What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-11-09 · 203 added, 447 removed, 663 unchanged (50% of the section changed)

3 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Revenues and Other Income

2 unchanged sentences

Net gain on dispositions 34 1

Other income 3,026 238 2,698 304

Other income (loss) 48 ( 143 )

Total Revenues and Other Income 35,089 36,722

11 unchanged sentences

Income before income taxes 2,651 828

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

Income tax expense 574 171

Net Income 2,077 657

8 unchanged sentences

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Comprehensive Income Phillips 66

1 unchanged sentence

Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Net Income $ 2,077 657

1 unchanged sentence

Defined benefit plans

Net actuarial gain (loss) arising during the period ( 4 ) — ( 17 ) 210

Amortization of net actuarial loss, prior service credit and settlements 10 11

5 unchanged sentences

Foreign currency translation adjustments, net of income taxes 77 ( 82 )

Cash flow hedges — — — 3

Income taxes on hedging activities — —

5 unchanged sentences

See Notes to Consolidated Financial Statements.

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Consolidated Balance Sheet Phillips 66

2 unchanged sentences

Cash and cash equivalents $ 6,965 6,133

Accounts and notes receivable (net of allowances of $ 64 million in 2022 and $ 44 million in 2021)

Accounts and notes receivable (net of allowances of $ 67 million in 2023 and 2022)

Accounts and notes receivable—related parties 1,203 1,488

37 unchanged sentences

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Cash Flows Phillips 66

Millions of Dollars

Nine Months Ended

Three Months Ended

Cash Flows From Operating Activities

7 unchanged sentences

Net gain on dispositions ( 34 ) ( 1 )

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

Unrealized investment (gain) loss 418 ( 224 )

Unrealized investment loss 11 169

Working capital adjustments

9 unchanged sentences

Proceeds from asset dispositions 77 1

Advances/loans—related parties ( 75 ) ( 310 )

Collection of advances/loans—related parties 236 1

Other ( 24 ) ( 74 )

7 unchanged sentences

Distributions to noncontrolling interests ( 58 ) ( 77 )

Repurchase of noncontrolling interests — ( 24 )

Other ( 48 ) ( 30 )

5 unchanged sentences

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Changes in Equity Phillips 66

Millions of Dollars

Three Months Ended September 30

Three Months Ended March 31

Attributable to Phillips 66

1 unchanged sentence

Other Comprehensive Loss Noncontrolling Interests Total

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

December 31, 2022 $ 7 19,791 ( 15,276 ) 25,432 ( 460 ) 4,612 34,106

Net income — — — 1,961 — 116 2,077

Other comprehensive loss — — — — ( 261 ) — ( 261 )

Other comprehensive income — — — — 87 — 87

Dividends paid on common stock ($ 1.05 per share)

3 unchanged sentences

Distributions to noncontrolling interests — — — — — ( 58 ) ( 58 )

Merger of DCP Midstream, LLC and Gray

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

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

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

Net income — — — 402 — 86 488

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

Dividends paid on common stock ($ 0.90 per share)

— — — ( 394 ) — — ( 394 )

Benefit plan activity — 25 — ( 3 ) — — 22

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

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

Three Months Ended September 30

Common Stock Issued Treasury Stock

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

Repurchase of common stock — 8,565,824

Shares issued—share-based compensation 146,940 —

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

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

Shares issued—share-based compensation 110,865 —

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

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Changes in Equity Phillips 66

Millions of Dollars

Nine Months Ended September 30

Attributable to Phillips 66

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

Other Comprehensive Loss Noncontrolling Interests Total

March 31, 2023 $ 7 19,795 ( 16,083 ) 26,903 ( 373 ) 4,667 34,916

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

3 unchanged sentences

— — — ( 404 ) — — ( 404 )

Repurchase of common stock — — ( 790 ) — — — ( 790 )

Benefit plan activity — 32 — ( 3 ) — — 29

1 unchanged sentence

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

Merger of DCP Midstream, LLC and Gray

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

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

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

Net income — — — 44 — 179 223

Other comprehensive income — — — — 200 — 200

Dividends paid on common stock ($ 2.70 per share)

— — — ( 1,182 ) — — ( 1,182 )

Benefit plan activity — 105 — ( 10 ) — — 95

Distributions to noncontrolling interests — — — — — ( 239 ) ( 239 )

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

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

Nine Months Ended September 30

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

Three Months Ended March 31

Common Stock Issued Treasury Stock

2 unchanged sentences

Shares issued—share-based compensation 892,539 —

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

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

March 31, 2023 653,266,184 194,403,868

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

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

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

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

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

See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements Phillips 66

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Therefore, these interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2022 Annual Report on Form 10-K.

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

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

The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results expected for the full year.

Note 2— Change in Accounting Principle

Effective January 1, 2023, we adopted ASU 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations.” This ASU requires the buyer in a supplier finance program to disclose qualitative and quantitative information about the program.

At the time of adoption, this ASU did not have a material impact on our consolidated financial statements.

Note 3— DCP Midstream, LLC and Gray Oak Holdings LLC Merger

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

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

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

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

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

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

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

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

9 unchanged sentences

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

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

7 unchanged sentences

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

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

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

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

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

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

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

Merger of Phillips 66 Partners LP (Phillips 66 Partners)

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

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

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Note 2—Business Combination

See Note 4—Business Combinations, for additional information on our accounting for this transaction.

See Note 21—DCP Midstream Class A Segment, for additional information regarding our variable interest in DCP Midstream Class A Segment and the definitive agreement we executed on January 5, 2023, to acquire an incremental interest in DCP LP.

Note 4— Business Combinations

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

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

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

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

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

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

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

6 unchanged sentences

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

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

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

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

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

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

The following table shows the preliminary purchase price allocation as of the date of the merger, and cumulative adjustments we have made as of March 31, 2023:

Millions of Dollars

As Originally Reported Adjustments As Adjusted

Fair value of assets acquired:

23 unchanged sentences

Total merger consideration $ 4,891 — 4,891

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

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

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

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

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

Millions of Dollars

Sales and other operating revenues $ 1,368

Net Income Attributable to Phillips 66 125

Pro Forma Financial Information

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

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

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

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

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

Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Sales and other operating revenues (millions)

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

Net Income Attributable to Phillips 66 (millions)

3,129 405 6,963 2,167

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

6.50 0.92 14.76 4.91

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

6.48 0.92 14.71 4.90

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The adjustments reflected in the table above include reclassification adjustments we have made to the preliminary purchase price allocation to conform with our historical presentation and adjustments we have made to the estimated fair value of certain assets acquired and liabilities assumed.

The adjustments recorded in the three months ended March 31, 2023, were not material.

Pending Acquisition

On April 10, 2023, we entered into an agreement to acquire certain marketing assets on the U.S.

West Coast for cash consideration of approximately $ 260 million plus an adjustment for net working capital that will be determined at closing.

The transaction is expected to close in the second or early third quarter of 2023, subject to regulatory approval and completion of other customary closing conditions.

Note 5— Sales and Other Operating Revenues

3 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Product Line and Services

3 unchanged sentences

Services and other *

902 ( 17 ) 833 283

Consolidated sales and other operating revenues $ 34,396 36,179

3 unchanged sentences

Germany 1,306 1,382

Other foreign countries 2,575 2,090 7,689 5,833

Other countries 2,095 2,272

Consolidated sales and other operating revenues $ 34,396 36,179

3 unchanged sentences

Contract-Related Assets and Liabilities

At September 30, 2022, and December 31, 2021, receivables from contracts with customers were $ 11,393 million and $ 6,140 million, respectively.

At March 31, 2023, and December 31, 2022, receivables from contracts with customers were $ 7,317 million and $ 8,749 million, respectively.

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

1 unchanged sentence

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

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

At March 31, 2023, and December 31, 2022, our asset balances related to such payments were $ 509 million and $ 505 million, respectively.

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

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

At March 31, 2023, and December 31, 2022, contract liabilities were $ 203 million and $ 156 million, respectively.

Remaining Performance Obligations

2 unchanged sentences

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

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

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

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At March 31, 2023, the remaining performance obligations related to these minimum volume commitment contracts amounted to $ 446 million.

Note 6— Credit Losses

8 unchanged sentences

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

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

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

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

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

At March 31, 2023, and December 31, 2022, we reported $ 9,326 million and $ 10,985 million of accounts and notes receivable, respectively, net of allowances of $ 67 million for both periods.

Based on an aging analysis at March 31, 2023, more than 95 % of our accounts receivable were outstanding less than 60 days.

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

See Note 12—Guarantees, and Note 13—Contingencies and Commitments, for more information on these off-balance sheet exposures.

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Note 7— Inventories

5 unchanged sentences

$ 5,445 3,276

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

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 7.3 billion and $ 5.7 billion at September 30, 2022, and December 31, 2021, respectively.

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 4,837 million and $ 2,635 million at March 31, 2023, and December 31, 2022, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 6 billion and $ 6.3 billion at March 31, 2023, and December 31, 2022, respectively.

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

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

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

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LIFO inventory liquidations increased our net income by $ 4 million and $ 40 million in the three months ended March 31, 2023 and 2022 , respectively.

Note 8— Investments, Loans and Long-Term Receivables

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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 of 2021.

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.

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In February 2022, the U.S.

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

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 of 2022, and release is expected in Spring of 2023.

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

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

1 unchanged sentence

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

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

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

At March 31, 2023, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $ 1.85 billion.

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

Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the above-mentioned ongoing litigation.

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

If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we could be required to support our 25 % share of the ongoing expenses, including scheduled interest payments on the notes of approximately $ 20 million annually, in addition to the potential obligations under the CECU at September 30, 2022.

At September 30, 2022, the aggregate book value of our investments in Dakota Access and ETCO was $ 691 million.

At March 31, 2023, our 25 % share of the maximum potential equity contributions under the CECU was approximately $ 467 million.

At March 31, 2023, the aggregate book value of our investments in Dakota Access and ETCO was $ 659 million.

CF United LLC (CF United)

We hold a 50 % voting interest and a 48 % economic interest in CF United, a retail marketing joint venture with operations primarily on the U.S.

CF United is considered a variable interest entity (VIE) because our co-venturer has an option to require us to purchase its interest based on a fixed multiple.

We own a 50 % voting interest and a 47 % economic interest in CF United, a retail marketing joint venture with operations primarily on the U.S.

CF United is considered a VIE because our co-venturer has an option to require us to purchase its interest based on a fixed multiple.

The put option becomes effective July 1, 2023, and expires on March 31, 2024.

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

At September 30, 2022, our maximum exposure to loss was comprised of our $ 288 million investment in CF United, and any potential future loss resulting from the put option should the purchase price based on a fixed multiple exceed the then-current fair value of CF United.

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At March 31, 2023, our maximum exposure to loss was comprised of our $ 292 million investment in CF United, and any potential future loss resulting from the put option should the purchase price based on a fixed multiple exceed the then-current fair value of CF United.

OnCue Holdings, LLC (OnCue)

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

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

DCP Midstream and Gray Oak Holdings Merger

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

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

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

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

Equity Investments Acquired

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

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

At March 31, 2023, our maximum exposure to loss was $ 213 million, which represented the book value of our investment in OnCue of $ 145 million and guaranteed debt obligations of $ 68 million.

DCP Midstream, DCP Sand Hills, DCP Southern Hills, and Gray Oak Pipeline —Prior to the merger of DCP Midstream and Gray Oak Holdings on August 17, 2022, we held:

• A 50 % interest in DCP Midstream a joint venture that owns and operates NGL and gas pipelines, gas plants, gathering systems, storage facilities and fractionation plants, through its subsidiary DCP LP.

• A 33.33 % direct ownership interest in DCP Sand Hills a joint venture that owns a NGL pipeline system that extends from the Permian Basin and Eagle Ford to facilities on the Texas Gulf Coast and to the Mont Belvieu, Texas, market hub.

• A 33.33 % direct ownership interest in DCP Southern Hills a joint venture that owns a NGL pipeline system that extends from the Midcontinent region to the Mont Belvieu, Texas, market hub.

• A 65 % interest in Gray Oak Pipeline, which was held through a consolidated holding company, Gray Oak Holdings.

Our indirect interest in Gray Oak Pipeline was 42.25 %, after considering a co-venturer’s 35 % interest in Gray Oak Holdings.

Gray Oak Pipeline is a crude oil pipeline that extends from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, Texas, and the Sweeny area, including our Sweeny Refinery.

Other Investments

4 unchanged sentences

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

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

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

The fair value of our investment in NOVONIX was $ 66 million at March 31, 2023.

The fair value of our investment in NOVONIX declined by $ 12 million during the three months ended March 31, 2023, reflecting an unrealized investment loss of $ 11 million and an unrealized foreign currency loss of $ 1 million.

See Note 15—Fair Value Measurements, for additional information regarding the recurring fair value measurement of our investment in NOVONIX.

Related Party Loans

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

In April 2022, we and our co-venturer provided additional member loans to WRB;

our 50 % share was $ 75 million.

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

our 50 % share was $ 235 million.

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

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Note 9— Properties, Plants and Equipment

2 unchanged sentences

Millions of Dollars

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Midstream $ 25,549 3,743 21,806 25,422 3,524 21,898

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$ 53,194 18,083 35,111 52,990 17,827 35,163

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

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Note 8— Impairments

Millions of Dollars

Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Midstream $ — 10 1 208

Refining — 1,288 1 1,288

Total impairments $ — 1,298 2 1,496

Equity Investment

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

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

Alliance Refinery

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

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

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

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

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

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

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

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

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Note 10— Earnings Per Share

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

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

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

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

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Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Basic Diluted Basic Diluted Basic Diluted Basic Diluted

Basic Diluted Basic Diluted

Amounts Attributed to Phillips 66 Common Stockholders (millions) :

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Income allocated to participating securities ( 3 ) ( 1 ) ( 2 ) ( 2 )

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

Net income available to common stockholders $ 1,958 1,960 580 580

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$ 4.21 4.20 1.29 1.29

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

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

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

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Note 11— Debt

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

Millions of Dollars

September 30, 2022 December 31, 2021

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

4.300 % Senior Notes due April 2022

$ — — — — — 1,000 — 1,000

3.875 % Senior Notes due March 2023

— — — 500 500 — — —

3.700 % Senior Notes due April 2023

500 — — — 500 500 — 500

0.900 % Senior Notes due February 2024

800 — — — 800 800 — 800

2.450 % Senior Notes due December 2024

— 277 23 — 300 — 300 300

3.605 % Senior Notes due February 2025

— 441 59 — 500 — 500 500

3.850 % Senior Notes due April 2025

650 — — — 650 650 — 650

5.375 % Senior Notes due July 2025

— — — 825 825 — — —

1.300 % Senior Notes due February 2026

500 — — — 500 500 — 500

3.550 % Senior Notes due October 2026

— 458 42 — 500 — 500 500

5.625 % Senior Notes due July 2027

— — — 500 500 — — —

3.750 % Senior Notes due March 2028

— 427 73 — 500 — 500 500

3.900 % Senior Notes due March 2028

800 — — — 800 800 — 800

5.125 % Senior Notes due May 2029

— — — 600 600 — — —

3.150 % Senior Notes due December 2029

— 570 30 — 600 — 600 600

8.125 % Senior Notes due August 2030

— — — 300 300 — — —

2.150 % Senior Notes due December 2030

850 — — — 850 850 — 850

3.250 % Senior Notes due February 2032

— — — 400 400 — — —

4.650 % Senior Notes due November 2034

1,000 — — — 1,000 1,000 — 1,000

6.450 % Senior Notes due November 2036

— — — 300 300 — — —

6.750 % Senior Notes due September 2037

— — — 450 450 — — —

5.875 % Senior Notes due May 2042

1,500 — — — 1,500 1,500 — 1,500

5.850 % Junior Subordinated Notes due May 2043

— — — 550 550 — — —

5.600 % Senior Notes due April 2044

— — — 400 400 — — —

4.875 % Senior Notes due November 2044

1,700 — — — 1,700 1,700 — 1,700

4.680 % Senior Notes due February 2045

— 442 8 — 450 — 450 450

4.900 % Senior Notes due October 2046

— 605 20 — 625 — 625 625

3.300 % Senior Notes due March 2052

1,000 — — — 1,000 1,000 — 1,000

Floating Rate Term Loan due April 2022 at 0.978 % at year-end 2021

— — — — — — 450 450

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

25 — — — 25 25 — 25

Other 1 — — 14 15 1 — 1

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

Fair value adjustment to debt acquired ( 125 )

Finance leases 269 290

Software obligations 20 16

Net unamortized discounts and debt issuance costs ( 147 ) ( 109 )

Total debt 17,657 14,448

Short-term debt ( 1,032 ) ( 1,489 )

Long-term debt $ 16,625 12,959

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2022 Activities

Credit Facilities

Debt Issuances and Repayments

On March 29, 2023, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $ 1.25 billion aggregate principal amount of senior unsecured notes consisting of:

• $ 750 million aggregate principal amount of 4.950 % Senior Notes due December 2027 (2027 Notes).

• $ 500 million aggregate principal amount of 5.300 % Senior Notes due June 2033 (2033 Notes).

The 2027 Notes and 2033 Notes (collectively, the Notes) are fully and unconditionally guaranteed by Phillips 66.

Interest on the 2027 Notes is payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2023.

Interest on the 2033 Notes is payable semi-annually on June 30 and December 30 of each year, commencing on December 30, 2023.

The Notes are required to be redeemed at a price equal to 101 % of the principal amount, plus accrued and unpaid interest, at the earliest occurrence of any of the following events:

the DCP LP public common unit acquisition is not completed on or prior to December 31, 2023;

the agreement to acquire the DCP LP public common units is terminated;

or we notify the trustee of the notes in writing that the DCP LP public common unit acquisition will not be consummated on or prior to December 31, 2023.

See Note 21—DCP Midstream Class A Segment, for additional information regarding the definitive agreement we executed on January 5, 2023, to acquire an incremental interest in DCP LP.

On March 15, 2023, DCP LP repaid its 3.875 % senior unsecured notes due March 2023 with an aggregate principal amount of $ 500 million using borrowings under its revolving credit and accounts receivable securitization facilities.

On April 19, 2023, DCP LP announced its intent to redeem its 5.850 % junior subordinated notes due May 2043 with an aggregate principal amount outstanding of $ 550 million on or about May 21, 2023.

DCP LP expects to use borrowings under its revolving credit and accounts receivable securitization facilities.

Term Loan Agreement

On March 27, 2023 (the Closing Date), Phillips 66 Company, a wholly owned subsidiary of Phillips 66, entered into a $ 1.5 billion delayed draw term loan agreement guaranteed by Phillips 66 (the Term Loan Agreement).

The Term Loan Agreement provides for a single borrowing (the date of such borrowing, the Funding Date) during a 90-day period commencing on the Closing Date, contingent upon us completing the DCP LP public common unit acquisition, and matures on the third anniversary of the Funding Date.

The Term Loan Agreement contains customary covenants similar to those contained in our revolving credit agreement, including a maximum consolidated net debt-to-capitalization ratio of 65 % as of the last day of each fiscal quarter.

The Term Loan Agreement has customary events of default, such as nonpayment of principal when due;

nonpayment of interest, fees or other amounts after grace periods;

and violation of covenants.

We may at any time prepay outstanding borrowings under the Term Loan Agreement, in whole or in part, without premium or penalty.

Outstanding borrowings under the Term Loan Agreement will bear interest at either:

(a) Adjusted Term SOFR in effect from time to time plus the applicable margin;

or (b) the reference rate plus the applicable margin, as defined in the Term Loan Agreement.

As of March 31, 2023, no borrowings are outstanding under the Term Loan Agreement.

See Note 21—DCP Midstream Class A Segment, for additional information regarding the definitive agreement we executed on January 5, 2023, to acquire an incremental interest in DCP LP.

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

On June 23, 2022, we entered into a $ 5 billion revolving credit facility with Phillips 66 Company as the borrower and Phillips 66 as the guarantor.

At both March 31, 2023, and December 31, 2022, no amount had been drawn under the $ 5 billion revolving credit facility or $ 5 billion uncommitted commercial paper program.

DCP Midstream Class A Segment

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

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

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

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

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

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

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

Indebtedness under the Credit Agreement bears interest at either:

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

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

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

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

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

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

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

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

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

Phillips 66 Partners

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

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Debt Exchange

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.

Debt Repayments

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

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

2021 Activities

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

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

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

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

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

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At March 31, 2023, DCP LP had $ 225 million of borrowings outstanding under its $ 1.4 billion credit facility and $ 2 million of letters of credit had been issued that supported the credit facility.

At December 31, 2022, DCP LP had no borrowings outstanding under its $ 1.4 billion credit facility, and $ 10 million in letters of credit had been issued that are supported by the credit facility.

As of March 31, 2023, and December 31, 2022, $ 350 million and $ 40 million of borrowings, respectively, were outstanding under DCP LP’s accounts receivable securitization facility, which are secured by its accounts receivable at DCP Receivables LLC.

Note 12— Guarantees

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

At March 31, 2023, we were liable for certain contingent obligations under various contractual arrangements as described below.

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

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

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

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

These leases have remaining terms of up to nine years .

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $ 514 million at March 31, 2023.

We also have residual value guarantees associated with railcar, airplane and truck leases with maximum potential future exposures totaling $ 164 million.

These leases have remaining terms of five to ten years .

Guarantees of Joint Venture Obligations

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See Note 8—Investments, Loans and Long-Term Receivables, for additional information on Dakota Access and the CECU.

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

At March 31, 2023, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to three years .

The maximum potential future exposures under these guarantees were approximately $ 83 million.

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Indemnifications

Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to indemnification.

Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to indemnifications.

Agreements associated with these sales include indemnifications for taxes, litigation, environmental liabilities, permits and licenses, employee claims, and real estate tenant defaults.

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

At September 30, 2022, and December 31, 2021, the carrying amount of recorded indemnifications was $ 133 million and $ 144 million, respectively.

At March 31, 2023, and December 31, 2022, the carrying amount of recorded indemnifications was $ 134 million and $ 137 million, respectively.

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

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

At September 30, 2022, and December 31, 2021, environmental accruals for known contamination of $ 104 million and $ 106 million, respectively, were included in the carrying amount of the recorded indemnifications noted above.

At March 31, 2023, and December 31, 2022, environmental accruals for known contamination of $ 105 million and $ 108 million, respectively, were included in the carrying amount of the recorded indemnifications noted above.

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

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The agreement also establishes procedures for handling claims subject to indemnification and related matters.

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Note 13— Contingencies and Commitments

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

At September 30, 2022, and December 31, 2021, our total environmental accruals were $ 436 million.

At March 31, 2023, our total environmental accruals were $ 439 million, compared with $ 434 million at December 31, 2022.

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

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

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Legal Proceedings

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

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

At March 31, 2023, we had performance obligations secured by letters of credit and bank guarantees of $ 749 million related to various purchase and other commitments incident to the ordinary conduct of business.

Note 14— Derivatives and Financial Instruments

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

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

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

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

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

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DCP Midstream Class A Segment

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

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

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

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

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

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

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

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

See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger, for additional information regarding the merger and the associated accounting treatment.

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

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Millions of Dollars

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

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

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Total $ 3,088 ( 3,005 ) 14 97 1,860 ( 1,896 ) 90 54

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

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

At March 31, 2023, there was $ 32 million of collateral paid that was not offset on our consolidated balance sheet.

At December 31, 2022, there was $ 93 million of cash collateral paid that was not offset on our consolidated balance sheet.

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

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Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Sales and other operating revenues $ 50 ( 420 )

Other income 22 11 84 30

Other income (loss) ( 14 ) 25

Purchased crude oil and products 137 ( 228 )

Net gain (loss) from commodity derivative activity $ 173 ( 623 )

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

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

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

The percentage of our derivative contract volumes expiring within the next 12 months was more than 90 % at March 31, 2023, and December 31, 2022.

Open Position

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Natural gas (billions of cubic feet)

Credit Risk from Derivative Instruments

( 37 ) ( 77 )

Credit Risk from Derivative and Financial Instruments

Financial instruments potentially exposed to concentrations of credit risk consist primarily of trade receivables and derivative contracts.

Our trade receivables result primarily from the sale of products from, or related to, our refinery operations and reflect a broad national and international customer base, which limits our exposure to concentrations of credit risk.

The majority of these receivables have payment terms of 30 days or less.

We continually monitor this exposure and the creditworthiness of the counterparties and recognize bad debt expense based on a probability assessment of credit loss.

Generally, we do not require collateral to limit the exposure to loss;

however, we will sometimes use letters of credit, prepayments or master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us to others to be offset against amounts owed to us.

The credit risk from our derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction.

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Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount.

We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit rating.

We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit ratings.

The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if our credit ratings fall below investment grade.

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

The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at September 30, 2022, and December 31, 2021.

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The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at March 31, 2023, and December 31, 2022.

Note 15— Fair Value Measurements

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• Derivative instruments —The fair value of our exchange-traded contracts is based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange or other exchanges, and is reported as Level 1 in the fair value hierarchy.

When exchange-cleared contracts lack sufficient liquidity, or are valued using either adjusted exchange-provided prices or nonexchange quotes, we classify those contracts as Level 2.

When exchange-cleared contracts lack sufficient liquidity, or are valued using either adjusted exchange-provided prices or nonexchange quotes, we classify those contracts as Level 2 or Level 3 based on the degree to which inputs are observable.

Physical commodity forward purchase and sales contracts and over-the-counter (OTC) financial swaps are generally valued using forward quotes provided by brokers and price index developers, such as Platts and Oil Price Information Service.

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

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

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

The fair value of our fixed-rate debt is estimated based on observable market prices.

The fair value of our fixed-rate debt is estimated primarily based on observable market prices.

The following tables display the fair value hierarchy for our financial assets and liabilities either accounted for or disclosed at fair value on a recurring basis.

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Millions of Dollars

September 30, 2022

March 31, 2023

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

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Investment in NOVONIX 66 — — 66 N/A N/A — 66

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

$ 3,159 157 17 3,333 ( 2,889 ) ( 1 ) — 443

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$ 2,883 17,639 2 20,524 ( 2,889 ) ( 15 ) 696 18,316

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Millions of Dollars

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Exchange-cleared instruments $ 1,615 130 3 1,748 ( 1,582 ) — — 166

OTC instruments — 7 16 23 — — — 23

Physical forward contracts — 86 3 89 ( 12 ) — — 77

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Investment in NOVONIX 78 — — 78 N/A N/A — 78

Other investments 42 1 — 43 N/A N/A — 43

$ 1,861 224 22 2,107 ( 1,594 ) — — 513

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Nonrecurring Fair Value Measurements

Equity Investment

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

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

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

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

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

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

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

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

DCP Midstream and Gray Oak Holdings Merger

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

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

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

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

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See Note 4—Business Combinations, for additional information on the merger transaction.

Equity Investments

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

These valuations resulted in Level 3 nonrecurring fair value measurements.

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These valuations resulted in Level 2 nonrecurring fair value measurements.

Gain Related to Merger of Businesses

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

This valuation resulted in Level 1 nonrecurring fair value measurements.

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

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

These valuations resulted in Level 3 nonrecurring fair value measurements.

Noncontrolling Interest

Noncontrolling Interests

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

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

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

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

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These valuations resulted in Level 1 nonrecurring fair value measurements.

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

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

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Note 16— Pension and Postretirement Plans

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

The components of net periodic benefit cost for the three months ended March 31, 2023 and 2022, were as follows:

Millions of Dollars

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Components of Net Periodic Benefit Cost

Three Months Ended September 30

Service cost $ 28 6 37 9 1 1

Interest cost 28 5 20 5 1 2

Expected return on plan assets ( 31 ) ( 13 ) ( 39 ) ( 15 ) — —

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

Amortization of net actuarial loss (gain) 6 3 8 7 ( 1 ) —

Settlements 20 9 18 — — —

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

Nine Months Ended September 30

Three Months Ended March 31

Service cost $ 27 3 35 8 1 1

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Expected return on plan assets ( 31 ) ( 10 ) ( 39 ) ( 16 ) — —

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

Amortization of net actuarial loss (gain) 3 ( 1 ) 6 3 ( 2 ) ( 1 )

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

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

During the three months ended March 31, 2023, we contributed $ 29 million to our U.S.

pension and other postretirement benefit plans and $ 5 million to our international pension plans.

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pension and other postretirement benefit plans and approximately $ 15 million to our international pension plans during the remainder of 2023.

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Note 17— Accumulated Other Comprehensive Loss

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December 31, 2022 $ ( 122 ) ( 336 ) ( 2 ) ( 460 )

Other comprehensive loss before reclassifications ( 1 ) ( 625 ) — ( 626 )

Other comprehensive income before reclassifications 2 77 — 79

Amounts reclassified from accumulated other

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Defined benefit plans*

Amortization of net actuarial loss, prior service credit and settlements 77 — — 77

Amortization of net actuarial loss and settlements 8 — — 8

Foreign currency translation — — — —

Hedging — — — —

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

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

Net current period other comprehensive income 10 77 — 87

March 31, 2023 $ ( 112 ) ( 259 ) ( 2 ) ( 373 )

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

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

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

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

* Included in the computation of net periodic benefit cost.

See Note 16—Pension and Postretirement Plans, for additional information.

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Note 18— Related Party Transactions

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Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Operating revenues and other income (a)(d) $ 1,304 1,340

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Operating expenses and selling, general and administrative expenses (c) 72 70

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

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

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

In addition, we charged several of our equity affiliates, including CPChem, for the use of common facilities, such as steam generators, waste and water treaters and warehouse facilities.

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

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

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(d) As a result of the DCP Midstream and Gray Oak Holdings merger, we began consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills.

As a result, transactions with these parties after August 17, 2022, are not presented in the table above.

Note 19— Segment Disclosures and Related Information

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.

The segment realignment is presented for the three months ended March 31, 2023, with prior periods recast for comparability.

Our operating segments are:

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

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

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

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

See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger and Note 22—Phillips 66 Partners LP, for additional information on these transactions.

This segment also includes our 16 % investment in NOVONIX.

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

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

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

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

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

Corporate and Other includes general corporate overhead, interest expense, our investment in new technologies and various other corporate activities.

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

Corporate and Other includes general corporate overhead, interest expense, our investment in research of new technologies and various other corporate activities.

Corporate assets include all cash, cash equivalents and income tax-related assets.

Corporate and Other also includes restructuring costs related to our business transformation.

See Note 23—Restructuring for additional information regarding restructuring costs.

Intersegment sales are at prices that we believe approximate market.

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Analysis of Results by Operating Segment

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Three Months Ended

September 30 Nine Months Ended

2022 2021 2022 2021

Sales and Other Operating Revenues *

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Consolidated total assets $ 77,262 76,442

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Note 20— Income Taxes

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

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

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

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

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

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

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

Our effective income tax rate for the three months ended March 31, 2023, was 22 %, compared with 21 % for the corresponding period of 2022.

The increase in our effective tax rate for the three months ended March 31, 2023, was primarily attributable to non-taxable foreign earnings of our chemical joint venture and an increase in foreign tax rate.

The effective tax rate for the three months ended March 31, 2023, varied from the U.S.

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

On August 16, 2022, the U.S.

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

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

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

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

We do not anticipate owing 2023 corporate alternative minimum tax as the regular U.S.

tax liability is forecasted to exceed the corporate alternative minimum tax.

Note 21—DCP Midstream Class A Segment

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

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

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

Refer to Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger and Note 4—Business Combinations, for more details on the DCP Midstream and Gray Oak Holdings merger transaction and related accounting.

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

recovering condensate;

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

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

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

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

At March 31, 2023, we held a 43.3 % indirect economic interest in DCP LP.

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

Millions of Dollars

September 30, 2022

2023 December 31

Accounts receivable, trade* $ 713 988

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

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Preferred Units

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

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

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

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

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

The Series B and C preferred units are publicly traded.

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

During the three months ended March 31, 2023, DCP LP made cash distributions of $ 3 million to Series B preferred unitholders and $ 2 million to Series C preferred unitholders.

As of March 31, 2023, DCP LP had 6,450,000 Series B preferred units outstanding with an aggregate liquidation preference of approximately $ 161 million, and 4,400,000 Series C preferred units outstanding with an aggregate liquidation preference of $ 110 million.

The Series B and C preferred units are publicly traded on the New York Stock Exchange.

As of March 31, 2023, DCP LP had approximately 209 million of common units outstanding, of which approximately 91 million were publicly held.

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

Common Unit Acquisition Proposal

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

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

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

During the three months ended March 31, 2023, DCP LP made cash distributions of $ 51 million to common unit holders other than Phillips 66.

DCP LP Public Common Unit Acquisition

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 Midstream 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.

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, proceeds from the offering of the Notes and borrowings under the Term Loan Agreement.

See Note 11—Debt, for additional information.

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.

Note 22— Phillips 66 Partners LP

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

The merger was accounted for as an equity transaction.

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

The merger was accounted for as an equity transaction and resulted in decreases to “Treasury stock” of $ 3,380 million, “Noncontrolling interests” of $ 2,163 million, “Capital in excess of par” of $ 901 million, “Deferred income taxes” of $ 323 million, and “Cash and cash equivalents” of $ 2 million, and an increase to “Other accruals” of $ 5 million on our consolidated balance sheet.

Note 23— Restructuring

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

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

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

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For the three months ended March 31, 2023, we recorded restructuring costs totaling $ 35 million, primarily related to consulting fees.

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

In addition, in the first quarter of 2023, we recorded restructuring costs of $ 12 million associated with the integration of DCP Midstream Class A Segment primarily related to severance.

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

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

What changed 10-Q

Item 1. Financial Statements