What changed in this filing

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Item 1. Financial Statements

2023-08-04 compared with 2023-05-04 · 211 added, 138 removed, 728 unchanged (32% of the section changed)

3 unchanged sentences

Three Months Ended

June 30 Six Months Ended

2023 2022 2023 2022

Revenues and Other Income

1 unchanged sentence

Equity in earnings of affiliates 563 917 1,174 1,602

Net gain on dispositions 34 1

Net gain (loss) on dispositions ( 12 ) — 22 1

Other income (loss) 99 ( 185 ) 147 ( 328 )

9 unchanged sentences

Interest and debt expense 266 133 458 268

Foreign currency transaction (gains) losses 25 ( 2 )

Foreign currency transaction losses 2 21 27 19

Total Costs and Expenses 33,496 45,203 65,934 81,097

14 unchanged sentences

Three Months Ended

June 30 Six Months Ended

2023 2022 2023 2022

Net Income $ 1,734 3,182 3,811 3,839

1 unchanged sentence

Defined benefit plans

Net actuarial loss arising during the period — ( 13 ) — ( 13 )

Amortization of net actuarial loss, prior service credit and settlements 5 40 15 51

16 unchanged sentences

Cash and cash equivalents $ 3,029 6,133

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

Accounts and notes receivable (net of allowances of $ 68 million in 2023 and $ 67 million in 2022)

Accounts and notes receivable—related parties 1,224 1,488

39 unchanged sentences

Millions of Dollars

Three Months Ended

Six Months Ended

Cash Flows From Operating Activities

6 unchanged sentences

Undistributed equity earnings ( 566 ) ( 490 )

Loss on early redemption of debt 53 —

Net gain on dispositions ( 22 ) ( 1 )

Unrealized investment loss 26 390

Other ( 101 ) 120

Working capital adjustments

9 unchanged sentences

Proceeds from asset dispositions 90 2

Advances/loans—related parties — ( 75 )

Collection of advances/loans—related parties — 101

Other 23 ( 49 )

7 unchanged sentences

Distributions to noncontrolling interests ( 125 ) ( 101 )

Repurchase of noncontrolling interests ( 3,957 ) —

Other ( 59 ) ( 37 )

7 unchanged sentences

Millions of Dollars

Three Months Ended March 31

Three Months Ended June 30

Attributable to Phillips 66

1 unchanged sentence

Other Comprehensive Loss Noncontrolling Interests Total

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

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

Net income — — — 1,697 — 37 1,734

5 unchanged sentences

Distributions to noncontrolling interests — — — — — ( 67 ) ( 67 )

Acquisition of noncontrolling interests in DCP Midstream, LP — ( 378 ) — — — ( 3,479 ) ( 3,857 )

June 30, 2023 $ 7 19,463 ( 17,422 ) 28,122 ( 272 ) 1,162 31,060

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

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

Net income — — — 3,167 — 15 3,182

2 unchanged sentences

— — — ( 467 ) — — ( 467 )

Repurchase of common stock — — ( 66 ) — — — ( 66 )

Benefit plan activity — 82 — ( 4 ) — — 78

1 unchanged sentence

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

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

Three Months Ended June 30

Common Stock Issued Treasury Stock

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

Three Months Ended March 31

Repurchase of common stock — 13,669,459

Shares issued—share-based compensation 95,071 —

June 30, 2023 653,361,255 208,073,327

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

Repurchase of common stock — 700,145

Shares issued—share-based compensation 651,216 —

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

See Notes to Consolidated Financial Statements.

Millions of Dollars

Six Months Ended June 30

Attributable to Phillips 66

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

Other Comprehensive Loss Noncontrolling Interests Total

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

Net income — — — 3,658 — 153 3,811

Other comprehensive income — — — — 188 — 188

Dividends paid on common stock ($ 2.10 per share)

— — — ( 960 ) — — ( 960 )

Repurchase of common stock — — ( 2,146 ) — — — ( 2,146 )

Benefit plan activity — 50 — ( 8 ) — 1 43

Distributions to noncontrolling interests — — — — — ( 125 ) ( 125 )

Acquisition of noncontrolling interests in DCP Midstream, LP — ( 378 ) — — — ( 3,479 ) ( 3,857 )

June 30, 2023 $ 7 19,463 ( 17,422 ) 28,122 ( 272 ) 1,162 31,060

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

Net income — — — 3,749 — 90 3,839

Other comprehensive loss — — — — ( 288 ) — ( 288 )

Dividends paid on common stock ($ 1.89 per share)

— — — ( 871 ) — — ( 871 )

Repurchase of common stock — — ( 66 ) — — — ( 66 )

Benefit plan activity — 114 — ( 7 ) — — 107

Distributions to noncontrolling interests — — — — — ( 101 ) ( 101 )

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

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

Six Months Ended June 30

Common Stock Issued Treasury Stock

2 unchanged sentences

Shares issued—share-based compensation 987,610 —

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

June 30, 2023 653,361,255 208,073,327

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

Repurchase of common stock — 700,145

Shares issued—share-based compensation 1,671,515 —

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

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

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

See Notes to Consolidated Financial Statements.

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

The results of operations for the three and six months ended June 30, 2023, are not necessarily indicative of the results expected for the full year.

Note 2— Change in Accounting Principle

2 unchanged sentences

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

Note 3— DCP Midstream, LLC and DCP Midstream, LP Mergers

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

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

(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 %.

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

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

3 unchanged sentences

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

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

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

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

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

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

As a result, our aggregate direct and indirect economic interests in DCP Sand Hills and DCP Southern Hills increased to 62.2 % from 52.2 %.

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

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

Starting on August 18, 2022, we began consolidating the financial results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills and reporting the direct and indirect economic interests held by others in these entities as noncontrolling interests on our financial statements.

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.

As a result of the DCP Midstream 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 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.

See Note 4—Business Combinations, for additional information regarding 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.

DCP LP Merger

On June 15, 2023, we completed the acquisition of all publicly held common units of DCP LP pursuant to the terms of the Agreement and Plan of Merger, dated as of January 5, 2023 (DCP LP Merger Agreement).

The DCP LP Merger Agreement was entered into with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries merged with and into DCP LP, with DCP LP surviving as a Delaware limited partnership.

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

We accounted for the DCP LP Merger as an equity transaction.

The DCP LP Merger increased our economic interest in DCP LP from 43.3 % to 86.8 %.

See Note 21—DCP Midstream Class A Segment, for additional information regarding the equity transaction.

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.

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

As part of the DCP Midstream 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 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.

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

The components of the fair value of the DCP Midstream Merger consideration are:

Millions of Dollars

3 unchanged sentences

Total merger consideration $ 4,891

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

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

We continue to evaluate the factors used in establishing the fair values of assets and liabilities as of the acquisition date, including, but not limited to, those factors that could affect the estimated fair values of properties, plants and equipment (PP&E), investments in unconsolidated affiliates accounted for under the equity method, 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.

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 DCP Midstream Merger.

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

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:

The following table shows the preliminary purchase price allocation as of the date of the DCP Midstream Merger, and cumulative adjustments we have made as of June 30, 2023:

Millions of Dollars

26 unchanged sentences

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.

The adjustments recorded in the six months ended June 30, 2023, were not material.

Marketing and Specialties Acquisition

On August 1, 2023, we acquired certain marketing operations on the U.S.

West Coast for cash consideration of approximately $ 260 million plus an adjustment for net working capital.

Note 5— Sales and Other Operating Revenues

3 unchanged sentences

Three Months Ended

June 30 Six Months Ended

2023 2022 2023 2022

Product Line and Services

3 unchanged sentences

Services and other *

666 119 1,358 ( 69 )

Consolidated sales and other operating revenues $ 35,090 48,577 69,486 84,756

9 unchanged sentences

Contract-Related Assets and Liabilities

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

At June 30, 2023, and December 31, 2022, receivables from contracts with customers were $ 7,633 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 March 31, 2023, and December 31, 2022, our asset balances related to such payments were $ 509 million and $ 505 million, respectively.

At June 30, 2023, and December 31, 2022, our asset balances related to such payments were $ 525 million and $ 505 million, respectively.

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

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

At June 30, 2023, and December 31, 2022, contract liabilities were $ 221 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 March 31, 2023, the remaining performance obligations related to these minimum volume commitment contracts amounted to $ 446 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 March 31, 2023.

At June 30, 2023, the remaining performance obligations related to these minimum volume commitment contracts amounted to $ 416 million.

Note 6— Credit Losses

9 unchanged sentences

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.

At June 30, 2023, and December 31, 2022, we reported $ 9,458 million and $ 10,985 million of accounts and notes receivable, respectively, net of allowances of $ 68 million and $ 67 million, respectively.

Based on an aging analysis at June 30, 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.

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

Note 7— Inventories

5 unchanged sentences

$ 6,380 3,276

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.

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 5,799 million and $ 2,635 million at June 30, 2023, and December 31, 2022, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 5.4 billion and $ 6.3 billion at June 30, 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.

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

LIFO inventory liquidations increased our net income by $ 1 million and $ 5 million in the three and six months ended June 30, 2023, respectively.

LIFO inventory liquidations increased our net income by $ 3 million and $ 43 million in the three and six months ended June 30, 2022, respectively .

Note 8— Investments, Loans and Long-Term Receivables

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

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

The draft EIS process resumed in August 2022, and release is expected in the third 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 March 31, 2023, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $ 1.85 billion.

At June 30, 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 March 31, 2023, 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 March 31, 2023.

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

At June 30, 2023, our 25 % share of the maximum potential equity contributions under the CECU was approximately $ 467 million.

At June 30, 2023, the aggregate book value of our investments in Dakota Access and ETCO was $ 651 million.

CF United LLC (CF United)

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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 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.

At June 30, 2023, our maximum exposure to loss was comprised of our $ 283 million investment in CF United, and any potential future loss resulting from the put option should the purchase price based on a fixed multiple exceed the then-current fair value of CF United.

OnCue Holdings, LLC (OnCue)

3 unchanged sentences

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

At 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:

At June 30, 2023, our maximum exposure to loss was $ 220 million, which represented the book value of our investment in OnCue of $ 153 million and guaranteed debt obligations of $ 67 million.

DCP Midstream, DCP Sand Hills, DCP Southern Hills, and Gray Oak Pipeline —Prior to the DCP Midstream Merger, 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.

4 unchanged sentences

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.

Midstream Investment Disposition

On August 1, 2023, we sold our 25 % ownership interest in the South Texas Gateway Terminal for approximately $ 275 million.

At June 30, 2023, the book value of our investment was $ 171 million.

Other Investments

3 unchanged sentences

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

The change in the fair value of our investment due to fluctuations in NOVONIX’s stock price, or unrealized investment losses, is recorded in the “Other income (loss)” line item of our consolidated statement of 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 $ 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.

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 losses” line item on our consolidated statement of income.

The fair value of our investment in NOVONIX was $ 51 million at June 30, 2023.

The fair value of our investment in NOVONIX declined by $ 15 million and $ 27 million during the three and six months ended June 30, 2023, respectively, reflecting unrealized investment losses of $ 15 million and $ 26 million and immaterial unrealized foreign currency losses in both periods.

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

3 unchanged sentences

Millions of Dollars

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Midstream $ 25,705 3,943 21,762 25,422 3,524 21,898

11 unchanged sentences

Three Months Ended

Basic Diluted Basic Diluted

June 30 Six Months Ended

2023 2022 2023 2022

Basic Diluted Basic Diluted Basic Diluted Basic Diluted

Amounts Attributed to Phillips 66 Common Stockholders (millions) :

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Debt Issuances and Repayments

On May 19, 2023, DCP LP redeemed its 5.850 % junior subordinated notes due May 2043 with an aggregate principal amount outstanding of $ 550 million using borrowings under its revolving credit and accounts receivable securitization facilities.

On the date of redemption, our carrying value of DCP LP’s junior subordinated notes was $ 497 million, which resulted in a $ 53 million loss before income taxes.

DCP LP’s junior subordinated notes were adjusted to fair value on August 17, 2022, in connection with the consolidation of DCP LP.

See Note 15—Fair Value Measurements, for additional information regarding the preliminary fair value of DCP LP’s junior subordinated notes.

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:

4 unchanged sentences

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.

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.

Related Party Advance Term Loan Agreement

On May 31, 2023, we borrowed $ 75 million from WRB Refining LP (WRB) through an Advance Term Loan Agreement.

The debt matures on May 31, 2038.

Borrowings will bear interest at a floating rate of 1.042 % plus Adjusted Term SOFR, payable on the last day of each month.

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.

On March 27, 2023, 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 during a 90-day period commencing on the closing date, which borrowing was contingent upon the completion of the DCP LP Merger.

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.

3 unchanged sentences

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:

Outstanding borrowings under the Term Loan Agreement 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.

As of June 30, 2023, $ 1.25 billion was borrowed under the Term Loan Agreement, which matures in June 2026.

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP LP Merger.

Credit Facilities and Commercial Paper

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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.

At both June 30, 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

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 June 30, 2023, DCP LP had $ 850 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.

As of June 30, 2023, and December 31, 2022, $ 280 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 March 31, 2023, we were liable for certain contingent obligations under various contractual arrangements as described below.

At June 30, 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 March 31, 2023.

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

These leases have remaining terms of four to ten years .

Guarantees of Joint Venture Obligations

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

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

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 .

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

At June 30, 2023, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to two years .

The maximum potential future exposures under these guarantees were approximately $ 82 million.

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

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

At June 30, 2023, and December 31, 2022, the carrying amount of recorded indemnifications was $ 143 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 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.

At June 30, 2023, and December 31, 2022, environmental accruals for known contamination of $ 115 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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We measure estimates and base contingent liabilities on currently available facts, existing technology and presently enacted laws and regulations, taking into account stakeholder and business considerations.

When measuring contingent environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the EPA or other organizations.

We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.

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

At June 30, 2023, our total environmental accruals were $ 449 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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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 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.

At June 30, 2023, we had performance obligations secured by letters of credit and bank guarantees of $ 1 billion related to various purchase and other commitments incident to the ordinary conduct of business.

Note 14— Derivatives and Financial Instruments

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All other derivative instruments are recorded at fair value on our consolidated balance sheet.

For further information on the fair value of derivatives, see Note 15—Fair Value Measurements.

For further information regarding the fair value of derivatives, see Note 15—Fair Value Measurements.

Commodity Derivative Contracts —We sell into or receive supply from the worldwide crude oil, refined petroleum product, NGL, natural gas, renewable feedstock, and electric power markets, exposing our revenues, purchases, cost of operating activities and cash flows to fluctuations in the prices for these commodities.

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

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

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP Midstream 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

March 31, 2023 December 31, 2022

June 30, 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 $ 2,485 ( 2,272 ) ( 18 ) 195 1,860 ( 1,896 ) 90 54

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

At June 30, 2023, there was $ 3 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.

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Three Months Ended

June 30 Six Months Ended

2023 2022 2023 2022

Sales and other operating revenues $ 210 ( 135 ) 260 ( 555 )

Other income (loss) ( 14 ) 25

Other income 24 37 10 62

Purchased crude oil and products ( 34 ) ( 253 ) 103 ( 481 )

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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 March 31, 2023, and December 31, 2022.

The percentage of our derivative contract volumes expiring within the next 12 months was more than 90 % at June 30, 2023, and December 31, 2022.

Open Position

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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 March 31, 2023, and December 31, 2022.

The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at June 30, 2023, and December 31, 2022.

Note 15— Fair Value Measurements

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When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.

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.

When applicable, 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.

• 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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Millions of Dollars

March 31, 2023

June 30, 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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Nonrecurring Fair Value Measurements

DCP Midstream and Gray Oak Holdings Merger

DCP Midstream Merger

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

See Note 4—Business Combinations, for additional information regarding the DCP Midstream Merger.

Equity Investments

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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 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.

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

These noncontrolling interests on the DCP Midstream Merger date 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 DCP Midstream Merger, August 17, 2022.

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

These valuations resulted in Level 1 nonrecurring fair value measurements.

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Note 16— Pension and Postretirement Plans

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

The components of net periodic benefit (credit) cost for the three and six months ended June 30, 2023 and 2022, were as follows:

Millions of Dollars

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Components of Net Periodic Benefit Cost

Three Months Ended March 31

Three Months Ended June 30

Service cost $ 27 3 35 7 1 1

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Expected return on plan assets ( 32 ) ( 11 ) ( 39 ) ( 15 ) — —

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

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

Settlements 4 — 24 — — —

Net periodic benefit cost* $ 38 — 24 1 1 1

Net periodic benefit (credit) cost* $ 32 ( 1 ) 47 — 2 2

Six Months Ended June 30

Service cost $ 54 6 70 15 2 2

Interest cost 59 16 42 11 4 3

Expected return on plan assets ( 63 ) ( 21 ) ( 78 ) ( 31 ) — —

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

Amortization of net actuarial loss (gain) 6 ( 2 ) 12 6 ( 3 ) ( 1 )

Settlements 14 — 25 — — —

Net periodic benefit (credit) cost* $ 70 ( 1 ) 71 1 3 3

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

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

During the six months ended June 30, 2023, we contributed $ 44 million to our U.S.

pension and other postretirement benefit plans and $ 10 million to our international pension plans.

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Net current period other comprehensive income 14 174 — 188

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

June 30, 2023 $ ( 108 ) ( 162 ) ( 2 ) ( 272 )

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

Other comprehensive income (loss) before reclassifications 4 ( 82 ) — ( 78 )

Other comprehensive loss before reclassifications ( 5 ) ( 324 ) — ( 329 )

Amounts reclassified from accumulated other comprehensive loss

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Net current period other comprehensive income (loss) 36 ( 324 ) — ( 288 )

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

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

* Included in the computation of net periodic benefit cost.

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Three Months Ended

June 30 Six Months Ended

2023 2022 2023 2022

Operating revenues and other income (a)(d) $ 1,059 1,975 2,363 3,315

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(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 (M&S) segment, including OnCue and CF United.

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.

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.

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, we began consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills.

(d) As a result of the DCP Midstream Merger, we began consolidating DCP Midstream Class A Segment, as well as 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.

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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.

The segment realignment is presented for the three and six months ended June 30, 2023, with prior periods recast for comparability.

Our operating segments are:

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.

As a result of the DCP Midstream Merger on August 17, 2022, we began consolidating DCP Midstream Class A Segment, as well as 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.

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers and Note 22—Phillips 66 Partners LP, for additional information about these transactions.

This segment also includes our 16 % investment in NOVONIX.

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Three Months Ended

June 30 Six Months Ended

2023 2022 2023 2022

Sales and Other Operating Revenues *

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Note 20— 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.

Our effective income tax rates for the three months ended June 30, 2023 and 2022 were 23 %, and our effective income tax rates for the six months ended June 30, 2023 and 2022 were 22 %.

The effective tax rate for the three and six months ended June 30, 2023, varied from the U.S.

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

On August 16, 2022, the U.S.

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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 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;

Refer to Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers and Note 4—Business Combinations, for more details regarding the DCP Midstream Merger and related accounting.

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

recovering condensate;

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

We completed the DCP LP Merger on June 15, 2023, acquiring all publicly held common units of DCP LP and eliminating the public common unit noncontrolling interest in our consolidated financial statements from the DCP LP Merger date, forward.

The DCP LP Merger increased our economic interest in DCP LP from 43.3 % to 86.8 %.

Refer to Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information about the DCP Midstream and DCP LP Mergers.

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:

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

Preferred Units

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

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

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

Distributions on the Series 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.

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.

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.

DCP LP Merger

On June 15, 2023, we completed the acquisition of approximately 91 million publicly held common units of DCP LP pursuant to the terms of the DCP LP Merger Agreement.

We paid $ 3,796 million in cash consideration, funded through a combination of cash generated from operating activities and 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.

The merger was accounted for as an equity transaction and resulted in decreases to “Cash and cash equivalents” of $ 3,796 million, “Noncontrolling interests” of $ 3,318 million, “Capital in excess of par” of $ 378 million, “Deferred income taxes” of $ 118 million, and an increase to “Other accruals” of $ 18 million on our consolidated balance sheet.

Preferred Units

DCP LP redeemed its Series B preferred units at the aggregated liquidation preference of $ 161 million in June 2023, which approximated the book value of these preferred units.

As of June 30, 2023, DCP LP had 4,400,000 Series C preferred units outstanding with an aggregate liquidation preference of $ 110 million.

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

Distributions

During the three and six months ended June 30, 2023, DCP LP made cash distributions of $ 5 million and $ 10 million, respectively, to preferred unitholders and cash distributions of $ 51 million and $ 102 million, respectively, to common unit holders other than Phillips 66 and its subsidiaries.

Note 22— Phillips 66 Partners LP

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

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

For the three and six months ended June 30, 2023, we recorded restructuring costs totaling $ 41 million and $ 76 million, respectively, 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.

In addition, in the three and six months ended June 30, 2023, we recorded restructuring costs of $ 22 million and $ 34 million, respectively, associated with the integration of DCP Midstream Class A Segment primarily related to severance and contract exit costs.

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