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Item 7. Management’s Discussion and Analysis

2023-02-22 compared with 2022-02-18 · 365 added, 360 removed, 684 unchanged (51% of the section changed)

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EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT

Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses.

Phillips 66 is a diversified energy company with Midstream, Chemicals, Refining, and Marketing and Specialties (M&S) operating segments.

At December 31, 2022, we had total assets of $76.4 billion.

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We reported earnings of $11 billion and generated $10.8 billion in cash from operating activities for the full year of 2022.

During 2021, we used available cash to fund capital expenditures and investments of $1.9 billion, pay dividends on our common stock of $1.6 billion, and pay down $1.5 billion in debt.

During 2022, we used available cash to pay down $2.4 billion in debt, fund capital expenditures and investments of $2.2 billion, pay dividends on our common stock of $1.8 billion and repurchase $1.5 billion of our common stock.

We ended 2022 with $6.1 billion of cash and cash equivalents and approximately $6.7 billion of total committed capacity available under our credit facilities.

Our reported earnings for 2021 continued to reflect the ongoing impacts of the disruption to global economic activities caused by the Coronavirus Disease 2019 (COVID-19) pandemic, primarily on our Refining segment.

However, through 2021 global refined petroleum product demand steadily recovered due to the easing of pandemic restrictions and the administration of COVID-19 vaccines.

Consequently, margins and utilization for our Refining segment, margins and sales volumes for our Marketing and Specialities (M&S) segment, and throughput volumes for our Transportation business improved.

In addition, equity earnings from our Chemicals segment increased significantly due to higher margins driven by strong demand and tight product supply.

However, as uncertainty remains regarding the ongoing impact of the pandemic on the global economy, we will continue to be disciplined in our allocation of capital and monitor the performance of our portfolio.

In 2021, we progressed strategic initiatives to position Phillips 66 for a lower-carbon future as a part of our commitment to play an important role in addressing climate change.

In September 2021, we announced a set of company-wide greenhouse gas (GHG) emission intensity reduction targets that we consider to be impactful, attainable and measurable.

By 2030, we expect to reduce GHG emission intensity by 30% for Scope 1 and 2 emissions from our operations and by 15% for Scope 3 emissions from our energy products, below 2019 levels.

Also in September 2021, we acquired a 16% interest in NOVONIX Limited (NOVONIX), a company that develops technology and supplies materials for lithium-ion batteries.

In October 2021, we entered into a definitive merger agreement with Phillips 66 Partners to acquire all of the 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 would 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 March 2022, subject to customary closing conditions.

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

See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the pending merger transaction.

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

On August 17, 2022, we announced a realignment of our economic and governance interests in DCP Midstream, LP (DCP LP) and Gray Oak Pipeline, LLC (Gray Oak Pipeline) resulting from the merger of DCP Midstream and Gray Oak Holdings.

In connection with the merger, we were delegated DCP Midstream’s governance rights over DCP LP and its general partner entities, referred to as DCP Midstream Class A Segment.

Additionally, Enbridge Inc., our co-venturer, was delegated governance rights over Gray Oak Pipeline, referred to as DCP Midstream Class B Segment.

In connection with the merger of DCP Midstream and Gray Oak Holdings, our NGL and Other business includes DCP Midstream Class A Segment, DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills).

Prior to August 18, 2022, our investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills were accounted for using the equity method.

We account for our remaining investment in Gray Oak Pipeline, now held through DCP Midstream Class B Segment, using the equity method.

See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger, in the Notes to Consolidated Financial Statements, for additional information on the merger of DCP Midstream and Gray Oak Holdings.

Index to Financial Statements

DCP LP Public Common Unit Acquisition Agreement

On January 5, 2023, we entered into a definitive agreement with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries will merge with and into DCP LP, with DCP LP surviving as a Delaware limited partnership.

Under the terms of the agreement, at the effective time of the merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP LP and DCP Midstream GP, LP) issued and outstanding as of immediately prior to the effective time will be converted into the right to receive $41.75 per common unit in cash, without interest.

The merger will increase our economic interest in DCP LP from 43.3% to 86.8%.

The transaction is expected to close in the second quarter of 2023, subject to customary closing conditions.

The transaction was unanimously approved by the board of the general partner of DCP LP, based on the unanimous approval and recommendation of its special committee comprised entirely of independent directors after evaluation of the transaction by the special committee in consultation with independent financial and legal advisors.

Concurrently with the execution of the agreement, affiliates of Phillips 66, which together own greater than a majority of the outstanding DCP LP common units, delivered their consent to approve the transaction.

As a result, DCP LP has not solicited and is not soliciting approval of the transaction by any other holders of DCP LP common units.

See Note 29—DCP Midstream Class A Segment, in the Notes to Consolidated Financial Statements, for additional information on the common unit acquisition agreement.

Phillips 66 Partners Merger

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

The merger resulted in the acquisition of all limited partnership interests in Phillips 66 Partners not already owned by us.

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

See Note 30—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on this merger transaction.

CEO Transition

On April 12, 2022, Greg C.

Garland, announced his intention to retire from his position as Chief Executive Officer of Phillips 66, effective July 1, 2022.

Garland continues to serve as Executive Chairman of the Board with an expected retirement date from this position in 2024.

Lashier was promoted to the position of President and Chief Executive Officer effective July 1, 2022.

We continue to focus on the following strategic priorities:

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We employ rigorous training and audit programs to drive ongoing improvement in both personal and process safety as we strive for zero incidents.

In 2021, we achieved a 0.12 total recordable rate.

In 2022, we achieved a combined workforce total recordable rate of 0.11.

Since we cannot control commodity prices, controlling operating expenses and overhead costs, within the context of our commitment to safety and environmental stewardship, is a high priority.

Senior management actively monitors these costs and assesses opportunities for permanent cost reductions.

We continue to progress our multi-year business transformation initiative focused on identifying and implementing opportunities to improve our cost structure enterprise wide.

We are executing on our initiatives to achieve a sustainable run-rate cost reduction of at least $800 million and a sustaining capital reduction of at least $200 million per year by the end of 2023.

We are committed to protecting the environment and strive to reduce our environmental footprint throughout our operations.

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During 2022, our worldwide refining crude oil capacity utilization rate was 90% and our worldwide refining clean product yield was 84%.

Index to Financial Statements

A disciplined capital allocation process ensures we invest in projects that are expected to generate competitive returns.

Our strategy primarily focuses on investing in returns-focused growth opportunities in the Midstream and Chemicals segments, as well as our investments in renewable fuels projects to advance a lower-carbon future.

In 2022, we have budgeted $426 million in growth capital for our Midstream segment, which includes construction completion of Frac 4 at the Sweeny Hub.

In Chemicals, our share of expected self-funded growth capital spending by Chevron Phillips Chemical Company LLC (CPChem) is $502 million.

CPChem plans to use its growth capital to fund expansion of its normal alpha olefins production, optimization and debottleneck opportunities in the olefins and polyolefins chains, as well as continuing development of petrochemicals projects in the U.S.

Gulf Coast and Qatar.

In Refining, we have budgeted $408 million of growth capital, primarily for the reconfiguration of the San Francisco Refinery in Rodeo, California, to a renewable fuels production facility, as part of the Rodeo Renewed project.

We plan to enhance Refining returns by increasing throughput of advantaged feedstocks, improving yields, optimizing our portfolio, and remaining committed to operating excellence.

For 2022, our M&S segment will continue to develop and enhance our retail network, including energy transition opportunities.

Our strategy primarily focuses on investing in high-return growth opportunities in the Midstream and Chemicals segments, as well as our investments in renewable fuels projects to advance a lower-carbon future.

In 2023, we have budgeted $2 billion in capital expenditures and investments, which includes $1.1 billion of growth capital.

Approximately 50% of growth capital is expected to support lower-carbon opportunities.

In Midstream, we have budgeted $639 million for capital expenditures and investments, of which $310 million is for growth capital projects directed towards enhancing our integrated natural gas liquids (NGL) value chain from wellhead to market.

In Refining, we have budgeted $1.1 billion for capital expenditures and investments, of which $448 million is for the continued conversion of the San Francisco Refinery in Rodeo, California into a renewable fuels facility.

In Chemicals, our share of expected self-funded capital spending by Chevron Phillips Chemical Company LLC (CPChem) is $925 million, of which $702 million is for growth capital projects.

CPChem plans to use its growth capital to fund development of its petrochemical projects in the U.S.

Gulf Coast and Qatar, as well as expand its propylene splitting capacity and normal alpha olefins production.

As part of our strategy to grow our Midstream NGL business, on January 5, 2023, we entered into a definitive agreement to acquire all of the publicly held common units of DCP LP, which will increase our economic interest in DCP LP from 43.3% to 86.8% at closing.

This transaction will be accounted for as an equity transaction and is expected to close in the second quarter of 2023, subject to customary closing conditions.

We expect to fund this transaction with a combination of cash and debt.

We plan to enhance Refining returns by focusing on low-capital, higher-return projects that increase asset reliability, improve market capture and reduce costs.

Our M&S segment will continue to develop and enhance our retail network, including energy transition opportunities.

• Distributions.

We believe shareholder value is enhanced through, among other things, a secure, competitive and growing dividend, complemented by share repurchases.

In the fourth quarter of 2021, we increased our quarterly dividend by 2% to $0.92 per common share.

In 2022, we paid $1.8 billion of dividends on our common stock.

In the second quarter of 2022, we increased our quarterly dividend by 5% to $0.97 per common share.

In the first quarter of 2023, we increased our quarterly dividend by 8% to $1.05 per common share.

Regular dividends demonstrate the confidence our Board of Directors and management have in our capital structure and operations’ capability to generate free cash flow throughout the business cycle.

We suspended our share repurchase program in March 2020 to preserve liquidity.

As operating cash flows improve further, we will prioritize shareholder returns and debt repayment.

In the second quarter of 2022, we resumed repurchasing shares under our share repurchase program.

In 2022, we repurchased $1.5 billion, or 16.6 million shares, of our common stock.

On November 7, 2022, our Board of Directors approved a $5 billion increase to our share repurchase program, bringing the total amount of share repurchases authorized by our Board of Directors since July 2012 to an aggregate of $20 billion.

At the discretion of our Board of Directors, we are targeting to return $10 billion to $12 billion to our shareholders through a combination of dividends and share repurchases in the period from July 1, 2022 through December 31, 2024.

The amount and timing of future dividend payments and the level and timing of future share repurchases will depend on various factors including our share price, results of operations, financial condition and cash required for future business plans.

• High-Performing Organization.

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Our Transportation business contains fee-based operations not directly exposed to commodity price risk.

Our NGL business contains both fee-based operations and operations directly impacted by NGL prices.

The Midstream segment also includes our 50% equity investment in DCP Midstream.

During 2021, NGL prices increased significantly, compared with 2020, due to strong demand as economic activities gradually recovered following the administration of COVID-19 vaccines and the easing of pandemic restrictions.

Our NGL business, including DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022, forward, contains both fee-based operations and operations directly impacted by NGL, natural gas and condensate prices.

During 2022, NGL and natural gas prices increased, compared with 2021, supported by increasing liquified natural gas exports and higher crude oil prices.

The Chemicals segment consists of our 50% equity investment in CPChem.

The chemicals and plastics industry is mainly a commodity-based industry where the margins for key products are based on supply and demand, as well as cost factors.

Compared with 2020, the benchmark high-density polyethylene chain margin increased significantly in 2021, due to continued strong demand and tight supply.

Compared with 2021, the benchmark high-density polyethylene chain margin decreased significantly in 2022, due to soft demand and increasing capacity, resulting in lower plant operating rates.

Our Refining segment results are driven by several factors, including market crack spreads, refinery throughput, feedstock costs, product yields, turnaround activity, and other operating costs.

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Worldwide market crack spreads increased to an average of $34.26 per barrel during 2022, compared with an average of $17.09 per barrel in 2021.

The increases in crude oil prices and market crack spreads were primarily driven by a significant increase in demand for refined petroleum products, as economic activities gradually recovered following the administration of COVID-19 vaccines and the easing of pandemic restrictions, as well as tightening supply.

In 2021, renewable identification number (RIN) prices increased significantly, compared with 2020.

Results for our M&S segment depend largely on marketing fuel and lubricant margins, and sales volumes of our refined petroleum and other specialty products.

The increases in crude oil prices and market crack spreads were primarily driven by improving demand for refined petroleum products, as economic activities gradually recovered as the impacts from the COVID-19 pandemic moderated, as well as tightening supply due to the Russia-Ukraine war and refinery closures that occurred during the pandemic.

Results for our M&S segment depend largely on marketing fuel and lubricant margins and sales volumes of our refined petroleum products.

While marketing fuel and lubricant margins are primarily driven by market factors, largely determined by the relationship between supply and demand, marketing fuel margins, in particular, are influenced by trends in spot prices, and where applicable, retail prices for refined petroleum products in the regions and countries where we operate.

In general, a downward trend of spot prices has a favorable impact on marketing fuel margins, while an upward trend of spot prices has an unfavorable impact on marketing fuel margins.

The global disruption caused by the COVID-19 pandemic resulted in reduced demand for refined petroleum and specialty products since March 2020.

Following the administration of COVID-19 vaccines in 2021 and the easing of pandemic restrictions, demand for refined petroleum and specialty products improved in 2021, compared with 2020.

Index to Financial Statements

RESULTS OF OPERATIONS

Basis of Presentation

Effective August 18, 2022, forward, in connection with the merger of DCP Midstream and Gray Oak Holdings we began consolidating the results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills.

As a result of this transaction, we began presenting the results of DCP Midstream Class A Segment within the results of our NGL and Other business.

Prior periods also have been updated to reflect the results of our equity investment in DCP Midstream prior to August 18, 2022, within the results of our NGL and Other business.

See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger, Note 4—Business Combination, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on the merger of DCP Midstream and Gray Oak Holdings.

Effective October 1, 2022, we changed the organizational structure of the internal financial information reviewed by our President and Chief Executive Officer, and determined this resulted in a change in the composition of our operating segments.

As part of the realignment, we moved the results and net assets of our Merey Sweeny vacuum distillation and delayed coker units at our Sweeny Refinery and the isomerization unit at our Lake Charles Refinery from our Midstream segment to our Refining segment.

Additionally, commissions charged to the Refining segment by the M&S segment related to sales of specialty products were eliminated and the costs of the sales organization were reclassified from the M&S segment to the Refining segment.

Further, we are no longer presenting disaggregated business line results for our Chemicals and M&S segments to align with changes in our internal financial reporting.

Effective January 1, 2022, we began reporting our investment in NOVONIX Limited (NOVONIX) as a separate business line within our Midstream segment.

Previously it was included in our NGL and Other business line.

The segment realignment and business line reporting changes are presented for the year ended December 31, 2022, with the prior periods recast for comparability.

Consolidated Results

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Net income (loss) attributable to Phillips 66 $ 11,024 1,317 (3,975)

Net income attributable to Phillips 66 for the year ended December 31, 2021, was $1,317 million, compared with a net loss attributable to Phillips 66 of $3,975 million for the year ended December 31, 2020.

Index to Financial Statements

Net income attributable to Phillips 66 for the year ended December 31, 2022, was $11,024 million, compared with $1,317 million for the year ended December 31, 2021.

The improvement was primarily due to higher realized refining margins, an aggregate before-tax gain of $3,013 million recognized in our Midstream segment in connection with the merger of DCP Midstream and Gray Oak Holdings, lower impairments in the Refining segment, and improved international marketing fuel margins.

These improvements were partially offset by an increase in income tax expense, lower equity earnings from CPChem, and an unrealized decrease in the fair value of our investment in NOVONIX.

Net income attributable to Phillips 66 for the year ended December 31, 2021, was $1,317 million, compared with net loss attributable to Phillips 66 of $3,975 million for the year ended December 31, 2020.

The improvement was primarily due to lower impairments, improved realized refining margins and higher equity earnings from CPChem, partially offset by income tax impacts from improved results.

Net loss attributable to Phillips 66 for the year ended December 31, 2020, was $3,975 million, compared with net income attributable to Phillips 66 of $3,076 million for the year ended December 31, 2019.

The decrease was mainly attributable to:

• Lower realized refining margins and decreased refinery production.

• A goodwill impairment in our Refining segment.

• A long-lived asset impairment associated with our plan to reconfigure the San Francisco Refinery into a renewable fuels production facility, which impacted our Refining and Midstream segments.

• Higher impairments of equity investments in our Midstream segment.

These decreases were partially offset by an income tax benefit recognized in 2020, compared with income tax expense recognized in 2019.

See Note 4—Business Combination, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on the gain recognized in connection with the merger of DCP Midstream and Gray Oak Holdings.

See Note 11—Impairments, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for information on impairments recorded in 2021 and 2020.

See Note 23—Income Taxes, in the Notes to Consolidated Financial Statements, for additional information on income taxes.

See the “Segment Results” section for additional information on our segment results.

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Sales and other operating revenues and purchased crude oil and products increased 52% and 47%, respectively, in 2022.

These increases were mainly due to higher prices for refined petroleum products, crude oil and NGL.

Other income increased $2,283 million in 2022, primarily due to an aggregate gain of $3,013 million recognized in our Midstream segment in connection with the merger of DCP Midstream and Gray Oak Holdings.

The impact of this gain was partially offset by an unrealized investment loss on our investment in NOVONIX, compared with an unrealized gain in 2021.

See Note 4—Business Combination, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on the aggregate gain.

See Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information regarding our investment in NOVONIX.

Operating expenses increased 19% in 2022, mainly attributable to higher utility costs driven by increased natural gas and power prices and higher turnaround and other maintenance expenses.

Selling, general and administrative expenses increased 24% in 2022, primarily driven by higher employee-related expenses, restructuring costs due to our business transformation and increased selling expenses driven by rising refined petroleum product prices.

Impairments decreased 96% in 2022 primarily due to a before-tax impairment of $1,298 million recorded in the third quarter of 2021 associated with our Alliance Refinery.

See Note 11—Impairments, in the Notes to Consolidated Financial Statements, for additional information.

Taxes other than income taxes increased 29% in 2022, primarily due to tax credits received from renewable diesel blending activity at our San Francisco Refinery in the third quarter of 2021, as well as higher property and other taxes.

Income tax expense increased $3,102 million in 2022 primarily due to improved results.

See Note 23—Income Taxes, in the Notes to Consolidated Financial Statements, for more information regarding our income taxes.

Net income attributable to noncontrolling interests increased 32% in 2022.

The increase was primarily driven by the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills, which resulted in us reflecting the additional noncontrolling interest owned by the public common and preferred unitholders of DCP LP, as well as Enbridge’s noncontrolling interest in DCP Midstream Class A Segment, on our consolidated statement of operations.

The increase was partially offset by a decrease due to the merger between us and Phillips 66 Partners that occurred in the first quarter of 2022 and resulted in Phillips 66 Partners becoming a wholly owned subsidiary of Phillips 66.

See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger, and Note 30—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the merger of DCP Midstream and Gray Oak Holdings and the Phillips 66 Partners merger, respectively.

Index to Financial Statements

Sales and other operating revenues and purchased crude oil and products increased 74% and 77%, respectively, in 2021.

These increases were mainly due to higher prices for refined petroleum products, crude oil and NGL, as well as increased volumes for refined petroleum products and crude oil.

Equity in earnings of affiliates increased $1,713 million in 2021.

The increase was primarily due to higher equity earnings from CPChem mainly driven by increased margins, WRB Refining LP (WRB) resulting from improved realized refining margins and higher refinery production, and Excel Paralubes LLC (Excel) attributable to higher base oil margins.

See Chemicals segment analysis in the “Segment Results” section for additional information on CPChem.

Net gain on dispositions decreased 83% in 2021, mainly reflecting a before-tax gain of $84 million recognized in the second quarter of 2020 associated with a co-venturer’s acquisition of an ownership interest in the consolidated holding company that owns an interest in Gray Oak Pipeline, LLC.

See Note 30—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information.

Other income increased $388 million in 2021, primarily driven by an unrealized gain of $365 million related to the change in fair value of our investment in NOVONIX, which we acquired in the third quarter of 2021.

See Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information on our investment in NOVONIX.

Operating expenses increased 13% in 2021, mainly attributable to higher utility costs driven by increased commodity prices, higher employee-related expenses, and increased maintenance and repair costs.

Selling, general and administrative expenses increased 13% in 2021, primarily driven by higher selling expenses due to rising refined petroleum product prices and demand, increased employee-related expenses, and a benefit received from a legal settlement in the first quarter of 2020.

Depreciation and amortization increased 15% in 2021, mainly due to asset retirements related to the shutdown of our Alliance Refinery in connection with plans to convert it to a terminal.

See Note 7—Properties, Plants and Equipment, in the Notes to Consolidated Financial Statements, for additional information regarding asset retirements related to our Alliance Refinery.

Depreciation and amortization increased 15% in 2021, mainly due to asset retirements related to the shutdown of our Alliance Refinery.

See Note 9—Properties, Plants and Equipment, in the Notes to Consolidated Financial Statements, for additional information regarding asset retirements related to the Alliance Refinery.

Impairments decreased 65% in 2021.

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Index to Financial Statements

Sales and other operating revenues and purchased crude oil and products both decreased 40% in 2020.

The decreases were mainly due to lower prices and volumes for refined petroleum products and crude oil, reflecting the impact of the COVID-19 pandemic.

Equity in earnings of affiliates decreased 44% in 2020.

The decrease was primarily due to lower realized refining margins and decreased refinery production at WRB, and lower margins, partially offset by higher sales volumes, at CPChem.

See Chemicals segment analysis in the “Segment Results” section for additional information on CPChem.

Net gain on dispositions increased $88 million in 2020.

The increase was mainly due to a gain of $84 million associated with a co-venturer’s prior-year acquisition of a 35% interest in Phillips 66 Partners’ consolidated holding company that owns an interest in Gray Oak Pipeline, LLC.

See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information.

Operating expenses decreased 10% in 2020, primarily driven by our company-wide cost reduction initiatives in response to the COVID-19 pandemic, lower utility costs, and decreased refinery turnaround activities.

Impairments increased $3,391 million in 2020.

See Note 9—Impairments, and Note 16—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information associated with impairments.

We had an income tax benefit of $1,250 million in 2020, compared with income tax expense of $801 million in 2019, primarily due to a before-tax loss in 2020 versus before-tax income in 2019.

See Note 21—Income Taxes, in the Notes to Consolidated Financial Statements, for more information regarding our income taxes.

Index to Financial Statements

Segment Results

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NGL and Other 4,000 452 (624)

DCP Midstream 185 (958) (784)

NOVONIX (442) 370 —

Total Midstream $ 4,734 1,500 (116)

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NGL fractionated** 529 410 249

NGL extracted*** 394 399 417

* Pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment.

* * Excludes DCP Midstream.

*** Includes 100% of DCP Midstream’s volumes.

NGL production*** 423 394 399

* Pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment, excluding NGL pipelines.

* * Includes 100% of DCP Midstream Class A Segment’s volumes from August 18, 2022, forward.

*** Includes 100% of DCP Midstream Class A Segment’s volumes.

Dollars Per Gallon

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* Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component mix.

The Midstream segment 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.

This segment includes our MLP, Phillips 66 Partners, our 50% equity investment in DCP Midstream, which includes the operations of its MLP, DCP Partners, and our 16% investment in NOVONIX.

The Midstream segment provides crude oil and refined petroleum product transportation, terminaling and processing services;

NGL production, transportation, storage, fractionation, processing and marketing services;

natural gas gathering, compressing, treating, processing, storage, transportation and marketing services;

and condensate recovery.

These activities are mainly in the United States.

This segment also includes our investment in NOVONIX.

In connection with the merger of DCP Midstream and Gray Oak Holdings, the results of our Transportation business reflect a decrease in our indirect economic interest in Gray Oak Pipeline to 6.5% from August 18, 2022, forward.

Prior to August 18, 2022, the Transportation results presented in the table above reflect Gray Oak Holdings’ 65% economic interest in Gray Oak Pipeline.

In addition, the results of our NGL and Other business include the consolidated results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022, forward.

Prior to August 18, 2022, our investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills were accounted for using the equity method.

As a result of the merger and consolidation, equity earnings from our investment in DCP Midstream prior to the merger have been included with the results of our NGL and Other business.

Index to Financial Statements

Results from our Midstream segment increased $3,234 million in 2022, compared with 2021.

Results from our Transportation business increased $498 million in 2022, compared with 2021.

The increase was primarily due to improved earnings from our equity affiliates, lower asset impairments, and increased pipeline volumes and tariffs.

These increases were partially offset by a before-tax gain of $84 million recognized in the second quarter of 2020 associated with a co-venturer’s acquisition of an ownership interest in the consolidated holding company that owns an interest in Gray Oak Pipeline, LLC, and increased depreciation and amortization expense from asset retirements related to the shutdown of the Alliance Refinery in the fourth quarter of 2021.

The increase was primarily due to a before-tax impairment of $198 million recorded in the first quarter of 2021 related to Phillips 66 Partners’ decision to exit the Liberty Pipeline project, a before-tax gain of $182 million from the transfer of a 35.75% indirect economic interest in Gray Oak Pipeline to our co-venturer as part of the merger of DCP Midstream and Gray Oak Holdings, and lower depreciation and amortization expense from logistic assets that were retired in the fourth quarter of 2021 as part of the planned conversion of the Alliance Refinery to a terminal.

Results from our NGL and Other business increased $3,548 million in 2022, compared with 2021.

The increase in 2021 was primarily driven by a $370 million increase in the value of our investment in NOVONIX, which we acquired in the third quarter of 2021, partially offset by higher utility costs due to increased natural gas prices.

Index to Financial Statements

Results from our investment in DCP Midstream increased $1,143 million in 2021, compared with 2020.

The increase in 2021 reflects a $1,161 million before-tax impairment of our investment in DCP Midstream recorded in the first quarter of 2020.

See Note 9—Impairments, and Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding the impairments and the $84 million before-tax gain, respectively.

The increase was primarily due to before-tax gains totaling $2,831 million recognized from remeasuring our previously held equity investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills to their fair values in connection with the merger of DCP Midstream and Gray Oak Holdings.

Additionally, the increased results reflect the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022, forward, as well as improved Sweeny Hub results.

In 2022, the fair value of our investment in NOVONIX decreased by $442 million compared with an increase of $370 million in 2021.

We acquired this investment in September 2021.

See Note 11—Impairments, and Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information on impairments and our investment in NOVONIX, respectively.

See Note 4—Business Combination, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding the before-tax gains.

See the “Executive Overview and Business Environment” section for information on market factors impacting 2022 results.

Midstream’s results decreased $693 million in 2020, compared with 2019.

Results from our Transportation business decreased $438 million in 2020, compared with 2019.

The decrease was primarily attributable to before-tax impairments of $300 million, decreased equity earnings, lower pipeline and terminal throughput volumes, and higher operating costs, partially offset by an $84 million before-tax gain recognized in the second quarter of 2020 associated with the Gray Oak Pipeline joint venture.

The $300 million before-tax impairments consisted of a $120 million impairment of the pipeline and terminal assets associated with the planned reconfiguration of our San Francisco Refinery into a renewable fuels production facility, a $96 million impairment of Phillips 66 Partners’ equity investments in two crude oil logistics joint ventures, and an $84 million impairment of our equity investment in the canceled Red Oak Pipeline project.

Results from our NGL and Other business decreased $81 million in 2020, compared with 2019.

The decrease was mainly due to lower results from our trading activities and decreased margins, partially offset by higher export cargos and increased fractionation volumes from the startup of Frac 2 and Frac 3 in late 2020, as well as the startup of a new isomerization unit at our Lake Charles Refinery in the second half of 2019.

Results from our investment in DCP Midstream decreased $174 million in 2020, compared with 2019.

The decrease was primarily due to higher impairment charges, partially offset by the recognition of a larger benefit to our equity earnings from the amortization of the basis difference associated with the impairments and DCP Midstream’s cost reduction initiatives in response to the challenging business environment.

See Note 6—Investments, Loans and Long-Term Receivables, and Note 9—Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding the impairments and the associated basis difference amortization related to our investment in DCP Midstream.

Midstream’s results increased $1,616 million in 2021, compared with 2020.

Results from our Transportation business increased $170 million in 2021, compared with 2020.

The increase was primarily due to improved earnings from our equity affiliates, lower asset impairments, and increased pipeline volumes and tariffs.

These increases were partially offset by a before-tax gain of $84 million recognized in the second quarter of 2020 associated with a co-venturer’s acquisition of an ownership interest in the consolidated holding company that owned an interest in Gray Oak Pipeline, and increased depreciation and amortization expense from logistic assets that were retired in the fourth quarter of 2021 as part of the planned conversion of the Alliance Refinery to a terminal.

Results from our NGL and Other business increased $1,076 million in 2021, compared with 2020.

The increase in 2021 reflects a $1,161 million before-tax impairment of our investment in DCP Midstream recorded in the first quarter of 2020, partially offset by higher utility costs due to increased natural gas prices.

The fair value of our investment in NOVONIX increased $370 million in 2021, compared with 2020.

We acquired this investment in September 2021.

See Note 11—Impairments, Note 30—Phillips 66 Partners LP and Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information on impairments, the before-tax gain and our investment in NOVONIX, respectively.

Index to Financial Statements

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CPChem Externally Marketed Sales Volumes* 23,749 24,067 25,360

Olefins and Polyolefins 19,332 20,993 20,237

Specialties, Aromatics and Styrenics 4,735 4,367 4,281

24,067 25,360 24,518

* Represents 100% of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates.

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These products are then marketed and sold or used as feedstocks to produce plastics and other chemicals.

We structure our reporting of CPChem’s operations around two primary business lines:

Olefins and Polyolefins (O&P) and Specialties, Aromatics and Styrenics (SA&S).

The O&P business line produces and markets ethylene and other olefin products.

CPChem produces and markets ethylene and other olefin products.

Ethylene produced is primarily consumed within CPChem for the production of polyethylene, normal alpha olefins and polyethylene pipe.

The SA&S business line manufactures and markets aromatics and styrenics products, such as benzene, cyclohexane, styrene and polystyrene.

SA&S also manufactures and/or markets a variety of specialty chemical products.

CPChem manufactures and markets aromatics and styrenics products, such as benzene, cyclohexane, styrene and polystyrene, as well as manufactures and/or markets a variety of specialty chemical products.

Unless otherwise noted, amounts referenced below reflect our net 50% interest in CPChem.

Before-tax income from the Chemicals segment decreased $988 million in 2022, compared with 2021.

The decrease was primarily due to lower margins driven by decreased sale prices, higher feedstock and utility costs, as well as decreased results from CPChem’s equity affiliates.

See the “Executive Overview and Business Environment” section for information on market factors impacting CPChem’s 2022 results.

Before-tax income from the Chemicals segment increased $1,209 million in 2021, compared with 2020.

The increase was primarily due to improved margins driven by increased sale prices reflecting strong demand and tight supply, partially offset by higher utility, turnaround, maintenance and repair costs.

See the “Executive Overview and Business Environment” section for information on market factors impacting CPChem’s 2021 results.

Before-tax income from the Chemicals segment decreased $244 million in 2020, compared with 2019.

The decrease was mainly due to lower margins and decreased earnings from CPChem’s equity affiliates, partially offset by higher sales volumes and a favorable impact from lower-of-cost-or-market adjustments of inventories valued on the last-in-first-out (LIFO) basis attributable to petrochemical product price recovery in 2020.

Index to Financial Statements

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The Refining segment 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.

Our Alliance Refinery sustained significant impacts from Hurricane Ida in August 2021, and in the fourth quarter of 2021, we announced the shutdown of the refinery in connection with plans to convert it to a terminal.

In the fourth quarter of 2021, we shut down our Alliance Refinery.

Results from the Refining segment increased $10,169 million in 2022, compared with 2021.

The improved results in 2021 were primarily due to higher realized refining margins and lower asset impairments, partially offset by increased utility expenses and higher costs related to the shutdown of our Alliance Refinery.

The improved realized refining margins in 2021 were mainly attributable to increased market crack spreads, partially offset by higher RIN costs, lower clean product differentials and decreased secondary products margins.

The improved results were primarily due to higher realized refining margins driven by improved market crack spreads, partially offset by higher operating costs.

In addition, 2021 included a before-tax impairment of $1,288 million associated with our Alliance Refinery.

See Note 11—Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding this impairment.

Our worldwide refining crude oil capacity utilization rate was 90% and 84% in 2022 and 2021, respectively.

The increase in 2021 was primarily driven by improved market demand for refined petroleum products following the administration of COVID-19 vaccines and the easing of pandemic restrictions.

See Note 9—Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding impairments recorded in our Refining segment during 2021 and 2020.

The increase in 2022 was primarily driven by improved demand for refined petroleum products due to supply constraints caused by the conflict between Russia and Ukraine and easing of restrictions from the COVID-19 pandemic.

See the “Executive Overview and Business Environment” section for information on industry crack spreads and other market factors impacting this year’s results.

Index to Financial Statements

Results from the Refining segment decreased $8,141 million in 2020, compared with 2019.

The decreased results in 2020 were due to:

• Lower realized refining margins and decreased refinery production.

A sharp decline in demand for refined petroleum products resulting from global economic disruption caused by the COVID-19 pandemic led to lower market crack spreads and reduced refinery production in 2020.

In addition, hurricane impacts contributed to the lower refinery production in the Gulf Coast region in 2020.

• A before-tax long-lived asset impairment of $910 million in the third quarter of 2020 associated with our plan to reconfigure the San Francisco Refinery into a renewable fuels production facility.

• A before-tax goodwill impairment of $1,845 million in the first quarter of 2020.

Results from the Refining segment increased $3,670 million in 2021, compared with 2020.

See Note 11—Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding impairments recorded in our Refining segment during 2021 and 2020.

Our worldwide refining crude oil capacity utilization rate was 84% and 76% in 2021 and 2020, respectively.

The lower utilization rate in 2020 was primarily due to reduced refining runs driven by lower demand for refined petroleum products as a result of the COVID-19 pandemic, as well as hurricane impacts in the Gulf Coast region.

See Note 9—Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding impairments recorded in our Refining segment during 2020.

The increase in 2021 was primarily driven by improved market demand for refined petroleum products following the administration of COVID-19 vaccines and the easing of pandemic restrictions.

Index to Financial Statements

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Income Before Income Taxes $ 2,402 1,723 1,421

Marketing and Other $ 1,453 1,271 1,199

Specialties 356 175 234

Total Marketing and Specialties $ 1,809 1,446 1,433

Dollars Per Barrel

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The M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, mainly in the United States and Europe.

In addition, this segment includes the manufacturing and marketing of specialty products, such as base oils and lubricants.

In addition, this segment includes the manufacturing and marketing of base oils and lubricants.

Before-tax income from the M&S segment increased $679 million in 2022, compared with 2021.

The increase in 2021 was primarily driven by higher realized U.S.

marketing fuel margins and increased equity earnings from Excel due to improved base oil margins, partially offset by lower realized international marketing fuel margins.

The increase in 2022 was primarily driven by improved realized international marketing fuel margins and higher results from our specialty lubricants and other businesses.

See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting 2022 results.

Before-tax income from the M&S segment increased $302 million in 2021, compared with 2020.

The increase was primarily attributable to higher realized marketing fuel margins, partially offset by lower sales volumes for refined petroleum and specialty products driven by decreased demand.

The increase in 2021 was primarily driven by higher realized U.S.

marketing fuel margins and increased equity earnings from Excel Paralubes due to improved base oil margins, partially offset by lower realized international marketing fuel margins.

Index to Financial Statements

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Net interest expense consists of interest and financing expense, net of interest income and capitalized interest.

Corporate overhead and other includes general and administrative expenses, technology costs, environmental costs associated with sites no longer in operation, foreign currency transaction gains and losses, and other costs not directly associated with an operating segment.

Corporate overhead and other includes general and administrative expenses, technology costs, environmental costs associated with sites no longer in operation, restructuring costs related to our business transformation, foreign currency transaction gains and losses, and other costs not directly associated with an operating segment.

Net interest expense decreased $46 million in 2022, compared with 2021, primarily driven by increased interest income, partially offset by increased interest expense as a result of consolidating DCP Midstream Class A Segment from August 18, 2022, forward.

See Note 14—Debt, in the Notes to Consolidated Financial Statements, for additional information regarding debt.

Corporate overhead and other increased $241 million in 2022, compared with 2021.

The increase was primarily due to restructuring costs associated with our business transformation for consulting fees, severance and an impairment related to assets held for sale, as well as higher employee related expenses.

See Note 28—Segment Disclosures and Related Information, and Note 31—Restructuring, in the Notes to Consolidated Financial Statements, for additional information regarding restructuring costs.

Net interest expense increased $98 million in 2021, compared with 2020, primarily driven by lower capitalized interest due to the completion of capital projects and the placement of assets into service, and higher average debt principal balances reflecting debt issuances in the second and fourth quarters of 2020, as well as costs associated with early debt retirement in 2021.

See Note 12—Debt, in the Notes to Consolidated Financial Statements, for additional information on the debt issuances in 2020 and debt repayment in 2021.

See Note 14—Debt, in the Notes to Consolidated Financial Statements, for additional information on the debt repayment in 2021.

Corporate overhead and other decreased $5 million in 2021, compared with 2020.

Net interest expense increased $70 million in 2020, compared with 2019, primarily due to higher average debt principal balances, reflecting new debt issuances during 2020, along with decreased interest income driven by lower interest rates in 2020.

See Note 12—Debt, in the Notes to Consolidated Financial Statements, for additional information on the debt issuances in 2020.

Corporate overhead and other increased $7 million in 2020, compared with 2019.

Index to Financial Statements

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During 2022, we generated $10.8 billion in cash from operations.

We used available cash to fund capital expenditures and investments of $1.9 billion, pay dividends on our common stock of $1.6 billion, pay down $1.5 billion in debt, and fund an additional member loan to an equity affiliate of $310 million.

During 2021, cash and cash equivalents increased $633 million to $3.1 billion.

We used available cash to pay down $2.4 billion in debt, fund capital expenditures and investments of $2.2 billion, pay dividends on our common stock of $1.8 billion and repurchase $1.5 billion of our common stock.

During 2022, cash and cash equivalents increased $3 billion to $6.1 billion.

Significant Sources of Capital

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During 2022, cash generated by operating activities was $10.8 billion, a $4.8 billion increase compared with 2021.

The increase was primarily due to higher earnings resulting from improved realized refining margins, partially offset by working capital impacts and lower distributions from equity affiliates.

During 2021, cash generated by operating activities was $6 billion, a $3.9 billion increase compared with 2020.

The increase was primarily due to improved realized refining margins, a U.S.

federal income tax refund of $1.1 billion received in the second quarter of 2021, and higher cash distributions from our equity affiliates, partially offset by higher operating expenses.

During 2020, cash generated by operating activities was $2.1 billion, a 56% decrease compared with 2019.

The decrease was primarily due to lower realized refining margins, driven by the global economic disruption caused by the COVID-19 pandemic, partially offset by lower cash income taxes paid.

Our short- and long-term operating cash flows are highly dependent upon refining and marketing margins, NGL prices and chemicals margins.

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Our operating cash flows are also impacted by distribution decisions made by our equity affiliates, including CPChem.

Over the three years ended December 31, 2021, our operating cash flows included aggregate distributions from our equity affiliates of $6,285 million, including $3,101 million from CPChem.

We cannot control the amount or timing of future distributions from equity affiliates;

therefore, future distributions are not assured.

Over the three years ended December 31, 2022, our operating cash flows included aggregate distributions from our equity affiliates of $6 billion, including $2.8 billion from CPChem.

We cannot control the amount of future dividends from equity affiliates;

therefore, future dividend payments by these equity affiliates are not assured.

Index to Financial Statements

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

Revolving Credit Facilities and Commercial Paper

Phillips 66 has a $5 billion revolving credit facility which may be used for direct bank borrowings, as support for issuances of letters of credit, and as support for our commercial paper program.

We have an option to increase the overall capacity to $6 billion, subject to certain conditions.

We also have the option to extend the scheduled maturity of the facility for up to two additional one-year terms after its July 30, 2024, maturity date, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment.

The facility is with a broad syndicate of financial institutions and contains covenants that are usual and customary for an agreement of this type, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter.

The facility has customary events of default, such as nonpayment of principal when due;

nonpayment of interest, fees or other amounts;

and violation of covenants.

Outstanding borrowings under the facility bear interest, at our option, at either:

(a) the Eurodollar rate in effect from time to time plus the applicable margin;

Credit Facilities and Commercial Paper

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.

The Facility replaced our previous $5 billion revolving credit facility with Phillips 66 as the borrower and Phillips 66 Company as the guarantor.

The Facility contains usual and customary covenants that are similar to the previous revolving credit facility, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter.

We have the option to increase the overall capacity to $6 billion, subject to certain conditions.

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 (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.

The Facility also provides for customary fees, including commitment fees.

The pricing levels for the commitment fees and interest-rate margins are determined based on the ratings in effect for Phillips 66’s senior unsecured long-term debt from time to time.

Phillips 66 may at any time prepay outstanding borrowings under the facility, in whole or in part, without premium or penalty.

At December 31, 2021 and 2020, no amount had been drawn under the facility.

Phillips 66 also has a $5 billion uncommitted commercial paper program for short-term working capital needs that is supported by our revolving credit facility.

The pricing levels for the commitment fees and interest-rate margins are determined based on the ratings in effect for our senior unsecured long-term debt from time to time.

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

At December 31, 2022 and 2021, no amount had been drawn under our revolving credit facilities.

Phillips 66 also has a $5 billion uncommitted commercial paper program for short-term working capital needs that is supported by the Facility.

Commercial paper maturities are contractually limited to 365 days.

At December 31, 2022 and 2021, no borrowings were outstanding under the program.

Phillips 66 Partners has a $750 million revolving credit facility which may be used for direct bank borrowings and as support for issuances of letters of credit.

Phillips 66 Partners has an option to increase the overall capacity to $1 billion, subject to certain conditions.

Phillips 66 Partners also has the option to extend the facility for two additional one-year terms after its July 30, 2024, maturity date, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment.

The facility is with a broad syndicate of financial institutions and contains covenants that are usual and customary for an agreement of this type.

The facility has customary events of default, such as nonpayment of principal when due;

nonpayment of interest, fees or other amounts;

and violation of covenants.

Outstanding revolving borrowings under the facility bear interest, at Phillips 66 Partners’ option, at either:

(a) the Eurodollar rate in effect from time to time plus the applicable margin;

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

The facility also provides for customary fees, including commitment fees.

The pricing levels for the commitment fees and interest-rate margins are determined based on Phillips 66 Partners’ credit ratings in effect from time to time.

Borrowings under this facility may be short-term or long-term in duration, and Phillips 66 Partners may at any time prepay outstanding borrowings under the facility, in whole or in part, without premium or penalty.

At December 31, 2021, no borrowings were outstanding under this facility, compared with borrowings of $415 million at December 31, 2020.

At both December 31, 2021 and 2020, $1 million in letters of credit had been issued that were supported by this facility.

We had approximately $5.7 billion and $5.3 billion of total committed capacity available under our revolving credit facilities at December 31, 2021 and 2020, respectively.

Phillips 66 Partners

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

DCP Midstream Class A Segment

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

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

Indebtedness under the Credit Agreement bears interest at either:

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

or (b) the base rate (as described in the Credit Agreement) plus the 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.

At December 31, 2022, DCP LP had no borrowings outstanding under the Credit Agreement.

At December 31, 2022, $10 million in letters of credit had been issued that are supported by the Credit Agreement.

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 and 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.

At December 31, 2022, $40 million of borrowings were outstanding under the Securitization Facility, which are secured by its accounts receivable at DCP Receivables.

Index to Financial Statements

Total Committed Capacity Available

At December 31, 2022, we had approximately $6.7 billion of total committed capacity available under the credit facilities described above.

At December 31, 2021, we had approximately $5.7 billion of total committed capacity available under our revolving credit facilities.

Other Debt Issuances and Financings

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Proceeds received from the public offerings of senior unsecured notes in June and April of 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.

Index to Financial Statements

Term Loan Facility

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

The term loan agreement was repaid upon maturity in April 2022 without premium or penalty.

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

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In September 2021, we repaid the outstanding borrowings of $500 million.

Index to Financial Statements

Availability of Debt Financing

Phillips 66 Availability of Debt Financing

We have an A3 credit rating, with a stable outlook, from Moody’s Investors Service and a BBB+ credit rating, with a stable outlook, from Standard & Poor’s.

In the fourth quarter of 2021, both rating agencies updated their outlooks on our credit ratings from negative to stable.

These investment grade ratings have served to lower our borrowing costs and facilitate access to a variety of lenders.

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Failure to maintain investment grade ratings could prohibit us from accessing the commercial paper market, although we would expect to be able to access funds under our liquidity facilities mentioned above.

Phillips 66 Partners’ Debt and Equity Financings

In 2013, we formed Phillips 66 Partners, a publicly traded MLP, which owns and operates primarily fee-based midstream assets.

At December 31, 2021, we owned 170 million Phillips 66 Partners common units, representing a 74% limited partner interest, while the public owned a 26% limited partner interest and 13.5 million perpetual convertible preferred units.

We consolidate Phillips 66 Partners as a variable interest entity for financial reporting purposes.

As a result of this consolidation, the public common and preferred unitholders’ interests in Phillips 66 Partners are reflected as noncontrolling interests of $2,169 million in our consolidated balance sheet at December 31, 2021.

During the three years ended December 31, 2021, Phillips 66 Partners raised proceeds, primarily used for its capital spending and investments, from the following third-party debt and equity offerings:

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

Proceeds from this term loan were primarily used to repay the outstanding borrowings under its $750 million revolving credit facility.

• In September 2019, Phillips 66 Partners received net proceeds of $892 million from the issuance of $300 million of 2.450% Senior Notes due December 2024 and $600 million of 3.150% Senior Notes due December 2029.

• In March 2019, Phillips 66 Partners entered into a senior unsecured term loan facility with a borrowing capacity of $400 million due March 20, 2020.

Phillips 66 Partners borrowed an aggregate amount of $400 million under the facility during the first half of 2019, which was repaid in full in September 2019.

• Phillips 66 Partners has authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs.

Phillips 66 Partners completed the first two programs in June 2018 and December 2019, respectively.

For the three years ended December 31, 2021, net proceeds of $175 million have been received under these programs.

See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding Phillips 66 Partners.

DCP LP Availability of Debt Financing

DCP LP has a BBB+ credit rating, with a stable outlook, from Standard and Poor’s;

a BBB- credit rating, with a stable outlook, from Fitch Ratings;

and a Ba1 credit rating, with a positive outlook, from Moody’s Investors Service.

These ratings facilitate DCP LP access to a variety of lenders.

DCP LP does not have any ratings triggers on any of its corporate debt that would cause an automatic default, and thereby impact access to liquidity, in the event of a rating downgrade by one or more rating agencies.

Index to Financial Statements

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We also have residual value guarantees associated with railcar and airplane leases with maximum potential future exposures totaling $156 million.

These leases have remaining terms of up to ten years.

These leases have remaining terms of five to nine years.

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 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.

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

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

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

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

Dakota Access and ETCO have guaranteed repayment of the notes.

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

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 no plans to stop pipeline operations while it proceeds with the EIS, and the Tribe’s request for a shutdown was denied in May 2021.

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

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’ 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 2022, and release is expected in Spring 2023.

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

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.

At December 31, 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.

Contributions may be required if Dakota Access determines that the issues included in any such final judgment cannot be remediated and Dakota Access has or is projected to have insufficient funds to satisfy repayment of the notes.

If Dakota Access undertakes remediation to cure issues raised in a final judgment, contributions may be required if any series of the notes become due, whether by acceleration or at maturity, during such time, to the extent Dakota Access has or is projected to have insufficient funds to pay such amounts.

At December 31, 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 December 31, 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 December 31, 2022.

See Note 15—Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.

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Our debt balance at December 31, 2022, was $17.2 billion and our total debt-to-capital ratio was 34%.

In 2021, we paid down $1.5 billion in debt and will continue to prioritize debt reduction in 2022.

As our operating cash flows improve further, we expect to reduce our debt to pre-COVID-19 pandemic levels over the next couple of years.

In December 2022, Phillips 66 repaid its 3.700% senior notes due April 2023 with an aggregate principal amount of $500 million.

After our consolidation of DCP Midstream Class A Segment on August 17, 2022, DCP LP repaid $470 million of borrowings under its accounts receivable securitization and revolving credit facilities that were outstanding on the acquisition date.

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.

See Note 14—Debt, in the Notes to Consolidated Financial Statements, for our annual debt maturities over the next five years and more information on debt repayments.

Debt Exchange

On May 5, 2022, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, completed 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 issued by Phillips 66 Company (collectively, the New Notes).

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

Old Notes with an aggregate principal amount of approximately $3.2 billion were tendered in the Exchange Offers.

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

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

Substantially all of the Old Notes exchanged were tendered during the Early Participation Period.

Joint Venture Loans

During 2020 and 2021, we and our co-venturer provided member loans to WRB.

Starting in 2020 and extending through the second quarter of 2022, we and our co-venturer provided member loans to WRB.

By December 31, 2022, WRB had repaid all outstanding member loans.

At December 31, 2021, our share of the outstanding member loan balance, including accrued interest, was $595 million.

The need for additional loans to WRB in 2022, as well as WRB’s repayment schedule, will depend on market conditions.

On February 9, 2022, our Board of Directors declared a quarterly cash dividend of $0.92 per common share, payable March 1, 2022, to holders of record at the close of business on February 22, 2022.

We expect that our Board of Directors will continue to declare a competitive and growing dividend in 2022.

The need for additional loans to WRB in 2023 will depend on market conditions.

DCP Midstream and Gray Oak Holdings Merger

On August 17, 2022, we and our co-venturer, Enbridge, agreed to merge DCP Midstream and Gray Oak Holdings with DCP Midstream as the surviving entity.

As part of the merger, we made a net cash payment of $306 million.

DCP LP Public Common Unit Acquisition Agreement

The merger will increase our economic interest in DCP LP from 43.3% to 86.8%.

The transaction is expected to close in the second quarter of 2023, subject to customary closing conditions.

Index to Financial Statements

If the merger is successfully completed, we will pay approximately $3.8 billion in cash consideration, which we expect to fund through a combination of cash generated from operating activities and debt.

As a result, DCP LP has not solicited and is not soliciting approval of the transaction by any other holders of DCP LP common units.

See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger and Note 29—DCP Midstream Class A Segment, in the Notes to the Consolidated Financial Statements, for additional information on the merger of DCP Midstream and Gray Oak Holdings.

DCP LP Cash Distributions to Unitholders

DCP LP’s partnership agreement requires that, within 45 days after the end of each quarter, DCP LP distributes all available cash.

Since the merger on August 18, 2022, DCP LP made cash distributions of $51 million to common unitholders other than Phillips 66, $19 million to Series A preferred unitholders, $6 million to Series B preferred unitholders and $2 million to Series C preferred unitholders.

See Note 29—DCP Midstream Class A Segment, in the Notes to the Consolidated Financial Statements, for additional information.

On January 24, 2023, the board of directors of DCP Midstream GP, LLC, declared a quarterly distribution on DCP LP’s common units of $0.43 per common unit and a quarterly distribution on DCP LP’s Series B and Series C Preferred Units of $0.4922 and $0.4969 per unit, respectively.

The distribution on the common units was paid on February 14, 2023, to unitholders of record on February 3, 2023.

The Series B distribution will be paid on March 15, 2023, to unitholders of record on March 1, 2023.

The Series C distribution will be paid on April 17, 2023, to unitholders of record on April 3, 2023.

DCP LP Preferred Units

DCP LP redeemed its Series A preferred units with an aggregate liquidation preference of $500 million in December 2022.

DCP LP funded this redemption from available cash and borrowings under its accounts receivable securitization facility.

Merger with Phillips 66 Partners

On March 9, 2022, we completed a 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 41.8 million shares of Phillips 66 common stock issued from treasury stock.

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.

See Note 30—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the merger transaction.

On February 8, 2023, our Board of Directors declared a quarterly cash dividend of $1.05 per common share, representing an 8% increase.

The dividend is payable March 1, 2023, to holders of record at the close of business on February 21, 2023.

Index to Financial Statements

Share Repurchases

In March 2020, we announced that we had temporarily suspended our share repurchases to preserve liquidity in response to the global economic disruption caused by the COVID-19 pandemic.

We resumed purchasing shares under our share repurchase program in the second quarter of 2022.

On November 7, 2022, our Board of Directors approved a $5 billion increase to our share repurchase program.

Since July 2012, our Board of Directors has authorized an aggregate of $20 billion of repurchases of our outstanding common stock.

The authorizations do not have expiration dates.

The share repurchases are expected to be funded primarily through available cash.

Future share repurchases are expected to be funded primarily through available cash.

We are not obligated to repurchase any shares of common stock pursuant to these authorizations and may commence, suspend or terminate repurchases at any time.

In 2022, we repurchased 16.6 million shares at an aggregate cost of $1.5 billion.

Since the inception of our share repurchase program in 2012, we have repurchased 175.9 million shares at an aggregate cost of $14 billion.

Shares of stock repurchased are held as treasury shares.

We suspended our share repurchase program in March 2020 to preserve liquidity.

As operating cash flows improve further, we will prioritize shareholder returns and debt repayment.

Pending Merger with Phillips 66 Partners

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

Phillips 66 Partners’ perpetual convertible preferred units would 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 March 2022, subject to customary closing conditions.

Based on the closing market prices of Phillips 66 common stock and Phillips 66 Partners common units on December 31, 2021, we would issue approximately 44 million shares of our common stock with a value of approximately $3.2 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.

See Note 27—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the pending merger.

Index to Financial Statements

Employee Benefit Plan Contributions

During the year ended December 31, 2022, we contributed $125 million to our U.S.

pension and other postretirement benefit plans and $23 million to our international pension plans.

Contractual Obligations

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Debt Principal and Interest Obligations

As of December 31, 2021, our aggregate principal amount of outstanding debt was $14.3 billion, with $1.5 billion due within one year.

As of December 31, 2022, our aggregate principal amount of outstanding debt was $17.2 billion, with $529 million due within one year.

Our obligations for interest on the debt totaled $10.2 billion, with $776 million due within one year.

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Our capital expenditures and investments represent consolidated capital spending.

Our adjusted capital spending is a non-GAAP financial measure that demonstrates our net share of capital spending, and reflects an adjustment for the portion of our consolidated capital spending funded by certain joint venture partners.

Millions of Dollars

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Total Capital Expenditures and Investments 1,999 2,194 1,860 2,920

capital spending funded by certain joint venture partners*

Adjusted Capital Spending $ 1,906 1,860 2,859 3,450

Selected Equity Affiliates**

DCP Midstream $ 128 55 119 472

CPChem 925 701 367 284

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$ 1,141 878 596 459

* Included in the Midstream segment.

** Our share of joint venture’s capital spending.

* Includes 100% of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills capital expenditures and investments from August 18, 2022, forward, net of acquired cash.

** Our share of joint ventures’ capital spending.

Capital spending in our Midstream segment was $3.5 billion for the three-year period ended December 31, 2022, including:

• Continued development and expansion of Gulf Coast fractionation capacity at our Sweeny Hub.

• Continued development and expansion of fractionation capacity at our Sweeny Hub.

We completed two NGL fractionators (Sweeny Fracs 2 and 3) which commenced operations in 2020.

In 2021, we resumed the construction of Sweeny Frac 4.

• Contributions by Phillips 66 Partners to fund the Gray Oak Pipeline project and South Texas Gateway Terminal development activities.

• Completion of construction activities on Phillips 66 Partners’ C2G Pipeline, a new 16 inch ethane pipeline that connects Phillips 66 Partners’ Clemens Caverns storage facility to petrochemical facilities in Gregory, Texas, near Corpus Christi.

We completed and started operations of Sweeny Frac 4 in the third quarter of 2022.

• Completion of construction on our C2G Pipeline, a new 16-inch ethane pipeline that connects our Clemens Caverns storage facility to petrochemical facilities in Gregory, Texas, near Corpus Christi.

• Net cash payment in connection with the merger of DCP Midstream and Gray Oak Holdings.

• Contributions to fund the Gray Oak Pipeline project and South Texas Gateway Terminal development activities.

• Investments in NOVONIX and a renewable feedstock processing plant.

• Construction of Phillips 66 Partners’ Sweeny to Pasadena refined petroleum product pipeline.

• Construction activities to increase storage and export capacity at our Beaumont Terminal.

• Contributions to Dakota Access by Phillips 66 Partners for a pipeline optimization project.

• Construction of Phillips 66 Partners’ new isomerization unit at the Lake Charles Refinery.

Index to Financial Statements

• Contributions to Bayou Bridge Pipeline, LLC, a Phillips 66 Partners’ 40 percent-owned joint venture, for the construction of a pipeline from Nederland, Texas, to Lake Charles, Louisiana, and a pipeline segment from Lake Charles to St.

James, Louisiana.

• Contributions to Dakota Access for a pipeline optimization project, including a contribution to fund our 25% share of Dakota Access’ debt repayment.

• Spending associated with other return, reliability, and maintenance projects in our Transportation and NGL businesses.

During the three-year period ended December 31, 2021, DCP Midstream’s self-funded capital expenditures and investments were $1.3 billion on a 100% basis.

Capital spending during this period was primarily for expansion projects and maintenance capital expenditures for existing assets.

Expansion projects included construction of the Latham II offload facilities, the Cheyenne Connector, and the O’Connor 2 plant, as well as investments in the Sand Hills, Southern Hills and Gulf Coast Express pipeline joint ventures.

During the three-year period ended December 31, 2022, CPChem had a self-funded capital program that totaled $2.7 billion on a 100% basis.

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Gulf Coast and in the Middle East, as well as sustaining, debottlenecking and optimization projects on existing assets.

Capital spending for the Refining segment during the three-year period ended December 31, 2021, was $2.6 billion, primarily for refinery upgrade projects to enhance the yield of high-value products, renewable diesel projects, improvements to the operating integrity of key processing units, and safety-related projects.

Key projects completed during the three-year period included:

• Installation of facilities to improve product value at our Ponca City Refinery and facilities to provide flexibility to produce renewable diesel at our San Francisco Refinery.

• Installation of facilities to improve clean product yield at the Ponca City and Lake Charles refineries, as well as the jointly owned Borger Refinery.

• Installation of facilities to improve product value at the Sweeny, Humber and Los Angeles refineries.

• Installation of facilities to improve processing of advantaged crude at the Humber refinery.

• Installation of facilities to comply with the EPA Tier 3 gasoline regulations at the Ferndale Refinery.

Index to Financial Statements

Capital spending for the Refining segment during the three-year period ended December 31, 2022, was $2.5 billion, primarily for refinery upgrade projects to enhance the yield of high-value products, renewable fuels projects, improvements to the operating integrity of key processing units, and safety-related projects.

Key projects funded during the three-year period included:

• Installation of facilities to improve clean product yield at the Ponca City and Sweeny refineries, as well as the jointly owned Wood River Refinery.

• Installation of facilities to improve product value at the Lake Charles Refinery.

• Installation of facilities to produce renewable fuels at our San Francisco and Humber refineries.

Marketing and Specialties

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Capital spending for Corporate and Other during the three-year period ended December 31, 2022, was primarily for information technology and facilities.

Index to Financial Statements

Our 2022 capital budget is $1.9 billion, including $992 million for sustaining capital and $916 million for growth capital.

Approximately 45% of growth capital supports lower-carbon opportunities.

Our projected $1.9 billion capital budget excludes our portion of planned capital spending by our major joint ventures CPChem, WRB and DCP Midstream totaling $1.1 billion.

The Midstream capital budget of $703 million includes a growth capital budget of $426 million which will be directed toward completing construction of Sweeny Frac 4, repayment of Phillips 66 Partners’ 25% share of Dakota Access’ debt due in 2022, and investment opportunities to advance our lower-carbon efforts.

Our 2023 capital budget is $2 billion, including $865 million for sustaining capital and $1.1 billion for growth capital.

Approximately 50% of growth capital is expected to support lower-carbon opportunities.

Our projected $2 billion capital budget excludes our portion of planned capital spending by our major joint ventures CPChem and WRB totaling $1.1 billion.

The Midstream capital budget of $639 million includes a growth capital budget of $310 million which will be directed toward enhancing our integrated NGL value chain from wellhead to market.

The Midstream capital budget also includes $329 million for sustaining projects.

In Refining, the total capital budget of $896 million consists of $488 million for reliability, safety and environmental projects and $408 million of growth capital primarily for the reconfiguration of our San Francisco Refinery as part of the Rodeo Renewed project.

The Midstream expected spend includes 100% of DCP LP’s sustaining capital of $150 million and $125 million of growth capital.

In Refining, the total capital budget of $1.1 billion consists of $389 million for reliability, safety and environmental projects and $729 million for growth capital.

Refining’s growth capital includes the continued conversion of the San Francisco Refinery into a renewable fuels facility.

The M&S capital budget of $134 million reflects the continued development and enhancement of our retail network, including energy transition opportunities.

The Corporate and Other capital budget is $165 million primarily for digital transformation projects.

The Corporate and Other capital budget is $108 million primarily for digital transformation and information technology projects.

Index to Financial Statements

Contingencies

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Federal Clean Air Act, which governs air emissions.

Federal Clean Water Act, which governs discharges into water bodies.

• European Union Regulation for Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), which governs production, marketing and use of chemicals.

Federal Clean Water Act, which governs discharges into bodies of water.

• European Union Regulation for Registration, Evaluation, Authorization and Restriction of Chemicals (EU REACH), which governs production, marketing and use of chemicals and the United Kingdom’s legislation for the Registration, Evaluation, Authorization and Restriction of Chemicals (UK REACH), which replaced EU REACH in the United Kingdom in 2021 following the United Kingdom’s exit from the European Union (BREXIT).

Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which imposes liability on generators, transporters and arrangers of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur.

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Federal Oil Pollution Act of 1990 (OPA90), under which owners and operators of onshore facilities and pipelines as well as owners and operators of vessels are liable for removal costs and damages that result from a discharge of crude oil into navigable waters of the United States.

• European Union Trading Directive resulting in the European Union Emissions Trading Scheme (EU ETS), which uses a market-based mechanism to incentivize the reduction of greenhouse gas (GHG) emissions, as well as the United Kingdom Emissions Trading Scheme (UK ETS), which replaced the EU ETS in the United Kingdom on January 1, 2021, but the United Kingdom had the obligation and retained the ability to enforce the EU ETS obligations until April 30, 2021.

These laws and their implementing regulations set limits on emissions and, in the case of discharges to water, establish water quality limits.

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For example, in California the South Coast Air Quality Management District (SCAQMD) approved amendments to the Regional Clean Air Incentives Market (RECLAIM) that became effective in 2016, which require a phased reduction of nitrogen oxide emissions through 2022, affecting refineries in the Los Angeles metropolitan area.

In 2017, SCAQMD required additional nitrogen dioxide emissions reductions through 2025 and, on November 5, 2021, promulgated new regulations to replace the RECLAIM program with a traditional command and control regulatory regime.

In 2017, SCAQMD required additional nitrogen oxide emissions reductions through 2025 and, on November 5, 2021, promulgated new regulations to replace the RECLAIM program with a traditional command and control regulatory regime.

The ultimate financial impact arising from environmental laws and regulations is neither clearly known nor easily determinable as new standards, such as air emission standards, water quality standards and stricter fuel regulations, continue to evolve.

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We have met the requirements to date while establishing implementation, operating and capital strategies, along with advanced technology development, to address projected future renewable volume obligation (RVO) requirements.

On December 7, 2021, the EPA proposed RVO for the 2021 and 2022 compliance years, which essentially holds the 2021 RVO to actual volumes of biofuel consumption, while increasing the volumes in 2022.

The EPA also re-proposed the compliance year 2020 RVO, also holding them to actual volumes.

It is uncertain how various future RVO requirements contained in EISA, and the regulations promulgated thereunder, may be implemented and what their full impact may be on our operations.

Additionally, we may experience a decrease in demand for refined petroleum products due to the regulatory program as currently promulgated.

On December 1, 2022, the EPA proposed RVO for the 2023, 2024 and 2025 compliance years, as well as RIN generation from renewable electricity utilized as a transportation fuel (eRINs).

These standards increase cellulosic volumes, which reflect the EPA’s forecast for increasing eRIN volumes beginning in 2024.

They also increase total advanced biofuel volumes, which reflect the EPA’s forecast for increasing eRIN volumes beginning in 2024.

In addition, they increase total advanced biofuel volumes from the 5.63 billion gallons established for the 2022 compliance year to 7.43 billion gallons in 2025.

If adopted, we may experience a decrease in demand for refined petroleum products and increased program costs if not fully recovered in the market.

This program continues to be the subject of possible Congressional review and re-promulgation in revised form, and the EPA’s final regulations establishing RVO requirements have been and continue to be subject to legal challenge, further creating uncertainty regarding RVO requirements.

Compliance with the regulation has been further complicated as the market for RINs has been the subject of fraudulent third-party activity, and it is possible that some RINs that we have purchased may be determined to be invalid.

Should that occur, we could incur costs to replace those fraudulent RINs.

Although the cost for replacing any fraudulently marketed RINs is not reasonably estimable at this time, we would not expect such costs to have a material impact on our results of operations or financial condition.

We are required to purchase RINs in the open market to satisfy the portion of our obligation under the RFS that is not fulfilled by blending renewable fuels into the motor fuels we produce.

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As of December 31, 2021, we reported that we had been notified of potential liability under CERCLA and comparable state laws at 25 sites within the United States.

During 2021, there were no new sites for which we received notice of potential liability nor were any existing sites deemed resolved and closed, leaving 25 unresolved sites with potential liability at December 31, 2021.

In 2022, we were notified of one potentially new site through a CERCLA Section 104(e) information request issued by the EPA, and four sites that were deemed resolved and closed, accordingly, leaving 22 unresolved sites with potential liability at December 31, 2022.

Index to Financial Statements

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We incur costs related to the prevention, control, abatement or elimination of environmental pollution.

Expensed environmental costs were $726 million in 2021 and are expected to be approximately $725 million and $775 million in 2022 and 2023, respectively.

Expensed environmental costs were $728 million in 2022 and are expected to be approximately $800 million in 2023 and 2024.

Capitalized environmental costs were $88 million in 2022 and are expected to be approximately $140 million and $250 million, in 2023 and 2024, respectively.

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EU ETS impacts factories, power stations and other installations across all EU member states.

As a result of the United Kingdom’s exit from the European Union (BREXIT), those types of entities in the United Kingdom became subject to the UK ETS, rather than the EU ETS, after the EU ETS 2020 scheme year ended on April 30, 2021.

As a result of the United Kingdom’s exit from the EU (BREXIT), those types of entities in the United Kingdom are now subject to the UK ETS, rather than the EU ETS.

• EU Renewable Energy Directive II, which increases the EU’s energy consumption from renewable sources in the electricity, heat, and transportation sectors to 32% by 2030.

Index to Financial Statements

• United Kingdom’s Renewable Fuel Obligation, which is intended to reduce the GHG emissions from fuel used in the United Kingdom transportation sector by encouraging the supply of renewable fuels.

• California’s Senate Bill No.

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Other GHG emissions programs in the western U.S.

states have been enacted or are under consideration or development, including amendments to California's Low Carbon Fuel Standard, Oregon's Low Carbon Fuel Standard and Climate Protection Plan, and Washington's carbon reduction programs.

states have been enacted or are under consideration or development, including amendments to California's Low Carbon Fuel Standard, California’s Advanced Clean Cars and Trucks Programs, California’s Carbon Neutrality by 2045 Scoping Plan, Oregon's Low Carbon Fuel Standard and Climate Protection Plan, and Washington's carbon reduction programs.

• United States’ Inflation Reduction Act, which contains tax inducements and other provisions that incentivize investment, development, and deployment of alternative energy sources and technologies, which is intended to accelerate the energy transition.

Supreme Court decision in Massachusetts v.

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Phase II was undertaken from 2008 through 2012, and Phase III ran from 2013 through to 2020.

Phase IV runs from January 1, 2021 through 2030 and sectors covered under the ETS must reduce their GHG emissions by 43% compared to 2005 levels.

Since January 1, 2021, the United Kingdom is no longer part of the EU ETS and, instead, has been under the UK ETS.

However, the United Kingdom had the obligation and retained the ability to enforce the EU ETS obligations until April 30, 2021.

Phase IV runs from January 1, 2021 through 2030 and sectors covered under the ETS must reduce their GHG emissions by 43% compared to 2005 levels and there is agreement between the EU Member States, the European Parliament, and the EU Commission (which is pending ratification by the EU Council and European Parliament) to increase the Phase IV GHG emissions reduction to 63% by 2030 compared to 2005 levels.

The United Kingdom is no longer part of the EU ETS and, instead, has been under the UK ETS since 2021.

Phillips 66 has assets that are subject to the EU ETS and assets that are subject to the UK ETS.

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Such regulation could take any of several forms that may result in additional financial burden in the form of taxes, the restriction of output, investments of capital to maintain compliance with laws and regulations, or required acquisition or trading of emission allowances.

Index to Financial Statements

Compliance with changes in laws and regulations that create a GHG emission trading program, GHG reduction requirements or carbon taxes could significantly increase our costs, reduce demand for fossil energy derived products, impact the cost and availability of capital and increase our exposure to litigation.

Such laws and regulations could also increase demand for less carbon intensive energy sources.

Index to Financial Statements

An example of one such program is California’s cap and trade program, which was promulgated pursuant to the State’s Global Warming Solutions Act.

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We are working to continuously improve operational and energy efficiency through resource and energy conservation throughout our operations.

In September 2021, we announced a set of company-wide GHG emission intensity reduction targets that we consider to be impactful, attainable and measurable.

By 2030, we expect to reduce GHG emission intensity by 30% for Scope 1 and 2 emissions from our operations and by 15% for Scope 3 emissions from our energy products, below 2019 levels.

In addition to the disclosures above, we have issued our 2021 Sustainability Report that is accessible on our website and provides more detailed information on our Environmental, Social and Corporate Governance (ESG) initiatives, including detailed information on environmental metrics.

In February 2022, we announced our intention to reduce our Scope 1 and Scope 2 GHG emissions intensity related to our operations by 50% of 2019 levels by the year 2050.

This new target builds upon our previously announced 2030 GHG emissions intensity targets to reduce Scope 1 and Scope 2 emissions from our operations by 30% and Scope 3 emissions from our energy products by 15% compared to 2019 levels.

In addition to the disclosures above, we have issued our 2022 Sustainability Report that is accessible on our website and provides more detailed information on our Environmental, Social and Corporate Governance initiatives, including detailed information on environmental metrics.

Index to Financial Statements

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Some of these accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts would have been reported under different conditions, or if different assumptions had been used.

The following discussion of critical accounting estimates, along with the discussion of contingencies in this report, addresses all important accounting areas where the nature of accounting estimates or assumptions could be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change.

The following discussion of critical accounting estimates addresses accounting areas where the nature of accounting estimates or assumptions could be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change.

Business Combination

In accounting for a business combination, assets acquired, liabilities assumed and noncontrolling interests are recorded based on estimated fair values as of the date of acquisition.

The excess or shortfall of the purchase price when compared to the fair value of the net tangible and identifiable intangible assets acquired, if any, is recorded as goodwill or a bargain purchase gain, respectively.

A significant amount of judgment is made in estimating the individual fair value of property, plant and equipment, intangible assets, noncontrolling interests and other assets and liabilities.

We use available information to make these fair value determinations and engage third-party specialists in the valuation process as necessary.

The fair values of assets acquired, liabilities assumed and noncontrolling interests as of the acquisition date are often estimated using a combination of approaches, including the income approach, which requires us to project future cash flows and apply an appropriate discount rate;

the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates;

and the market approach which uses market data and adjusts for entity specific differences.

The estimates used in determining fair values are based on assumptions believed to be reasonable, but which are inherently uncertain.

Accordingly, actual results may differ materially from the estimated results used to determine fair value.

See Note 4—Business Combination, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on the merger of DCP Midstream and Gray Oak Holdings and fair value measurements.

Impairment of Long-Lived Assets and Equity Method Investments

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The expected future cash flows used for impairment reviews and related fair value calculations are based on judgmental assessments, including future volumes, commodity prices, operating costs, margins, discount rates and capital project decisions, considering all available information at the date of review.

Index to Financial Statements

Investments in nonconsolidated entities accounted for under the equity method are assessed for impairment when there are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the investment’s carrying amount.

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Different assumptions could affect the timing and the amount of an impairment of an investment in any period.

See Note 9—Impairments, in the Notes to Consolidated Financial Statements, for information about significant impairments recorded in 2021, 2020 and 2019.

Asset Retirement Obligations

Under various contracts, permits and regulations, we have legal obligations to remove tangible long-lived assets and restore the land at the end of operations at certain operational sites.

Estimating the timing and cost of future asset removals is difficult.

Our recognized asset retirement obligations primarily involve asbestos abatement at our refineries;

decommissioning, removal or dismantlement of certain assets at refineries that have or will be shut down;

and dismantlement or removal of assets at certain leased international marketing sites.

Many of these removal obligations are many years, or decades, in the future, and the contracts and regulations often have vague descriptions of what removal practices and criteria must be met when the removal event actually occurs.

Asset removal technologies and costs, regulatory and other compliance considerations, expenditure timing, and other inputs into valuation of the obligation, including discount and inflation rates, are also subject to change.

Index to Financial Statements

Environmental Costs

In addition to asset retirement obligations discussed above, we have certain obligations to complete environmental-related projects.

These projects are primarily related to cleanup at domestic refineries, underground storage sites and nonoperated sites.

Future environmental remediation costs are difficult to estimate because they are subject to change due to such factors as the uncertain magnitude of cleanup costs, timing and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other responsible parties.

Intangible Assets and Goodwill

At December 31, 2021, we had $715 million of intangible assets that we have determined to have indefinite useful lives, and therefore do not amortize.

The judgmental determination that an intangible asset has an indefinite useful life is continuously evaluated.

If, due to changes in facts and circumstances, management determines these intangible assets have finite useful lives, amortization will commence at that time on a prospective basis.

As long as these intangible assets are determined to have indefinite lives, they will be subject to at least annual impairment tests that require management’s judgment of their estimated fair value.

At December 31, 2021, we had $1.5 billion of goodwill primarily related to past business combinations.

Goodwill is not amortized.

Instead, goodwill is subject to at least annual tests for impairment at a reporting unit level.

A reporting unit is an operating segment or a component that is one level below an operating segment, and it is determined primarily based on the manner in which the business is managed.

We perform our annual goodwill impairment test using a qualitative assessment and a quantitative assessment, if one is deemed necessary.

As part of our qualitative assessment, we evaluate relevant events and circumstances that could affect the fair value of our reporting units, including macroeconomic conditions, overall industry and market considerations and regulatory changes, as well as company-specific market metrics, performance and events.

The evaluation of company-specific events and circumstances includes evaluating changes in our stock price and cost of capital, actual and forecasted financial performance, as well as the effect of significant asset dispositions.

If our qualitative assessment indicates it is likely the fair value of a reporting unit has declined below its carrying value (including goodwill), a quantitative assessment is performed.

When a quantitative assessment is performed, management applies judgment in determining the estimated fair values of the reporting units because quoted market prices for our reporting units are not available.

Management uses available information to make this fair value determination, including estimated future cash flows, cost of capital, observed market earnings multiples of comparable companies, our common stock price and associated total company market capitalization.

We completed our annual qualitative assessment of goodwill as of October 1, 2021, and concluded that the fair values of our reporting units exceeded their respective carrying values (including goodwill).

A decline in the estimated fair value of one or more of our reporting units in the future could result in an impairment.

As such, we continue to monitor for indicators of impairment until our next annual impairment assessment is performed.

See Note 9—Impairments, and Note 16—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding the goodwill impairment we recorded in the first quarter of 2020.

Index to Financial Statements

Tax Assets and Liabilities

Our operations are subject to various taxes, including federal, state and foreign income taxes, property taxes, and transactional taxes such as excise, sales and use, value-added and payroll taxes.

We record tax liabilities based on our assessment of existing tax laws and regulations.

The recording of tax liabilities requires significant judgment and estimates.

We recognize the financial statement effects of an income tax position when it is more likely than not that the position will be sustained upon examination by a taxing authority.

A contingent liability related to a transactional tax claim is recorded if the loss is both probable and reasonably estimable.

Actual incurred tax liabilities can vary from our estimates for a variety of reasons, including different interpretations of tax laws and regulations and different assessments of the amount of tax due.

In determining our income tax expense (benefit), we assess the likelihood our deferred tax assets will be recovered through future taxable income.

Valuation allowances reduce deferred tax assets to an amount that will, more likely than not, be realized.

Judgment is required in estimating the amount of valuation allowance, if any, that should be recorded against our deferred tax assets.

Based on our historical taxable income, our expectations for the future, and available tax-planning strategies, we expect our net deferred tax assets will more likely than not be realized as offsets to reversing deferred tax liabilities and as reductions to future taxable income.

If our actual results of operations differ from such estimates or our estimates of future taxable income change, the valuation allowance may need to be revised.

New tax laws and regulations, as well as changes to existing tax laws and regulations, are continuously being proposed or promulgated.

The implementation of future legislative and regulatory tax initiatives could result in increased income tax liabilities that cannot be predicted at this time.

Projected Benefit Obligations

Calculation of the projected benefit obligations for our defined benefit pension and postretirement plans impacts the obligations on the balance sheet and the amount of benefit expense in the statement of operations.

The actuarial calculation of projected benefit obligations and company contribution requirements involves judgment about uncertain future events, including estimated retirement dates, salary levels at retirement, mortality rates, lump-sum election rates, rates of return on plan assets, future interest rates, future health care cost-trend rates, and rates of utilization of health care services by retirees.

We engage outside actuarial firms to assist in the calculation of these projected benefit obligations and company contribution requirements due to the specialized nature of these calculations.

As financial accounting rules and the pension plan funding regulations promulgated by governmental agencies have different objectives and requirements, the actuarial methods and assumptions for the two purposes differ in certain important respects.

Ultimately, we will be required to fund all promised benefits under pension and postretirement benefit plans not funded by plan assets or investment returns, but the judgmental assumptions used in the actuarial calculations significantly affect periodic financial statements and funding patterns over time.

Benefit expense is particularly sensitive to the discount rate and return on plan assets assumptions.

A one percentage-point decrease in the discount rate assumption used for the plan obligation would increase annual benefit expense by an estimated $60 million, while a one percentage-point decrease in the return on plan assets assumption would increase annual benefit expense by an estimated $40 million.

In determining the discount rate, we use yields on high-quality fixed income investments with payments matched to the estimated distributions of benefits from our plans.

The expected weighted-average long-term rate of return for worldwide pension plan assets was approximately 6% for both 2021 and 2020, while the actual weighted-average rate of return was 10% in 2021 and 12% in 2020.

For the past ten years, our actual weighted-average rate of return for worldwide pension plan assets was 10%.

See Note 11—Impairments, in the Notes to Consolidated Financial Statements, for information about impairments recorded in 2022, 2021 and 2020.

Index to Financial Statements

GUARANTOR FINANCIAL INFORMATION

At December 31, 2021, Phillips 66 had $10.3 billion of senior unsecured notes outstanding guaranteed by Phillips 66 Company, a direct, wholly owned operating subsidiary of Phillips 66.

Phillips 66 conducts substantially all of its operations through subsidiaries, including Phillips 66 Company, and those subsidiaries generate substantially all of its operating income and cash flows.

The guarantees (1) are unsecured obligations of Phillips 66 Company, (2) rank equally with all of Phillips 66 Company’s other unsecured and unsubordinated indebtedness, and (3) are full and unconditional.

Summarized financial information of Phillips 66 and Phillips 66 Company (the Obligor Group) is presented on a combined basis.

We have various cross guarantees between Phillips 66 and its wholly owned subsidiary Phillips 66 Company (together, the Obligor Group) with respect to publicly held debt securities.

Phillips 66 conducts substantially all of its operations through subsidiaries, including Phillips 66 Company, and those subsidiaries generate substantially all of its operating income and cash flow.

Phillips 66 has fully and unconditionally guaranteed the payment obligations of Phillips 66 Company with respect to its publicly held debt securities.

In addition, Phillips 66 Company has fully and unconditionally guaranteed the payment obligations of Phillips 66 with respect to its publicly held debt securities.

All guarantees are full and unconditional.

At December 31, 2022, $12 billion of senior unsecured notes outstanding has been guaranteed by the Obligor Group.

See the “Significant Sources of Capital” section for additional information regarding the Exchange Offers by Phillips 66 Company for existing senior notes of Phillips 66 Partners that settled in May 2022.

Summarized financial information of the Obligor Group is presented on a combined basis.

Intercompany transactions among the members of the Obligor Group have been eliminated.

1 unchanged sentence

Significant intercompany transactions and receivable/payable balances between the Obligor Group and non-guarantor subsidiaries are presented separately in the summarized financial information.

Index to Financial Statements

The summarized results of operations for the year ended December 31, 2022, and the summarized financial position at December 31, 2022, of the Obligor Group on a combined basis were:

5 unchanged sentences

Purchased crude oil and products—non-guarantor subsidiaries 25,240

Impairments 1,290

Income before income taxes 7,244

34 unchanged sentences

Year Ended December 31, 2022

Income (loss) before income taxes $ (36) (1,889) 70 (694) (2,549)

Income before income taxes $ 2,402 2,091 2,415 908 7,816

Taxes other than income taxes

6 unchanged sentences

1,242 1,230 809 1,486 4,767

Equity in losses of affiliates 9 11 164 — 184

Equity in (earnings) losses of affiliates 9 7 (763) — (747)

Other segment (income) expense, net (6) 1 2 (1) (4)

2 unchanged sentences

Special items:

Certain tax impacts (4) — — — (4)

Regulatory compliance costs 9 26 22 13 70

5 unchanged sentences

199,319 203,269 177,112 115,457 695,157

Income (loss) before income taxes per barrel ( dollars per barrel )**

Income before income taxes per barrel ( dollars per barrel )**

$ 12.05 10.29 24.64 7.86 12.69

2 unchanged sentences

Year Ended December 31, 2021

Loss before income taxes $ (1,224) (2,077) (641) (2,213) (6,155)

Income (loss) before income taxes $ 1 (1,759) 72 (667) (2,353)

Taxes other than income taxes

8 unchanged sentences

Other segment (income) expense, net

9 (7) (11) 4 (5)

Proportional share of refining gross margins contributed by equity affiliates

2 unchanged sentences

Certain tax impacts (4) — — — (4)

Regulatory compliance costs (20) (28) (27) (13) (88)

Realized refining margins

4 unchanged sentences

188,697 240,859 173,230 112,994 715,780

Loss before income taxes per barrel ( dollars per barrel )**

Income (loss) before income taxes per barrel ( dollars per barrel )**

$ 0.01 (7.30) 0.75 (5.90) (3.69)

9 unchanged sentences

Year Ended December 31, 2020

Income (loss) before income taxes $ 608 364 1,338 (324) 1,986

Loss before income taxes $ (1,207) (1,964) (642) (2,210) (6,023)

Taxes other than income taxes

6 unchanged sentences

775 1,394 497 1,000 3,666

Equity in (earnings) losses of affiliates

11 2 (331) — (318)

Equity in losses of affiliates 10 3 363 — 376

Other segment (income) expense, net

(16) (3) — 5 (14)

Proportional share of refining gross margins contributed by equity affiliates

1 unchanged sentence

Special items:

Pending claims and settlements — — (21) — (21)

Certain tax impacts (6) — — — (6)

Realized refining margins

4 unchanged sentences

170,536 213,871 162,693 110,602 657,702

Income (loss) before income taxes per barrel ( dollars per barrel )**

Loss before income taxes per barrel ( dollars per barrel )**

$ (7.08) (9.18) (6.97) (19.98) (10.26)

2 unchanged sentences

* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.

** Income (loss) before income taxes divided by total processed inputs.

** Loss before income taxes divided by total processed inputs.

*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels.

12 unchanged sentences

Income before income taxes $ 1,329 1,180 870 765 403 454

Taxes other than income taxes 9 1 5 6 5 6

Depreciation, amortization and impairment

14 12 10 76 70 65

Depreciation and amortization 14 14 12 72 76 70

Selling, general and administrative expenses

3 unchanged sentences

Other operating (revenues) expenses* (508) (424) (327) (62) 8 (27)

Other segment expense, net — — — 1 1 1

Special items:

Certain tax impacts

— — (90) — — —

Other (income) expense, net 24 9 1 (7) 7 6

Marketing margins

15 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis