What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-04 · 185 added, 163 removed, 608 unchanged (36% of the section changed)

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The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions often identify forward-looking statements, but the absence of these words does not mean a statement is not forward-looking.

The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws.

The forward-looking statements made in this Quarterly Report on Form 10-Q are based on events or circumstances as of the date on which the statements are made.

The company does not undertake to update, revise or correct any of the forward-looking information included in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events unless required to do so pursuant to applicable law.

Readers are cautioned that such forward-looking statements should be read in conjunction with the company’s disclosures under the heading:

“CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.”

The terms “earnings” or “loss” as used in Management’s Discussion and Analysis refer to net income (loss) attributable to Phillips 66.

The term “earnings” as used in Management’s Discussion and Analysis refers to net income attributable to Phillips 66.

The terms “results,” “before-tax income” or “before-tax loss” as used in Management’s Discussion and Analysis refer to income (loss) before income taxes.

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

At June 30, 2023, we had total assets of $74.9 billion.

At September 30, 2023, we had total assets of $77.8 billion.

Our common stock trades on the New York Stock Exchange under the symbol PSX.

Executive Overview

In the second quarter of 2023, we reported earnings of $1.7 billion and generated cash from operating activities of $1 billion.

In addition, we had net borrowings of $1.3 billion.

We used available cash to repurchase $4 billion of noncontrolling interests in DCP Midstream, LP (DCP LP), repurchase $1.3 billion of common stock, fund capital expenditures and investments of $551 million, and pay dividends on our common stock of $474 million.

We ended the second quarter of 2023 with $3 billion of cash and cash equivalents.

Business Transformation

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

In 2022, we started implementing initiatives designed to achieve a targeted sustainable run-rate cost reduction of at least $800 million and lower sustaining capital of at least $200 million per year by the end of 2023.

We expect to achieve these targets by year end.

In the third quarter of 2023, we reported earnings of $2.1 billion and generated cash from operating activities of $2.7 billion.

We used available cash to fund capital expenditures and investments of $855 million, repurchase $752 million of common stock, and pay dividends on our common stock of $465 million.

We ended the third quarter of 2023 with $3.5 billion of cash and cash equivalents.

Strategic Priorities Update

In November 2022, we announced financial and operational targets in furtherance of achieving the company’s strategic priorities.

On October 27, 2023, we announced updates to certain targets underpinning our strategic priorities that are intended to enhance long-term shareholder value:

• We increased our target for returns to shareholders through share repurchases and dividends from July 2022 through year-end 2024 to a range of $13 billion to $15 billion from a range of $10 billion to $12 billion.

We plan to return at least 50% of net cash provided by operating activities to shareholders through share repurchases and dividends.

In support of the increased target, our board of directors recently approved a $5 billion increase to our share repurchase authorization.

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

• We plan to monetize certain assets that are no longer considered to be a long-term strategic fit.

We expect to generate proceeds of over $3 billion from the disposition of these non-core assets, which we plan to use to further advance our strategic priorities, including returns to shareholders through share repurchases and dividends.

• We continue to progress our multi-year business transformation aimed at sustainably reducing our cost structure, and we are on track to exceed our targeted run-rate cost reduction of $800 million per year and sustaining capital reduction of $200 million per year by the end of 2023.

As such, we are now targeting a run-rate cost reduction of $1.1 billion per year and a sustaining capital reduction of $300 million per year by the end of 2024.

• We intend to enhance our commercial supply and trading capabilities to further increase integrated value.

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

As part of executing our natural gas liquids (NGL) growth strategy to build a wellhead-to-market value chain, on August 17, 2022, we announced a realignment of our economic and governance interests in DCP LP and Gray Oak Pipeline, LLC (Gray Oak Pipeline) resulting from the merger of DCP Midstream, LLC (DCP Midstream) and Gray Oak Holdings LLC (Gray Oak Holdings).

In connection with the DCP Midstream Merger, we were delegated DCP Midstream’s governance rights over DCP LP and its general partner entities, referred to as DCP Midstream Class A Segment, and acquired an economic interest in DCP LP of 43.3%.

As part of executing our natural gas liquids (NGL) growth strategy to build a wellhead-to-market value chain, on August 17, 2022, we announced a realignment of our economic and governance interests in DCP Midstream, LP (DCP LP) and Gray Oak Pipeline, LLC (Gray Oak Pipeline) resulting from the merger of DCP Midstream, LLC (DCP Midstream) and Gray Oak Holdings LLC (Gray Oak Holdings).

Starting on August 18, 2022, our financial results reflect the consolidation of DCP Midstream Class A Segment, as well as DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills).

Since the DCP Midstream Merger, we have taken steps to integrate the operations and personnel of DCP Midstream Class A Segment to enable the capture of commercial and operational synergies.

DCP LP Merger

DCP Midstream, LP Merger (DCP LP Merger)

To further advance our NGL growth strategy 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).

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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.

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

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding the DCP Midstream and DCP LP Mergers.

The DCP LP Merger increased our aggregate direct and indirect economic interest in DCP LP from 43.3% to 86.8%.

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding these mergers.

Business Environment

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

During the second quarter of 2023, NGL and natural gas prices decreased, compared with the second quarter of 2022, due to warmer than usual weather, which negatively impacted heating demand.

During the third quarter of 2023, NGL and natural gas prices decreased, compared with the third quarter of 2022, due to higher inventories from increased supply from production and slower demand growth for NGLs.

The Chemicals segment consists of our 50% equity investment in Chevron Phillips Chemical Company LLC (CPChem).

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

During the second quarter of 2023, the benchmark high-density polyethylene chain margin decreased, compared with the second quarter of 2022, mainly due to increased polyethylene supply coupled with softened demand.

During the third quarter of 2023, the benchmark high-density polyethylene chain margin increased, compared with the third quarter of 2022, mainly due to lower feedstock prices during the quarter.

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

The price of U.S.

benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of $73.78 per barrel during the second quarter of 2023, compared with an average of $108.66 per barrel in the second quarter of 2022.

benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of $82.49 per barrel during the third quarter of 2023, compared with an average of $91.76 per barrel in the third quarter of 2022.

Market crack spreads are used as indicators of refining margins and measure the difference between market prices for refined petroleum products and crude oil.

Worldwide market crack spreads decreased to an average of $28.65 per barrel during the second quarter of 2023, compared with an average of $46.72 per barrel in the second quarter of 2022.

The decrease in market crack spreads were primarily driven by lower refined product and crude oil prices as a result of weaker diesel demand and energy supplies adjusting from the market instability caused by the outbreak of the Russia-Ukraine war in 2022.

Worldwide market crack spreads averaged $36.06 per barrel during the third quarter of 2023, compared with an average of $36.29 per barrel in the third quarter of 2022.

In the third quarter of 2023, compared with the third quarter of 2022, gasoline prices increased mainly due to lower inventories resulting from refinery maintenance, while diesel prices declined due to increased supply.

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

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RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three and six months ended June 30, 2023, is based on a comparison with the corresponding periods of 2022.

Unless otherwise indicated, discussion of results for the three and nine months ended September 30, 2023, is based on a comparison with the corresponding periods of 2022.

Basis of Presentation

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

The segment realignment and business line reporting changes are presented for the three and six months ended June 30, 2023, with the prior periods recast for comparability.

The segment realignment and business line reporting changes are presented for the three and nine months ended September 30, 2023, with the prior periods recast for comparability.

Consolidated Results

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Net income attributable to Phillips 66 $ 2,097 5,391 5,755 9,140

Our net income attributable to Phillips 66 in the second quarter of 2023 was $1.7 billion, compared with $3.2 billion in the second quarter of 2022.

The decrease in net income attributable to Phillips 66 was primarily due to lower realized refining margins, partially offset by higher Midstream results from the increase in economic interest in DCP LP as a result of the DCP Midstream and DCP LP Mergers, as well as lower income tax expense.

Our net income attributable to Phillips 66 for the six months ended June 30, 2023 and 2022, was $3.7 billion.

Our results were down slightly from the six months ended June 30, 2022 due to a decline in realized refining margins, lower equity earnings from CPChem and higher corporate restructuring costs.

These reductions to earnings were partly offset by higher Midstream results, which reflect the increase in economic interest in DCP LP as a result of the DCP Midstream and DCP LP Mergers.

Our net income attributable to Phillips 66 in the third quarter and nine-month period of 2023 was $2.1 billion and $5.8 billion, respectively, compared with $5.4 billion and $9.1 billion in the third quarter and nine-month period of 2022, respectively.

The decreases in the third quarter and nine-month period of 2023 were primarily due to the recognition of an aggregate before-tax gain of $3 billion recognized by the Midstream segment in 2022 in connection with the DCP Midstream Merger and a decline in realized refining margins, partially offset by lower income tax expense.

In addition, the decrease in the nine-month period 2023 was also partially offset by lower unrealized losses related to our investment in NOVONIX Limited (NOVONIX).

See the “Segment Results” section for additional information about our segment performance and Note 20—Income Taxes, in the Notes to Consolidated Financial Statements, for additional information regarding income taxes.

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Statement of Income Analysis

Sales and other operating revenues for the second quarter and six-month period of 2023 decreased 28% and 18%, respectively, and purchased crude oil and products decreased 28% and 21%, respectively.

Sales and other operating revenues for the third quarter and nine-month period of 2023 decreased 12% and 16%, respectively, and purchased crude oil and products decreased 11% and 18%, respectively.

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

Equity in earnings of affiliates decreased 39% and 27% in the second quarter and six-month period of 2023, respectively.

Equity in earnings of affiliates decreased 28% and 27% in the third quarter and nine-month period of 2023, respectively.

The decrease in both periods reflects lower equity earnings from DCP Midstream, DCP Sand Hills, DCP Southern Hills and Gray Oak Pipeline due to the DCP Midstream Merger in August 2022, as well as lower equity earnings from CPChem primarily due to a decline in margins.

The second quarter of 2023 also reflects lower equity earnings from WRB, primarily due to lower margins, partially offset by improved operating costs.

The decrease in the six-month period of 2023 was partially offset by higher equity earnings from WRB, driven by lower operating costs and improved margins.

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers and the Chemicals segment analysis in the “Segment Results” section for additional information regarding CPChem.

Net gain (loss) on dispositions increased $21 million for the six-month period of 2023, primarily due to a before-tax gain associated with the sale of the Belle Chasse Terminal.

We had other income of $99 million and $147 million in the second quarter and six-month period of 2023, respectively, compared with other loss of $185 million and $328 million in the second quarter and six-month period of 2022, respectively.

The improvements in both periods of 2023 were primarily driven by lower unrealized losses on our investment in NOVONIX and higher interest income.

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

Selling, general and administrative expenses increased 22% and 30% in the second quarter and six-month period of 2023, respectively.

The increases were primarily due to consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022, as well as restructuring costs associated with our business transformation.

Depreciation and amortization increased 38% and 39% in the second quarter and six-month period of 2023, respectively.

The third quarter of 2023 also reflects lower equity earnings from WRB Refining LP (WRB), primarily due to lower margins, partially offset by improved operating costs.

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, and the Chemicals segment analysis in the “Segment Results” section for additional information.

Net gain on dispositions increased $101 million and $122 million for the third quarter and nine-month period of 2023, respectively, primarily due to a before-tax gain recognized in the Midstream segment in the third quarter of 2023 associated with the sale of our 25% ownership interest in the South Texas Gateway Terminal.

Other income decreased $3,011 million and $2,536 million in the third quarter and nine-month period of 2023, respectively.

The decrease in both periods of 2023 was primarily due to an aggregate before-tax gain of $3,013 million recognized in the third quarter of 2022 in our Midstream segment in connection with the DCP Midstream Merger.

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding the merger.

Selling, general and administrative expenses increased 21% in the nine-month period of 2023.

The increase was primarily due to consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022, as well as restructuring costs associated with our business transformation.

See Note 23—Restructuring, in the Notes to Consolidated Financial Statements, for additional information regarding restructuring costs.

Depreciation and amortization increased 13% and 29% in the third quarter and nine-month period of 2023, respectively.

The increases were primarily due to additional depreciation and amortization related to assets acquired as a result of consolidating DCP Midstream Class A Segment, DCP Southern Hills and DCP Sand Hills starting in August 2022.

Taxes other than income taxes increased 47% and 43% in the second quarter and six-month period of 2023, respectively.

Taxes other than income taxes increased 29% and 38% in the third quarter and nine-month period of 2023, respectively.

The increases were primarily due to consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022 and higher crude oil and refined petroleum product excise taxes.

Interest and debt expense increased $133 million and $190 million in the second quarter and six-month period of 2023, respectively.

The increase was primarily driven by higher average debt principal balances as a result of consolidating DCP Midstream Class A Segment, DCP Southern Hills and DCP Sand Hills starting in August 2022, as well as a $53 million before-tax loss on the early redemption of DCP LP’s 5.850% junior subordinated notes.

Income tax expense decreased $414 million in the six-month period of 2023, primarily due to lower results.

Interest and debt expense increased 40% and 59% in the third quarter and nine-month period of 2023, respectively.

The increase was primarily driven by higher average debt principal balances as a result of consolidating DCP Midstream Class A Segment, DCP Southern Hills and DCP Sand Hills starting in August 2022.

Income tax expense decreased 59% and 35% in the third quarter and nine-month period of 2023, respectively, primarily due to lower results.

See Note 20—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our effective income tax rates.

Net income attributable to noncontrolling interests increased $22 million and $63 million in the second quarter and six-month period of 2023, respectively.

The increases in both periods reflect the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills and the derecognition of a noncontrolling interest related to Gray Oak Holdings as a result of the DCP Midstream Merger in August 2022.

The increase in the six-month period was also partially offset by a decrease due to the merger between us and Phillips 66 Partners LP (Phillips 66 Partners) that occurred in the first quarter of 2022.

Net income attributable to noncontrolling interests decreased 69% and 17% in the third quarter and nine-month period of 2023, respectively.

The decreases in both periods reflect the impacts of the DCP LP Merger in June 2023, and the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills and the derecognition of a noncontrolling interest related to Gray Oak Holdings as a result of the DCP Midstream Merger in August 2022.

The decrease in the nine-month period was also due to the merger between us and Phillips 66 Partners LP (Phillips 66 Partners) that occurred in the first quarter of 2022.

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 21—DCP Midstream Class A Segment, and Note 22—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding these merger transactions.

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In the Notes to Consolidated Financial Statements, see Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP Midstream Merger.

Results from our Midstream segment increased $346 million in the second quarter of 2023 and $836 million in the six-month period of 2023.

Results from our Transportation business increased $34 million and $62 million in the second quarter and six-month period of 2023, respectively.

The increase in the second quarter of 2023 was primarily due to higher volumes and lower operating costs.

The increase in the six-month period of 2023 included a gain of $36 million from the sale of the Belle Chasse Terminal.

Excluding the gain on sale, results were up slightly from higher volumes and improved operating costs, partially offset by lower equity earnings driven by a decrease in our indirect economic interest in Gray Oak Pipeline in connection with the DCP Midstream Merger.

Results from our NGL and Other business increased $87 million and $403 million in the second quarter and six-month period of 2023, respectively.

The increase in both periods was primarily due to the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022 forward.

Additionally, for both periods, the benefit of improved volume and margin at the Sweeny Hub was partially offset by lower results from DCP Midstream Class A Segment driven by lower prices and restructuring costs.

The fair value of our investment in NOVONIX declined by $15 million in the second quarter of 2023, compared with $240 million in the second quarter of 2022.

The fair value of our investment in NOVONIX declined by $27 million in the six-month period of 2023, compared with $398 million in the six-month period of 2022.

Results from our Midstream segment decreased $2,896 million and $2,060 million in the third quarter and nine-month period of 2023, respectively.

Results from our Transportation business decreased $25 million in the third quarter of 2023 and increased $37 million in the nine-month period of 2023.

The decrease in the third quarter of 2023 was primarily due to a before-tax gain of $182 million related to the transfer of an indirect economic interest in Gray Oak Pipeline as part of the DCP Midstream Merger in August 2022, partially offset by a $101 million before-tax gain on the sale of our 25% ownership interest in the South Texas Gateway Terminal in August 2023, lower operating costs and higher pipeline tariffs.

The increase for the nine-month period of 2023 was primarily due to the South Texas Gateway Terminal before-tax gain recognized in August 2023 and lower operating costs, partially offset by the DCP Midstream Merger before-tax gain recognized in August 2022.

Results from our NGL and Other business decreased $2,895 million and $2,492 million in the third quarter and nine-month period of 2023, respectively.

The decrease in both periods was primarily due to an aggregate before-tax gain of $2,831 million recognized in the third quarter of 2022 from remeasuring our previously held equity investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills to their fair values in connection with the DCP Midstream Merger.

The fair value of our investment in NOVONIX declined by $9 million in the third quarter of 2023, compared with a decline of $33 million in the third quarter of 2022.

The fair value of our investment in NOVONIX declined by $36 million in the nine-month period of 2023, compared with a decline of $431 million in the nine-month period of 2022.

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

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

Results from the Chemicals segment decreased $81 million and $279 million in the second quarter and six-month period of 2023, respectively.

The decrease in both periods was primarily due to a decline in margins, lower equity earnings from CPChem’s equity affiliates, partially offset by improved utility costs.

The decline in margins in both periods was driven by lower sales prices.

Results from the Chemicals segment decreased $31 million and $310 million in the third quarter and nine-month period of 2023, respectively.

The decrease in the third quarter and nine-month period of 2023 was primarily due to lower margins, partially offset by decreased utility costs and higher sales volumes.

The decrease in the nine-month period of 2023 also reflected lower equity earnings from CPChem’s equity affiliates.

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

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The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, at 12 refineries in the United States and Europe.

Results from our Refining segment decreased $1,962 million and $527 million in the second quarter and six-month period of 2023, respectively.

The decrease in the second quarter of 2023 was primarily due to lower realized margins, partially offset by higher volumes.

The decrease in the six-month period of 2023 was primarily due to lower realized margins.

The decrease in realized margins in both periods was primarily driven by a decline in market crack spreads, partially offset by improved feedstock advantage.

Our worldwide refining crude oil capacity utilization rate was 93% and 91% in the second quarter and six-month period of 2023, compared with 90% in the second quarter and six-month period of 2022.

Results from our Refining segment decreased $1,197 million and $1,724 million in the third quarter and nine-month period of 2023, respectively.

The decrease in both periods was primarily due to lower realized margins, partially offset by higher volumes and decreased utility costs.

The decrease in realized margins in the third quarter of 2023 was primarily driven by unfavorable inventory hedging impacts, lower clean product differentials and a decline in market crack spreads.

The decrease in realized margins in the nine-month period of 2023 was primarily driven by a decline in market crack spreads.

Our worldwide refining crude oil capacity utilization rate was 95% and 93% in the third quarter and nine-month period of 2023, respectively, compared with 91% and 90% in the third quarter and nine-month period of 2022, respectively.

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

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

Before-tax income from the M&S segment decreased $95 million in the second quarter of 2023, primarily driven by lower realized marketing fuel margins.

Before-tax income from the M&S segment increased $35 million for the six-month period of 2023, primarily driven by higher realized marketing fuel margins, partially offset by lower results from trading activities and decreased equity earnings.

Before-tax income from the M&S segment decreased $195 million and $160 million in the third quarter and nine-month period of 2023, respectively.

The decrease in both periods was primarily driven by lower realized international marketing fuel margins and decreased equity earnings from affiliates, partially offset by higher U.S.

realized marketing fuel margins.

The decrease in the nine-month period of 2023 also reflected lower results from trading activities.

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

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

Net interest expense increased $55 million and $47 million, in the second quarter and six-month period of 2023, respectively.

The increases were primarily driven by higher interest expense as a result of consolidating DCP Midstream Class A Segment and early redemption of DCP LP’s 5.850% junior subordinated notes, partially offset by increased interest income.

Net interest expense increased $27 million and $74 million, in the third quarter and nine-month period of 2023, respectively.

The increases in both periods were primarily driven by higher interest expense as a result of consolidating DCP Midstream Class A Segment, partially offset by increased interest income.

Additionally, the increase in net interest expense for the nine-month period of 2023 included a $53 million before-tax loss on the early redemption of DCP LP’s 5.850% junior subordinated notes.

See Note 11—Debt, in the Notes to Consolidated Financial Statements, for additional information regarding DCP LP’s redemption of its junior subordinated notes.

Corporate overhead and other costs increased $15 million and $57 million in the second quarter and six-month period of 2023, respectively.

The increases were primarily due to restructuring costs associated with our business transformation, mainly related to consulting fees.

Corporate overhead and other costs increased $56 million in the nine-month period of 2023 primarily due to higher costs related to our business transformation.

See Note 23—Restructuring, in the Notes to Consolidated Financial Statements, for additional information regarding restructuring costs.

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To meet our short- and long-term liquidity requirements, we use a variety of funding sources but rely primarily on cash generated from operating activities and debt financing.

During the first six months of 2023, we generated $2.2 billion of cash from operations and had net borrowings of $2.6 billion.

We used available cash primarily to repurchase $4 billion of noncontrolling interests in DCP LP, repurchase $2.1 billion of our common stock, pay dividends on our common stock of $960 million, and fund capital expenditures and investments of $929 million.

During the first six months of 2023, cash and cash equivalents decreased to $3 billion.

During the first nine months of 2023, we generated $4.8 billion of cash from operations and had net borrowings of $2.1 billion.

We used available cash primarily to repurchase $4 billion of noncontrolling interests in DCP LP, repurchase $2.9 billion of our common stock, fund capital expenditures and investments of $1.8 billion, and pay dividends on our common stock of $1.4 billion.

During the first nine months of 2023, cash and cash equivalents decreased to $3.5 billion.

Significant Sources of Capital

Operating Activities

During the first six months of 2023, cash generated by operating activities was $2.2 billion, compared with $2.9 billion for the first six months of 2022.

The decrease was primarily due to lower distributions from equity affiliates and unfavorable working capital impacts.

During the first nine months of 2023, cash generated by operating activities was $4.8 billion, compared with $6.1 billion for the first nine months of 2022.

The decrease was primarily due to lower earnings, decreased distributions from equity affiliates and higher contributions to our pension plans.

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

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

During the first six months of 2023, cash from operations included aggregate distributions of $608 million from our equity affiliates.

During the first nine months of 2023, cash from operations included aggregate distributions of $969 million from our equity affiliates.

During the same period of 2022, cash from operations included aggregate distributions of $1.4 billion.

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

Related Party Advance Term Loan Agreement

On May 31, 2023, we borrowed $75 million from WRB Refining LP under 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.

On July 31, 2023, we borrowed an additional $130 million under the Advance Term Loan agreement.

Related Party Advance Term Loan Agreements

At September 30, 2023, and December 31, 2022, borrowings outstanding under Advance Term Loan agreements with WRB totaled $290 million and $25 million, respectively.

Borrowings under these agreements are due between 2035 and 2038 and bear interest at a floating rate based on Adjusted Term SOFR plus an applicable margin, payable on the last day of each month.

Term Loan Agreement

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

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.

At September 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, in the Notes to Consolidated Financial Statements, for additional information regarding the DCP LP Merger.

Credit Facilities and Commercial Paper

Phillips 66 and Phillips 66 Company

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 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.

We have a $5 billion revolving credit facility with Phillips 66 Company as the borrower and Phillips 66 as the guarantor and a $5 billion commercial paper program with Phillips 66 as the borrower that is supported by the revolving credit facility.

At both September 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 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 September 30, 2023, DCP LP had $110 million of borrowings outstanding under its $1.4 billion credit facility and $2 million of letters of credit had been issued that are supported by 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 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.

At September 30, 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.

Total Committed Capacity Available

At June 30, 2023, and December 31, 2022, we had approximately $5.6 billion and $6.7 billion, respectively, of total committed capacity available under the credit facilities described above.

On February 28, 2023, we closed on the sale of the Belle Chasse Terminal for approximately $76 million.

At September 30, 2023, and December 31, 2022, we had approximately $6.3 billion and $6.7 billion, respectively, of total committed capacity available under the credit facilities described above.

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

On February 28, 2023, we closed on the sale of the Belle Chasse Terminal for approximately $76 million.

Off-Balance Sheet Arrangements

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

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at June 30, 2023.

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at September 30, 2023.

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

These leases have remaining terms of four to ten years.

These leases have remaining terms of one to ten years.

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

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

The court later vacated the easement.

The trial court later vacated the easement.

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

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In February 2022, the U.S.

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

Therefore, the requirement to prepare the EIS stands.

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

Therefore, the requirement to prepare the EIS stood.

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 the third quarter of 2023.

The draft EIS process resumed in August 2022, and in September 2023 the USACE published its draft EIS for public comment.

The USACE identified five potential outcomes, but did not indicate which one it preferred.

The options comprise two “no action” alternatives where the USACE would deny an easement to Dakota Access and require it to shut down the pipeline and either remove the pipe from under Lake Oahe or allow the pipeline to be abandoned-in-place under the lake.

The USACE also identified three “action” alternatives.

Two of them contemplate that the USACE would reissue the easement to Dakota Access under essentially the same terms as 2017 with either the same or a larger volume of oil allowed through the pipeline while the third option would decommission the current pipeline and require construction of a new line 39 miles upstream from the current location.

Although the USACE has not indicated when it will issue its final decision, no decision is expected until 2024.

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

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

At June 30, 2023, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $1.85 billion.

At September 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, now a wholly owned subsidiary of Phillips 66, and its co-venturers in Dakota Access also provided a Contingent Equity Contribution Undertaking (CECU).

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

At June 30, 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 June 30, 2023.

At September 30, 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, it may have a material adverse effect on our results of operations and cash flows.

Should operations cease and Dakota Access and ETCO not have sufficient funds to pay its expenses, we also 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, 2023.

See Note 12—Guarantees, in the Notes to Consolidated Financial Statements, for additional information regarding our guarantees.

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Debt Financing

Our debt balance at June 30, 2023, and December 31, 2022, was $19.9 billion and $17.2 billion, respectively.

Our total debt-to-capital ratio was 39% and 34% at June 30, 2023, and December 31, 2022, respectively.

Our debt balance at September 30, 2023, and December 31, 2022, was $19.4 billion and $17.2 billion, respectively.

Our total debt-to-capital ratio was 38% and 34% at September 30, 2023, and December 31, 2022, respectively.

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.

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

The DCP LP Merger increased our aggregate direct and indirect economic interest in DCP LP from 43.3% to 86.8%.

We paid approximately $3.8 billion 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 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 11—Debt and Note 21—DCP Midstream Class A Segment, in the Notes to the Consolidated Financial Statements, for additional information regarding the DCP Midstream and DCP LP Mergers.

DCP LP Preferred Units

DCP LP redeemed its Series B preferred units with an aggregate liquidation preference of approximately $161 million in June 2023.

On June 15, 2023, DCP LP redeemed its Series B preferred units with an aggregate liquidation preference of approximately $161 million.

DCP LP funded this redemption with borrowings under its credit facilities.

On October 16, 2023, DCP LP redeemed its Series C preferred units with an aggregate liquidation preference of approximately $110 million.

DCP LP funded this redemption using cash on hand and borrowings under its accounts receivable securitization facility.

DCP LP Cash Distributions to Unitholders

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

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

DCP LP’s partnership agreement requires it to distribute all available cash within 45 days after the end of each quarter.

During the nine months ended September 30, 2023, DCP LP made cash distributions of $113 million to common unitholders other than Phillips 66 and its subsidiaries and $12 million to preferred unitholders.

On April 19, 2023, the board of directors of DCP Midstream GP, LLC, declared a quarterly distribution on DCP LP’s common units of $0.43 per common unit and a quarterly distribution on DCP LP’s Series B and Series C preferred units of $0.4922 and $0.4969 per unit, respectively.

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On July 14, 2023, the board of directors of DCP Midstream, GP, LLC, declared a quarterly distribution on DCP LP’s common units of $0.43 per common unit and a quarterly distribution on DCP LP’s Series C preferred units of $0.4969 per unit.

The distribution on the common units will be paid on August 11, 2023, to unitholders of record on July 31, 2023.

The Series C distribution will be paid on October 16, 2023, to preferred unitholders of record on October 2, 2023.

See Note 21—DCP Midstream Class A Segment, in the Notes to the Consolidated Financial Statements, for additional information regarding the DCP LP public common unit acquisition and the redemption of DCP LP’s Series B preferred units.

On May 10, 2023, our board of directors declared a quarterly cash dividend of $1.05 per common share.

The dividend was paid on June 1, 2023, to shareholders of record at the close of business on May 22, 2023.

The distribution on the common units was paid on August 11, 2023, to unitholders of record on July 31, 2023.

The Series C distribution was paid on October 16, 2023, to preferred unitholders of record on October 2, 2023.

On October 20, 2023, the board of directors of DCP Midstream, GP, LLC, declared a quarterly distribution on DCP LP’s common units of $0.43 per common unit.

The distribution will be paid on November 10, 2023, to unitholders of record on October 31, 2023.

On July 12, 2023, our board of directors declared a quarterly cash dividend of $1.05 per common share.

This dividend is payable on September 1, 2023, to shareholders of record as of the close of business on August 18, 2023.

This dividend was paid on September 1, 2023, to shareholders of record as of the close of business on August 18, 2023.

On October 6, 2023, our board of directors declared a quarterly cash dividend of $1.05 per common share.

This dividend is payable on December 1, 2023, to shareholders of record as of the close of business on November 17, 2023.

Share Repurchases

On October 25, 2023, our board of directors approved a $5 billion increase to our share repurchase authorization.

Since July 2012, our board of directors has authorized an aggregate of $25 billion of repurchases of our outstanding common stock.

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

For the six months ended June 30, 2023, we repurchased 21.5 million shares at an aggregate cost of approximately $2.1 billion.

Since the inception of our share repurchase program in 2012, we have repurchased 197.5 million shares at an aggregate cost of $16.2 billion.

For the nine months ended September 30, 2023, we repurchased 28.1 million shares at an aggregate cost of approximately $2.9 billion.

Since July 2012, we have repurchased 204 million shares at an aggregate cost of $16.9 billion.

Shares of stock repurchased are held as treasury shares.

Employee Benefit Plan Contributions

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

During the nine months ended September 30, 2023, we contributed $401 million to our U.S.

pension and other postretirement benefit plans and $15 million to our international pension plans.

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pension and other postretirement benefit plans and approximately $5 million to our international pension plans during the remainder of 2023.

Rodeo Renewed

Rodeo Renewed Project

We expect the total capital project cost for the ongoing conversion of the San Francisco refinery in Rodeo, California into a renewable fuels facility to be approximately $1.25 billion.

As a result, our projected capital spend on the Rodeo Renewed renewable fuels facility project in 2023 is expected to be approximately $200 million higher than budgeted.

Our projected capital spend on the Rodeo Renewed project in 2023 is expected to be approximately $200 million higher than initially budgeted.

See the “Capital Spending” section below for further discussion regarding the increase in our 2023 capital budget.

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.

The acquisition of these operations support the placement of renewable fuels that will be produced by the Rodeo Renewed facility.

On August 1, 2023, we acquired a marketing business on the U.S.

West Coast for total consideration of $269 million.

This acquisition supports the placement of renewable diesel that will be produced by the Rodeo renewable fuels facility.

Capital Spending

Millions of Dollars

Six Months Ended

Nine Months Ended

Capital Expenditures and Investments

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** Our share of joint ventures’ capital spending.

During the first six months of 2023, capital spending in our Midstream segment, including DCP LP, was primarily driven by expansion of gathering systems in the DJ Basin and Permian Basin, along with other return projects, well connections, reliability and maintenance projects.

During the first six months of 2023, on a 100% basis, CPChem’s capital expenditures and investments were $1,038 million.

During the first nine months of 2023, capital spending in our Midstream segment, including DCP LP, was primarily driven by expansion of gathering systems in the DJ Basin and Permian Basin, along with other return projects, well connections, reliability and maintenance projects.

During the first nine months of 2023, on a 100% basis, CPChem’s capital expenditures and investments were $1,545 million.

The capital spending was primarily for the development of petrochemical projects on the U.S.

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CPChem’s capital program was self-funded, and we expect CPChem to continue self-funding its capital program for the remainder of 2023.

Capital spending for the Refining segment during the first six months of 2023 was primarily for refinery upgrade projects to enhance the yield of high-value products, produce renewable diesel, improve operating integrity of key processing units, and safety-related projects.

Capital spending for the Refining segment during the first nine months of 2023 was primarily for refinery upgrade projects to enhance the yield of high-value products, produce renewable diesel, improve operating integrity of key processing units, and safety-related projects.

Major capital activities included:

• Engineering of facilities, procurement of long-lead items and construction to produce renewable fuels at the San Francisco refinery.

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

• Engineering of facilities, procurement of long-lead items and construction to produce biofuels at the San Francisco refinery.

• Installation of facilities to improve utilization and product value at the jointly owned Borger refinery.

Marketing and Specialties

Capital spending for the M&S segment during the first six months of 2023 was primarily for the continued development and enhancement of retail sites in Europe.

Capital spending for the M&S segment during the first nine months of 2023 was primarily for the acquisition of a marketing business on the U.S.

West Coast and continued development and enhancement of retail sites in Europe.

Corporate and Other

Capital spending for Corporate and Other during the first six months of 2023 was primarily for information technology and certain business transformation initiatives.

Capital spending for Corporate and Other during the first nine months of 2023 was primarily for information technology.

2023 Budget Update

In October 2023, our Board of Directors authorized an increase of approximately $520 million to the 2023 planned capital budget previously reported in our 2022 Annual Report on Form 10-K.

The increased capital budget relates to our Refining and M&S segments and reflects additional capital for our Rodeo Renewed project and the acquisition of a marketing business on the U.S.

See Note 4—Business Combinations, in the Notes to the Consolidated Financial Statements, for additional information on the marketing business acquisition.

Contingencies

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

For the six months ended June 30, 2023 and 2022, we incurred expenses of $293 million and $271 million, respectively, associated with our obligation to purchase RINs in the open market to comply with the RFS for our wholly owned refineries.

For the nine months ended September 30, 2023 and 2022, we incurred expenses of $242 million and $403 million, respectively, associated with our obligation to purchase RINs in the open market to comply with the RFS for our wholly owned refineries.

These expenses are included in the “Purchased crude oil and products” line item on our consolidated statement of income.

Our jointly owned refineries also incurred expenses associated with the purchase of RINs in the open market, of which our share was $217 million and $175 million for the six months ended June 30, 2023 and 2022, respectively.

Our jointly owned refineries also incurred expenses associated with the purchase of RINs in the open market, of which our share was $326 million and $296 million for the nine months ended September 30, 2023 and 2022, respectively.

These expenses are included in the “Equity in earnings of affiliates” line item on our consolidated statement of income.

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These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically are not owned by us, but allegedly contain wastes attributable to our past operations.

At June 30, 2023 and December 31, 2022, we had been notified of potential liability under CERCLA and comparable state laws at 22 sites within the United States.

At September 30, 2023 and December 31, 2022, we had been notified of potential liability under CERCLA and comparable state laws at 22 sites within the United States.

Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses, environmental costs and liabilities are inherent concerns in certain of our operations and products, and there can be no assurance that those costs and liabilities will not be material.

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

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

The 2050 target builds upon our 2030 GHG emissions intensity targets to reduce Scope 1 and Scope 2 emissions from our operations by 30% and Scope 3 emissions from our energy products by 15% compared to 2019 levels.

GUARANTOR FINANCIAL INFORMATION

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All guarantees are full and unconditional.

At June 30, 2023, $13.3 billion of senior unsecured notes outstanding has been guaranteed by the Obligor Group.

At September 30, 2023, $13.3 billion of senior unsecured notes outstanding has been guaranteed by the Obligor Group.

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

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

The summarized results of operations for the six months ended June 30, 2023, and the summarized financial position at June 30, 2023, and December 31, 2022, for the Obligor Group on a combined basis were:

The summarized results of operations for the nine months ended September 30, 2023, and the summarized financial position at September 30, 2023, and December 31, 2022, for the Obligor Group on a combined basis were:

Summarized Combined Statement of Income Millions of Dollars

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Sales and other operating revenues $ 82,199

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Coast Worldwide

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Income before income taxes $ 444 342 361 563 1,710

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16.85 13.58 18.05 32.23 18.96

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Income before income taxes $ 530 770 1,343 264 2,907

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Equity in (earnings) losses of affiliates 2 1 (294) — (291)

Other segment expense, net 8 1 2 — 11

Other segment (income) expense, net 2 — 4 (1) 5

Proportional share of refining gross margins contributed by equity affiliates

22 — 517 — 539

Special items:

Regulatory compliance costs 9 26 22 13 70

Realized refining margins

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Coast Worldwide

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Income before income taxes $ 735 1,290 1,730 697 4,452

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14.61 15.57 22.43 21.94 18.30

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Income before income taxes $ 1,784 1,717 1,699 976 6,176

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Three Months Ended

June 30, 2023 Three Months Ended

June 30, 2022

September 30, 2023 Three Months Ended

September 30, 2022

International U.S.

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Millions of Dollars, Except as Indicated

Six Months Ended

June 30, 2023 Six Months Ended

June 30, 2022

Nine Months Ended

September 30, 2023 Nine Months Ended

September 30, 2022

International U.S.

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Other operating revenues* (364) (23) (387) (56)

Other expense, net 9 11 12 1

Other (income) expense, net 17 9 18 (2)

Marketing margins

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You can normally identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions that convey the prospective nature of events or outcomes, but the absence of such words does not mean a statement is not forward-looking.

We based the forward-looking statements on our current expectations, estimates and projections about us, our operations, our joint ventures and entities in which we have equity interests, as well as the industries in which we and they operate.

We based these forward-looking statements on our current expectations, estimates and projections about us, our operations, our joint ventures and entities in which we have equity interests, as well as the industries in which we and they operate.

We caution you not to place undue reliance on these forward-looking statements as they are not guarantees of future performance and involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict.

In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate.

Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in any forward-looking statements.

Such differences could result from a variety of factors, including:

Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in any forward-looking statement.

Factors that could cause actual results to differ materially from those in our forward-looking statements include:

• Fluctuations in NGL, crude oil, refined petroleum product and natural gas prices and refining, marketing and petrochemical margins.

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• Actions taken by OPEC and non-OPEC oil producing countries impacting supply and demand and correspondingly, commodity prices.

• The ability to achieve the expected benefits of the DCP LP integration.

• Our ability to achieve the expected benefits of the DCP LP integration, including the realization of expected synergies.

• Unexpected changes in costs or technical requirements for constructing, modifying or operating our facilities or transporting our products.

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• The level and success of drilling and quality of production volumes around our midstream assets.

• The inability to timely obtain or maintain permits, including those necessary for capital projects.

• The inability to comply with government regulations or make capital expenditures required to maintain compliance.

• Our ability to timely obtain or maintain permits, including those necessary for capital projects.

• Our ability to comply with government regulations or make capital expenditures required to maintain compliance.

• Our ability to realize sustained savings and cost reductions from the company’s business transformation initiatives.

• Changes to worldwide government policies relating to renewable fuels, climate change and greenhouse gas emissions that adversely affect programs like the renewable fuel standards program, low carbon fuel standards and tax credits for biofuels.

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• Failure to complete definitive agreements and feasibility studies for, and to complete construction of, announced and future capital projects on time and within budget.

• Potential disruption or interruption of our operations or damage to our facilities due to accidents, weather and climate events, civil unrest, insurrections, political events, terrorism or cyberattacks.

• The inability to meet our sustainability goals, including reducing our GHG emissions intensity, developing and protecting new technologies, and commercializing lower-carbon opportunities.

• Our ability to successfully complete, or any material delay in the completion of, asset dispositions or acquisitions that we pursue.

• Potential disruption or interruption of our operations or those of our joint ventures due to litigation or other governmental or regulatory action.

• Damage to our facilities due to accidents, weather and climate events, civil unrest, insurrections, political events, terrorism or cyberattacks.

• Our ability to meet our sustainability goals, including reducing our GHG emissions intensity, developing and protecting new technologies, and commercializing lower-carbon opportunities.

• Failure of new products and services to achieve market acceptance.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our commodity price risk and interest rate risk at June 30, 2023, did not differ materially from the risks disclosed under Item 7A of our 2022 Annual Report on Form 10-K.

Our commodity price risk and interest rate risk at September 30, 2023, did not differ materially from the risks disclosed under Item 7A of our 2022 Annual Report on Form 10-K.

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 2. Management’s Discussion and Analysis