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Item 1. Financial Statements

2022-11-09 compared with 2022-07-29 · 443 added, 140 removed, 667 unchanged (47% of the section changed)

FINANCIAL STATEMENTS

Consolidated Statement of Operations Phillips 66

Consolidated Statement of Income Phillips 66

Millions of Dollars

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

3 unchanged sentences

Net gain on dispositions 1 9 2 11

Other income (loss) ( 185 ) 51 ( 328 ) 66

Other income 3,026 238 2,698 304

Total Revenues and Other Income 48,764 31,472 134,795 81,284

10 unchanged sentences

Total Costs and Expenses 41,606 31,024 122,703 81,171

Income (loss) before income taxes 4,106 436 4,934 ( 335 )

Income before income taxes 7,158 448 12,092 113

Income tax expense (benefit) 1,618 ( 40 ) 2,713 ( 110 )

Net Income (Loss) 3,182 374 3,839 ( 265 )

Net Income 5,540 488 9,379 223

net income attributable to noncontrolling interests 149 86 239 179

Net Income (Loss) Attributable to Phillips 66 $ 3,167 296 3,749 ( 358 )

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

Net Income Attributable to Phillips 66 $ 5,391 402 9,140 44

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

Basic $ 11.19 0.91 19.37 0.08

4 unchanged sentences

See Notes to Consolidated Financial Statements.

Consolidated Statement of Comprehensive Income (Loss) Phillips 66

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Consolidated Statement of Comprehensive Income Phillips 66

Millions of Dollars

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Net Income (Loss) $ 3,182 374 3,839 ( 265 )

Net Income $ 5,540 488 9,379 223

Other comprehensive income (loss)

12 unchanged sentences

Other Comprehensive Income (Loss), Net of Income Taxes ( 261 ) ( 40 ) ( 549 ) 200

Comprehensive Income (Loss) 2,963 605 3,551 ( 25 )

Comprehensive Income 5,279 448 8,830 423

comprehensive income attributable to noncontrolling interests 149 86 239 179

Comprehensive Income (Loss) Attributable to Phillips 66 $ 2,948 527 3,461 ( 118 )

Comprehensive Income Attributable to Phillips 66 $ 5,130 362 8,591 244

See Notes to Consolidated Financial Statements.

Table of Content s

Consolidated Balance Sheet Phillips 66

42 unchanged sentences

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Cash Flows Phillips 66

Millions of Dollars

Six Months Ended June 30

Nine Months Ended

Cash Flows From Operating Activities

Net income (loss) $ 3,839 ( 265 )

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

Net income $ 9,379 223

Adjustments to reconcile net income to net cash provided by operating

Depreciation and amortization 1,127 1,081

4 unchanged sentences

Net gain on dispositions ( 2 ) ( 5 )

Unrealized investment loss 390 —

Other 120 258

Gain related to merger of businesses ( 3,013 ) —

Unrealized investment (gain) loss 418 ( 224 )

Working capital adjustments

28 unchanged sentences

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Changes in Equity Phillips 66

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

June 30, 2022 $ 7 19,717 ( 13,802 ) 19,087 ( 733 ) 297 24,573

Net income — — — 5,391 — 149 5,540

5 unchanged sentences

Distributions to noncontrolling interests — — — — — ( 3 ) ( 3 )

Acquisition of noncontrolling interest in Phillips 66 Partners LP — ( 32 ) — — — — ( 32 )

Merger of DCP Midstream, LLC and Gray

Oak Holdings LLC — — — — — 4,633 4,633

September 30, 2022 $ 7 19,738 ( 14,526 ) 24,008 ( 994 ) 5,076 33,309

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

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

Net income — — — 402 — 86 488

Other comprehensive income — — — — 231 — 231

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

Dividends paid on common stock ($ 0.90 per share)

2 unchanged sentences

Distributions to noncontrolling interests — — — — — ( 81 ) ( 81 )

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

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

Three Months Ended June 30

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

Three Months Ended September 30

Common Stock Issued Treasury Stock

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

June 30, 2022 651,697,833 170,646,736

Repurchase of common stock — 8,565,824

Shares issued—share-based compensation 146,940 —

September 30, 2022 651,844,773 179,212,560

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

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

Shares issued—share-based compensation 110,865 —

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

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

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Changes in Equity Phillips 66

Millions of Dollars

Six Months Ended June 30

Nine Months Ended September 30

Attributable to Phillips 66

10 unchanged sentences

Acquisition of noncontrolling interest in Phillips 66 Partners LP — ( 901 ) 3,380 — — ( 2,163 ) 316

June 30, 2022 $ 7 19,717 ( 13,802 ) 19,087 ( 733 ) 297 24,573

Merger of DCP Midstream, LLC and Gray

Oak Holdings LLC — — — — — 4,633 4,633

September 30, 2022 $ 7 19,738 ( 14,526 ) 24,008 ( 994 ) 5,076 33,309

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

Six Months Ended June 30

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

Nine Months Ended September 30

Common Stock Issued Treasury Stock

3 unchanged sentences

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

June 30, 2022 651,697,833 170,646,736

September 30, 2022 651,844,773 179,212,560

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

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

See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements Phillips 66

4 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 six months ended June 30, 2022, are not necessarily indicative of the results expected for the full year.

On March 9, 2022, we completed the 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.

The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results expected for the full year.

DCP Midstream, LLC (DCP Midstream) and Gray Oak Holdings LLC (Gray Oak Holdings) Merger

On August 17, 2022, we and our co-venturer, Enbridge Inc.

(Enbridge), agreed to merge DCP Midstream and Gray Oak Holdings, with DCP Midstream as the surviving entity.

Prior to the merger, we and Enbridge each held a 50 % interest and jointly governed DCP Midstream, whose primary assets are its general partner and limited partner interests in DCP Midstream, LP (DCP LP), and we each held indirect economic interests in DCP LP of 28.26 %.

DCP LP is a variable interest entity (VIE) because its limited partners do not have the ability to remove its general partner with a simple majority vote, nor do its limited partners have substantive participating rights in the significant decisions made in the ordinary course of business.

DCP Midstream ultimately consolidates DCP LP because one of its wholly owned subsidiaries is the primary beneficiary of DCP LP.

We and Enbridge also held 65 % and 35 % interests, respectively, in Gray Oak Holdings, whose only asset was a 65 % noncontrolling interest in Gray Oak Pipeline, LLC (Gray Oak Pipeline).

Our and Enbridge’s indirect economic interests in Gray Oak Pipeline were 42.25 % and 22.75 %, respectively.

We had voting control over and consolidated Gray Oak Holdings and reported Gray Oak Holdings’ 65 % interest in Gray Oak Pipeline as an equity investment and Enbridge’s interest in Gray Oak Holdings as a noncontrolling interest.

In connection with the merger, we and Enbridge entered into a Third Amended and Restated Limited Liability Company Agreement of DCP Midstream (Amended and Restated LLC Agreement), which realigned the members’ economic interests and governance responsibilities.

Under the Amended and Restated LLC Agreement, two classes of membership interests in DCP Midstream were created, Class A and Class B, that are intended to track the assets, liabilities, revenues and expenses of the following operating segments of DCP Midstream:

• Class A Segment comprised of the businesses, activities, assets and liabilities of DCP LP and its subsidiaries and its general partner entities (DCP Midstream Class A Segment).

• Class B Segment comprised of the business, activities, assets and liabilities of Gray Oak Pipeline (DCP Midstream Class B Segment).

We hold a 76.64 % Class A membership interest, which represents an indirect economic interest in DCP LP of 43.31 %, and a 10 % Class B membership interest, which represents an indirect economic interest in Gray Oak Pipeline of 6.5 %.

Enbridge holds the remaining Class A and Class B membership interests.

We have been designated as the managing member of DCP Midstream Class A Segment and are responsible for conducting, directing and managing all activities associated with this segment, except as limited in certain instances.

Enbridge has been designated as the managing member of DCP Midstream Class B Segment.

Earnings and distributions from each segment are allocated to the members based on their membership interest in each membership class, except as otherwise provided.

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DCP Midstream Class A Segment and DCP Midstream Class B Segment were determined to be silos under the variable interest consolidation model.

As a result, DCP Midstream was also determined to be a VIE.

We determined that we are the primary beneficiary of DCP Midstream Class A Segment because of the governance rights granted to us under the Amended and Restated LLC Agreement as managing member of the segment.

We hold a 33.33 % direct ownership interest in DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills).

DCP LP holds the remaining 66.67 % ownership interest in these entities.

As a result of the governance rights granted to us over DCP Midstream Class A Segment and the governance rights we hold through our direct ownership interests, we obtained controlling financial interests in these entities in connection with the merger.

As a result, our aggregate direct and indirect economic interests in DCP Sand Hills and DCP Southern Hills increased to 62.21 % from 52.17 %.

Starting on August 18, 2022, we began consolidating the financial results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills.

We also began reporting the direct and indirect economic interests held by Enbridge, DCP LP’s public common unitholders and DCP LP’s preferred unitholders as noncontrolling interests on our financial statements.

We continue to account for our remaining indirect economic interest in Gray Oak Pipeline, now held through DCP Midstream Class B Segment, using the equity method of accounting.

As a result of the merger, we derecognized Enbridge’s noncontrolling interest in Gray Oak Holdings.

We accounted for our consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills as a business combination using the acquisition method of accounting.

See Note 2—Business Combination, for additional information on our accounting for this transaction.

See Note 20—DCP Midstream Class A Segment, for additional disclosures regarding our variable interest in DCP Midstream Class A Segment.

Merger of Phillips 66 Partners LP (Phillips 66 Partners)

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

See Note 21—Phillips 66 Partners LP, for additional information on this merger transaction.

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Note 2—Business Combination

On August 17, 2022, we realigned our economic interest in, and governance rights over, DCP Midstream and Gray Oak Holdings through the merger of these existing entities with DCP Midstream as the surviving entity.

As part of the merger, we transferred a 35.75 % indirect economic interest in Gray Oak Pipeline and contributed $ 404 million of cash to DCP Midstream, which was then paid to Enbridge, in return for a 15.05 % incremental indirect economic ownership interest in DCP LP.

As noted above, the additional governance rights we were granted as part of this transaction resulted in us consolidating the Class A Segment of DCP Midstream, as well as DCP Sand Hills and DCP Southern Hills.

Given the nature of this transaction, we have accounted for the consolidation of these entities using the acquisition method of accounting.

See Note 1—Interim Financial Information, for additional information on the merger and our consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills.

The components of the fair value of the merger consideration are:

Millions of Dollars

Cash contributed $ 404

Fair value of transferred equity interest 634

Fair value of previously held equity interests 3,853

Total merger consideration $ 4,891

The aggregate purchase consideration noted above was allocated to the assets acquired and liabilities assumed of the entities consolidated based upon a preliminary estimate of their fair values as of the August 17, 2022, merger date.

Due to the level of effort required to develop fair value measurements, the valuation information necessary to determine the fair values of assets acquired and liabilities assumed is preliminary, including the underlying cash flows, appraisals and other information used to estimate the fair values of the net assets acquired and noncontrolling interests in those net assets.

We continue to evaluate the factors used in establishing the fair values of assets and liabilities as of the acquisition date, including, but not limited to, those factors that could affect the estimated fair values of properties, plants and equipment (PP&E), investments in unconsolidated affiliates accounted for under the equity method, identifiable intangible assets, leases, financial instruments, asset retirement and environmental obligations, legal contingencies, debt and noncontrolling interests.

We will complete a final determination of the fair values of assets acquired and liabilities assumed within the one-year measurement period from the date of the merger.

Any adjustments made in subsequent periods could be material to the preliminary values.

Table of Content s

The following table summarizes, based on our preliminary purchase price allocation described above, the fair values of the assets acquired and liabilities assumed of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills as of August 17, 2022:

Millions of Dollars

Fair value of assets acquired:

Cash and cash equivalents $ 98

Accounts and notes receivable 1,003

Inventories 74

Prepaid expenses and other current assets 439

Investments and long-term receivables 2,192

Properties, plants and equipment 12,837

Intangibles 36

Other assets 343

Total assets acquired 17,022

Fair value of liabilities assumed:

Accounts payable 912

Short-term debt 625

Accrued income and other taxes 107

Employee benefit obligation - current 50

Other accruals 497

Long-term debt 4,541

Asset retirement obligations and accrued environmental costs 168

Deferred income taxes 40

Employee benefit obligations 54

Other liabilities and deferred credits 227

Total liabilities assumed 7,221

Fair value of net assets 9,801

Fair value of noncontrolling interests 4,910

Total merger consideration $ 4,891

As of August 17, 2022, the preliminary fair value of our previously held equity investments in DCP Midstream, DCP Sand Hills, and DCP Southern Hills totaled $ 3,853 million, and the preliminary fair value of the equity interest in Gray Oak Pipeline we transferred to our co-venturer was $ 634 million.

In connection with the merger, we recognized gains totaling $ 2,831 million from remeasuring our previously held equity investments to their fair values and a gain of $ 182 million related to the transfer of a 35.75 % indirect economic interest in Gray Oak Pipeline to our co-venturer.

These gains are included in the “Other income” line item in our consolidated statement of income for the three and nine months ended September 30, 2022, and are reported in the Midstream segment.

See Note 14—Fair Value Measurements, for additional information on the determination of the fair value of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills.

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The following “Sales and other operating revenues” and “Net Income Attributable to Phillips 66” of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills were included in our consolidated statement of income from August 18, 2022, forward.

Millions of Dollars

Sales and other operating revenues $ 1,368

Net Income Attributable to Phillips 66 125

Pro Forma Financial Information

The following unaudited pro forma financial information presents consolidated results assuming the acquisition of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills occurred on January 1, 2021.

The unaudited pro forma information includes adjustments based on currently available information and we believe the estimates and assumptions are reasonable, and the significant effects of the transactions are properly reflected in the unaudited pro forma information.

An aggregate gain of $ 2,831 million was included in the pro forma financial information for the nine months ended September 30, 2021, which is related to the remeasurement of the previously held equity investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills to their fair values in connection with the merger.

Adjustments related to the economic interest change in our equity investment in Gray Oak Pipeline were excluded from the pro forma financial information.

The unaudited pro forma information does not give effect to any potential synergies that could be achieved and is not necessarily indicative of the results of future operations.

Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Sales and other operating revenues (millions)

$ 46,892 32,109 136,848 83,878

Net Income Attributable to Phillips 66 (millions)

3,129 405 6,963 2,167

Net Income Attributable to Phillips 66 per share—basic (dollars)

6.50 0.92 14.76 4.91

Net Income Attributable to Phillips 66 per share—diluted (dollars)

6.48 0.92 14.71 4.90

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Note 3— Sales and Other Operating Revenues

3 unchanged sentences

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

2 unchanged sentences

Crude oil resales 6,146 3,091 15,694 9,484

Natural gas liquids (NGL) 3,255 1,943 6,485 3,717

Natural gas liquids (NGL) and natural gas 4,217 2,331 10,702 6,048

Services and other *

1 unchanged sentence

Consolidated sales and other operating revenues $ 44,955 30,243 129,711 78,872

$ 48,577 27,002 84,756 48,629

Geographic Location**

4 unchanged sentences

Consolidated sales and other operating revenues $ 44,955 30,243 129,711 78,872

$ 48,577 27,002 84,756 48,629

* Includes derivatives-related activities.

2 unchanged sentences

Contract-Related Assets and Liabilities

At June 30, 2022, and December 31, 2021, receivables from contracts with customers were $ 11,043 million and $ 6,140 million, respectively.

At September 30, 2022, and December 31, 2021, receivables from contracts with customers were $ 11,393 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 June 30, 2022, and December 31, 2021, our asset balances related to such payments were $ 480 million and $ 466 million, respectively.

At September 30, 2022, and December 31, 2021, our asset balances related to such payments were $ 496 million and $ 466 million, respectively.

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

At June 30, 2022, and December 31, 2021, contract liabilities were not material.

At September 30, 2022, and December 31, 2021, contract liabilities were $ 237 million and $ 90 million, respectively.

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

At September 30, 2022, the remaining performance obligations related to these minimum volume commitment contracts amounted to $ 472 million.

This amount excludes variable consideration and estimates of variable rate escalation clauses in our contracts with customers, and is expected to be recognized through 2031 with a weighted average remaining life of three years as of September 30, 2022.

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Note 4— Credit Losses

We are exposed to credit losses primarily through our sales of refined petroleum products, crude oil and NGL.

We are exposed to credit losses primarily through our sales of refined petroleum products, crude oil, NGL and natural gas.

We assess each counterparty’s ability to pay for the products we sell by conducting a credit review.

7 unchanged sentences

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 June 30, 2022, and December 31, 2021, we reported $ 13,393 million and $ 7,470 million of accounts and notes receivable, respectively, net of allowances of $ 62 million and $ 44 million, respectively.

Based on an aging analysis at June 30, 2022, more than 95 % of our accounts receivable were outstanding less than 60 days.

At September 30, 2022, and December 31, 2021, we reported $ 13,652 million and $ 7,470 million of accounts and notes receivable, respectively, net of allowances of $ 64 million and $ 44 million, respectively.

Based on an aging analysis at September 30, 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.

See Note 11—Guarantees, and Note 12—Contingencies and Commitments, for more information on these off-balance sheet exposures.

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Note 5— Inventories

5 unchanged sentences

$ 4,294 3,394

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 4,005 million and $ 2,792 million at June 30, 2022, and December 31, 2021, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 10.5 billion and $ 5.7 billion at June 30, 2022, and December 31, 2021, respectively.

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 3,662 million and $ 2,792 million at September 30, 2022, and December 31, 2021, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 7.3 billion and $ 5.7 billion at September 30, 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 increased our net income by $ 3 million and $ 43 million in the three and six months ended June 30, 2022, respectively.

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.

The impact of LIFO inventory liquidations was immaterial for the three months ended September 30, 2022 and increased our net income by $ 43 million in the nine months ended September 30, 2022.

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

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Note 6— 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 brought by the Standing Rock Sioux Tribe ordered the U.S.

In 2020, the trial court presiding over litigation brought by the Standing Rock Sioux Tribe (the 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.

Although the easement is vacated, the USACE has no plans to stop pipeline operations while it proceeds with the EIS, and the Tribe’s request for a shutdown was denied in May of 2021.

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 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.

Once the EIS is completed, new litigation or challenges may be filed.

In February 2022, the U.S.

Supreme Court (the Court) denied Dakota Access’s writ of certiorari requesting the Court to review the lower court’s decision to order the EIS and vacate the easement.

Therefore, the requirement to prepare the EIS stands.

Also in February 2022, the Tribe withdrew as a cooperating agency, causing the USACE to halt the EIS process while the USACE engaged with the Tribe on their reasons for withdrawing.

The draft EIS process resumed in August of 2022, and release is expected in Spring of 2023.

Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access in March 2019.

1 unchanged sentence

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.

At June 30, 2022, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $ 1.85 billion.

At September 30, 2022, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $ 1.85 billion.

In conjunction with the notes offering, Phillips 66 Partners, now a wholly owned subsidiary of Phillips 66, and its co-venturers in Dakota Access also provided a Contingent Equity Contribution Undertaking (CECU).

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 June 30, 2022, our 25 % share of the maximum potential equity contributions under the CECU was approximately $ 467 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 25 % share of the ongoing expenses, including scheduled interest payments on the notes of approximately $ 20 million annually, in addition to the potential obligations under the CECU at June 30, 2022.

At June 30, 2022, the aggregate book value of our investments in Dakota Access and ETCO was $ 704 million.

At September 30, 2022, our 25 % share of the maximum potential equity contributions under the CECU was approximately $ 467 million.

At September 30, 2022, the aggregate book value of our investments in Dakota Access and ETCO was $ 691 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, 2022, our maximum exposure to loss was comprised of our $ 280 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, 2022, our maximum exposure to loss was comprised of our $ 288 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.

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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, 2022, our maximum exposure to loss was $ 201 million, which represented the book value of our investment in OnCue of $ 129 million and guaranteed debt obligations of $ 72 million.

Liberty Pipeline LLC (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 six months ended June 30, 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.

At September 30, 2022, our maximum exposure to loss was $ 213 million, which represented the book value of our investment in OnCue of $ 142 million and guaranteed debt obligations of $ 71 million.

DCP Midstream and Gray Oak Holdings Merger

In connection with the DCP Midstream and Gray Oak Holdings merger, we derecognized our equity method investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills as these entities are consolidated starting on August 18, 2022.

In addition, as part of the merger, we transferred a 35.75 % indirect economic interest in Gray Oak Pipeline to Enbridge and derecognized Enbridge’s noncontrolling interest in Gray Oak Holdings.

After the merger, we continue to account for our remaining 6.5 % indirect economic interest in Gray Oak Pipeline, now held through DCP Midstream Class B Segment, using the equity method of accounting.

See Note 1—Interim Financial Information, Note 2—Business Combination, and Note 14—Fair Value Measurements, for additional information regarding the merger and the associated fair value measurements.

Equity Investments Acquired

As a result of the DCP Midstream and Gray Oak Holdings merger, we acquired and recorded equity investments in DCP Midstream Class A Segment at their fair values.

See Note 1—Interim Financial Information, Note 2—Business Combination and Note 14—Fair Value Measurements, for additional information regarding the merger and the associated fair value measurements.

Other Investments

3 unchanged sentences

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 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) losses” line item on our consolidated statement of operations.

The fair value of our investment in NOVONIX was $ 122 million at June 30, 2022.

The fair value of our investment in NOVONIX declined by $ 240 million and $ 398 million during the three and six months ended June 30, 2022, respectively, reflecting unrealized investment losses of $ 221 million and $ 390 million and unrealized foreign currency losses of $ 19 million and $ 8 million, respectively.

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

The fair value of our investment in NOVONIX was $ 89 million at September 30, 2022.

The fair value of our investment in NOVONIX declined by $ 33 million and $ 431 million during the three and nine months ended September 30, 2022, respectively, reflecting unrealized investment losses of $ 28 million and $ 418 million and unrealized foreign currency losses of $ 5 million and $ 13 million, respectively.

See Note 14—Fair Value Measurements, for additional information regarding the recurring fair value measurement of our investment in NOVONIX.

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our 50 % share was $ 75 million.

In June 2022, WRB repaid a portion of the outstanding member loan balance;

In the second and third quarters of 2022, WRB repaid a portion of the outstanding member loan balance;

our 50 % share was $ 235 million.

At June 30, 2022, our 50 % share of the outstanding member loan balance, including accrued interest, was $ 570 million.

At September 30, 2022, our 50 % share of the outstanding member loan balance, including accrued interest, was $ 433 million.

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Note 7— Properties, Plants and Equipment

Our gross investment in properties, plants and equipment (PP&E) and the associated accumulated depreciation and amortization (Accum.

Our gross investment in PP&E and the associated accumulated depreciation and amortization (Accum.

D&A) balances were as follows:

Millions of Dollars

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Midstream $ 26,140 3,806 22,334 12,524 3,064 9,460

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$ 52,624 17,662 34,962 39,797 17,362 22,435

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.

See Note 1—Interim Financial Information, Note 2—Business Combination and Note 14—Fair Value Measurements, for additional information on the DCP Midstream and Gray Oak Holdings merger and the associated fair value measurements.

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Note 8— Impairments

Millions of Dollars

Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Midstream $ — 10 1 208

Refining — 1,288 1 1,288

Total impairments $ — 1,298 2 1,496

Equity Investment

In the first quarter of 2021, Phillips 66 Partners decided to exit the Liberty Pipeline project in our Midstream segment, 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.

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.

In the fourth quarter of 2021, we shut down our Alliance Refinery and subsequently converted it into a terminal.

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

See Note 14—Fair Value Measurements, for additional information on the determination of fair value used to record these impairments.

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Note 9— Earnings Per Share

The numerator of basic earnings per share (EPS) is net income 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.

The numerator of diluted EPS is also based on net income 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 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.

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Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

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Amounts Attributed to Phillips 66 Common Stockholders (millions) :

Net income (loss) attributable to Phillips 66 $ 3,167 3,167 296 296 3,749 3,749 ( 358 ) ( 358 )

Net Income Attributable to Phillips 66 $ 5,391 5,391 402 402 9,140 9,140 44 44

Income allocated to participating securities ( 3 ) — ( 2 ) ( 2 ) ( 8 ) — ( 7 ) ( 7 )

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

Net income (loss) available to common stockholders $ 3,164 3,167 291 291 3,744 3,749 ( 366 ) ( 366 )

Net income available to common stockholders $ 5,388 5,391 400 400 9,132 9,140 35 35

Weighted-average common shares outstanding (thousands) :

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Weighted-average common shares outstanding—EPS 481,388 483,036 440,193 440,368 471,375 473,452 439,880 440,259

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

Earnings Per Share of Common Stock (dollars)

$ 11.19 11.16 0.91 0.91 19.37 19.31 0.08 0.08

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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.

See Note 21—Phillips 66 Partners LP, for additional information on this merger transaction.

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Note 10— Debt

Short-term and long-term debt consisted of the following:

Millions of Dollars

June 30, 2022 December 31, 2021

Phillips 66 Phillips 66 Company Phillips 66 Partners Total Phillips 66 Phillips 66 Partners Total

September 30, 2022 December 31, 2021

Phillips 66 Phillips 66 Company Phillips 66 Partners DCP LP Total Phillips 66 Phillips 66 Partners Total

4.300 % Senior Notes due April 2022

$ — — — — — 1,000 — 1,000

3.875 % Senior Notes due March 2023

— — — 500 500 — — —

3.700 % Senior Notes due April 2023

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650 — — — 650 650 — 650

5.375 % Senior Notes due July 2025

— — — 825 825 — — —

1.300 % Senior Notes due February 2026

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— 458 42 — 500 — 500 500

5.625 % Senior Notes due July 2027

— — — 500 500 — — —

3.750 % Senior Notes due March 2028

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800 — — — 800 800 — 800

5.125 % Senior Notes due May 2029

— — — 600 600 — — —

3.150 % Senior Notes due December 2029

— 570 30 — 600 — 600 600

8.125 % Senior Notes due August 2030

— — — 300 300 — — —

2.150 % Senior Notes due December 2030

850 — — — 850 850 — 850

3.250 % Senior Notes due February 2032

— — — 400 400 — — —

4.650 % Senior Notes due November 2034

1,000 — — — 1,000 1,000 — 1,000

6.450 % Senior Notes due November 2036

— — — 300 300 — — —

6.750 % Senior Notes due September 2037

— — — 450 450 — — —

5.875 % Senior Notes due May 2042

1,500 — — — 1,500 1,500 — 1,500

5.850 % Junior Subordinated Notes due May 2043

— — — 550 550 — — —

5.600 % Senior Notes due April 2044

— — — 400 400 — — —

4.875 % Senior Notes due November 2044

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— — — — — — 450 450

Floating Rate Advance Term Loan due December 2034 at 0.831 % and 0.699 % at June 30, 2022 and year-end 2021, respectively—related party

Floating Rate Advance Term Loan due December 2034 at 3.124 % and 0.699 % at September 30, 2022 and year-end 2021, respectively—related party

25 — — — 25 25 — 25

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Debt at face value 9,326 3,220 255 4,839 17,640 10,326 3,925 14,251

Fair value adjustment to debt acquired ( 125 )

Finance leases 269 290

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Long-term debt $ 16,625 12,959

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2022 Activities

Revolving Credit Facilities

Credit Facilities

Phillips 66 and Phillips 66 Company

On June 23, 2022, we entered into a new $ 5 billion revolving credit facility (the Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor and a scheduled maturity date of June 22, 2027.

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We also have the option to extend the scheduled maturity of the Facility for up to two additional one-year terms, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment.

Outstanding borrowings under the Facility bear interest at either (a) the Adjusted Term Secured Overnight Financing Rate (as described in the Facility) in effect from time to time plus the applicable margin;

Outstanding borrowings under the Facility bear interest at either (a) the Adjusted Term Secured Overnight Financing Rate (SOFR) (as described in the Facility) in effect from time to time plus the applicable margin;

or (b) the reference rate (as described in the Facility) plus the applicable margin.

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We may at any time prepay outstanding borrowings, in whole or in part, without premium or penalty.

At June 30, 2022, no amount has been drawn under the Facility.

At September 30, 2022, no amount has been drawn under the Facility.

DCP Midstream Class A Segment

As a result of the merger of DCP Midstream and Gray Oak Holdings, we recorded the fair value of DCP Midstream Class A Segment’s debt to our consolidated balance sheet as of August 17, 2022.

All of DCP Midstream Class A Segment’s debt is held by DCP LP.

Interest on all of DCP LP’s senior notes and junior subordinated notes is paid on a semi-annual basis.

DCP LP also has a credit facility that matures on March 18, 2027, under its amended credit agreement (the Credit Agreement), with a borrowing capacity of up to $ 1.4 billion.

The credit facility bears interest at either the term SOFR or the base rate plus, in each case, an applicable margin based on DCP LP’s credit rating.

The Credit Agreement also grants DCP LP the option to increase the revolving loan commitment by an aggregate principal amount of up to $ 500 million and also to extend the term for up to two additional one-year periods, subject to requisite lender approval.

Loans under the Credit Agreement may be used for working capital and other general partnership purposes including acquisitions.

Indebtedness under the Credit Agreement bears interest at either:

(1) an adjusted SOFR (as described in the Credit Agreement) plus the applicable margin;

or (2) the base rate (as described in the Credit Agreement) plus an applicable margin.

The Credit Agreement also provides for customary fees, including commitment fees.

The cost of borrowing under the Credit Agreement is determined by a ratings-based pricing grid based on DCP LP’s credit rating.

As of September 30, 2022, DCP LP had unused borrowing capacity of $ 1,390 million, net of $ 10 million of letters of credit, under the Credit Agreement, of which $ 1,390 million was available to borrow for working capital and other general partnership purposes based on the financial covenants set forth in the Credit Agreement.

Except in the event of a default, amounts under the Credit Agreement will not become due prior to the March 18, 2027, maturity date.

DCP LP has an accounts receivable securitization facility (the Securitization Facility) that provides for up to $ 350 million of borrowing capacity through August 2024 at an adjusted SOFR that includes an uncommitted option to increase the total commitments under the Securitization Facility by up to an additional $ 400 million.

Under the Securitization Facility, certain of DCP LP’s wholly owned subsidiaries sell or contribute receivables to another of DCP LP’s consolidated subsidiaries, DCP Receivables LLC (DCP Receivables), a bankruptcy-remote special purpose entity created for the sole purpose of the Securitization Facility.

As of September 30, 2022, DCP LP had unused borrowing capacity of $ 350 million under the Securitization Facility, secured by its accounts receivable at DCP Receivables.

Phillips 66 Partners

In connection with entering into the Facility, we terminated Phillips 66 Partners’ $ 750 million revolving credit facility.

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Debt Exchange

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Debt Repayments

After the merger, DCP LP repaid $ 470 million of debt, related to its accounts receivable securitization facility and revolving credit facility.

In 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.

2021 Activities

In September 2021, Phillips 66 repaid the $ 500 million of outstanding borrowings under the delayed draw term loan facility due November 2023.

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

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

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Note 11— Guarantees

At June 30, 2022, we were liable for certain contingent obligations under various contractual arrangements as described below.

At September 30, 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 June 30, 2022.

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $ 514 million at September 30, 2022.

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 ten years .

These leases have remaining terms of up to nine years .

Guarantees of Joint Venture Obligations

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See Note 6—Investments, Loans and Long-Term Receivables, for additional information on Dakota Access and the CECU.

At June 30, 2022, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to three years .

At September 30, 2022, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to three years .

The maximum potential future exposures under these guarantees were approximately $ 85 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 June 30, 2022, and December 31, 2021, the carrying amount of recorded indemnifications was $ 142 million and $ 144 million, respectively.

At September 30, 2022, and December 31, 2021, the carrying amount of recorded indemnifications was $ 133 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 June 30, 2022, and December 31, 2021, environmental accruals for known contamination of $ 105 million and $ 106 million, respectively, were included in the carrying amount of the recorded indemnifications noted above.

At September 30, 2022, and December 31, 2021, environmental accruals for known contamination of $ 104 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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The agreement also establishes procedures for handling claims subject to indemnification and related matters.

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Note 12— Contingencies and Commitments

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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 June 30, 2022, our total environmental accruals were $ 430 million, compared with $ 436 million at December 31, 2021.

At September 30, 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.

1 unchanged sentence

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

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Legal Proceedings

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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 June 30, 2022, we had performance obligations secured by letters of credit and bank guarantees of $ 2,374 million related to various purchase and other commitments incident to the ordinary conduct of business.

At September 30, 2022, we had performance obligations secured by letters of credit and bank guarantees of $ 1,355 million related to various purchase and other commitments incident to the ordinary conduct of business.

Note 13— Derivatives and Financial Instruments

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We use financial and commodity-based derivative contracts to manage exposures to fluctuations in commodity prices, interest rates and foreign currency exchange rates, or to capture market opportunities.

Because we do not apply hedge accounting for commodity derivative contracts, all realized and unrealized gains and losses from commodity derivative contracts are recognized in our consolidated statement of operations.

Gains and losses from derivative contracts held for trading not directly related to our physical business are reported net in the “Other income” line item on our consolidated statement of operations.

Gains and losses from derivative contracts held for trading not directly related to our physical business are reported net in the “Other income” line item on our consolidated statement of income.

Cash flows from all our derivative activity for the periods presented appear in the operating section on our consolidated statement of cash flows.

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We also use the market knowledge gained from these activities to capture market opportunities such as moving physical commodities to more profitable locations, storing commodities to capture seasonal or time premiums, and blending commodities to capture quality upgrades.

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DCP Midstream Class A Segment

Through DCP LP’s operations, DCP Midstream Class A Segment is exposed to a variety of risks including but not limited to changes in the prices of commodities that DCP LP buys or sells, changes in interest rates, and the creditworthiness of each of DCP LP’s counterparties.

DCP LP manages certain of these exposures with either physical or financial transactions.

DCP LP has established a comprehensive risk management policy and a risk management committee to monitor and manage market risks associated with commodity prices and counterparty credit.

The risk management committee is composed of DCP LP’s senior executives who receive regular briefings on positions and exposures, credit exposures and overall risk management in the context of market activities.

The risk management committee is responsible for the overall management of credit risk and commodity price risk, including monitoring exposure limits.

Effective from the date of the merger, we include DCP LP’s financial instruments in our financial statements.

See Note 1—Interim Financial Information, for additional information regarding the merger and the associated accounting treatment.

The following table indicates the consolidated balance sheet line items that include the fair values of commodity derivative assets and liabilities.

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Millions of Dollars

June 30, 2022 December 31, 2021

September 30, 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 $ 4,335 ( 4,257 ) 45 123 860 ( 877 ) 49 32

At June 30, 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:

At September 30, 2022, there was $ 219 million of collateral paid that was not offset on our consolidated balance sheet.

At 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 income, were:

Millions of Dollars

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

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Purchased crude oil and products 166 66 ( 315 ) ( 282 )

Net loss from commodity derivative activity $ ( 351 ) ( 388 ) ( 974 ) ( 645 )

Net gain (loss) from commodity derivative activity $ 620 ( 137 ) ( 354 ) ( 782 )

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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 June 30, 2022, and December 31, 2021.

The percentage of our derivative contract volumes expiring within the next 12 months was more than 90 % at September 30, 2022, and December 31, 2021.

Open Position

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( 29 ) ( 18 )

Natural gas (billions of cubic feet)

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 June 30, 2022, and December 31, 2021.

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, 2022, and December 31, 2021.

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Note 14— Fair Value Measurements

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We determine the fair value of interest rate swaps based on observable market valuations for interest rate swaps that have notional amounts, terms and pay and reset frequencies similar to ours.

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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 the Australian Securities Exchange and is therefore categorized as Level 1 in the fair value hierarchy.

• Other investments —Includes other marketable securities with observable market prices.

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

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Millions of Dollars

June 30, 2022

September 30, 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 $ 4,058 103 3 4,164 ( 3,870 ) — — 294

OTC instruments — 22 20 42 — — — 42

Physical forward contracts — 127 2 129 ( 30 ) — — 99

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Investment in NOVONIX 89 — — 89 N/A N/A — 89

Other investments 40 — — 40 N/A N/A — 40

$ 4,308 252 25 4,585 ( 3,900 ) — — 685

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Exchange-cleared instruments $ 3,931 246 5 4,182 ( 3,870 ) ( 45 ) — 267

OTC instruments — 5 — 5 — — — 5

Physical forward contracts — 70 — 70 ( 30 ) — — 40

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$ 3,931 16,192 5 20,128 ( 3,900 ) ( 45 ) 1,497 17,680

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Millions of Dollars

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Nonrecurring Fair Value Measurements

Equity Investments

Equity Investment

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 Phillips 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 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.

DCP Midstream and Gray Oak Holdings Merger

In the third quarter of 2022, we and Enbridge agreed to merge DCP Midstream and Gray Oak Holdings with DCP Midstream as the surviving entity.

As a result, we began consolidating the financial results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills, and accordingly, accounted for the business combination using the acquisition method of accounting, which requires DCP Midstream Class A Segment’s, DCP Sand Hills’ and DCP Southern Hills’, assets and liabilities to be recorded at fair value as of the acquisition date on our consolidated balance sheet.

See Note 2—Business Combination, for additional information on the merger transaction.

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Equity Investments

The preliminary fair value of the investments we acquired that are accounted for under the equity method was $ 2,192 million.

The preliminary fair value of these assets was determined using the income approach.

The income approach used discounted cash flow models that require various observable and non-observable inputs, such as margins, tariffs and rates, utilization, volumes, product costs, operating expenses, capital expenditures, terminal-year values and risk-adjusted discount rates.

These valuations resulted in Level 3 nonrecurring fair value measurements.

The preliminary fair value of PP&E was $ 12,837 million.

The preliminary fair value of these assets was determined primarily using the cost approach.

These valuations resulted in Level 3 nonrecurring fair value measurements.

The preliminary fair value of DCP LP’s senior and junior subordinated notes was measured using a market approach, based on the average of quotes for the acquired debt from major financial institutions.

These valuations resulted in Level 2 nonrecurring fair value measurements.

Gain Related to Merger of Businesses

The preliminary fair values of our previously held equity interest in DCP Midstream and the equity interest in Gray Oak Pipeline we transferred were primarily based on DCP LP’s publicly traded common unit market price on the effective date of the merger, August 17, 2022, the cash consideration contributed and obligations that were deemed to be effectively settled.

This valuation resulted in Level 1 nonrecurring fair value measurements.

The preliminary fair values of our previously held equity interests in DCP Sand Hills and DCP Southern Hills were determined using the income approach.

The income approach used discounted cash flow models that require various observable and non-observable inputs, such as tariffs, volumes, operating expenses, capital expenditures, terminal-year values and risk-adjusted discount rates.

These valuations resulted in Level 3 nonrecurring fair value measurements.

Noncontrolling Interest

As a result of our consolidation of the DCP Midstream Class A Segment, the noncontrolling interests held in the DCP Midstream Class A Segment were recorded at their estimated fair values on the merger date.

These noncontrolling interests include Enbridge’s indirect economic interest in DCP LP, the public holders of DCP LP’s common units and the holders of DCP LP’s preferred units.

The fair value of the noncontrolling interests in DCP LP’s common units was based on their unit market price as of the date of the merger, August 17, 2022.

The fair value of the noncontrolling interests in DCP LP’s publicly traded preferred units was based on their respective market price as of the date of the merger, August 17, 2022.

These valuations resulted in Level 1 nonrecurring fair value measurements.

The preliminary fair value of the noncontrolling interests in DCP LP’s other preferred units was based on an income approach that used projected distributions that were discounted using an average implied yield of DCP LP’s publicly traded preferred units.

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

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Note 15— Pension and Postretirement Plans

The components of net periodic benefit cost for the three and six months ended June 30, 2022 and 2021, were as follows:

The components of net periodic benefit cost for the three and nine months ended September 30, 2022 and 2021, 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 $ 28 6 37 9 1 1

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Net periodic benefit cost* $ 51 10 44 6 1 2

Six Months Ended June 30

Nine Months Ended September 30

Service cost $ 98 21 111 26 3 4

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Amortization of prior service credit — — — — ( 1 ) ( 2 )

Recognized net actuarial loss (gain) 12 6 29 12 ( 1 ) ( 1 )

Amortization of net actuarial loss (gain) 18 9 37 19 ( 2 ) ( 1 )

Settlements 45 9 47 — — —

Net periodic benefit cost* $ 122 11 134 15 4 5

* 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, 2022, we contributed $ 91 million to our U.S.

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

During the nine months ended September 30, 2022, we contributed $ 122 million to our U.S.

pension and other postretirement benefit plans and $ 18 million to our international pension plans.

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pension and other postretirement benefit plans and approximately $ 5 million to our international pension plans during the remainder of 2022.

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Note 16— Accumulated Other Comprehensive Loss

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Net current period other comprehensive income (loss) 76 ( 625 ) — ( 549 )

June 30, 2022 $ ( 362 ) ( 369 ) ( 2 ) ( 733 )

September 30, 2022 $ ( 322 ) ( 670 ) ( 2 ) ( 994 )

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

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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 )

* Included in the computation of net periodic benefit cost.

See Note 15—Pension and Postretirement Plans, for additional information.

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Note 17— Related Party Transactions

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Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Operating revenues and other income (a) $ 1,975 959 3,315 1,729

Purchases (b) 6,203 3,452 10,884 5,809

Operating revenues and other income (a)(d) $ 1,599 1,005 4,914 2,734

Purchases (b)(d) 5,705 3,980 16,589 9,789

Operating expenses and selling, general and administrative expenses (c) 69 80 209 215

70 67 140 135

(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.

(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 LLC (Excel Paralubes), 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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We also purchased natural gas and NGL from DCP Midstream and CPChem, as well as other feedstocks from various equity affiliates, for use in our refinery and fractionation processes.

In addition, we purchased base oils and fuel products from Excel for use in our specialty and refining businesses.

In addition, we purchased base oils and fuel products from Excel Paralubes for use in our specialty and refining businesses.

We paid NGL fractionation fees to CPChem.

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(d) As a result of the DCP Midstream and Gray Oak Holdings merger, DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills are no longer considered related parties to us after August 17, 2022.

Accordingly, any sale and purchase transactions with them are excluded from the above disclosure after the merger.

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Note 18— Segment Disclosures and Related Information

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

As a result of the merger on August 17, 2022, we began consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills.

This segment also includes our 16 % investment in NOVONIX.

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

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

See Note 1—Interim Financial Information and Note 21—Phillips 66 Partners LP, for additional information on these transactions.

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, 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.

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

In addition, this segment includes the manufacturing and marketing of specialty products.

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Intersegment sales are at prices that we believe approximate market.

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Analysis of Results by Operating Segment

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Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

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Corporate and Other ( 320 ) ( 231 ) ( 829 ) ( 728 )

Consolidated income (loss) before income taxes $ 4,106 436 4,934 ( 335 )

Consolidated income before income taxes $ 7,158 448 12,092 113

Millions of Dollars

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Consolidated total assets $ 77,339 55,594

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Note 19— Income Taxes

Our effective income tax rate for the three and six months ended June 30, 2022, was 23 % and 22 %, compared with 14 % and 21 %, respectively, for the corresponding periods of 2021.

The increase in our effective tax rate for the three and six months ended June 30, 2022, was primarily attributable to the impact of foreign operations, the elimination of the favorable noncontrolling interest impact as a result of completing the merger between us and Phillips 66 Partners on March 9, 2022, and the net benefit to the 2021 income tax rate from enacted income tax rate changes.

The effective tax rate for the three and six months ended June 30, 2022, varied from the U.S.

federal statutory income tax rate primarily due to state income taxes, partially offset by the impact of foreign operations.

Our effective income tax rate for the three and nine months ended September 30, 2022, was 23 % and 22 %, respectively, compared with ( 9 )% and ( 97 )%, respectively, for the corresponding periods of 2021.

The increase in our effective tax rate for the three and nine months ended September 30, 2022, was primarily attributable to the discrete tax treatment of the Alliance Refinery impairment in 2021.

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

Additionally, the tax consequences of the gain recognized related to the DCP Midstream and Gray Oak Holdings merger were not included in our estimated annual effective tax rate but instead were fully reported in the third quarter of 2022 as a discrete item.

See Note 1—Interim Financial Information, for additional information on this merger.

The effective tax rate for the three and nine months ended September 30, 2022, varied from the U.S.

federal statutory income tax rate primarily due to state income taxes.

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act of 2022 (IRA) that includes, among other provisions, changes to the U.S.

corporate income tax system, including a 15% minimum tax based on adjusted financial statement income as defined in the IRA, which is effective after December 31, 2022.

We are continuing to evaluate the IRA and its requirements, as well as the application to our business.

Note 20—DCP Midstream Class A Segment

DCP Midstream Class A Segment is a VIE and we are the primary beneficiary.

DCP Midstream Class A Segment is comprised of the businesses, activities, assets and liabilities of DCP LP and its subsidiaries and its general partner entities.

Refer to Note 1—Interim Financial Information and Note 2—Business Combination, for more details on the DCP Midstream and Gray Oak Holdings merger transaction and related accounting.

DCP LP, headquartered in Denver, Colorado, is a publicly traded MLP whose operations currently include producing and fractionating NGL, gathering, compressing, treating and processing natural gas;

recovering condensate;

and transporting, trading, marketing and sorting natural gas and NGL.

As a result of our consolidation of DCP Midstream Class A Segment, the public common and preferred unitholders’ ownership interests and Enbridge’s indirect economic interest in DCP LP are reflected as noncontrolling interests in our consolidated financial statements.

At September 30, 2022, we held a 43.31 % indirect economic interest in DCP LP.

The most significant assets of DCP Midstream Class A Segment 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

September 30, 2022

Accounts receivable, trade* $ 1,298

Net properties, plants and equipment 9,295

Investments in unconsolidated affiliates** 2,185

Accounts payable 1,351

Short-term debt 506

Long-term debt 4,192

* Included in the “Accounts and notes receivable” line item on the Phillips 66 consolidated balance sheet.

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

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Preferred Units

DCP LP’s preferred units rank senior to its common units with respect to distribution rights and rights upon liquidations.

Holders of DCP LP’s preferred units have no voting rights except for certain limited protective voting rights.

Distributions on the preferred units are payable out of DCP LP’s available cash, are accretive and are cumulative from the date of original issuance of the preferred units.

Distributions on the Series A preferred units are payable semiannually in arrears in June and December of each year.

Distributions on the Series B preferred units are payable quarterly in arrears in March, June, September and December of each year.

Distributions on the Series C preferred units are payable quarterly in arrears in January, April, July and October of each year.

As of September 30, 2022, DCP LP had 500,000 Series A preferred units outstanding with an aggregate liquidation preference of $ 500 million, 6,450,000 Series B preferred units outstanding with an aggregate liquidation preference of approximately $ 161 million, and 4,400,000 Series C preferred units outstanding with an aggregate liquidation preference of $ 110 million.

The Series B and C preferred units are publicly traded.

As of September 30, 2022, DCP LP had approximately 208 million of common units outstanding, of which approximately 90 million were publicly held.

In addition, Enbridge holds a 23.36 % economic interest in the approximately 118 million common units held by DCP Midstream Class A Segment.

Common Unit Acquisition Proposal

On August 17, 2022, we announced the submission of a non-binding proposal to the board of the general partner of DCP LP offering to acquire all publicly held common units of DCP LP for cash consideration of $ 34.75 per unit.

The proposed transaction is subject to the negotiation and execution of a definitive agreement, and approval of such definitive agreement and transactions contemplated therein by the board of the general partner of DCP LP and the special committee appointed by the board.

There can be no assurance that the definitive agreement will be executed or that any transaction will be consummated on the terms described above, or at all.

Note 21— Phillips 66 Partners LP

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In April 2022, we announced that we are progressing a multi-year business transformation focused on enterprise-wide opportunities to improve our cost structure.

For the three months ended June 30, 2022, we recorded restructuring costs totaling $ 25 million associated with our business transformation.

These costs are recorded in the “Selling, general and administrative expenses” line item on our consolidated statement of operations and are reported in our Corporate segment.

For the three and nine months ended September 30, 2022, we recorded restructuring costs totaling $ 74 million and $ 99 million, respectively, primarily related to consulting fees and severance accruals.

These costs are recorded in the “Selling, general and administrative expenses” line item on our consolidated statement of income and are reported in our Corporate segment.

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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