What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-04-29 compared with 2023-11-03 · 138 added, 392 removed, 584 unchanged (48% of the section changed)

3 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2023 2022 2023 2022

Revenues and Other Income

13 unchanged sentences

Interest and debt expense 227 192

Foreign currency transaction (gains) losses ( 12 ) 5 15 24

Foreign currency transaction losses 7 25

Total Costs and Expenses 35,472 32,438

14 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2023 2022 2023 2022

Net Income $ 761 2,077

1 unchanged sentence

Defined benefit plans

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

Amortization of net actuarial loss, prior service credit and settlements 2 42 17 93

Amortization of net actuarial loss and settlements 2 10

Plans sponsored by equity affiliates 1 3

14 unchanged sentences

Accounts and notes receivable (net of allowances of $ 75 million in 2024 and $ 71 million in 2023)

10,078 10,483

Accounts and notes receivable—related parties 1,454 1,247

39 unchanged sentences

Millions of Dollars

Nine Months Ended

Three Months Ended

Cash Flows From Operating Activities

8 unchanged sentences

Net gain on dispositions — ( 34 )

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

Unrealized investment loss 34 418

Other ( 455 ) 15

Unrealized investment (gain) loss ( 6 ) 11

Working capital adjustments

4 unchanged sentences

Taxes and other accruals ( 590 ) ( 653 )

Net Cash Provided by Operating Activities 4,839 6,063

Net Cash Provided by (Used in) Operating Activities ( 236 ) 1,199

Cash Flows From Investing Activities

2 unchanged sentences

Proceeds from asset dispositions 2 77

Advances/loans—related parties — ( 75 )

Collection of advances/loans—related parties 1 236

Other ( 80 ) ( 24 )

7 unchanged sentences

Distributions to noncontrolling interests ( 13 ) ( 58 )

Repurchase of noncontrolling interests ( 3,957 ) —

Other ( 73 ) ( 48 )

7 unchanged sentences

Millions of Dollars

Three Months Ended September 30

Three Months Ended March 31

Attributable to Phillips 66

1 unchanged sentence

Other Comprehensive Loss Noncontrolling Interests Total

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

December 31, 2023 $ 7 19,650 ( 19,342 ) 30,550 ( 282 ) 1,067 31,650

Net income — — — 748 — 13 761

3 unchanged sentences

Repurchase of common stock — — ( 1,147 ) — — — ( 1,147 )

Benefit plan activity — 123 — ( 3 ) — — 120

Distributions to noncontrolling interests — — — — — ( 13 ) ( 13 )

Acquisition of noncontrolling interests in DCP Midstream, LP — 17 — — — ( 25 ) ( 8 )

September 30, 2023 $ 7 19,603 ( 18,155 ) 29,751 ( 385 ) 1,168 31,989

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

Net income — — — 5,391 — 149 5,540

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

Dividends paid on common stock ($ 0.97 per share)

— — — ( 466 ) — — ( 466 )

Repurchase of common stock — — ( 724 ) — — — ( 724 )

Benefit plan activity — 24 — ( 4 ) — — 20

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

Merger of DCP Midstream, LLC and Gray Oak Holdings LLC — — — — — 4,633 4,633

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

Three Months Ended September 30

Common Stock Issued Treasury Stock

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

Repurchase of common stock — 6,523,145

Shares issued—share-based compensation 1,190,792 —

September 30, 2023 654,552,047 214,596,472

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

Repurchase of common stock — 8,565,824

Shares issued—share-based compensation 146,940 —

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

See Notes to Consolidated Financial Statements.

Millions of Dollars

Nine Months Ended September 30

Attributable to Phillips 66

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

Other Comprehensive Loss Noncontrolling Interests Total

March 31, 2024 $ 7 19,674 ( 20,489 ) 30,846 ( 312 ) 1,067 30,793

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

4 unchanged sentences

Repurchase of common stock — — ( 807 ) — — — ( 807 )

Benefit plan activity — 173 — ( 11 ) — 1 163

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

Acquisition of noncontrolling interests in DCP Midstream, LP — ( 361 ) — — — ( 3,504 ) ( 3,865 )

September 30, 2023 $ 7 19,603 ( 18,155 ) 29,751 ( 385 ) 1,168 31,989

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

Net income — — — 9,140 — 239 9,379

Other comprehensive loss — — — — ( 549 ) — ( 549 )

Dividends paid on common stock ($ 2.86 per share)

— — — ( 1,337 ) — — ( 1,337 )

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

Benefit plan activity — 4 — ( 4 ) — ( 3 ) ( 3 )

Distributions to noncontrolling interests — — — — — ( 104 ) ( 104 )

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

Merger of DCP Midstream, LLC and Gray Oak Holdings LLC — — — — — 4,633 4,633

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

Nine Months Ended September 30

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

Three Months Ended March 31

Common Stock Issued Treasury Stock

2 unchanged sentences

Shares issued—share-based compensation 1,442,590 —

September 30, 2023 654,552,047 214,596,472

March 31, 2024 656,284,691 232,332,556

December 31, 2022 652,373,645 186,529,667

1 unchanged sentence

Shares issued—share-based compensation 892,539 —

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

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

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

See Notes to Consolidated Financial Statements.

5 unchanged sentences

Therefore, these interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2023 Annual Report on Form 10-K.

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

Note 2— Change in Accounting Principle

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

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

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

Note 3— DCP Midstream, LLC and 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 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.

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

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

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

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 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:

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

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

We hold a 76.64 % Class A membership interest, which represents an indirect economic interest in DCP LP of 43.3 %, and a 10 % Class B membership interest, which represents an indirect economic interest in Gray Oak Pipeline of 6.5 %.

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

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

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

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

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

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

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

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

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

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

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

Starting on August 18, 2022, we began consolidating the financial results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills 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 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 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 Midstream, LP Merger (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 results of operations for the three months ended March 31, 2024, are not necessarily indicative of the results expected for the full year.

Note 2— DCP Midstream, LP Merger (DCP LP Merger)

On June 15, 2023, we completed the acquisition of all publicly held common units of DCP Midstream, LP (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 aggregate direct and indirect economic interest in DCP LP from 43.3 % to 86.8 % and our aggregate direct and indirect economic interests in DCP Sand Hills and DCP Southern Hills increased from 62.2 % to 91.2 %.

The DCP LP Merger increased our aggregate direct and indirect economic interest in DCP LP from 43.3 % to 86.8 % and our aggregate direct and indirect economic interests in DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills) increased from 62.2 % to 91.2 %.

See Note 20—DCP Midstream Class A Segment, for additional information regarding the equity transaction.

Note 4— Business Combinations

Marketing and Specialties Acquisition

On August 1, 2023, our M&S segment acquired a marketing business on the U.S.

Note 3— Business Combination

On August 1, 2023, our Marketing and Specialties (M&S) segment acquired a marketing business on the U.S.

West Coast for total consideration of $ 272 million.

These operations were acquired to support the placement of renewable diesel that will be produced by our Rodeo renewable fuels facility.

At September 30, 2023, we provisionally recorded $ 143 million of amortizable intangible assets, primarily customer relationships;

$ 77 million of PP&E, including finance lease right of use assets;

These operations were acquired to support the placement of renewable diesel produced by our Rodeo facility, now referred to as the Rodeo Renewable Energy Complex.

At March 31, 2024, we provisionally recorded $ 146 million of amortizable intangible assets, primarily customer relationships;

$ 82 million of properties, plants and equipment (PP&E), including finance lease right of use assets;

$ 40 million of net working capital;

$ 63 million of finance lease liabilities and $ 70 million of goodwill for this acquisition.

$ 67 million of goodwill;

and $ 63 million of finance lease liabilities for this acquisition.

The fair values of the assets acquired and liabilities assumed are preliminary and subject to change until we finalize our accounting for this acquisition.

DCP Midstream Merger

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 DCP Midstream Merger consideration are:

Millions of Dollars

Cash contributed $ 404

Fair value of transferred equity interest 634

Fair value of previously held equity interests 3,853

Total merger consideration $ 4,891

The aggregate purchase consideration noted above was allocated to the assets acquired and liabilities assumed of the entities consolidated based upon their estimated fair values as of the DCP Midstream Merger on August 17, 2022.

We finalized the valuation of the assets acquired and liabilities assumed during the three months ended September 30, 2023, prior to the end of the one-year measurement period on August 16, 2023.

The following table shows the purchase price allocation as of the date of the DCP Midstream Merger, and cumulative adjustments we have made through the end of the measurement period:

Millions of Dollars

As Originally Reported Adjustments As Adjusted

Fair value of assets acquired:

Cash and cash equivalents $ 98 — 98

Accounts and notes receivable 1,003 — 1,003

Inventories 74 238 312

Prepaid expenses and other current assets 439 13 452

Investments and long-term receivables 2,192 ( 125 ) 2,067

Properties, plants and equipment 12,837 193 13,030

Intangibles 36 ( 36 ) —

Other assets 343 ( 158 ) 185

Total assets acquired 17,022 125 17,147

Fair value of liabilities assumed:

Accounts payable 912 3 915

Short-term debt 625 ( 2 ) 623

Accrued income and other taxes 107 13 120

Employee benefit obligation—current 50 22 72

Other accruals 497 ( 6 ) 491

Long-term debt 4,541 40 4,581

Asset retirement obligations and accrued environmental costs 168 16 184

Deferred income taxes 40 14 54

Employee benefit obligations 54 — 54

Other liabilities and deferred credits 227 36 263

Total liabilities assumed 7,221 136 7,357

Fair value of net assets 9,801 ( 11 ) 9,790

Fair value of noncontrolling interests 4,910 ( 11 ) 4,899

Total merger consideration $ 4,891 — 4,891

The adjustments reflected in the table above include reclassification adjustments we made to the 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 during the measurement period.

The adjustments to our purchase price allocation recorded in the nine months ended September 30, 2023, were not material.

See Note 15—Fair Value Measurements, for additional information on the determination of the fair value of the DCP Midstream Merger.

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

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

See Note 15—Fair Value Measurements, for additional information on the determination of the fair value of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills.

Pro Forma Financial Information

The following unaudited pro forma financial information presents consolidated results for the three and nine months ended September 30, 2022, as if assuming the DCP Midstream Merger occurred on January 1, 2021.

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

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

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

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

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

Sales and other operating revenues ( millions )

$ 46,892 136,848

Net Income Attributable to Phillips 66 ( millions )

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

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

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 acquisition.

Note 4— Sales and Other Operating Revenues

3 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2023 2022 2023 2022

Product Line and Services

3 unchanged sentences

Services and other *

392 902 1,750 833

Consolidated sales and other operating revenues $ 35,811 34,396

9 unchanged sentences

Contract-Related Assets and Liabilities

At September 30, 2023, and December 31, 2022, receivables from contracts with customers were $ 10,137 million and $ 8,749 million, respectively.

At March 31, 2024, and December 31, 2023, receivables from contracts with customers were $ 9,592 million and $ 9,638 million, respectively.

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

1 unchanged sentence

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

At September 30, 2023, and December 31, 2022, our asset balances related to such payments were $ 527 million and $ 505 million, respectively.

At March 31, 2024, and December 31, 2023, our asset balances related to such payments were $ 546 million and $ 537 million, respectively.

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

At September 30, 2023, and December 31, 2022, contract liabilities were $ 228 million and $ 156 million, respectively.

At March 31, 2024, and December 31, 2023, contract liabilities were $ 162 million and $ 187 million, respectively.

Remaining Performance Obligations

2 unchanged sentences

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

At September 30, 2023, the remaining performance obligations related to these minimum volume commitment contracts amounted to $ 391 million.

This amount excludes variable consideration and estimates of variable rate escalation clauses in our contracts with customers, and is expected to be recognized through 2031 with a weighted average remaining life of three years as of September 30, 2023.

At March 31, 2024, the remaining performance obligations related to these minimum volume commitment contracts amounted to $ 326 million.

Note 5— 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 September 30, 2023, and December 31, 2022, we reported $ 11,976 million and $ 10,985 million of accounts and notes receivable, respectively, net of allowances of $ 71 million and $ 67 million, respectively.

Based on an aging analysis at September 30, 2023, more than 95 % of our accounts receivable were outstanding less than 60 days.

At March 31, 2024, and December 31, 2023, we reported $ 11,532 million and $ 11,730 million of accounts and notes receivable, respectively, net of allowances of $ 75 million and $ 71 million, respectively.

Based on an aging analysis at March 31, 2024, 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.

7 unchanged sentences

$ 6,286 3,750

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 5,140 million and $ 2,635 million at September 30, 2023, and December 31, 2022, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 7.7 billion and $ 6.3 billion at September 30, 2023, and December 31, 2022, respectively.

Inventories valued on the last-in, first-out (LIFO) basis totaled $ 5,698 million and $ 3,050 million at March 31, 2024, and December 31, 2023, respectively.

The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $ 6.3 billion and $ 5.3 billion at March 31, 2024, and December 31, 2023, 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 $ 11 million and $ 16 million in the three and nine months ended September 30, 2023, respectively.

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

LIFO inventory liquidations did not have a material impact on net income for the three months ended March 31, 2024, and 2023.

Note 7— Investments, Loans and Long-Term Receivables

15 unchanged sentences

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.

On April 1, 2022, Dakota Access’ wholly owned subsidiary repaid $ 650 million aggregate principal amount of its outstanding senior notes upon maturity.

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

At 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 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).

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 alternative would require decommissioning of the current pipeline and construction of a new line 39 miles upstream from the current location.

The public comment period concluded on December 13, 2023.

The USACE plans to review the comments and issue its final EIS in the fall of 2024.

The Record of Decision will follow within 30 to 60 days after the issuance of the final EIS.

Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access with an aggregate principal amount outstanding of $ 1.85 billion at March 31, 2024.

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

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

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

At March 31, 2024, 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.

At September 30, 2023, the aggregate book value of our investments in Dakota Access and ETCO was $ 644 million.

At March 31, 2024, the aggregate book value of our investments in Dakota Access and ETCO was $ 887 million.

On April 1, 2024, Dakota Access’ wholly owned subsidiary repaid $ 1 billion aggregate principal amount of its outstanding senior notes upon maturity.

We funded our 25 % share of the repayment, or $ 250 million, with a capital contribution of $ 171 million in March 2024 and $ 79 million of distributions we elected not to receive from Dakota Access in the first quarter of 2024.

As a result of the debt repayment, on April 1, 2024, our share of the maximum potential equity contributions under the CECU decreased to approximately $ 215 million, and our share of scheduled interest payments on the notes that we could be required to support decreased to approximately $ 10 million annually.

CF United LLC (CF United)

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

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

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

Based on current conditions, we do not believe the put option will be exercised during the option period.

However, the put option is viewed as a variable interest as the purchase price on the exercise date may not represent the then-current fair value of CF United.

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

At September 30, 2023, our maximum exposure to loss was comprised of our $ 282 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.

On January 1, 2024, CF United, a retail marketing joint venture with operations primarily on the U.S.

West Coast, completed the acquisition of another joint venture in which we had an ownership interest.

In connection with this acquisition, the governing agreement for CF United was amended and restated.

The amended and restated agreement included removal of a put option that required us to purchase our co-venturer’s interest based on a fixed multiple that was considered a variable interest.

As a result of the removal of this put option, CF United ceased to be a variable interest entity (VIE) effective January 1, 2024.

At March 31, 2024, we held a 50 % voting interest and a 47 % economic interest in CF United and the book value of our investment was $ 340 million.

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 September 30, 2023, our maximum exposure to loss was $ 228 million, which represented the book value of our investment in OnCue of $ 162 million and guaranteed debt obligations of $ 66 million.

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

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

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

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

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

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

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

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

Midstream Investment Disposition

On August 1, 2023, we sold our 25 % ownership interest in the South Texas Gateway Terminal for $ 275 million and recognized a before-tax gain of $ 101 million.

The before-tax gain is included in the “Net gain on dispositions” line item on our consolidated statement of income for the three and nine months ended September 30, 2023, and is reported in the Midstream segment.

Other Investments

In September 2021, we acquired 78 million ordinary shares, representing a 16 % ownership interest, in NOVONIX Limited (NOVONIX), which are traded on the Australian Securities Exchange.

NOVONIX is a Brisbane, Australia-based company that develops technology and supplies materials for lithium-ion batteries.

Since we do not have significant influence over the operating and financial policies of NOVONIX and the shares we own have a readily determinable fair value, our investment is recorded at fair value at the end of each reporting period.

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” 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 $ 42 million at September 30, 2023.

The fair value of our investment in NOVONIX declined by $ 9 million and $ 36 million during the three and nine months ended September 30, 2023, respectively, reflecting unrealized investment losses of $ 8 million and $ 34 million and immaterial unrealized foreign currency losses in both periods.

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

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

At March 31, 2024, our maximum exposure to loss was $ 231 million, which represented the book value of our investment in OnCue of $ 168 million and guaranteed debt obligations of $ 63 million.

Note 8— Properties, Plants and Equipment

2 unchanged sentences

Millions of Dollars

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Midstream $ 26,207 4,665 21,542 26,124 4,382 21,742

4 unchanged sentences

$ 55,052 19,503 35,549 55,192 19,480 35,712

In the first quarter of 2024, we recorded before-tax asset impairments totaling $ 163 million related to certain crude processing and logistics assets in California, of which $ 104 million was reported in our Refining segment and $ 59 million was reported in our Midstream segment.

Note 9— Earnings Per Share

5 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2023 2022 2023 2022

Basic Diluted Basic Diluted Basic Diluted Basic Diluted

Basic Diluted Basic Diluted

Amounts Attributed to Phillips 66 Common Stockholders (millions) :

9 unchanged sentences

Note 10— Debt

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 before-tax loss.

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 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:

Senior Notes and Term Loan Issuances and Repayments

On February 28, 2024, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $ 1.5 billion aggregate principal amount of senior unsecured notes that are fully and unconditionally guaranteed by Phillips 66.

The senior unsecured notes issuance consisted of:

• $ 600 million aggregate principal amount of 5.250 % Senior Notes due 2031 (2031 Notes).

• $ 400 million aggregate principal amount of 5.300 % Senior Notes due 2033 (Additional 2033 Notes).

• $ 500 million aggregate principal amount of 5.650 % Senior Notes due 2054 (2054 Notes).

Interest on the 2031 Notes and 2054 Notes is payable semi-annually on June 15 and December 15 of each year, commencing on June 15, 2024.

Interest on the Additional 2033 Notes is payable semi-annually on June 30 and December 30 of each year, commencing on June 30, 2024.

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 that are fully and unconditionally guaranteed by Phillips 66.

The senior unsecured notes issuance consisted of:

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

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

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

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

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

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.

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 Agreements

At September 30, 2023, and December 31, 2022, borrowings outstanding under Advance Term Loan agreements with WRB Refining LP (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

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.

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

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

and violation of covenants.

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

Outstanding borrowings under the Term Loan Agreement 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.

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, for additional information regarding the DCP LP Merger.

On March 29, 2024, DCP LP early redeemed $ 300 million of its 5.375 % Senior Notes due July 2025 at par with an aggregate principal amount of $ 825 million.

On March 4, 2024, Phillips 66 Company repaid $ 700 million of the $ 1.25 billion borrowed under its delayed draw term loan that matures in June 2026.

On February 15, 2024, upon maturity, Phillips 66 repaid its 0.900 % senior notes due February 2024 with an aggregate principal amount of $ 800 million.

On March 15, 2023, DCP LP repaid its 3.875 % senior unsecured notes due March 2023 with an aggregate principal amount of $ 500 million.

Credit Facilities and Commercial Paper

Phillips 66 and Phillips 66 Company

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.

On February 28, 2024, we entered into a new $ 5 billion revolving credit agreement (the Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor and a scheduled maturity date of February 28, 2029.

The Facility replaced our previous $ 5 billion revolving credit facility dated as of June 23, 2022, with Phillips 66 Company as the borrower and Phillips 66 as guarantor, and the previous revolving credit facility was terminated.

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

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

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

and violation of covenants.

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

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

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

Outstanding borrowings under the Facility bear interest at either:

(a) the adjusted term Secured Overnight Financing Rate (as described in the Facility) in effect from time to time plus the applicable margin;

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

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

At March 31, 2024, and December 31, 2023, no amount had been drawn under our revolving credit facilities.

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

Commercial paper maturities are contractually limited to less than one year.

At March 31, 2024, $ 1.5 billion of commercial paper had been issued under this program.

At December 31, 2023, no borrowings were outstanding under this program.

DCP Midstream Class A Segment

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.

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.

On March 15, 2024, DCP LP terminated its $ 1.4 billion credit facility and its accounts receivable securitization facility that previously provided for up to $ 350 million of borrowing capacity.

At December 31, 2023, DCP LP had $ 25 million in borrowings outstanding under its $ 1.4 billion credit facility and $ 350 million of borrowings outstanding under its accounts receivable securitization facility, which were repaid during the three months ended March 31, 2024.

Note 11— Guarantees

At September 30, 2023, we were liable for certain contingent obligations under various contractual arrangements as described below.

At March 31, 2024, 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.

3 unchanged sentences

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

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

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $ 514 million at March 31, 2024.

We also have residual value guarantees associated with railcar, airplane and truck leases with maximum potential future exposures totaling $ 171 million.

3 unchanged sentences

See Note 7—Investments, Loans and Long-Term Receivables, for additional information regarding Dakota Access and the CECU.

At September 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 .

At March 31, 2024, 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 $ 78 million.

5 unchanged sentences

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

At September 30, 2023, and December 31, 2022, the carrying amount of recorded indemnifications was $ 143 million and $ 137 million, respectively.

At March 31, 2024, and December 31, 2023, the carrying amount of recorded indemnifications was $ 155 million and $ 159 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.

1 unchanged sentence

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

At September 30, 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.

At March 31, 2024, and December 31, 2023, environmental accruals for known contamination of $ 110 million and $ 114 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.

36 unchanged sentences

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

At September 30, 2023, our total environmental accruals were $ 453 million, compared with $ 434 million at December 31, 2022.

At March 31, 2024, our total environmental accruals were $ 442 million, compared with $ 446 million at December 31, 2023.

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

8 unchanged sentences

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

At September 30, 2023, we had performance obligations secured by letters of credit and bank guarantees of $ 1.1 billion related to various purchase and other commitments incident to the ordinary conduct of business.

At March 31, 2024, we had performance obligations secured by letters of credit and bank guarantees of $ 847 million related to various purchase and other commitments incident to the ordinary conduct of business.

Note 13— Derivatives and Financial Instruments

2 unchanged sentences

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

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

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

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

7 unchanged sentences

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

DCP Midstream Class A Segment

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

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.

2 unchanged sentences

Millions of Dollars

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

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

5 unchanged sentences

Total $ 4,734 ( 4,868 ) 171 37 3,201 ( 3,148 ) 18 71

At September 30, 2023, and December 31, 2022, there was $ 2 million and $ 93 million, respectively, of cash collateral paid that was not offset on our consolidated balance sheet.

At March 31, 2024, there was $ 13 million of cash collateral paid that was not offset on our consolidated balance sheet.

At December 31, 2023, there was $ 7 million of net cash collateral received that was not offset on our consolidated balance sheet.

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

1 unchanged sentence

Three Months Ended

September 30 Nine Months Ended

2023 2022 2023 2022

Sales and other operating revenues $ ( 202 ) 50

Other income ( 38 ) 22 ( 28 ) 84

Other income (loss) 38 ( 14 )

Purchased crude oil and products ( 256 ) 137

4 unchanged sentences

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

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

The percentage of our derivative contract volumes expiring within the next 12 months was more than 90 % at March 31, 2024, and December 31, 2023.

Open Position

20 unchanged sentences

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

The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at September 30, 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 March 31, 2024, and December 31, 2023.

Note 14— Fair Value Measurements

36 unchanged sentences

Millions of Dollars

September 30, 2023

March 31, 2024

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

22 unchanged sentences

Investment in NOVONIX 39 — — 39 N/A N/A — 39

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

$ 3,269 125 1 3,395 ( 3,041 ) — — 354

1 unchanged sentence

Exchange-cleared instruments $ 3,057 41 — 3,098 ( 3,039 ) ( 18 ) — 41

OTC instruments — 9 — 9 — — — 9

Physical forward contracts — 50 — 50 ( 2 ) — — 48

4 unchanged sentences

See Note 13—Derivatives and Financial Instruments, for information regarding where the assets and liabilities related to our commodity derivatives are recorded on our consolidated balance sheet.

Nonrecurring Fair Value Measurements

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 regarding the DCP Midstream Merger.

Equity Method Investments

The fair value of the investments we acquired that are accounted for under the equity method was $ 2,034 million.

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

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

These valuations resulted in Level 3 nonrecurring fair value measurements.

The fair value of PP&E was $ 13,030 million.

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

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

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

These valuations resulted in Level 3 nonrecurring fair value measurements.

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

These valuations resulted in Level 2 nonrecurring fair value measurements.

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 fair values on the DCP Midstream Merger date.

These noncontrolling interests on the DCP Midstream Merger date primarily included Enbridge’s indirect economic interest in DCP LP, the public holders of DCP LP’s common units and the public 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.

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

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

Gains Related to DCP Midstream Merger

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

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

This valuation resulted in Level 1 nonrecurring fair value measurements.

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

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

These valuations resulted in Level 3 nonrecurring fair value measurements.

Note 15— Pension and Postretirement Plans

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

The components of net periodic benefit cost for the three months ended March 31, 2024 and 2023, were as follows:

Millions of Dollars

2 unchanged sentences

Components of Net Periodic Benefit Cost

Three Months Ended September 30

Three Months Ended March 31

Service cost $ 29 3 27 3 1 1

1 unchanged sentence

Expected return on plan assets ( 38 ) ( 11 ) ( 31 ) ( 10 ) — —

Amortization of prior service credit — — — — — —

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

1 unchanged sentence

Net periodic benefit cost* $ 23 — 38 — 2 1

Nine Months Ended September 30

Service cost $ 81 9 98 21 3 3

Interest cost 88 24 70 16 6 4

Expected return on plan assets ( 94 ) ( 32 ) ( 109 ) ( 44 ) — —

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

Amortization of net actuarial loss (gain) 9 ( 2 ) 18 9 ( 5 ) ( 2 )

Settlements 15 — 45 9 — —

Net periodic benefit (credit) cost* $ 99 ( 1 ) 122 11 4 4

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

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

During the three months ended March 31, 2024, we contributed $ 5 million to our U.S.

pension and other postretirement benefit plans and $ 1 million to our international pension plans.

7 unchanged sentences

December 31, 2023 $ ( 120 ) ( 157 ) ( 5 ) ( 282 )

Other comprehensive income before reclassifications 2 60 — 62

Other comprehensive income (loss) before reclassifications 1 ( 32 ) — ( 31 )

Amounts reclassified from accumulated other

4 unchanged sentences

Hedging — — — —

Net current period other comprehensive income 15 60 — 75

September 30, 2023 $ ( 107 ) ( 276 ) ( 2 ) ( 385 )

Net current period other comprehensive income (loss) 2 ( 32 ) — ( 30 )

March 31, 2024 $ ( 118 ) ( 189 ) ( 5 ) ( 312 )

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

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

Other comprehensive income before reclassifications 2 77 — 79

Amounts reclassified from accumulated other comprehensive loss

Defined benefit plans*

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

Amortization of net actuarial loss and settlements 8 — — 8

Foreign currency translation — — — —

Hedging — — — —

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

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

Net current period other comprehensive income 10 77 — 87

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

* Included in the computation of net periodic benefit cost.

4 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2023 2022 2023 2022

Operating revenues and other income (a)(d) $ 1,126 1,599 3,489 4,914

Purchases (b)(d) 5,006 5,705 12,662 16,589

Operating revenues and other income (a) $ 1,133 1,304

Purchases (b) 5,231 3,699

Operating expenses and selling, general and administrative expenses (c) 69 72

(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.

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

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

1 unchanged sentence

(b) We purchased crude oil, refined petroleum products, NGL and solvents from WRB.

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

We also purchased natural gas and NGL from CPChem, as well as other feedstocks from various equity affiliates, for use in our refinery and fractionation processes.

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

2 unchanged sentences

(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.

Transactions with these parties after August 17, 2022, are not presented in the table above.

Note 18— Segment Disclosures and Related Information

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

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

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

The segment realignment is presented for the three and nine months ended September 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 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.

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

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

This segment also includes our 16 % investment in NOVONIX.

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

3) Refining— Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, at 12 refineries in the United States and Europe.

3) Refining— Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels.

This segment includes 12 refineries in the United States and Europe.

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

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

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

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

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

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

See Note 21—Restructuring for additional information regarding restructuring costs.

3 unchanged sentences

Three Months Ended

September 30 Nine Months Ended

2023 2022 2023 2022

Sales and Other Operating Revenues *

29 unchanged sentences

Note 19— Income Taxes

Our effective income tax rates for the three and nine months ended September 30, 2023 were 24 % and 23 %, compared to 23 % and 22 %, respectively, for the corresponding periods of 2022.

The slight increase in our effective rate for the three and nine months ended September 30, 2023, was primarily attributable to non-taxable foreign earnings of our chemical joint venture and an increase in our foreign tax rate, partially offset by a decrease in our state tax rate.

In the third quarter of 2022, the tax consequences of the DCP Midstream Merger were not included in our estimated annual effective tax rate but instead were reported as a discrete item.

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

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

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

On August 16, 2022, the U.S.

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

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

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

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

Our effective income tax rate for the three months ended March 31, 2024, was 21 %, compared to 22 % for the corresponding period of 2023.

The decrease in our effective rate for the three months ended March 31, 2024, was primarily attributable to a decrease related to tax benefits from share-based compensation plans, partially offset by an increase in our foreign tax rate.

Note 20—DCP Midstream Class A Segment

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

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

Refer to Note 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 is a master limited partnership whose operations currently include producing and fractionating NGL, gathering, compressing, treating and processing natural gas;

1 unchanged sentence

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

As a result of the DCP Midstream Merger, we began consolidating the DCP Midstream Class A Segment from the merger date forward, and we reflected the interests held by DCP LP’s public common and preferred unitholders’ and Enbridge’s indirect economic interest in DCP LP at the time of the merger as noncontrolling interests in our consolidated financial statements.

On June 15, 2023, as part of the DCP LP Merger, we acquired all publicly held common units of DCP LP and eliminated the public common unit noncontrolling interest in our consolidated financial statements from the DCP LP Merger date, forward.

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

See below and Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information about the DCP Midstream and DCP LP Mergers, as well as information on preferred unit redemptions that also decreased the “Noncontrolling interests” balance on our consolidated balance sheet since December 31, 2022.

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

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:

10 unchanged sentences

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.

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

We paid $ 3,796 million in cash consideration to common unitholders, 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 DCP LP Merger was accounted for as an equity transaction and resulted in decreases to “Cash and cash equivalents” of $ 3,814 million, which includes cash consideration paid to common unitholders of $ 3,796 million plus fees paid of $ 18 million, “Noncontrolling interests” of $ 3,343 million, “Capital in excess of par” of $ 361 million and “Deferred income taxes” of $ 110 million on our consolidated balance sheet.

Preferred Units

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

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

On October 16, 2023, DCP LP redeemed its Series C preferred units at the aggregated liquidation preference of $ 110 million, which approximated the book value of the preferred units.

The New York Stock Exchange suspended trading of the Series B preferred units and Series C preferred units in connection with the redemptions described herein, and DCP LP filed with the Securities and Exchange Commission a certification and notice of termination on Form 15 deregistering each series of preferred units under the Exchange Act and suspending its reporting obligations under Sections 13 and 15(d) of the Exchange Act.

We paid $ 3,796 million in cash consideration to common unitholders, funded with a combination of available cash and debt proceeds.

The DCP LP Merger was accounted for as an equity transaction and resulted in decreases to “Cash and cash equivalents” of $ 3,814 million, which included cash consideration paid to common unitholders of $ 3,796 million plus fees paid of $ 18 million, “Noncontrolling interests” of $ 3,343 million, “Capital in excess of par” of $ 361 million and “Deferred income taxes” of $ 110 million on our consolidated balance sheet.

Distributions

During the three and nine months ended September 30, 2023, DCP LP made cash distributions of $ 2 million and $ 12 million, respectively, to preferred unitholders and cash distributions of $ 12 million and $ 113 million, respectively, to common unit holders other than Phillips 66 and its subsidiaries.

Note 22— Phillips 66 Partners LP

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

The merger resulted in the acquisition of all limited partnership interests in Phillips 66 Partners not already owned by us in exchange for 41.8 million shares of Phillips 66 common stock issued from treasury stock.

Phillips 66 Partners common unitholders received 0.50 shares of Phillips 66 common stock for each outstanding Phillips 66 Partners common unit.

Phillips 66 Partners’ perpetual convertible preferred units were converted into common units at a premium to the original issuance price prior to being exchanged for Phillips 66 common stock.

The merger was accounted for as an equity transaction.

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

During the three months ended March 31, 2024 and 2023, DCP LP made cash distributions of $ 12 million and $ 51 million to common unit holders other than Phillips 66 and its subsidiaries.

Note 21— Restructuring

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

For the three and nine months ended September 30, 2023, we recorded restructuring costs totaling $ 51 million and $ 127 million, respectively, primarily related to consulting fees and severance costs.

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

In addition, in the three and nine months ended September 30, 2023, we recorded restructuring costs of $ 4 million and $ 38 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.

In April 2022, we began 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.

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

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

These costs were primarily recorded in the “Selling, general and administrative expenses” line item on our consolidated statement of income and were 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