What changed in this filing

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Item 1. Financial Statements

2022-04-29 compared with 2021-10-29 · 128 added, 314 removed, 534 unchanged (45% of the section changed)

3 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

Revenues and Other Income

2 unchanged sentences

Net gain on dispositions 1 —

Other income 238 20 304 48

Other income (loss) ( 143 ) 15

Total Revenues and Other Income 36,722 21,927

8 unchanged sentences

Interest and debt expense 135 146

Foreign currency transaction (gains) losses 4 4 ( 5 ) 10

Foreign currency transaction gains ( 2 ) —

Total Costs and Expenses 35,894 22,698

Income (loss) before income taxes 828 ( 771 )

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

Income tax expense (benefit) 171 ( 132 )

Net Income (Loss) 657 ( 639 )

11 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

Net Income (Loss) $ 657 ( 639 )

1 unchanged sentence

Defined benefit plans

Net actuarial gain (loss) arising during the period — — 210 ( 300 )

Amortization of net actuarial loss, prior service credit and settlements 11 22

17 unchanged sentences

Cash and cash equivalents $ 3,335 3,147

Accounts and notes receivable (net of allowances of $ 36 million in 2021 and $ 37 million in 2020)

Accounts and notes receivable (net of allowances of $ 44 million in 2022 and 2021)

Accounts and notes receivable—related parties 1,706 1,332

27 unchanged sentences

Treasury stock (at cost:

2021 and 2020— 211,771,827 shares)

2022— 169,946,591 shares;

2021— 211,771,827 shares)

( 13,736 ) ( 17,116 )

8 unchanged sentences

Millions of Dollars

Nine Months Ended

Three Months Ended

Cash Flows From Operating Activities

7 unchanged sentences

Net gain on dispositions ( 1 ) —

Unrealized investment gain ( 224 ) —

Unrealized investment loss 169 —

Working capital adjustments

10 unchanged sentences

Advances/loans—related parties — ( 155 )

Collection of advances/loans—related parties 1 44

Other ( 74 ) ( 39 )

4 unchanged sentences

Issuance of common stock 23 20

Repurchase of common stock — ( 443 )

Dividends paid on common stock ( 404 ) ( 394 )

Distributions to noncontrolling interests ( 77 ) ( 76 )

Repurchase of noncontrolling interests ( 24 ) —

Other ( 30 ) ( 20 )

Net Cash Provided by (Used in) Financing Activities ( 2,492 ) 919

Net Cash Used in Financing Activities ( 512 ) ( 945 )

Effect of Exchange Rate Changes on Cash and Cash Equivalents ( 8 ) ( 22 )

5 unchanged sentences

Millions of Dollars

Three Months Ended September 30

Three Months Ended March 31

Attributable to Phillips 66

1 unchanged sentence

Other Comprehensive Loss Noncontrolling Interests Total

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

December 31, 2021 $ 7 20,504 ( 17,116 ) 16,216 ( 445 ) 2,471 21,637

Net income — — — 582 — 75 657

4 unchanged sentences

Distributions to noncontrolling interests — — — — — ( 77 ) ( 77 )

— — — — — ( 81 ) ( 81 )

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

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

Other comprehensive income — — — — 181 — 181

Dividends paid on common stock ($ 0.90 per share)

— — — ( 393 ) — — ( 393 )

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

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

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

Repurchase of common stock — —

Shares issued—share-based compensation 103,525 —

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

See Notes to Consolidated Financial Statements.

Consolidated Statement of Changes in Equity Phillips 66

Millions of Dollars

Nine Months Ended September 30

Attributable to Phillips 66

Par Value Capital in Excess of Par Treasury Stock Retained Earnings Accum.

Other Comprehensive Loss Noncontrolling Interests Total

Acquisition of noncontrolling interest in Phillips 66 Partners LP — ( 869 ) 3,380 — — ( 2,163 ) 348

March 31, 2022 $ 7 19,667 ( 13,736 ) 16,391 ( 514 ) 306 22,121

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

Net income — — — 44 — 179 223

Net income (loss) — — — ( 654 ) — 15 ( 639 )

Other comprehensive income — — — — 9 — 9

3 unchanged sentences

Distributions to noncontrolling interests — — — — — ( 76 ) ( 76 )

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

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

Net income (loss) — — — ( 3,436 ) — 216 ( 3,220 )

Other comprehensive loss — — — — ( 184 ) — ( 184 )

Dividends paid on common stock ($ 2.70 per share)

— — — ( 1,182 ) — — ( 1,182 )

Repurchase of common stock — — ( 443 ) — — — ( 443 )

Benefit plan activity — 62 — ( 8 ) — — 54

Transfer of equity interest — — — — — 305 305

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

Other — — — ( 2 ) 5 — 3

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

Nine Months Ended September 30

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

Three Months Ended March 31

Common Stock Issued Treasury Stock

December 31, 2021 650,026,318 211,771,827

Repurchase of common stock — —

Shares issued—share-based compensation 1,020,299 —

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

Shares issued—acquisition of noncontrolling interest in Phillips 66 Partners LP — ( 41,825,236 )

March 31, 2022 651,046,617 169,946,591

December 31, 2020 648,643,223 211,771,827

Repurchase of common stock — 5,381,021

Shares issued—share-based compensation 995,658 —

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

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

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 2021 Annual Report on Form 10-K.

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.

The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results expected for the full year.

On March 9, 2022, we completed the previously announced merger between us and Phillips 66 Partners LP (Phillips 66 Partners).

See Note 18—Phillips 66 Partners LP, for additional information on the merger transaction.

Note 2— Sales and Other Operating Revenues

3 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

Product Line and Services

3 unchanged sentences

Services and other *

( 17 ) 192 283 1,079

Consolidated sales and other operating revenues

11 unchanged sentences

Contract-Related Assets and Liabilities

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

At March 31, 2022, and December 31, 2021, receivables from contracts with customers were $ 8,604 million and $ 6,140 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 September 30, 2021, and December 31, 2020, our asset balances related to such payments were $ 435 million and $ 404 million, respectively.

At March 31, 2022, and December 31, 2021, our asset balances related to such payments were $ 471 million and $ 466 million, respectively.

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

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

At March 31, 2022, and December 31, 2021, contract liabilities were not material.

Remaining Performance Obligations

Most of our contracts with customers are spot contracts or term contracts with only variable consideration.

We do not disclose remaining performance obligations for these contracts as the expected duration is one year or less or because the variable consideration has been allocated entirely to the unsatisfied performance obligations.

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

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

At March 31, 2022, the remaining performance obligations related to these minimum volume commitment contracts were immaterial.

Note 3— Credit Losses

8 unchanged sentences

We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

The negative economic impacts associated with Coronavirus Disease 2019 (COVID-19) have increased the probability that certain of our counterparties may not be able to completely fulfill their obligations in a timely manner.

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

At 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.

In addition, when events and circumstances arise that may affect certain counterparties’ abilities to fulfill their obligations, such as Coronavirus Disease 2019 (COVID-19), we enhance our credit monitoring, and we may seek collateral to support some transactions or require prepayments from higher-risk counterparties.

At March 31, 2022, and December 31, 2021, we reported $ 10,455 million and $ 7,470 million of accounts and notes receivable, respectively, net of allowances of $ 44 million for both periods.

Based on an aging analysis at March 31, 2022, 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

$ 4,530 3,394

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.

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 3,923 million and $ 2,792 million at March 31, 2022, and December 31, 2021, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 9.4 billion and $ 5.7 billion at March 31, 2022, and December 31, 2021, 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 $ 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.

LIFO inventory liquidations increased our net income by $ 40 million in the three months ended March 31, 2022 and increased our net loss by $ 28 million in the three months ended March 31, 2021.

Note 5— Investments, Loans and Long-Term Receivables

1 unchanged sentence

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

In 2020, the trial court presiding over litigation regarding the Dakota Access Pipeline ordered the U.S.

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 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 2020, the trial court presiding over litigation brought by the Standing Rock Sioux Tribe ordered the U.S.

Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) addressing an easement under Lake Oahe in North Dakota.

The court later vacated the easement.

Although the easement is vacated, the USACE has indicated that it will not take action to stop pipeline operations while it proceeds with the EIS.

In May 2021, the Standing Rock Sioux Tribe’s request for an injunction to force a shutdown of the pipeline while the EIS is being prepared was denied.

In June 2021, the trial court dismissed the litigation entirely.

Once the EIS is completed, new litigation or challenges to the EIS 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.

In addition, Phillips 66 Partners LP (Phillips 66 Partners) and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering.

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

Supreme Court to review the lower court’s decision to order the EIS and vacate the easement.

In February 2022, the writ was denied, and the requirement to prepare the EIS stands.

Completion of the EIS was expected in the fall of 2022, but now may be delayed as the USACE engages with the Standing Rock Sioux Tribe on their reasons for withdrawing as a cooperating agency with respect to preparation of the EIS.

Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access with an aggregate principal outstanding of $ 2.5 billion at March 31, 2022.

In addition, Phillips 66 Partners, now a wholly owned subsidiary of Phillips 66, and its 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 above-mentioned ongoing litigation.

At March 31, 2022, our 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, we could be 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 at March 31, 2022.

At March 31, 2022, the aggregate book value of our investments in Dakota Access and ETCO was $ 725 million.

On April 1, 2022, Dakota Access’ wholly owned subsidiary repaid $ 650 million aggregate principal amount of its outstanding senior notes upon maturity.

We funded our 25 % share, or $ 163 million, with a capital contribution of $ 89 million in March 2022 and $ 74 million of distributions we elected not to receive from Dakota Access in the first quarter of 2022.

As a result of the debt repayment, on April 1, 2022, our share of the maximum potential equity contributions under the CECU decreased to approximately $ 467 million, and our share of scheduled interest payments on the notes that we could be required to support decreased to approximately $ 20 million annually.

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 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.

At March 31, 2022, our maximum exposure to loss was comprised of our $ 278 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 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.

At March 31, 2022, our maximum exposure to loss was $ 188 million, which represented the book value of our investment in OnCue of $ 120 million and guaranteed debt obligations of $ 68 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 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 the first quarter of 2021, Phillips 66 Partners decided to exit the Liberty Pipeline project, which resulted in a $ 198 million before-tax impairment in our Midstream segment.

The impairment is included in the “Impairments” line item on our consolidated statement of operations for the three months ended March 31, 2021.

See Note 12—Fair Value Measurements, for additional information regarding this impairment and the techniques used to determine the fair value of this investment.

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.

In September 2021, we acquired 78 million ordinary shares, representing a 16 % ownership interest, in NOVONIX Limited (NOVONIX), which are traded on the Australian Securities Exchange.

NOVONIX is a Brisbane, Australia-based company that develops technology 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.

The fair value of our investment is recorded in the “Investments and long-term receivables” line item on our consolidated balance sheet.

The change in the fair value of our investment due to fluctuations in NOVONIX’s stock price, or unrealized investment gains (losses), is recorded in the “Other income (loss)” line item of our consolidated statement of operations, while changes due to foreign currency fluctuations are recorded in the “Foreign currency transaction gains” line item on our consolidated statement of operations.

The fair value of our investment in NOVONIX was $ 362 million at March 31, 2022.

The fair value of our investment in NOVONIX declined by $ 158 million during the three months ended March 31, 2022, reflecting an unrealized investment loss of $ 169 million, partially offset by an unrealized foreign currency gain of $ 11 million.

See Note 12—Fair Value Measurements, for additional information regarding the recurring fair value measurement of our investment in NOVONIX.

1 unchanged sentence

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

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

At March 31, 2022, our 50 % share of the outstanding member loan balance, including accrued interest, was $ 597 million.

Note 6— Properties, Plants and Equipment

2 unchanged sentences

Millions of Dollars

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Midstream $ 12,597 3,156 9,441 12,524 3,064 9,460

4 unchanged sentences

$ 39,974 17,641 22,333 39,797 17,362 22,435

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

Note 7— Impairments

Millions of Dollars

Three Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

Midstream $ 10 204 208 1,365

Refining 1,288 911 1,288 2,756

Corporate and Other — 25 — 25

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

Equity Investments

In the first quarter of 2021, Phillips 66 Partners decided to exit the Liberty Pipeline project, which had previously been deferred due to the challenging business environment caused by the COVID-19 pandemic.

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

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)

In the first quarter of 2020, the market value of DCP Partners, LP (DCP Partners) common units declined by approximately 85 %.

As a result, at March 31, 2020, the fair value of our investment in DCP Midstream was significantly lower than its book value.

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

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.

We assessed our goodwill for impairment due to the decline in our market capitalization and concluded that the carrying value of our Refining reporting unit at March 31, 2020, was greater than its fair value by an amount in excess of its goodwill balance.

Accordingly, we recorded a before-tax goodwill impairment charge of $ 1,845 million in our Refining segment during the first quarter of 2020.

These impairment charges are included within the “Impairments” line item on our consolidated statement of operations.

See Note 13—Fair Value Measurements, for additional information on the determination of fair value used to record these impairments.

The COVID-19 pandemic continues to disrupt economic activities globally.

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

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.

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.

The consequences of the sustained disruption of economic activities by the pandemic may include additional asset impairments and portfolio rationalization in the future.

Note 7— Earnings (Loss) Per Share

The numerator of basic earnings (loss) per share (EPS) is net income (loss) attributable to Phillips 66, adjusted for noncancelable dividends paid on unvested share-based employee awards during the vesting period (participating securities) and the premium paid for the repurchase of noncontrolling interests.

The denominator of basic EPS is the sum of the daily weighted-average number of common shares outstanding during the periods presented and fully vested stock and unit awards that have not yet been issued as common stock.

The numerator of diluted EPS is also based on net income (loss) attributable to Phillips 66, which is reduced by dividend equivalents paid on participating securities for which the dividends are more dilutive than the participation of the awards in the earnings (loss) of the periods presented, and the premium paid for the repurchase of noncontrolling interests.

To the extent unvested stock, unit or option awards and vested unexercised stock options are dilutive, they are included with the weighted-average common shares outstanding in the denominator.

1 unchanged sentence

Three Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

Basic Diluted Basic Diluted Basic Diluted Basic Diluted

Basic Diluted Basic Diluted

Amounts Attributed to Phillips 66 Common Stockholders (millions) :

1 unchanged sentence

Income allocated to participating securities ( 2 ) ( 2 ) ( 2 ) ( 2 )

Premium paid for the repurchase of noncontrolling interests — — — — ( 2 ) ( 2 ) — —

Net income (loss) available to common stockholders $ 580 580 ( 656 ) ( 656 )

3 unchanged sentences

Weighted-average common shares outstanding—EPS 449,298 450,011 439,504 439,504

440,193 440,368 438,916 438,916 439,880 440,259 439,670 439,670

Earnings (Loss) Per Share of Common Stock (dollars)

$ 1.29 1.29 ( 1.49 ) ( 1.49 )

On March 9, 2022, we completed the previously announced merger between us and Phillips 66 Partners.

The merger resulted in the acquisition of all limited partnership interests in Phillips 66 Partners not already owned by us in exchange for approximately 42 million shares of Phillips 66 common stock issued from treasury stock.

See Note 18—Phillips 66 Partners LP, for additional information on the merger transaction.

2022 Activities

Debt Issuances and Repayments

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.

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 Phillips 66 Partners’ $ 750 million revolving credit facility.

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 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.

Debt Repayments

In early April 2022, upon maturity, Phillips 66 repaid its 4.300 % senior notes with an aggregate principal amount of $ 1.0 billion and Phillips 66 Partners repaid its $ 450 million term loan.

Debt Exchange

On April 6, 2022, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, announced offers to exchange (the Exchange Offers) all validly tendered notes of seven different series of notes issued by Phillips 66 Partners (collectively, the Old Notes), with an aggregate principal amount of approximately $ 3.5 billion, for notes to be issued by Phillips 66 Company (collectively, the New Notes).

The New Notes will be fully and unconditionally guaranteed by Phillips 66 and will rank equally with Phillips 66 Company’s other unsecured and unsubordinated indebtedness, and the guarantees will rank equally with Phillips 66’s other unsecured and unsubordinated indebtedness.

The Exchange Offers will expire on May 3, 2022, unless such date is extended (the Expiration Date).

Phillips 66 Company currently expects the settlement of the Exchange Offers to occur on May 5, 2022, unless the Expiration Date is extended.

The New Notes will have the same interest rates, interest payment dates and maturity dates as the Old Notes.

In addition, holders that validly tender before the end of the early participation period on April 19, 2022 (the Early Participation Date), will receive New Notes with an aggregate principal amount equivalent to the Old Notes, while holders that validly tender after the Early Participation Date, but before the Expiration Date, will receive New Notes with an aggregate principal amount that is 3 % less than the Old Notes.

Through the end of the early participation period on April 19, 2022, Old Notes with an aggregate principal amount of approximately $ 3.2 billion had been validly tendered for exchange.

2021 Activities

Senior Unsecured Notes

On June 10, 2020, Phillips 66 closed its public offering of $ 1 billion aggregate principal amount of senior unsecured notes consisting of:

• $ 150 million aggregate principal amount of 3.850 % Senior Notes due 2025.

• $ 850 million aggregate principal amount of 2.150 % Senior Notes due 2030.

On April 9, 2020, Phillips 66 closed its public offering of $ 1 billion aggregate principal amount of senior unsecured notes consisting of:

• $ 500 million aggregate principal amount of 3.700 % Senior Notes due 2023.

• $ 500 million aggregate principal amount of 3.850 % Senior Notes due 2025.

Interest on the Senior Notes due 2023 is payable semiannually on April 6 and October 6 of each year, commencing on October 6, 2020.

The Senior Notes due 2025 issued on June 10, 2020, constitute a further issuance of the Senior Notes due 2025 originally issued on April 9, 2020.

The $ 650 million in aggregate principal amount of Senior Notes due 2025 is treated as a single class of debt securities.

Interest on the Senior Notes due 2025 is payable semiannually on April 9 and October 9 of each year, commencing on October 9, 2020.

Interest on the Senior Notes due 2030 is payable semiannually on June 15 and December 15 of each year, commencing on December 15, 2020.

Proceeds received from the public offerings of senior unsecured notes on June 10, 2020, and April 9, 2020, were $ 1,008 million exclusive of accrued interest received, and $ 993 million, respectively, net of underwriters’ discounts or premiums and commissions, as well as debt issuance costs.

These proceeds were used for general corporate purposes.

Term Loan Facility

On March 19, 2020, Phillips 66 entered into a $ 1 billion 364 -day delayed draw term loan agreement (the Facility) and borrowed $ 1 billion under the Facility shortly thereafter.

On April 6, 2020, Phillips 66 increased the size of the Facility to $ 2 billion, and in June 2020, the Facility was amended to extend the commitment period to September 19, 2020.

We did not draw additional amounts under the Facility before the end of the commitment period or further extend the commitment period.

In November 2020, we repaid $ 500 million of borrowings outstanding under the Facility, and the Facility was amended to extend the maturity date of the remaining $ 500 million outstanding borrowings from March 18, 2021, to November 20, 2023.

Borrowings under the Facility bear interest at a floating rate based on either a Eurodollar rate or a reference rate, plus a margin determined by the credit rating of Phillips 66’s senior unsecured long-term debt.

Phillips 66 used the proceeds for general corporate purposes.

Other Debt Repayments

In April 2020, Phillips 66 repaid $ 300 million outstanding principal balance of its floating-rate notes due April 2020 and the $ 200 million outstanding principal balance of its term loan facility due April 2020.

Also in April 2020, Phillips 66 Partners repaid $ 25 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 upon maturity.

Note 9— Guarantees

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

At March 31, 2022, 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.

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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 September 30, 2021.

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $ 514 million at March 31, 2022.

We also have residual value guarantees associated with railcar and airplane leases with maximum potential future exposures totaling $ 221 million.

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

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 .

At March 31, 2022, 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 $ 133 million.

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

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

At March 31, 2022, and December 31, 2021, the carrying amount of recorded indemnifications was $ 146 million and $ 144 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.

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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 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.

At March 31, 2022, and December 31, 2021, environmental accruals for known contamination of $ 109 million and $ 106 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.

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

At March 31, 2022, and December 31, 2021, our total environmental accruals were $ 436 million.

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

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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 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.

At March 31, 2022, we had performance obligations secured by letters of credit and bank guarantees of $ 1,546 million related to various purchase and other commitments incident to the ordinary conduct of business.

Note 11— Derivatives and Financial Instruments

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Millions of Dollars

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

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Total $ 5,642 ( 5,677 ) 134 99 860 ( 877 ) 49 32

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.

At March 31, 2022, and December 31, 2021, 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:

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Three Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

Sales and other operating revenues $ ( 420 ) ( 123 )

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Purchased crude oil and products ( 228 ) ( 135 )

Net gain (loss) from commodity derivative activity $ ( 137 ) 4 ( 782 ) 829

Net loss from commodity derivative activity $ ( 623 ) ( 257 )

The following table summarizes our material net exposures resulting from outstanding commodity derivative contracts.

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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 September 30, 2021, and December 31, 2020.

The percentage of our derivative contract volumes expiring within the next 12 months was more than 95 % at March 31, 2022, and December 31, 2021.

Open Position

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( 27 ) ( 18 )

Interest Rate Derivative Contracts —In 2016, we entered into interest rate swaps to hedge the variability of lease payments on our headquarters facility.

These monthly lease payments vary based on monthly changes in the one-month London Interbank Offered Rate (LIBOR) and changes, if any, in our credit rating.

The pay-fixed, receive-floating interest rate swaps have an aggregate notional value of $ 650 million and ended in April 2021.

These swaps were designated as cash flow hedges.

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 nine months ended September 30, 2021 and 2020.

Credit Risk from Derivative Instruments

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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 September 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 March 31, 2022, and December 31, 2021.

Note 12— Fair Value Measurements

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• 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.

• Investment in NOVONIX —Our investment in NOVONIX is measured at fair value using unadjusted quoted prices available from the 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.

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Millions of Dollars

September 30, 2021

March 31, 2022

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

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Exchange-cleared instruments $ 3,677 1,800 — 5,477 ( 5,429 ) ( 8 ) — 40

OTC instruments — 1 — 1 — — — 1

Physical forward contracts — 163 1 164 — — — 164

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Floating-rate debt — 475 — 475 N/A N/A — 475

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

Fixed-rate debt, excluding finance leases and software obligations — 14,104 — 14,104 N/A N/A ( 434 ) 13,670

$ 3,737 16,518 1 20,256 ( 5,429 ) ( 142 ) ( 434 ) 14,251

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Rabbi trust assets 158 — — 158 N/A N/A — 158

Investment in NOVONIX 520 — — 520 N/A N/A — 520

$ 1,097 441 — 1,538 ( 779 ) — — 759

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Exchange-cleared instruments $ 463 362 — 825 ( 779 ) ( 49 ) — ( 3 )

OTC instruments — 1 — 1 — — — 1

Physical forward contracts — 51 — 51 — — — 51

Interest-rate derivatives — 3 — 3 — — — 3

Floating-rate debt — 475 — 475 N/A N/A — 475

Fixed-rate debt, excluding finance leases

— 15,597 — 15,597 N/A N/A ( 1,927 ) 13,670

Fixed-rate debt, excluding finance leases and software obligations — 15,353 — 15,353 N/A N/A ( 1,686 ) 13,667

$ 463 16,242 — 16,705 ( 779 ) ( 49 ) ( 1,686 ) 14,191

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In the first quarter of 2021, Phillips 66 Partners wrote down the book value of its investment in Liberty to estimated fair value using a Level 3 nonrecurring fair value measurement.

This nonrecurring measurement was based on the estimated fair value of Phillip 66 Partners’ share of the joint venture’s pipeline assets and net working capital.

This nonrecurring measurement was based on the estimated fair value of Phillip 66 Partners’ share of the joint venture’s pipeline assets and net working capital at March 31, 2021.

See Note 5—Investments, Loans and Long-Term Receivables, for more information regarding Phillips 66 Partners’ transfer of its ownership in Liberty to its co-venturer in April 2021.

In the first quarter of 2020, the nonrecurring fair value measurement used to record an impairment of our DCP Midstream investment was the fair value of our share of DCP Midstream’s limited partner interest in DCP Partners, which was estimated based on average market prices of DCP Partners common units for a multi-day trading period encompassing March 31, 2020.

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.

The fair value of the Refining reporting unit was calculated by weighting the results from the income approach and the market approach.

The income approach used a discounted cash flow model that included various observable and nonobservable inputs, such as prices, volumes, expenses, capital expenditures, discount rates and projected long-term growth rates and terminal values.

The market approach used peer company enterprise values relative to current and future net income (loss) before net interest expense, income taxes, depreciation and amortization (EBITDA) projections to arrive at an average multiple.

This multiple was applied to the reporting unit’s current and projected EBITDA, with consideration for an estimated market participant acquisition premium.

The resulting Level 3 fair value estimate was less than the Refining reporting unit’s carrying value by an amount that exceeded the existing goodwill balance of the reporting unit.

As a result, the Refining reporting unit’s goodwill was impaired to zero .

As part of our impairment analysis, the fair value of all reporting units was reconciled to the company’s market capitalization.

See Note 7—Impairments, for additional information on the above impairments.

Note 13— Pension and Postretirement Plans

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

The components of net periodic benefit cost for the three months ended March 31, 2022 and 2021, were as follows:

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Components of Net Periodic Benefit Cost

Three Months Ended September 30

Service cost $ 37 9 35 7 1 1

Interest cost 20 5 21 5 2 2

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

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

Nine Months Ended September 30

Three Months Ended March 31

Service cost $ 35 8 37 9 1 1

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

Recognized net actuarial loss (gain) 37 19 50 12 ( 1 ) —

Amortization of net actuarial loss (gain) 6 3 15 6 ( 1 ) —

Settlements 1 — — — — —

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

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

During the three months ended March 31, 2022, we contributed $ 5 million to our U.S.

pension and other postretirement benefit plans and $ 6 million to our international pension plans.

We currently expect to make additional contributions of approximately $ 40 million to our U.S.

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

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, totaling $ 47 million and $ 56 million for the nine months ended September 30, 2021 and 2020, respectively.

pension and other postretirement benefit plans and approximately $ 20 million to our international pension plans during the remainder of 2022.

Note 14— Accumulated Other Comprehensive Loss

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December 31, 2021 $ ( 398 ) ( 45 ) ( 2 ) ( 445 )

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

Amounts reclassified from accumulated other comprehensive loss

Other comprehensive income before reclassifications 4 — — 4

Amounts reclassified from accumulated other

comprehensive loss

Defined benefit plans*

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Net current period other comprehensive income (loss) 13 ( 82 ) — ( 69 )

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

March 31, 2022 $ ( 385 ) ( 127 ) ( 2 ) ( 514 )

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

Other comprehensive loss before reclassifications ( 221 ) ( 44 ) ( 8 ) ( 273 )

Other comprehensive income (loss) before reclassifications 5 ( 15 ) — ( 10 )

Amounts reclassified from accumulated other comprehensive loss

Defined benefit plans*

Amortization of net actuarial loss, prior service credit and settlements 86 — — 86

Amortization of net actuarial loss and prior service credit 17 — — 17

Foreign currency translation — — — —

Hedging — — 2 2

Net current period other comprehensive loss ( 135 ) ( 44 ) ( 5 ) ( 184 )

Other — 5 — 5

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

Net current period other comprehensive income (loss) 22 ( 15 ) 2 9

March 31, 2021 $ ( 787 ) 10 ( 3 ) ( 780 )

* Included in the computation of net periodic benefit cost.

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Three Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

Operating revenues and other income (a) $ 1,340 770

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Operating expenses and selling, general and administrative expenses (c)

80 65 215 171

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

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

We also sold certain feedstocks and intermediate products to WRB and acted as an agent for WRB in supplying crude oil and other feedstocks for a fee.

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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, our 50 % equity investment in DCP Midstream, and our investment in NOVONIX.

The Midstream segment includes our 50 % equity investment in DCP Midstream and our 16 % investment in NOVONIX.

On March 9, 2022, we completed the previously announced merger between us and Phillips 66 Partners.

See Note 18—Phillips 66 Partners LP, for additional information on the merger transaction.

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

3) Refining— Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, at 13 refineries in the United States and Europe.

3) Refining— Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, at 12 refineries in the United States and Europe.

4) Marketing and Specialties— Purchases for resale and markets refined petroleum products, mainly in the United States and Europe.

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Three Months Ended

September 30 Nine Months Ended

2021 2020 2021 2020

Sales and Other Operating Revenues *

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Note 17— Income Taxes

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.

Our effective income tax rate for the three months ended March 31, 2022, was 21 %, compared with 17 % for the corresponding period of 2021.

The increase in our effective tax rate for the three months ended March 31, 2022, was primarily attributable to the elimination of the favorable noncontrolling interest impact as a result of the completion of the merger between us and Phillips 66 Partners on March 9, 2022.

Note 18— Phillips 66 Partners LP

Phillips 66 Partners, headquartered in Houston, Texas, is a publicly traded MLP formed in 2013 to own, operate, develop and acquire primarily fee-based midstream assets.

Phillips 66 Partners’ operations currently consist of crude oil, refined petroleum product and NGL transportation, fractionation, processing, terminaling, and storage assets.

We consolidate Phillips 66 Partners because we determined it is a VIE of which we are the primary beneficiary.

As general partner of Phillips 66 Partners, we have the ability to control its financial interests, as well as the ability to direct the activities that most significantly impact its economic performance.

As a result of this consolidation, the public common and perpetual convertible preferred unitholders’ ownership interests in Phillips 66 Partners are reflected as noncontrolling interests in our financial statements.

In June 2021, Phillips 66 Partners repurchased 368,528 of its outstanding perpetual convertible preferred units for $ 24 million in cash.

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

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:

Millions of Dollars

2021 December 31

Equity investments* $ 2,941 3,244

Net properties, plants and equipment 3,693 3,639

Short-term debt 450 465

Long-term debt 3,446 3,444

* Included in the “Investments and long-term receivables” line item on the Phillips 66 consolidated balance sheet.

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, Texas, and the Sweeny area, including our Sweeny Refinery.

Phillips 66 Partners has a consolidated holding company that owns 65 % of Gray Oak Pipeline, LLC.

In December 2018, a third party acquired 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 operations.

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.

On March 9, 2022, we completed the previously announced merger between us and Phillips 66 Partners.

Phillips 66 Partners common unitholders received 0.50 shares of Phillips 66 common stock for each outstanding Phillips 66 Partners common unit.

Phillips 66 Partners’ perpetual convertible preferred units were converted into common units at a premium to the original issuance price prior to being exchanged for Phillips 66 common stock.

Upon closing, Phillips 66 Partners became a wholly owned subsidiary of Phillips 66 and its common units are no longer publicly traded.

The merger was accounted for as an equity transaction and resulted in decreases to “Treasury stock” of $ 3,380 million, “Noncontrolling interests” of $ 2,163 million, “Capital in excess of par” of $ 869 million, “Deferred income taxes” of $ 355 million, and “Cash and cash equivalents” of $ 2 million, and an increase to “Other accruals” of $ 5 million on our consolidated balance sheet.

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