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Item 2. Management’s Discussion and Analysis

2024-10-29 compared with 2024-07-31 · 240 added, 164 removed, 628 unchanged (39% of the section changed)

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EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT

Phillips 66 is uniquely positioned as a diversified and integrated downstream energy provider operating with Midstream, Chemicals, Refining, Marketing and Specialties (M&S), and Renewable Fuels segments.

At June 30, 2024, we had total assets of $75.9 billion.

Phillips 66 is uniquely positioned as a leading integrated downstream energy provider operating with Midstream, Chemicals, Refining, Marketing and Specialties (M&S), and Renewable Fuels segments.

At September 30, 2024, we had total assets of $75.1 billion.

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

Executive Overview

In the second quarter of 2024, we reported earnings of $1 billion and cash provided by operating activities of $2.1 billion.

During the quarter, we funded capital expenditures and investments of $367 million, repurchased $840 million of common stock, and paid dividends on our common stock of $485 million.

Additionally, we received proceeds from an asset disposition of $685 million.

We ended the second quarter of 2024 with $2.4 billion of cash and cash equivalents and $4.1 billion of total committed capacity available under our revolving credit facility.

Rodeo Renewable Energy Complex

We completed the conversion of our San Francisco Refinery in Rodeo, California, into the Rodeo Renewable Energy Complex (RREC), expanding commercial scale production of renewable diesel and positioning Phillips 66 as a leader in renewable fuels production.

The RREC processes approximately 50,000 barrels per day of renewable feedstocks into renewable fuels, including renewable diesel and renewable jet fuel.

The RREC is expected to start producing sustainable aviation fuel in the third quarter of 2024, with the flexibility to produce up to 10,000 barrels per day.

The RREC advances our strategy to expand renewable fuels production, lower our carbon footprint, and provide reliable, affordable energy that we expect will create long-term value for our shareholders.

In the third quarter of 2024, we reported earnings of $346 million and cash provided by operating activities of $1.1 billion.

During the quarter, we funded capital expenditures and investments of $358 million, completed the acquisition of Pinnacle Midland Parent LLC (Pinnacle Midstream) for total cash consideration of $567 million, purchased government obligations of $1.1 billion that were ultimately used to extinguish debt, and received proceeds from asset dispositions of $219 million.

Additionally, we received proceeds from debt issuances, net of debt repayments, of $1.1 billion, repurchased $800 million of common stock, and paid dividends on our common stock of $477 million.

We ended the third quarter of 2024 with $1.6 billion of cash and cash equivalents and $5.3 billion of total committed capacity available under our credit facilities.

See Note 12—Debt, in the Notes to Consolidated Financial Statements for additional information regarding our purchase of government obligations used to extinguish debt.

Strategic Priorities Update

In October 2024, we announced progress on our strategic priorities intended to enhance long-term shareholder value.

• We have distributed $12.5 billion through share repurchases and dividends since July 2022 and are on pace to achieve our $13 billion to $15 billion target by year-end 2024.

• We achieved $1.4 billion in run-rate business transformation savings, delivering on our cost reduction target.

• We expanded our Midstream NGL wellhead-to-market business with the acquisition of Pinnacle Midstream and approved a follow-on processing plant expansion in the Midland Basin expected to be completed in mid-year 2025.

• We have achieved our target of over $400 million of run-rate synergies from the integration of DCP Midstream Class A Segment.

• We have received proceeds of $1.3 billion since 2022 toward our $3 billion asset disposition target.

In addition, we recently agreed to sell our 49% interest in a Switzerland-based retail joint venture for cash proceeds of 1.06 billion Swiss francs (approximately $1.24 billion), and our interests in non-core Midstream assets in North Dakota for $140 million.

Refer to Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements for additional information.

Basis of Presentation

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The primary effects are summarized below.

Prior period information has been recast for comparability.

• Establishment of a Renewable Fuels operating segment, which includes renewable fuels activities and assets historically reported in our Refining, M&S and Midstream segments.

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• Change in reporting of our 16% investment in NOVONIX from our Midstream segment to Corporate and Other.

The segment realignment is presented for the three- and six-month periods ended June 30, 2024, with prior periods recast for comparability.

Business Environment

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

Our NGL business, including DCP Midstream Class A Segment, DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills, LLC (DCP Southern Hills), contains both fee-based operations and operations directly impacted by NGL and natural gas prices.

During the second quarter of 2024, compared with the second quarter of 2023, the NGL composite barrel price increased, partially due to crude oil prices increasing over the same period, while natural gas prices decreased over the same period primarily due to increased production, pipeline maintenance and limited growth in export infrastructure.

Our NGL business, including DCP Midstream Class A Segment, DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills), contains both fee-based operations and operations directly impacted by NGL and natural gas prices.

The weighted-average NGL price was $0.64 per gallon during the third quarter of 2024, compared with $0.67 per gallon during the third quarter of 2023.

The Henry Hub natural gas price was $2.09 per million British thermal units (MMBtu) during the third quarter of 2024, compared with $2.58 per MMBtu during the third quarter of 2023.

The decrease in NGL prices and natural gas prices was partially due to constraints on Permian natural gas exit capacity.

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.

The benchmark high-density polyethylene chain margin decreased in the second quarter of 2024, compared with the second quarter of 2023, mainly due to lower polyethylene sales prices as a result of industry oversupply driven by recent capacity additions.

The benchmark high-density polyethylene chain margin increased in the third quarter of 2024, compared with the third quarter of 2023, mainly due to improved polyethylene sales prices and lower natural gas and ethane prices.

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.

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

The composite 3:2:1 market crack spread for our business decreased to an average of $18.96 per barrel during the second quarter of 2024, from an average of $28.65 per barrel during the second quarter of 2023.

The decrease in the composite market crack spread was primarily driven by higher crude oil costs and lower global prices for gasoline and diesel.

The composite 3:2:1 market crack spread for our business decreased to an average of $16.50 per barrel during the third quarter of 2024, from an average of $36.06 per barrel during the third quarter of 2023.

The decrease in the composite market crack spreads was primarily driven by higher supply due to increased global refining utilization and lower global prices for gasoline and diesel.

The price of U.S.

benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, increased to an average of $80.73 per barrel during the second quarter of 2024, from an average of $73.78 per barrel during the second quarter of 2023.

benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of $75.19 per barrel during the third quarter of 2024, from an average of $82.49 per barrel during the third quarter of 2023.

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

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

Our Renewable Fuels segment consists of the operations and assets of the RREC, as well as the global activities to procure renewable feedstocks, manage certain regulatory credits, and market renewable fuels.

Our Renewable Fuels segment consists of the operations and assets of the Rodeo Renewable Energy Complex (RREC), as well as the global activities to procure renewable feedstocks, manage certain regulatory credits, and market renewable fuels.

Results for our Renewable Fuels segment are impacted by feedstock costs, throughput, and certain regulatory credits, as well as other market factors, largely determined by the relationship between supply and demand, and other operating costs.

RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three and six months ended June 30, 2024, is based on a comparison with the corresponding periods of 2023.

Unless otherwise indicated, discussion of results for the three and nine months ended September 30, 2024, is based on a comparison with the corresponding periods of 2023.

Consolidated Results

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Net income attributable to Phillips 66 $ 346 2,097 2,109 5,755

Our net income attributable to Phillips 66 in the second quarter of 2024 was $1 billion, compared with $1.7 billion in the second quarter of 2023.

Our net income attributable to Phillips 66 for the six months ended June 30, 2024, was $1.8 billion, compared with $3.7 billion for the six months ended June 30, 2023.

The decrease in net income attributable to Phillips 66 in both periods was primarily due to a decline in realized refining margins, partially offset by lower income tax expense and a before-tax gain of $238 million recognized in the second quarter of 2024 in our Midstream segment associated with the sale of our 25% ownership interest in Rockies Express Pipeline LLC (REX).

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

Also see Note 20—Income Taxes and Note 7—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information on income taxes and the before-tax gain associated with the sale of our 25% ownership interest in REX, respectively.

Our net income attributable to Phillips 66 in the third quarter of 2024 was $346 million, compared with $2.1 billion in the third quarter of 2023.

Our net income attributable to Phillips 66 for the nine months ended September 30, 2024, was $2.1 billion, compared with $5.8 billion for the nine months ended September 30, 2023.

The decrease in both periods was primarily due to a decline in realized refining margins primarily driven by lower market crack spreads and an accrual recorded in the third quarter of 2024 related to litigation with Propel Fuels, Inc.

(Propel Fuels), partially offset by higher equity earnings from CPChem and lower income tax expense.

See the “Segment Results” section for additional information on our segment results and Note 22—Income Taxes, in the Notes to Consolidated Financial Statements for additional information on income taxes.

See the “Contingencies” section and Note 14—Contingencies and Commitments, in the Notes to Consolidated Financial Statements for additional information regarding our litigation with Propel Fuels.

Statement of Income Analysis

Sales and other operating revenues for the second quarter and six-month period of 2024 increased 9% and 6%, respectively, and purchased crude oil and products increased 13% and 12%, respectively.

These increases were mainly due to higher prices for crude oil, partially offset by lower prices for natural gas and refined petroleum products.

Additionally, higher refined petroleum product sales volumes contributed to the increase in sales in both periods.

Equity in earnings of affiliates decreased 13% and 14% in the second quarter and six-month period of 2024, respectively.

The decrease in both periods was primarily due to lower equity earnings from WRB Refining LP (WRB) and Excel Paralubes LLC (Excel), both primarily due to lower margins.

Sales and other operating revenues decreased 10% for the three months ended September 30, 2024 and were flat for the nine months ended September 30, 2024.

Purchased crude oil and products decreased 6% and increased 5% for the three and nine months ended September 30, 2024, respectively.

The decreases in both line items for the three months ended September 30, 2024, were mainly due to lower prices for crude oil, NGL, natural gas and refined petroleum products.

The increase in purchased crude oil and products for the nine months ended September 30, 2024, was primarily due to increased refined petroleum products volumes, partially offset by lower prices for natural gas and refined petroleum products.

Equity in earnings of affiliates decreased 10% for the nine months ended September 30, 2024.

The decrease was primarily attributable to lower equity earnings from WRB Refining LP (WRB) as a result of lower margins and decreased equity earnings from Excel Paralubes LLC due to declining margins, partially offset by lower maintenance costs.

These decreases were partially offset by higher equity earnings from CPChem.

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

Net gain on dispositions increased $249 million and $215 million in the second quarter and six-month period of 2024, respectively, primarily due to a before-tax gain of $238 million recognized in the Midstream segment in the second quarter of 2024 associated with the sale of our 25% ownership interest in REX.

Other income decreased 41% in the second quarter of 2024, primarily due to lower interest income as a result of lower cash balances.

Impairments increased $221 million and $378 million in the second quarter and six-month period of 2024, respectively, primarily due to before-tax impairment charges reported in our Midstream segment related to certain gathering and processing assets in Texas.

In addition, the six-month period of 2024 included before-tax impairment charges reported in our Refining and Midstream segments totaling $163 million related to certain crude oil processing and logistics assets in California.

Taxes other than income taxes decreased 72% and 44% in the second quarter and six-month period of 2024.

The decreases were primarily driven by tax credits received from renewable diesel blending activity.

Interest and debt expense decreased 13% in the second quarter of 2024.

The decrease was primarily related to the early redemption of DCP Midstream LP’s (DCP LP) 5.850% junior subordinated notes that occurred in the second quarter of 2023, partially offset by higher average debt principal balances.

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

Income tax expense decreased 43% and 54% in the second quarter and six-month period of 2024, primarily due to lower income before income taxes.

Net gain on dispositions decreased 98% for the three months ended September 30, 2024 and increased 93% for the nine months ended September 30, 2024, respectively.

The decrease for the three months ended September 30, 2024, was primarily due to a before-tax gain of $101 million 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.

The increase for the nine months ended September 30, 2024, was primarily due to a before-tax gain of $238 million recognized in the Midstream segment in the second quarter of 2024 associated with the sale of our 25% ownership interest in Rockies Express Pipeline LLC (REX), partially offset by before-tax gains totaling $137 million associated with the sale of our 25% ownership interest in the South Texas Gateway Terminal and the Belle Chasse Terminal in 2023.

Other income increased $69 million and $77 million for the three and nine months ended September 30, 2024, respectively.

The increase for the three months ended September 30, 2024, was primarily due to higher results from trading activities.

The increase for the nine months ended September 30, 2024, was primarily attributable to higher results from trading activities and changes in the fair value of our investment in NOVONIX, partially offset by lower interest income as a result of lower cash balances.

Selling, general and administrative expenses increased 78% and 23% for the three and nine months September 30, 2024, primarily due to an accrual of $605 million recorded during the third quarter of 2024 related to litigation with Propel Fuels.

The increase during the nine months ended September 30, 2024, was partially offset by lower employee-related expenses.

See Note 14—Contingencies and Commitments, in the Notes to Consolidated Financial Statements for additional information regarding our litigation with Propel Fuels.

Depreciation and amortization increased 11% for the three months ended September 30, 2024, primarily due to 10 days, or $25 million, of accelerated depreciation recorded in the third quarter of 2024 associated with our Los Angeles Refinery, as well as depreciation and amortization associated with the ramp-up of the RREC.

See Note 3—Restructuring, in the Notes to Consolidated Financial Statements for information regarding our plans to cease operations at our Los Angeles Refinery.

Impairments increased $26 million and $404 million for the three and nine months ended September 30, 2024, respectively.

The increase for the three months ended September 30, 2024, was primarily due to before-tax impairments recorded in our Midstream segment related to certain crude gathering assets in Texas.

The increase for the nine months ended September 30, 2024, was primarily driven by before-tax impairments related to certain gathering and processing assets in Texas, certain crude oil processing and logistics assets in California, and certain crude gathering assets in Texas.

See Note 10—Impairments, in the Notes to Consolidated Financial Statements for additional information regarding impairments.

Taxes other than income taxes decreased 69% and 52% for the three and nine months ended September 30, 2024, respectively.

The decreases were primarily driven by tax credits generated from renewable diesel blending activity.

Income tax expense decreased 93% and 69% for the three and nine months ended September 30, 2024, respectively.

The decreases were primarily due to lower income before income taxes.

See Note 22—Income Taxes, in the Notes to Consolidated Financial Statements for information regarding our effective income tax rates.

Net income attributable to noncontrolling interests decreased 86% and 88% in the second quarter and six-month period of 2024, respectively.

The decrease in both periods relates to before-tax impairment charges reported in our Midstream segment primarily related to certain DCP LP gathering and processing assets in Texas.

The decrease in the six-month period of 2024 also reflects the impacts of the acquisition of all publicly held common units of DCP LP (DCP LP Merger) in June 2023.

Net income attributable to noncontrolling interests decreased 50% and 79% for the three and nine months ended September 30, 2024.

The decrease for the three and nine months ended September 30, 2024, primarily reflects the impacts of the acquisition of all publicly held common units of DCP LP (DCP LP Merger) in June 2023.

The decrease in the nine months ended September 30, 2024 also reflects before-tax impairments reported in our Midstream segment related to certain DCP LP gathering and processing assets in Texas.

See Note 2—DCP Midstream, LP Merger (DCP LP Merger), and Note 10—Impairments, in the Notes to Consolidated Financial Statements for additional information.

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Wellhead Volume (billion cubic feet per day)** 4.3 4.6 4.4 4.5

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

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

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

Market Indicator

Weighted-Average NGL Price (dollars per gallon)* $ 0.68 0.61 0.69 0.68

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

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

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These activities are mainly in the United States.

Results from our Midstream segment increased $147 million in the second quarter of 2024 and decreased $15 million in the six-month period of 2024.

Results from our Transportation business increased $262 million and $201 million in the second quarter and six-month period of 2024, respectively, primarily due to a before-tax gain of $238 million recognized in the second quarter of 2024 associated with the sale of our 25% ownership interest in REX.

See Note 7—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information.

Results from our NGL business decreased $115 million and $216 million in the second quarter and six-month period of 2024, respectively, primarily due to before-tax impairment charges associated with certain gathering and processing assets in Texas, partially offset by lower maintenance costs.

The decrease in the second quarter of 2024 was also partially offset by improved fractionation results and higher pipeline volumes.

Results from our Midstream segment decreased $80 million and $95 million for the three and nine months ended September 30, 2024, respectively.

Results from our Transportation business decreased $132 million and increased $69 million for the three and nine months ended September 30, 2024, respectively.

The decrease in the three months ended September 30, 2024, is primarily due to a before-tax gain of $101 million in the third quarter of 2023 associated with the sale of our 25% ownership interest in the South Texas Gateway Terminal, as well as an impairment of $28 million in the third quarter of 2024 related to certain crude gathering assets in Texas.

The increase in the nine months ended September 30, 2024, is primarily due to a before-tax gain of $238 million recognized in the second quarter of 2024 associated with the sale of our 25% ownership interest in REX and increased volumes supporting our Refining segment.

The increase in the nine months ended September 30, 2024, is partially offset by before-tax gains totaling $137 million recognized in 2023 associated with the sale of our 25% ownership interest in the South Texas Gateway Terminal and the Belle Chasse Terminal, as well as impairments recognized in 2024 on certain crude gathering assets in Texas and certain crude oil processing and logistics assets in California totaling $87 million, and decreased earnings from our equity affiliates.

See Note 10—Impairments, in the Notes to Consolidated Financial Statements for additional information regarding impairments.

Results from our NGL business increased $52 million and decreased $164 million for the three and nine months ended September 30, 2024, respectively.

The increase in the three months ended September 30, 2024, is primarily due to higher liquefied petroleum gas (LPG) cargo volumes and margins.

The decrease in the nine months ended September 30, 2024, is primarily due to before-tax impairment charges recognized in 2024 associated with certain gathering and processing assets in Texas and unfavorable pricing driven by falling natural gas prices and winter weather impacts, partially offset by higher LPG cargo volumes and margins, lower maintenance costs and improved pipeline volumes.

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

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

Results from the Chemicals segment increased $30 million and $37 million in the second quarter and six-month period of 2024, respectively.

The increase in the second quarter of 2024 was primarily due to higher margins driven by a decrease in feedstock costs, partially offset by lower equity earnings from CPChem’s equity affiliates.

The increase in the six-month period of 2024 was primarily due to higher sales volumes, partially offset by lower equity earnings from CPChem’s equity affiliates and decreased margins.

Results from the Chemicals segment increased $238 million and $275 million for the three and nine months ended September 30, 2024, respectively, primarily due to improved margins driven by higher sales prices and lower feedstock costs, as well as increased volumes and decreased utility costs.

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

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* See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable measure under generally accepted accounting principles in the United States (GAAP), income (loss) before income taxes per barrel.

On September 20, 2024, we approved a plan to cease operations at our Los Angeles Refinery in the fourth quarter of 2025 and are evaluating the future use of the property.

See Note 3—Restructuring, in the Notes to Consolidated Financial Statements for additional information.

Thousands of Barrels Daily

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Operating Statistics 2024 2023 2024 2023

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The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, at 11 refineries in the United States and Europe.

Results from our Refining segment decreased $873 million and $2,251 million in the second quarter and six-month period of 2024, respectively, primarily due to lower realized margins, partially offset by higher volumes.

The decrease in realized margins in both periods was primarily driven by lower market crack spreads.

Our worldwide refining crude oil capacity utilization rate was 98% and 95% in the second quarter and six-month period of 2024, respectively, compared with 93% and 92% in the second quarter and six-month period of 2023, respectively.

Results from our Refining segment decreased $1,820 million and $4,071 million for the three and nine months ended September 30, 2024, respectively.

The decrease for the three months ended September 30, 2024, was primarily due to lower realized margins driven by lower market crack spreads, partially offset by unfavorable inventory hedging impacts during the corresponding period of 2023.

The decrease for the nine months ended September 30, 2024, was primarily due to lower realized margins driven by lower market crack spreads, partially offset by lower utility, maintenance and employee-related costs.

Our worldwide refining crude oil capacity utilization rate was 94% and 95% for the three and nine months ended September 30, 2024, respectively, compared with 95% and 93% for the three and nine months ended September 30, 2023, respectively.

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

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Millions of Dollars

Income Before Income Taxes $ 415 533 781 896

Income (Loss) Before Income Taxes $ (22) 605 759 1,501

Dollars Per Barrel

Income Before Income Taxes

Income (Loss) Before Income Taxes

$ (1.43) 2.42 0.37 1.92

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

Results from the M&S segment decreased $118 million and $115 million in the second quarter and six-month period of 2024, respectively.

The decrease in the second quarter of 2024 was primarily driven by lower U.S.

marketing fuel margins and decreased equity earnings from affiliates.

The decrease in the six-month period of 2024 was primarily due to lower realized marketing fuel margins and decreased equity earnings from affiliates, partially offset by higher U.S.

marketing volumes.

Results from the M&S segment decreased $627 million and $742 million for the three and nine months ended September 30, 2024, respectively.

The decrease for the three and nine months ended September 30, 2024, was primarily driven by an accrual of $605 million recorded during the third quarter of 2024 related to litigation with Propel Fuels.

In addition, the decrease in the three months ended September 30, 2024, was attributable to lower U.S.

marketing fuel margins, partially offset by higher volumes, improved results from our specialty lubricants and other businesses and higher international marketing fuel margins.

The decrease in the nine months ended September 30, 2024, was also due to lower U.S.

marketing fuel margins, partially offset by higher volumes.

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

Renewable Fuels

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In addition, this segment also includes the global activities to procure renewable feedstocks, manage certain regulatory credits, and market renewable fuels.

Results from the Renewable Fuels segment decreased $123 million and $252 million in the second quarter and six-month period of 2024, respectively.

The decrease in the second quarter was primarily driven by higher feedstock and other costs related to the ramp-up of the RREC.

The decreases were partially offset by increased renewable fuel sales, as well as tax credits received from renewable diesel blending activity.

The decrease in the six-month period of 2023 was primarily driven by higher feedstock and other costs related to the ramp-up of the RREC, as well as lower benefits from emissions credits.

The decreases were partially offset by increased renewable fuel sales, as well as tax credits received from renewable diesel blending activity.

Results from the Renewable Fuels segment decreased $138 million and $390 million for the three and nine months ended September 30, 2024, respectively.

The decrease in both periods was primarily driven by higher feedstock and other costs related to the ramp-up of the RREC, as well as lower emissions credit prices.

This decrease was partially offset by increased emissions credit volumes, higher renewable fuel sales, and tax credits generated from renewable diesel blending activity.

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

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Corporate and Other also includes the change in the fair value of our investment in NOVONIX.

Net interest expense increased $18 million and $80 million in the second quarter and six-month period of 2024, respectively.

The increase in both periods was primarily driven by lower interest income as a result of lower cash balances and higher average debt principal balances, partially offset by lower interest expense primarily related to the $53 million before-tax loss on early redemption of DCP LP’s 5.850% junior subordinated notes in May 2023.

Net interest expense increased $27 million and $107 million for the three and nine months ended September 30, 2024, respectively.

The increase in the three months ended September 30, 2024, was primarily driven by decreased interest income as a result of lower cash balances and lower capitalized interest.

The increase in the nine months ended September 30, 2024, was primarily driven by decreased interest income as a result of lower cash balances and higher average debt principal balances, partially offset by lower interest expense primarily related to the $53 million before-tax loss on early redemption of DCP LP’s 5.850% junior subordinated notes in May 2023.

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

Corporate overhead and other costs decreased $14 million and $31 million in the second quarter and six-month period of 2024, respectively, primarily due to a decrease in consulting fees associated with our business transformation.

The fair value of our investment in NOVONIX declined by $7 million in the second quarter of 2024, compared with a decline of $15 million in the second quarter of 2023.

The fair value of our investment in NOVONIX declined by $2 million in the six-month period of 2024, compared with a decline of $27 million in the six-month period of 2023.

Corporate overhead and other costs decreased $46 million and $77 million for the three and nine months ended September 30, 2024, respectively, primarily due to a decrease in consulting fees associated with our business transformation, as well as lower employee-related expenses.

There was no change in the fair value of our investment in NOVONIX in the three months ended September 30, 2024, compared with a decline of $8 million in the three months ended September 30, 2023.

The fair value of our investment in NOVONIX declined by $2 million in the nine months ended September 30, 2024, compared with a decline of $35 million in the nine months ended September 30, 2023.

CAPITAL RESOURCES AND LIQUIDITY

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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 2024, we generated $1.9 billion of cash from operations.

We received proceeds from an asset disposition of $685 million.

Additionally, proceeds from debt issuances, net of debt repayments, were $599 million.

We used available cash primarily to repurchase shares of our common stock for $2 billion, fund capital expenditures and investments of $995 million, and pay dividends on our common stock of $933 million.

During the first six months of 2024, cash and cash equivalents decreased to $2.4 billion.

During the first nine months of 2024, we generated $3 billion of cash from operations.

We received proceeds from debt issuances, net of debt repayments, of $1.7 billion.

Additionally, we received proceeds from asset dispositions of $906 million.

We used available cash primarily to repurchase shares of our common stock for $2.8 billion, pay dividends on our common stock of $1.4 billion, fund capital expenditures and investments of $1.4 billion, purchase government obligations of $1.1 billion that were ultimately used to extinguish debt, and complete the acquisition of Pinnacle Midstream for total cash consideration of $567 million.

During the first nine months of 2024, cash and cash equivalents decreased to $1.6 billion.

At this time, we believe that our cash on hand, as well as the sources of liquidity described herein, will be sufficient to fund our obligations over the short- and long-term.

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Operating Activities

During the first six months of 2024, cash generated by operating activities was $1.9 billion, compared with $2.2 billion for the first six months of 2023.

During the first nine months of 2024, cash generated by operating activities was $3 billion, compared with $4.8 billion for the first nine months of 2023.

The decrease was primarily due to lower earnings, primarily driven by a decline in realized refining margins, partially offset by more favorable working capital impacts.

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

During the first six months of 2024, cash from operations included aggregate distributions of $656 million from our equity affiliates, while cash from operations during the first six months of 2023 included aggregate distributions of $608 million from our equity affiliates.

During the first nine months of 2024, cash from operations included aggregate distributions of $1,045 million from our equity affiliates, while cash from operations during the first nine months of 2023 included aggregate distributions of $969 million from our equity affiliates.

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

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Senior Notes Issuances

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.

On September 9, 2024, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $1.8 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 (Additional 2031 Notes).

• $600 million aggregate principal amount of 4.950% Senior Notes due 2035 (2035 Notes).

• $600 million aggregate principal amount of 5.500% Senior Notes due 2055 (2055 Notes).

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

Interest on the 2035 Notes and 2055 Notes is payable semi-annually on March 15 and September 15, commencing on March 15, 2025.

On February 28, 2024, Phillips 66 Company 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.

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

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

On June 20, 2023, Phillips 66 Company borrowed $1.25 billion under its delayed draw term loan that matures in June 2026.

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.

On March 29, 2023, Phillips 66 Company 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).

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

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

Discharge of Senior Notes

On September 20, 2024, we extinguished (i) the remaining $441 million outstanding principal amount of Phillips 66 Company’s 3.605% senior notes due February 2025 (2025 P66 Co Notes), and (ii) the remaining $650 million outstanding principal amount of Phillips 66’s 3.850% senior notes due April 2025 (the 2025 PSX Notes, and together with the 2025 P66 Co Notes, the Discharged Notes), whereby we irrevocably transferred a total of $1,100 million in government obligations to the trustee of the 2025 P66 Co Notes and the 2025 PSX Notes.

The cash paid to purchase the government obligations is included within investing cash flows on our consolidated statement of cash flows.

These government obligations will yield sufficient principal and interest over their remaining term to permit the trustee to satisfy the remaining principal and interest due on the Discharged Notes.

Phillips 66 and Phillips 66 Company are no longer the primary obligors under the Discharged Notes.

The transfer of the government obligations to the trustee was accounted for as a transfer of financial assets.

If the trustee is unable to apply the government obligations to fund the remaining principal and interest payments on the Discharged Notes, then the Company’s obligations under the Indenture with respect to the Discharged Notes will be revived and reinstated.

We deem the likelihood of such event to be remote with no impact to the legal isolation of the assets.

Accordingly, the senior notes and the government obligations were derecognized on our balance sheet at September 30, 2024.

For the three and nine months ended September 30, 2024, we recognized an immaterial gain on the extinguishment of this debt.

Related Party Advance Term Loan Agreement

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

The debt matures on May 31, 2038.

Borrowings bear interest at a floating rate of 1.042% plus the adjusted term Secured Overnight Financing Rate (SOFR), payable on the last day of each month.

At September 30, 2024 and December 31, 2023, borrowings outstanding under our Advance Term Loan agreements with WRB Refining LP (WRB) totaled $290 million.

Borrowings under these agreements are due between 2035 and 2038 and bear interest at a floating rate based on adjusted term Secured Overnight Financing Rate (SOFR) plus an applicable margin, payable on the last day of each month.

Credit Facilities and Commercial Paper

Phillips 66 and Phillips 66 Company

On September 30, 2024, Phillips 66 Company entered into a 364-day, $500 million accounts receivable securitization facility (the Receivables Securitization Facility).

Under the Receivables Securitization Facility, Phillips 66 Company sells or contributes on an ongoing basis, certain of its receivables, together with related security and interests in the proceeds thereof, to its wholly-owned subsidiary, Phillips 66 Receivables LLC, a consolidated and bankruptcy-remote special purpose entity created for the sole purpose of transacting under the Receivables Securitization Facility.

Under the Receivables Securitization Facility, Phillips 66 Receivables LLC may borrow and incur indebtedness from, and/or sell certain receivables to the Purchaser/Lenders in an amount not to exceed $500 million in the aggregate, and will secure its obligations with a pledge of undivided interests in such receivables, together with related security and interests in the proceeds thereof, to PNC Bank, National Association, as Administrative Agent, for the benefit of the secured parties thereunder.

Accounts outstanding under the Receivables Securitization Facility accrue interest at an adjusted SOFR.

Phillips 66 Receivables LLC’s sole activity consists of purchasing receivables from Phillips 66 Company, providing those receivables as collateral for Phillips 66 Receivables LLC’s borrowings or on-selling certain of its receivables under the Receivables Securitization Facility.

Phillips 66 Receivables LLC is a separate legal entity with its own separate creditors, who will be entitled, upon its liquidation, to be satisfied out of Phillips 66 Receivables LLC’s assets prior to assets or value in Phillips 66 Receivables LLC becoming available to Phillips 66 Receivables LLC’s equity holders, and the assets of Phillips 66 Receivables LLC, including any funds of Phillips 66 Receivables LLC that may be commingled with funds of any of its affiliates for purposes of cash management and related efficiencies, are not available to pay creditors of Phillips 66 Company, Phillips 66 or any affiliate thereof.

Collections on receivables in excess of amounts owed by Phillips 66 Receivables LLC under the Receivables Securitization Facility are available to Phillips 66 Receivables LLC for payment to Phillips 66 Company, for sales of its receivables to Phillips 66 Receivables LLC under the Securitization Facility, and otherwise for distribution to Phillips 66 Company, in each case, subject to the terms set forth in the Receivables Securitization Facility.

The amount available for borrowing or sale of receivables may be limited by the availability of eligible receivables and other customary factors and conditions, as well as the covenants set forth in the Receivables Securitization Facility.

At September 30, 2024, we had unused capacity of $500 million under the Receivables Securitization Facility.

On June 25, 2024, we entered into a $400 million uncommitted credit facility (the Uncommitted Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor.

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

At June 30, 2024, $400 million was outstanding under the Uncommitted Facility.

At September 30, 2024, $400 million was outstanding under the Uncommitted Facility.

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 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 the 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.

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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 June 30, 2024 and December 31, 2023, no amount had been drawn under the Facility or the previous revolving credit facility, respectively.

At September 30, 2024 and December 31, 2023, no amount had been drawn under the Facility or the previous revolving credit facility, respectively.

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 June 30, 2024, $899 million of commercial paper had been issued under this program.

At September 30, 2024, $200 million of commercial paper had been issued under this program.

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

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Total Committed Capacity Available

At June 30, 2024 and December 31, 2023, we had approximately $4.1 billion and $6.4 billion, respectively, of total committed capacity available under the credit facilities described above.

On June 14, 2024, we sold our 25% ownership interest in REX for approximately $685 million.

See Note 7—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information.

Pending Disposition

On June 21, 2024, we entered into an agreement to sell our ownership interests in certain gathering and processing assets in Louisiana and Alabama for approximately $170 million, which approximates the net book value of the assets being sold.

The transaction is expected to close in the third quarter of 2024, subject to completion of customary closing conditions and satisfaction of certain due diligence requirements.

At September 30, 2024 and December 31, 2023, we had approximately $5.3 billion and $6.4 billion, respectively, of total committed capacity available under the credit facilities described above.

On August 30, 2024, we sold our ownership interest in certain Midstream gathering and processing assets in Texas for $41 million and recognized a before-tax loss of $9 million, which 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, 2024.

See Note 9—Properties, Plants and Equipment, in the Notes to Consolidated Financial Statements for further information.

On August 1, 2024, we sold our ownership interests in certain gathering and processing assets in Louisiana and Alabama for $173 million and recognized a before-tax gain of $18 million, which 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, 2024, and is reported in the Midstream segment.

See Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements for further information.

On June 14, 2024, we sold our 25% ownership interest in REX for $685 million and recognized a before-tax gain of $238 million, which is included in the “Net gain on dispositions” line item on our consolidated statement of income for the nine months ended September 30, 2024, and is reported in the Midstream segment.

See Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements for further information.

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.

Pending Investment Dispositions

On October 28, 2024, we entered into an agreement to sell our equity interests in certain pipeline and terminaling assets in North Dakota for total cash proceeds of approximately $140 million, which approximates the net book value of the assets being sold.

The transaction is expected to close in the fourth quarter of 2024, subject to completion of customary closing conditions and satisfaction of certain due diligence requirements.

On October 14, 2024, we entered into a definitive agreement to sell our 49% non-operated equity interest in Coop Mineraloel AG (Coop) for cash proceeds of 1.06 billion Swiss francs (approximately $1.24 billion), consisting of a sales price of approximately 1.0 billion Swiss francs (approximately $1.17 billion) and an assumed dividend of 60 million Swiss francs (approximately $70 million) for 2024 to be paid at or prior to closing.

The sales price is subject to adjustment based on the amount of the dividend.

The transaction is subject to approval by the Swiss Competition Commission and is expected to close in the first quarter of 2025.

The net book value of our investment in Coop at September 30, 2024, was $152 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, 2024.

We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at September 30, 2024.

We also have residual value guarantees associated with railcar, airplane and truck leases with maximum potential future exposures totaling $173 million.

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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.

At June 30, 2024, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $850 million.

At September 30, 2024, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $850 million.

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 June 30, 2024, our 25% share of the maximum potential equity contributions under the CECU was approximately $215 million.

At September 30, 2024, our 25% share of the maximum potential equity contributions under the CECU was approximately $215 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 $10 million annually, in addition to the potential obligations under the CECU at June 30, 2024.

See Note 13—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, 2024 and December 31, 2023, was $20 billion and $19.4 billion, respectively.

Our total debt-to-capital ratio was 40% and 38% at June 30, 2024 and December 31, 2023, respectively.

Our debt balance at September 30, 2024 and December 31, 2023, was $20 billion and $19.4 billion, respectively.

Our total debt-to-capital ratio was 40% and 38% at September 30, 2024 and December 31, 2023, respectively.

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.

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

During the six months ended June 30, 2024 and June 30, 2023, DCP LP made cash distributions of $24 million and $102 million, respectively, to common unit holders other than Phillips 66 and its subsidiaries.

Pending Acquisition

On May 17, 2024, we entered into an agreement to acquire Pinnacle Midland Parent LLC to expand our natural gas gathering and processing operations in the Permian Basin.

The transaction closed on July 1, 2024, for total cash consideration of $566 million.

On April 3, 2024, our Board of Directors declared a quarterly cash dividend of $1.15 per common share.

This dividend was paid on June 3, 2024, to shareholders of record as of the close of business on May 20, 2024.

During the nine months ended September 30, 2024 and September 30, 2023, DCP LP made cash distributions of $36 million and $113 million, respectively, to common unit holders other than Phillips 66 and its subsidiaries.

Midstream Acquisition

On July 1, 2024, we acquired Pinnacle Midstream to expand our natural gas gathering and processing operations in the Permian Basin for total cash consideration of $567 million.

On July 10, 2024, our Board of Directors declared a quarterly cash dividend of $1.15 per common share.

This dividend is payable on September 3, 2024, to shareholders of record as of the close of business on August 20, 2024.

This dividend was paid on September 3, 2024, to shareholders of record as of the close of business on August 20, 2024.

On October 11, 2024, our Board of Directors declared a quarterly cash dividend of $1.15 per common share.

This dividend is payable on December 2, 2024, to shareholders of record as of the close of business on November 18, 2024.

Share Repurchases

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Any future share repurchases will be made at the discretion of management and will depend on various factors including our share price, results of operations, financial condition and cash required for future business plans.

For the six months ended June 30, 2024, we repurchased 13.6 million shares at an aggregate cost of approximately $2 billion.

For the nine months ended September 30, 2024, we repurchased 19.5 million shares at an aggregate cost of approximately $2.8 billion.

Since July 2012, we have repurchased 233.3 million shares under our share repurchase program at an aggregate cost of $20.9 billion.

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Employee Benefit Plan Contributions

During the six months ended June 30, 2024, we contributed $18 million to our U.S.

During the nine months ended September 30, 2024, we contributed $22 million to our U.S.

pension and other postretirement benefit plans and $4 million to our international pension plans.

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Millions of Dollars

Six Months Ended

Nine Months Ended

Capital Expenditures and Investments*

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CPChem 579 773

* In the third quarter of 2024, we began presenting the line item “Capital expenditures and investments” on our consolidated statement of cash flows exclusive of acquisitions, net of cash acquired, and purchases of government obligations.

Prior period information has been reclassified for comparability.

Acquisitions, net of cash acquired, were $567 million and $263 million for the nine months ended September 30, 2024 and 2023, respectively.

Purchases of government obligations were $1.1 billion for the nine months ended September 30, 2024.

** Our share of joint ventures’ capital spending.

During the first six months of 2024, capital spending in our Midstream segment included:

During the first nine months of 2024, capital spending in our Midstream segment included:

• Funding the expansion of our natural gas gathering and processing operations in the Permian Basin.

• A contribution to Dakota Access to fund our 25% share of Dakota Access’ debt repayment.

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• Spending associated with other return projects, well connections, reliability and maintenance projects.

During the first six months of 2024, on a 100% basis, CPChem’s capital expenditures and investments were $800 million.

During the first nine months of 2024, on a 100% basis, CPChem’s capital expenditures and investments were $1.2 billion.

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 2024.

Capital spending for the Refining segment during the first six months of 2024 was primarily for projects to enhance the yield of higher-value products and sustain the reliability and safety of our facilities.

Capital spending for the Refining segment during the first nine months of 2024 was primarily for projects to enhance the yield of higher-value products and sustain the reliability and safety of our facilities.

Major capital activities included:

• Installation of facilities to improve market capture at the Bayway, Lake Charles and Sweeny refineries, as well as the jointly owned Wood River Refinery.

• Capital spending to improve reliability at the Humber, Lake Charles and Sweeny refineries.

• Installation of facilities to improve market capture at our refineries, as well as the jointly owned Wood River and Borger refineries.

• Capital spending to improve reliability at our refineries, as well as the jointly owned Wood River and Borger refineries.

Marketing and Specialties

Capital spending for the M&S segment during the first six months of 2024 was primarily for the continued development and enhancement of retail sites in Europe, spend associated with marketing and commercial fleet fueling businesses on the U.S.

Capital spending for the M&S segment during the first nine months of 2024 was primarily for the continued development and enhancement of retail sites in Europe, spend associated with marketing and commercial fleet fueling businesses on the U.S.

West Coast, and marketing-related information technology enhancements.

Renewable Fuels

Capital spending for the Renewable Fuels segment during the first six months of 2024 was related to the construction of facilities to produce renewable fuels at the RREC.

Capital spending for the Renewable Fuels segment during the first nine months of 2024 was related to the construction of facilities to produce renewable fuels at the RREC.

Corporate and Other

Capital spending for Corporate and Other during the first six months of 2024 was primarily related to information technology.

Capital spending for Corporate and Other during the first nine months of 2024 was primarily related to information technology.

Contingencies

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We regularly assess the need for financial recognition or disclosure of these contingencies.

In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable.

In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount of loss is reasonably estimable.

If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued.

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In the case of income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is uncertain.

Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements.

Other than with respect to the legal matters described herein, based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements.

As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures.

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In the case of income tax-related contingencies, we monitor tax legislation and court decisions, the status of tax audits and the statute of limitations within which a taxing authority can assert a liability.

Propel Fuels Litigation

In late 2017, as part of Phillips 66 Company’s evaluation of various opportunities in the renewable fuels business, Phillips 66 Company engaged with Propel Fuels, Inc.

(Propel Fuels), a California company that distributes E85 and other alternative fuels through fueling kiosks.

Ultimately, the parties were not able to reach an agreement and negotiations were terminated in August 2018.

On February 17, 2022, Propel Fuels filed a lawsuit in the Superior Court of California, County of Alameda (the Court), alleging that Phillips 66 Company misappropriated trade secrets related to Propel Fuels’ renewable fuels business during and after due diligence.

On October 16, 2024, a jury returned a verdict against Phillips 66 Company for $604.9 million in compensatory damages and issued a willfulness finding.

In 2025, the Court is expected to rule on motions anticipated to be filed by Propel Fuels seeking exemplary damages and attorneys’ fees.

Phillips 66 Company expects that Propel Fuels will ask the Court to grant treble damages.

Also in 2025, the Court is expected to rule on Phillips 66 Company’s motions for a judgment in its favor as a matter of law, or in the alternative to reduce the jury’s verdict or to grant a new trial.

Phillips 66 Company denies any wrongdoing and intends to vigorously defend its position.

As a result of the jury verdict, the Company has recorded an accrual of $604.9 million which is included in the “Selling, general and administrative expenses” line on our consolidated statement of income for the three and nine months ended September 30, 2024, and is reported in the M&S segment.

In addition, the accrued amount is reflected as “Other liabilities and deferred credits” on our consolidated balance sheet as of September 30, 2024.

However, it is reasonably possible that the estimate of the loss could change based on the progression of the case, including the appeals process.

Because of the uncertainties associated with ongoing litigation, we are unable to estimate the range of reasonably possible loss that may be attributable to exemplary damages, if any, in excess of the amount accrued.

If information were to become available that would allow us to reasonably estimate a range of potential exposure in an amount higher or lower than the amount already accrued, we would adjust our accrued liabilities accordingly.

While Phillips 66 Company believes the jury verdict is not legally or factually supported and intends to pursue post-judgment remedies and file an appeal, there can be no assurances that such defense efforts will be successful.

To the extent Phillips 66 Company is required to pay exemplary damages, it may have a material adverse effect on our financial position and results of operations.

Environmental

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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, 2024 and 2023, we incurred expenses of $96 million and $293 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, 2024 and 2023, we incurred expenses of $23 million and $242 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 $114 million and $217 million for the six months ended June 30, 2024 and 2023, respectively.

Our jointly owned refineries also incurred expenses associated with the purchase of RINs in the open market, of which our share was $180 million and $326 million for the nine months ended September 30, 2024 and 2023, respectively.

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

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At December 31, 2023, we had been notified of potential liability under CERCLA and comparable state laws at 21 sites within the United States.

During the second quarter of 2024, our legal organization approved the removal of two sites, thus, leaving 19 unresolved sites with potential liability at June 30, 2024.

During 2024, our legal organization approved the removal of two sites, thus, leaving 19 unresolved sites with potential liability at September 30, 2024.

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

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

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, 2024, $14 billion of senior unsecured notes outstanding has been guaranteed by the Obligor Group.

At September 30, 2024, $14.7 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, 2024, and the summarized financial position at June 30, 2024 and December 31, 2023, for the Obligor Group on a combined basis were:

The summarized results of operations for the nine months ended September 30, 2024, and the summarized financial position at September 30, 2024 and December 31, 2023, for the Obligor Group on a combined basis were:

Summarized Combined Statement of Income Millions of Dollars

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Sales and other operating revenues $ 82,770

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Coast Worldwide

Three Months Ended June 30, 2024

Income before income taxes $ 15 42 243 2 302

Three Months Ended September 30, 2024

Income (loss) before income taxes $ (61) (102) 308 (253) (108)

Taxes other than income taxes 24 26 27 23 100

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47,819 48,609 50,536 21,987 168,951

Income before income taxes per barrel ( dollars per

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

$ (1.27) (2.10) 11.38 (11.51) (0.74)

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5.87 6.39 14.19 4.34 8.31

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Income before income taxes $ 406 364 367 575 1,712

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

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

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

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

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Coast Worldwide

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Income (loss) before income taxes $ 32 60 764 (446) 410

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145,275 147,305 149,253 67,179 509,012

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

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

$ 0.22 0.41 9.47 (6.64) 0.93

1 unchanged sentence

7.88 8.38 13.18 9.34 9.77

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Income before income taxes $ 666 1,406 1,732 677 4,481

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We believe realized marketing fuel margin per barrel demonstrates the value uplift our marketing operations provide by optimizing the placement and ultimate sale of our refineries’ fuel production.

Within the M&S segment, the GAAP performance measure most directly comparable to realized marketing fuel margin per barrel is the marketing business’ “income before income taxes per barrel.” Realized marketing fuel margin per barrel excludes items that are typically included in gross margin, such as depreciation and operating expenses, and other items used to determine income before income taxes, such as general and administrative expenses.

Within the M&S segment, the GAAP performance measure most directly comparable to realized marketing fuel margin per barrel is the marketing business’ “income (loss) before income taxes per barrel.” Realized marketing fuel margin per barrel excludes items that are typically included in gross margin, such as depreciation and operating expenses, and other items used to determine income (loss) before income taxes, such as general and administrative expenses.

Because realized marketing fuel margin per barrel excludes these items, and because realized marketing fuel margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool.

2 unchanged sentences

Three Months Ended

June 30, 2024 Three Months Ended

June 30, 2023

September 30, 2024 Three Months Ended

September 30, 2023

International U.S.

1 unchanged sentence

Realized Marketing Fuel Margins

Income before income taxes $ 223 145 321 152

Income (loss) before income taxes $ (262) 143 435 122

Depreciation and amortization 9 20 5 18

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182,823 28,207 179,432 29,080

Income before income taxes per barrel ( dollars per barrel )

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

$ (1.43) 5.07 2.42 4.20

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Millions of Dollars, Except as Indicated

Six Months Ended

June 30, 2024 Six Months Ended

June 30, 2023

Nine Months Ended

September 30, 2024 Nine Months Ended

September 30, 2023

International U.S.

36 unchanged sentences

• Capacity constraints in, or other limitations on, the pipelines, storage and fractionation facilities to which we deliver natural gas or NGL and the availability of alternative markets and arrangements for our natural gas and NGL.

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

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

• Actions taken by the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil producing countries impacting crude oil production and correspondingly, commodity prices.

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

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

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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.

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

• Our ability to successfully complete, or any material delay in the completion of, any asset dispositions, acquisitions, shutdowns or conversions that we may pursue, including the receipt of any necessary regulatory approvals or permits related to such action.

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

4 unchanged sentences

• Substantial investments required, or reduced demand for products, as a result of existing or future environmental rules and regulations, including GHG emissions reductions and reduced consumer demand for refined petroleum products.

• Liability resulting from litigation or for remedial actions, including removal and reclamation obligations under environmental regulations.

• Liability resulting from pending or future litigation or other legal proceedings.

• Liability for remedial actions, including removal and reclamation obligations under environmental regulations.

• Changes in tax, environmental and other laws and regulations (including alternative energy mandates) applicable to our business.

7 unchanged sentences

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our commodity price risk and interest rate risk at June 30, 2024, did not differ materially from the risks disclosed under Item 7A of our 2023 Annual Report on Form 10-K.

Our commodity price risk and interest rate risk at September 30, 2024, did not differ materially from the risks disclosed under Item 7A of our 2023 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