September 30, 2021, no borrowings were outstanding and $ 1 million in letters of credit had been drawn under Phillips 66 Partners’ $ 750 million revolving credit facility, compared with outstanding borrowings of $ 415 million and $ 1 million in letters of credit drawn under the facility at December 31, 2020.

Debt Classification

At September 30, 2021, $ 1 billion of Phillips 66’s debt due within a year was classified as long-term debt based on its intent and ability to refinance the obligation with long-term debt.

2020 Activities

Senior Unsecured Notes

23 unchanged sentences

Note 10— Guarantees

At June 30, 2021, we were liable for certain contingent obligations under various contractual arrangements as described below.

At September 30, 2021, we were liable for certain contingent obligations under various contractual arrangements as described below.

We recognize a liability for the fair value of our obligation as a guarantor for newly issued or modified guarantees.

3 unchanged sentences

Under the operating lease agreement for our headquarters facility in Houston, Texas, we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale.

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $ 514 million at June 30, 2021.

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $ 514 million at September 30, 2021.

We also have residual value guarantees associated with railcar and airplane leases with maximum potential future exposures totaling $ 209 million.

These leases have remaining terms of up to nine years .

Guarantees of Joint Venture and Other Obligations

These leases have remaining terms of up to ten years .

Guarantees of Joint Venture Obligations

In March 2019, Phillips 66 Partners and its co-venturers in Dakota Access provided a CECU in conjunction with a senior unsecured notes offering.

See Note 5—Investments, Loans and Long-Term Receivables, for additional information on Dakota Access and the CECU.

At June 30, 2021, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to seven years .

At September 30, 2021, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to four years .

The maximum potential future exposures under these guarantees were approximately $ 122 million.

5 unchanged sentences

The majority of these indemnifications are related to environmental issues, which generally have indefinite terms and potentially unlimited exposure.

At June 30, 2021, and December 31, 2020, the carrying amount of recorded indemnifications was $ 149 million and $ 145 million, respectively.

At September 30, 2021, and December 31, 2020, the carrying amount of recorded indemnifications was $ 146 million and $ 145 million, respectively.

We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity.

1 unchanged sentence

Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments.

At June 30, 2021, and December 31, 2020, environmental accruals for known contamination of $ 108 million and $ 104 million, respectively, were included in the carrying amount of the recorded indemnifications noted above.

At September 30, 2021, and December 31, 2020, environmental accruals for known contamination of $ 108 million and $ 104 million, respectively, were included in the carrying amount of the recorded indemnifications noted above.

These environmental accruals were primarily included in the “Asset retirement obligations and accrued environmental costs” line item on our consolidated balance sheet.

36 unchanged sentences

After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those pertaining to sites acquired in a business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated.

At June 30, 2021, our total environmental accruals were $ 455 million, compared with $ 427 million at December 31, 2020.

At September 30, 2021, our total environmental accruals were $ 453 million, compared with $ 427 million at December 31, 2020.

We expect to incur a substantial amount of these expenditures within the next 30 years.

8 unchanged sentences

Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized.

At June 30, 2021, we had performance obligations secured by letters of credit and bank guarantees of $ 883 million related to various purchase and other commitments incident to the ordinary conduct of business.

At September 30, 2021, we had performance obligations secured by letters of credit and bank guarantees of $ 740 million related to various purchase and other commitments incident to the ordinary conduct of business.

Note 12— Derivatives and Financial Instruments

16 unchanged sentences

Millions of Dollars

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Commodity Derivatives Effect of Collateral Netting Net Carrying Value Presented on the Balance Sheet Commodity Derivatives Effect of Collateral Netting Net Carrying Value Presented on the Balance Sheet

5 unchanged sentences

Total $ 2,047 ( 2,207 ) 141 ( 19 ) 683 ( 725 ) 46 4

At June 30, 2021, and December 31, 2020, there was no material cash collateral received or paid that was not offset on our consolidated balance sheet.

At September 30, 2021, and December 31, 2020, there was no material cash collateral received or paid that was not offset on our consolidated balance sheet.

The realized and unrealized gains (losses) incurred from commodity derivatives, and the line items where they appear on our consolidated statement of operations, were:

1 unchanged sentence

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

7 unchanged sentences

Financial derivative contracts may also offset physical derivative contracts, such as forward purchase and sales contracts.

The percentage of our derivative contract volumes expiring within the next 12 months was more than 95 % at June 30, 2021, and December 31, 2020.

The percentage of our derivative contract volumes expiring within the next 12 months was more than 95 % at September 30, 2021, and December 31, 2020.

Open Position

8 unchanged sentences

We reported the mark-to-market gains or losses on our interest rate swaps designated as highly effective cash flow hedges as a component of other comprehensive income (loss), and reclassified such gains and losses into earnings (loss) in the same period during which the hedged transaction affected earnings (loss).

Net realized gains and losses from settlements of the swaps were immaterial for the three and six months ended June 30, 2021 and 2020.

Net realized gains and losses from settlements of the swaps were immaterial for the three and nine months ended September 30, 2021 and 2020.

Credit Risk from Derivative Instruments

7 unchanged sentences

however, many contracts also permit us to post letters of credit as collateral.

The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at June 30, 2021, and December 31, 2020.

The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at September 30, 2021, and December 31, 2020.

Note 13— Fair Value Measurements

26 unchanged sentences

• Rabbi trust assets —These deferred compensation investments are measured at fair value using unadjusted quoted prices available from national securities exchanges and are therefore categorized as Level 1 in the fair value hierarchy.

• Investment in NOVONIX —Our investment in NOVONIX is measured at fair value using unadjusted quoted prices available from Australian Securities Exchange and is therefore categorized as Level 1 in the fair value hierarchy.

• Debt —The carrying amount of our floating-rate debt approximates fair value.

6 unchanged sentences

Millions of Dollars

June 30, 2021

September 30, 2021

Fair Value Hierarchy Total Fair Value of Gross Assets & Liabilities Effect of Counterparty Netting Effect of Collateral Netting Difference in Carrying Value and Fair Value Net Carrying Value Presented on the Balance Sheet

4 unchanged sentences

Rabbi trust assets 152 — — 152 N/A N/A — 152

Investment in NOVONIX 374 — — 374 N/A N/A — 374

$ 1,619 954 — 2,573 ( 2,001 ) ( 4 ) — 568

3 unchanged sentences

Floating-rate debt — 925 — 925 N/A N/A — 925

Fixed-rate debt, excluding finance leases

— 15,546 — 15,546 N/A N/A ( 1,870 ) 13,676

Fixed-rate debt, excluding finance leases — 15,416 — 15,416 N/A N/A ( 1,736 ) 13,680

$ 1,227 17,321 — 18,548 ( 2,001 ) ( 145 ) ( 1,736 ) 14,666

16 unchanged sentences

$ 351 17,914 — 18,265 ( 669 ) ( 46 ) ( 1,927 ) 15,623

The rabbi trust assets are recorded in the “Investments and long-term receivables” line item, and floating-rate and fixed-rate debt are recorded in the “Short-term debt” and “Long-term debt” line items on our consolidated balance sheet.

The rabbi trust assets and investment in NOVONIX are recorded in the “Investments and long-term receivables” line item, and floating-rate and fixed-rate debt are recorded in the “Short-term debt” and “Long-term debt” line items on our consolidated balance sheet.

See Note 12—Derivatives and Financial Instruments, for information regarding where the assets and liabilities related to our commodity derivatives are recorded on our consolidated balance sheet.

6 unchanged sentences

This valuation resulted in a Level 2 nonrecurring fair value measurement.

PP&E and Intangible Assets

In the third quarter of 2021, we remeasured the carrying value of the net PP&E of our Alliance Refinery asset group to fair value.

The fair value of PP&E was determined using a combination of the income, cost and sales comparison approaches.

The income approach used a discounted cash flow model that requires various observable and non-observable inputs, such as commodity prices, margins, operating rates, sales volumes, operating expenses, capital expenditures, terminal-year values and a risk-adjusted discount rate.

The cost approach used assumptions for the current replacement costs of similar plant and equipment assets adjusted for estimated physical deterioration, functional obsolescence and economic obsolescence.

The sales comparison approach used the value of similar properties recently sold or currently offered for sale.

This valuation resulted in a Level 3 nonrecurring fair value measurement.

In the third quarter of 2020, we remeasured the carrying value of the net PP&E and intangible assets of our San Francisco Refinery asset group to fair value.

The estimated fair value of the plants, equipment and intangible assets was determined using a replacement cost approach adjusted, as applicable, for physical deterioration, functional obsolescence and economic obsolescence.

The estimated fair value of the properties was determined using a sales comparison approach.

This valuation resulted in a Level 3 nonrecurring fair value measurement.

The carrying value of the Refining reporting unit’s goodwill was remeasured to fair value on a nonrecurring basis in the first quarter of 2020.

8 unchanged sentences

Note 14— Pension and Postretirement Plans

The components of net periodic benefit cost for the three and six months ended June 30, 2021 and 2020, were as follows:

The components of net periodic benefit cost for the three and nine months ended September 30, 2021 and 2020, were as follows:

Millions of Dollars

2 unchanged sentences

Components of Net Periodic Benefit Cost

Three Months Ended June 30

Three Months Ended September 30

Service cost $ 37 9 35 7 1 1

1 unchanged sentence

Expected return on plan assets ( 39 ) ( 15 ) ( 38 ) ( 12 ) — —

Recognized net actuarial loss (gain) 14 6 15 4 ( 1 ) —

Amortization of prior service credit — — — — ( 1 ) ( 1 )

Recognized net actuarial loss 8 7 21 4 — —

Settlements 18 — 17 — — —

Net periodic benefit cost* $ 44 6 56 4 2 2

Six Months Ended June 30

Nine Months Ended September 30

Service cost $ 111 26 102 21 4 4

6 unchanged sentences

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

During the six months ended June 30, 2021, we contributed $ 10 million to our U.S.

During the nine months ended September 30, 2021, we contributed $ 37 million to our U.S.

pension and other postretirement benefit plans and $ 20 million to our international pension plans.

1 unchanged sentence

pension and other postretirement benefit plans and $ 8 million to our international pension plans during the remainder of 2021.

During the six months ended June 30, 2021, our lump-sum benefit payments exceeded the sum of service and interest costs for the plan year for our U.S.

During 2021 and 2020, our lump-sum benefit payments exceeded the sum of service and interest costs for the plan year for our U.S.

qualified and non-qualified pension plans.

As a result, we recognized a portion of prior actuarial losses, or pension settlement expense, of $ 27 million related to our U.S.

qualified pension plan and $ 2 million related to our U.S.

non-qualified pension plan.

In conjunction with the recognition of pension settlement expense, the plan assets and projected benefit obligation of our U.S.

qualified pension plan were remeasured as of June 30, 2021.

At the remeasurement date, the net pension liability decreased by $ 210 million resulting in a corresponding increase to other comprehensive income for the second quarter of 2021.

The decrease in the net pension liability was primarily due to an increase in the discount rate used to value the projected benefit obligation from 2.5 % to 2.9 % and an increase in the fair value of plan assets from December 31, 2020, to June 30, 2021.

As a result, we recognized a portion of prior actuarial losses, or pension settlement expense, totaling $ 47 million and $ 56 million for the nine months ended September 30, 2021 and 2020, respectively.

Note 15— Accumulated Other Comprehensive Loss

3 unchanged sentences

December 31, 2020 $ ( 809 ) 25 ( 5 ) ( 789 )

Other comprehensive income before reclassifications 181 4 1 186

Other comprehensive income (loss) before reclassifications 184 ( 68 ) 1 117

Amounts reclassified from accumulated other comprehensive loss

3 unchanged sentences

Hedging — — 1 1

Net current period other comprehensive income 234 4 2 240

June 30, 2021 $ ( 575 ) 29 ( 3 ) ( 549 )

Net current period other comprehensive income (loss) 266 ( 68 ) 2 200

September 30, 2021 $ ( 543 ) ( 43 ) ( 3 ) ( 589 )

December 31, 2019 $ ( 656 ) ( 131 ) ( 1 ) ( 788 )

7 unchanged sentences

Other — 5 — 5

June 30, 2020 $ ( 819 ) ( 321 ) ( 8 ) ( 1,148 )

September 30, 2020 $ ( 791 ) ( 170 ) ( 6 ) ( 967 )

* Included in the computation of net periodic benefit cost.

4 unchanged sentences

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

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1) Midstream— Provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and NGL transportation, storage, fractionation, processing, and marketing services, mainly in the United States.

The Midstream segment includes our master limited partnership (MLP), Phillips 66 Partners, as well as our 50 % equity investment in DCP Midstream.

The Midstream segment includes our master limited partnership (MLP), Phillips 66 Partners, our 50 % equity investment in DCP Midstream, and our investment in NOVONIX.

2) Chemicals— Consists of our 50 % equity investment in CPChem, which manufactures and markets petrochemicals and plastics on a worldwide basis.

8 unchanged sentences

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

30 unchanged sentences

Note 18— Income Taxes

Our effective income tax rate for the three and six months ended June 30, 2021, was 14 % and 21 %, respectively, compared with 85 % and 15 %, respectively, for the corresponding periods of 2020.

The decrease in our effective tax rate for the three months ended June 30, 2021, was primarily attributable to an adjustment required in the second quarter of 2020 related to a change in methodology used to calculate the provision for income taxes based on actual results and the ability provided under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to carry back a 2020 net operating loss to a year with a 35% income tax rate.

Also contributing to the decrease were enacted income tax rate changes and income attributable to noncontrolling interests, partially offset by state income taxes.

The increase in our effective tax rate for the six months ended June 30, 2021, was primarily due to the impact of a prior-year nondeductible goodwill impairment and enacted income tax rate changes, partially offset by the ability provided under the CARES Act to carry back a 2020 net operating loss to a year with a 35% income tax rate, income attributable to noncontrolling interests and foreign operations.

The effective income tax rate for the three months ended June 30, 2021, varied from the U.S.

federal statutory income tax rate of 21%, primarily due to income attributable to noncontrolling interests, foreign operations and enacted income tax rate changes.

Our effective income tax rate for the three and nine months ended September 30, 2021, was ( 9 )% and ( 97 )%, respectively, compared with 46 % and 25 %, respectively, for the corresponding periods of 2020.

The decrease in our effective tax rate for the three and nine months ended September 30, 2021, was primarily attributable to the discrete tax treatment of the Alliance Refinery impairment.

The tax consequences of the impairment were not included in our estimated annual effective rate but instead were fully reported in the third quarter of 2021.

The effective income tax rate for the three months ended September 30, 2021, varied from the U.S.

federal statutory income tax rate of 21%, primarily due to the discrete tax treatment of the Alliance Refinery impairment, income attributable to noncontrolling interests, and foreign operations, partially offset by state income tax.

The effective income tax rate for the nine months ended September 30, 2021, varied from the U.S.

federal statutory income tax rate of 21%, primarily due to the discrete tax treatment of the Alliance Refinery impairment, income attributable to noncontrolling interests, foreign operations and enacted income tax rate changes, partially offset by state income tax.

We received a U.S.

federal income tax refund of $ 1.1 billion in the second quarter of 2021.

An income tax receivable of $ 657 million is included in the “Accounts and notes receivable” line item on our consolidated balance sheet as of June 30, 2021.

Note 19— Phillips 66 Partners LP

6 unchanged sentences

Upon the repurchase, these preferred units were canceled and are no longer outstanding.

At June 30, 2021, we owned 170 million Phillips 66 Partners common units, representing a 74 % limited partner interest in Phillips 66 Partners, while the public owned a 26 % limited partner interest and 13.5 million perpetual convertible preferred units.

At September 30, 2021, we owned 170 million Phillips 66 Partners common units, representing a 74 % limited partner interest in Phillips 66 Partners, while the public owned a 26 % limited partner interest and 13.5 million perpetual convertible preferred units.

The most significant assets of Phillips 66 Partners that are available to settle only its obligations, along with its most significant liabilities for which its creditors do not have recourse to Phillips 66’s general credit, were:

12 unchanged sentences

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 operations.

For the six months ended June 30, 2020, the co-venturer contributed an aggregate of $ 61 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls.

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.

Phillips 66 Partners’ effective ownership interest in Gray Oak Pipeline, LLC is 42.25 %, after considering the co-venturer’s 35 % interest in the consolidated holding company.

See Note 5—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillips 66 Partners’ investments in Dakota Access and ETCO, and Liberty.

Pending Merger

On October 26, 2021, we entered into a definitive merger agreement with Phillips 66 Partners to acquire all of the publicly held common units representing limited partner interests in Phillips 66 Partners not already owned by us on the closing date of the transaction.

The agreement provides for an all-stock transaction in which each outstanding Phillips 66 Partners common unitholder would receive 0.50 shares of Phillips 66 common stock for each Phillips 66 Partners common unit.

Phillips 66 Partners’ perpetual convertible preferred units will be converted into common units at a premium to the original issuance price prior to exchange for Phillips 66 common stock.

This merger is expected to close in the first quarter of 2022, subject to customary closing conditions.

Based on the closing market prices of Phillips 66 common stock and Phillips 66 Partners common units on October 26, 2021, we currently expect to issue approximately 42 million shares of our common stock with a value of approximately $ 3.4 billion on the closing date of this transaction.

The number of shares of common stock we will issue and the value of those shares are subject to change until the merger is closed.

Upon closing, Phillips 66 Partners will become a wholly owned subsidiary of Phillips 66 and will no longer be a publicly traded partnership.

This transaction will be accounted for as an equity transaction and after the closing we will no longer reflect the ownership interest previously held by Phillips 66 Partners’ publicly held common and perpetual convertible preferred unitholders as a noncontrolling interest on our consolidated balance sheet nor will we attribute a portion of Phillips 66 Partners’ net income to these former unitholders on our consolidated statement of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements