Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nyse  >  Phillips 66    PSX

PHILLIPS 66

(PSX)
  Report
Real-time Estimate Quote. Real-time Estimate Cboe BZX - 04/01 02:18:39 pm
50.2 USD   -6.43%
03/26PHILLIPS 66 : Reports Unit Shutdown at Sweeny Refinery in Texas
DJ
03/25PHILLIPS 66 : Chevron leads wave of oil-sector spend cuts
AQ
03/24PHILLIPS 66 : Shares Up; Reduces Capital Spending
DJ
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsPress ReleasesOfficial PublicationsSector news

PHILLIPS 66 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

share with twitter share with LinkedIn share with facebook
share via e-mail
02/21/2020 | 03:09pm EDT

Unless otherwise indicated, "the company," "we," "our," "us" and "Phillips 66" are used in this report to refer to the businesses of Phillips 66 and its consolidated subsidiaries.


Management's Discussion and Analysis is the company's analysis of its financial
performance, financial condition, and significant trends that may affect future
performance. It should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this Annual Report on Form
10-K. It contains forward-looking statements including, without limitation,
statements relating to the company's plans, strategies, objectives, expectations
and intentions that are made pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. The words "anticipate,"
"estimate," "believe," "budget," "continue," "could," "intend," "may," "plan,"
"potential," "predict," "seek," "should," "will," "would," "expect,"
"objective," "projection," "forecast," "goal," "guidance," "outlook," "effort,"
"target" and similar expressions identify forward-looking statements. The
company does not undertake to update, revise or correct any of the
forward-looking information unless required to do so under the federal
securities laws. Readers are cautioned that such forward-looking statements
should be read in conjunction with the company's disclosures under the heading:
"CAUTIONARY STATEMENT FOR THE PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995."

The terms "earnings" and "loss" as used in Management's Discussion and Analysis
refer to net income (loss) attributable to Phillips 66. The terms "pre-tax
income" or "pre-tax loss" as used in Management's Discussion and Analysis refer
to income (loss) before income taxes.


EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT


Phillips 66 is an energy manufacturing and logistics company with midstream,
chemicals, refining, and marketing and specialties businesses. At December 31,
2019, we had total assets of $58.7 billion.

Executive Overview


In 2019, we reported earnings of $3.1 billion and generated $4.8 billion in cash
from operating activities. In addition, Phillips 66 Partners LP (Phillips 66
Partners) had net debt issuances of $0.5 billion and received $0.4 billion from
its joint venture partners to partially fund the Gray Oak Pipeline capital
project. We used available cash primarily for capital expenditures and
investments of $3.9 billion, repurchases of our common stock of $1.7 billion,
and dividend payments on our common stock of $1.6 billion. We ended 2019 with
$1.6 billion of cash and cash equivalents and approximately $5.7 billion of
total committed capacity available under our credit facilities.

We continue to focus on the following strategic priorities:

• Operating Excellence. Our commitment to operating excellence guides

everything we do. We are committed to protecting the health and safety of

everyone who has a role in our operations and the communities in which we

operate. Continuous improvement in safety, environmental stewardship,

reliability and cost efficiency is a fundamental requirement for our

company and employees. We employ rigorous training and audit programs to

drive ongoing improvement in both personal and process safety as we strive

for zero incidents. Since we cannot control commodity prices, controlling

operating expenses and overhead costs, within the context of our

commitment to safety and environmental stewardship, is a high priority.

       Senior management actively monitors these costs. We are committed to
       protecting the environment and strive to reduce our environmental
       footprint throughout our operations. Optimizing utilization rates at our

refineries through reliable and safe operations enables us to capture the

       value available in the market in terms of prices and margins. During 2019,
       our worldwide refining crude oil capacity utilization rate was 94%.



                                       33

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements


•      Growth. A disciplined capital allocation process ensures we focus
       investments on projects that generate competitive returns through the

business cycle. Our strategy focuses on investing in growth opportunities

in the Midstream and Chemicals segments. Results from our Transportation

and NGL businesses in our Midstream segment for 2019 were a reflection of

this, as these businesses benefited from higher equity earnings and cash

distributions from completed capital projects. In 2020, we have budgeted

$2.4 billion for Midstream capital expenditures and investments, including

$962 million for Phillips 66 Partners. Capital will be used to continue

       building out and maintaining our integrated logistics infrastructure
       network, including pipelines, storage, export and fractionation
       facilities. In Chemicals, our share of expected self-funded capital
       spending by Chevron Phillips Chemical Company LLC (CPChem) is $656

million. CPChem will fund continuing development of petrochemical projects

on the U.S. Gulf Coast (USGC) and in Qatar, as well as debottlenecking

       opportunities on existing assets.


• Returns. We plan to enhance Refining returns by increasing throughput of

advantaged feedstocks, improving yields, portfolio optimization and an

ongoing commitment to operating excellence. Our Refining segment

maintained a strong clean product yield and optimized advantaged crude oil

throughput at our U.S. refineries in 2019. For 2020, capital in Refining

       will be directed toward high-return projects to enhance the yield of
       higher-value products and other high-return, quick-payout projects.
       Marketing and Specialties (M&S) will continue to develop and enhance our
       retail network and brands in the United States and Europe.


• Distributions. We believe shareholder value is enhanced through, among

other things, consistent growth of regular dividends, complemented by

share repurchases. We increased our quarterly dividend rate by 13% during

2019, and have increased it every year since the company's inception in

2012. Regular dividends demonstrate the confidence our Board of Directors

and management have in our capital structure and operations' capability to

       generate free cash flow throughout the business cycle. In 2019, we
       repurchased $1.7 billion, or approximately 17 million shares, of our
       common stock. On October 4, 2019, our Board of Directors approved a new

share repurchase program that authorizes us to repurchase up to $3 billion

       of our common stock, bringing the total amount of share repurchases
       authorized by our Board of Directors since July 2012 to an aggregate of
       $15 billion. At the discretion of our Board of Directors, we plan to

increase dividends annually and fund our share repurchase programs while

       continuing to invest in the growth of our business.


High-Performing Organization. We strive to attract, develop and retain

individuals with the knowledge and skills to implement our business

strategy and who support our values and culture. Throughout the company,

we focus on getting results in the right way, embrace our values as a

common bond, and believe success is both what we do and how we do it. We

encourage collaboration throughout our company, while valuing differences,

       respecting diversity, and creating a great place to work. We foster an
       environment of learning and development through structured programs
       focused on enhancing functional and technical skills where employees are
       engaged in our business and committed to their own, as well as the
       company's, success.




                                       34

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

Business Environment


The Midstream segment includes our Transportation and Natural Gas Liquids (NGL)
businesses. Our Transportation business contains fee-based operations that are
not directly exposed to commodity price risk. Our NGL business is directly
linked to NGL prices. The Midstream segment also includes our 50% equity
investment in DCP Midstream, LLC (DCP Midstream). NGL prices were significantly
lower in 2019, compared with 2018, due to higher inventory levels resulting from
supply growth and weak winter demand.

The Chemicals segment consists of our 50% equity investment in CPChem. The
chemicals and plastics industry is mainly a commodity-based industry where the
margins for key products are based on supply and demand, as well as cost
factors. During 2019, the benchmark high-density polyethylene chain margin
further decreased, compared with 2018, due to recent capacity additions, the
continued trade policy uncertainty and slower demand growth in Asia.

Our Refining segment results are driven by several factors, including refining
margins, refinery throughput, feedstock costs, product yields, turnaround
activity, and other operating costs. The price of U.S. benchmark crude oil, West
Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of $57.02
per barrel during 2019, compared with an average of $64.92 per barrel in 2018,
due to continued growth in Permian Basin production and higher inventories as
exports failed to keep pace with production growth. In addition, heavy Canadian
crude differentials narrowed in 2019, compared with 2018, due primarily to
production curtailments implemented by the Alberta Provincial government. Market
crack spreads are used as indicators of refining margins and measure the
difference between market prices for refined petroleum products and crude oil.
During 2019, the market crack spreads slightly decreased in the Atlantic
Basin/Europe, Gulf Coast and Central Corridor regions, but increased in the West
Coast region, compared with 2018.

Results for our M&S segment depend largely on marketing fuel margins, lubricant
margins, and other specialty product margins. While M&S margins are primarily
driven by market factors, largely determined by the relationship between supply
and demand, marketing fuel margins, in particular, are influenced by the trend
in spot prices for refined petroleum products. Generally speaking, a downward
trend of spot prices has a favorable impact on marketing fuel margins, while an
upward trend of spot prices has an unfavorable impact on marketing fuel margins.



                                       35

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements


RESULTS OF OPERATIONS

Consolidated Results

A summary of income (loss) before income taxes by business segment with a reconciliation to net income attributable to Phillips 66 follows:

                                                               Millions of Dollars
                                                              Year Ended December 31
                                                             2019      2018       2017

Midstream                                                 $   684     1,181        638
Chemicals                                                     879     1,025        716
Refining                                                    1,986     4,535      2,076
Marketing and Specialties                                   1,433     1,557      1,020
Corporate and Other                                          (804 )    (853 )     (895 )
Income before income taxes                                  4,178     7,445      3,555
Income tax expense (benefit)                                  801     1,572     (1,693 )
Net income                                                  3,377     5,873 

5,248

Less: net income attributable to noncontrolling interests 301 278

142

Net income attributable to Phillips 66                    $ 3,076     5,595      5,106




2019 vs. 2018

Our earnings decreased $2,519 million, or 45%, in 2019, mainly reflecting:

• Lower realized refining and marketing margins.

• Impairments associated with our investment in DCP Midstream.

• Decreased equity in earnings of affiliates in our Refining and Chemicals

       segments.



These decreases were partially offset by:

• Lower income tax expense.

• Improved results from our NGL and transportation businesses.

                                       36

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

2018 vs. 2017

Our earnings increased $489 million, or 10%, in 2018, mainly reflecting:

• Higher realized refining and marketing margins.

• Higher equity in earnings of affiliates in our Midstream and Chemicals

       segments.


•      A lower U.S. federal income tax rate beginning January 1, 2018, as a

result of the U.S. Tax Cuts and Jobs Act (the Tax Act) enacted in December

       2017.



These increases were partially offset by:

• A $2,735 million provisional income tax benefit from the enactment of the

Tax Act recognized in December 2017, primarily due to the revaluation of

deferred income taxes.

• A $261 million noncash, after-tax gain from the consolidation of Merey

Sweeny, L.P., predecessor to Merey Sweeny LLC (both referred to herein as

Merey Sweeny), in 2017.

• Higher net income attributable to noncontrolling interests primarily due

to the contribution of assets to Phillips 66 Partners in the fourth

quarter of 2017.

• Higher interest and debt expense.

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

                                       37

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements


Statement of Income Analysis

2019 vs. 2018

Sales and other operating revenues and purchased crude oil and products decreased 4% and 2%, respectively, in 2019. The decreases were mainly driven by lower prices for refined petroleum products, crude oil and NGL.


Equity in earnings of affiliates decreased 21% in 2019. The decrease was mainly
due to lower margins at WRB Refining LP (WRB) and CPChem, partially offset by
improved results from our Transportation and NGL joint venture assets. Lower
equity earnings in 2019 also reflected lower-of-cost-or-market inventory
write-downs at CPChem and higher goodwill and other asset impairments at DCP
Midstream. See the "Segment Results" section for additional information.

Other income increased $58 million in 2019. The increase was mainly driven by
trading activities not directly related to our physical business. See Note
15-Derivatives and Financial Instruments, in the Notes to Consolidated Financial
Statements, for additional information associated with our commodity
derivatives.

Impairments increased $853 million in 2019. The increase was driven by an $853
million pre-tax impairment associated with our investment in DCP Midstream
recognized in the third quarter of 2019. See Note 7-Investments, Loans and
Long-Term Receivables, and Note 16-Fair Value Measurements, in the Notes to
Consolidated Financial Statements, for additional information associated with
this impairment.

Interest and debt expense decreased 9% in 2019. The decrease was primarily attributable to higher capitalized interest associated with capital projects under development in our Midstream segment, partially offset by higher debt balances in 2019.


Income tax expense (benefit) decreased 49% in 2019. The decrease in income tax
expense was primarily attributable to lower income before income taxes. See Note
21-Income Taxes, in the Notes to Consolidated Financial Statements, for more
information regarding our income taxes.


                                       38

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

2018 vs. 2017


Sales and other operating revenues and purchased crude oil and products
increased 9% and 23%, respectively, in 2018. The increases were mainly due to
higher prices for refined petroleum products, crude oil and NGL. The increase in
sales and other operating revenues was partially offset by a change in the
presentation of excise taxes on sales of refined petroleum products resulting
from our adoption of Financial Accounting Standard Board (FASB) Accounting
Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers
(Topic 606)," on January 1, 2018. As part of our adoption of this ASU,
prospectively from January 1, 2018, our presentation of excise taxes on sales of
refined petroleum products changed to a net basis from a gross basis. As a
result, the "Sales and other operating revenues" and "Taxes other than income
taxes" line items on our consolidated statement of income for the year ended
December 31, 2018, are not presented on a comparable basis to the year ended
December 31, 2017. See Note 1-Summary of Significant Accounting Policies, in the
Notes to Consolidated Financial Statements, for further information on our
presentation of excise taxes on sales of refined petroleum products and our
adoption of this ASU, respectively.

Equity in earnings of affiliates increased 55% in 2018, primarily resulting from higher equity in earnings from WRB, CPChem and affiliates in our Midstream segment.

• Equity in earnings of WRB increased $483 million, primarily due to higher

       realized margins driven by improved feedstock advantage.


•      Equity in earnings of CPChem increased $312 million, primarily due to
       commencement of full operations at CPChem's new U.S. Gulf Coast
       petrochemicals assets and lower hurricane-related costs and downtime in
       2018.

• Equity in earnings for our Midstream segment increased $222 million,

       primarily due to higher volumes on affiliate pipelines, including the
       Bakken Pipeline, which operated for a full year in 2018.



Other income decreased $460 million in 2018. We recognized a noncash, pre-tax
gain of $423 million in February 2017 related to the consolidation of Merey
Sweeny. See Note 6-Business Combinations, in the Notes to Consolidated Financial
Statements, for additional information.

Taxes other than income taxes decreased 97% in 2018. The decrease was primarily
attributable to the change in our presentation of excise taxes on sales of
refined petroleum products resulting from our adoption of ASU No. 2014-09 on
January 1, 2018. See the "Sales and other operating revenues" section above for
further discussion.

Interest and debt expense increased 15% in 2018. The increase was due to higher average debt principal balances resulting from our issuance of senior notes totaling $1,500 million in March 2018 and Phillips 66 Partners' issuance of senior notes totaling $650 million in October 2017.


Income tax expense (benefit) was an expense in 2018, compared with a benefit in
2017. The benefit in 2017 was due to the recognition of a provisional income tax
benefit of $2,735 million from the enactment of the Tax Act in December 2017.
The benefit from the Tax Act was primarily due to the revaluation of deferred
income taxes. Excluding this benefit, income tax expense increased in 2018 due
to higher income before income taxes, partially offset by the reduction of the
U.S. federal corporate income tax rate from 35% to 21% beginning January 1,
2018, as a result of the Tax Act. See Note 21-Income Taxes, in the Notes to
Consolidated Financial Statements, for more information regarding our income
taxes.

Net income attributable to noncontrolling interests increased $136 million in
2018, primarily due to the contribution of assets in the fourth quarter of 2017.
In October 2017, we contributed to Phillips 66 Partners our 25% ownership
interest in both Dakota Access, LLC (Dakota Access) and Energy Transfer Crude
Oil Company, LLC (ETCO), and our 100% ownership interest in Merey Sweeny.



                                       39

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements


Segment Results

Midstream

                                      Year Ended December 31
                                      2019          2018    2017
                                        Millions of Dollars
Income (Loss) Before Income Taxes
Transportation                    $    946           770     530
NGL and Other                          522           305      32
DCP Midstream                         (784 )         106      76
Total Midstream                   $    684         1,181     638



                            Thousands of Barrels Daily
Transportation Volumes
Pipelines*                3,396             3,441    3,320
Terminals                 3,315             3,153    2,665
Operating Statistics
NGL fractionated**          224               216      186
NGL extracted***            417               413      374


* Pipelines represent the sum of volumes transported through each separately
tariffed consolidated pipeline segment.
** Excludes DCP Midstream.
*** Includes 100% of DCP Midstream's volumes.

                                 Dollars Per Gallon
Weighted-Average NGL Price*
DCP Midstream               $   0.51       0.75    0.62

* 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, as well as natural gas and
NGL transportation, storage, fractionation, processing and marketing services,
mainly in the United States. This segment includes our master limited
partnership (MLP), Phillips 66 Partners, as well as our 50% equity investment in
DCP Midstream, which includes the operations of its MLP, DCP Midstream, LP (DCP
Partners).

2019 vs. 2018

Pre-tax income from the Midstream segment decreased $497 million in 2019,
compared with 2018, mainly driven by an $853 million pre-tax impairment
associated with our investment in DCP Midstream and lower equity earnings from
DCP Midstream, partially offset by improved results from our Transportation and
NGL and Other businesses.

Pre-tax income from our Transportation business increased $176 million in 2019, compared with 2018. The increase was mainly driven by higher volumes and pipeline tariffs from our portfolio of consolidated and joint venture assets.


Pre-tax income from our NGL and Other business increased $217 million in 2019,
compared with 2018. The increase was mainly due to improved margins and volumes,
primarily at the Sweeny Hub, and higher equity earnings from certain pipeline
affiliates driven by higher volumes.

                                       40

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements



Pre-tax income from our investment in DCP Midstream decreased $890 million in
2019, compared with 2018. The decrease was primarily due to an $853 million
pre-tax impairment associated with our investment in DCP Midstream and lower
equity earnings driven by higher goodwill and other asset impairments at DCP
Partners in 2019 as described below.

In the third quarter of 2019, DCP Partners performed goodwill and other asset
impairment assessments based on internal discounted cash flow models that
reflected various observable and nonobservable factors, such as prices, volumes,
expenses and discount rates. As a result of these assessments, DCP Partners
recorded goodwill and other asset impairments that reduced our equity earnings
by $47 million, included in the "Equity in earnings of affiliates" line item on
our consolidated statement of income.

The fair value of our investment in DCP Midstream at September 30, 2019,
depended on the market value of DCP Midstream's general partner interest in DCP
Partners and the market value of DCP Partners' common units.  At June 30, 2019,
we estimated the fair value of our investment in DCP Midstream was below our
book value, but we believed the condition was temporary.  The fair value of our
investment in DCP Midstream further deteriorated in the third quarter as the
market value of DCP Midstream's general partner interest in DCP Partners and the
market value of DCP Partners' common units declined further.  At that time, we
concluded the decline in fair value was no longer temporary due to the duration
and magnitude of the decline. Accordingly, we recorded an $853 million
impairment in the third quarter of 2019. The impairment is included in the
"Impairments" line item on our consolidated statement of income and results in
our investment in DCP Midstream having a book value of $1,374 million at
December 31, 2019.

The majority of the difference between the book value of our investment in DCP
Midstream and our 50% share of the net assets reported by DCP Midstream is
amortized over a 22-year estimated useful life as an annual increase of
approximately $40 million to equity earnings. See Note 7-Investments, Loans and
Long-Term Receivables, and Note 16-Fair Value Measurements, in the Notes to
Consolidated Financial Statements, for additional information on our investment
in DCP Midstream.

See the "Executive Overview and Business Environment" section for information on market factors impacting 2019 results.

2018 vs. 2017

Pre-tax income from the Midstream segment increased $543 million in 2018, compared with 2017, due to improved results across all business lines.


Pre-tax income from our Transportation business increased $240 million in 2018,
compared with 2017. The increase was mainly driven by higher volumes, tariffs
and storage rates from our portfolio of consolidated and joint venture assets.
These increases were partially offset by a decrease in equity earnings from
Rockies Express Pipeline LLC (REX) due to a favorable settlement recorded in
2017.

Pre-tax income from our NGL and Other business increased $273 million in 2018,
compared with 2017. The increase was primarily due to the contribution of Merey
Sweeny to Phillips 66 Partners in October 2017, inventory impacts, improved
cargo margins and volumes, and higher equity earnings from pipeline affiliates
due to increased volumes.

Pre-tax income from our investment in DCP Midstream increased $30 million in
2018, compared with 2017. The increase was primarily due to higher equity
earnings from affiliates as a result of increased volumes, timing of incentive
distribution income allocations from DCP Partners, and favorable hedging
results. These increases were partially offset by higher asset impairments and
operating costs in 2018.



                                       41

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements


Chemicals

                                                           Year Ended December 31
                                                       2019                2018           2017
                                                             Millions of Dollars

Income Before Income Taxes                   $          879               1,025            716

                                                             Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins                              18,788              18,435         15,870
Specialties, Aromatics and Styrenics                  4,281               

4,931 4,618

                                                     23,069              23,366         20,488
* Represents 100% of CPChem's outside sales of produced petrochemical products, as well as
commission sales from equity affiliates.

Olefins and Polyolefins Capacity Utilization
(percent)                                                97 %                94             87




The Chemicals segment consists of our 50% interest in CPChem, which we account
for under the equity method. CPChem uses NGL and other feedstocks to produce
petrochemicals. These products are then marketed and sold or used as feedstocks
to produce plastics and other chemicals. We structure our reporting of CPChem's
operations around two primary business lines: Olefins and Polyolefins (O&P) and
Specialties, Aromatics and Styrenics (SA&S). The O&P business line produces and
markets ethylene and other olefin products. Ethylene produced is primarily
consumed within CPChem for the production of polyethylene, normal alpha olefins
and polyethylene pipe. The SA&S business line manufactures and markets aromatics
and styrenics products, such as benzene, cyclohexane, styrene and polystyrene.
SA&S also manufactures and/or markets a variety of specialty chemical products.
Unless otherwise noted, amounts referenced below reflect our net 50% interest in
CPChem.

2019 vs. 2018

Pre-tax income from the Chemicals segment decreased $146 million in 2019,
compared with 2018. The decrease was mainly due to lower polyethylene margins
attributable to additional industry capacity and slower demand growth in Asia.
In addition, CPChem recorded lower-of-cost-or-market write-downs of LIFO-valued
inventories during 2019, and our portion of the write-downs reduced our equity
earnings from CPChem by $65 million, pre-tax. The decreases were partially
offset by higher polyethylene sales volumes and lower turnaround and maintenance
activity during 2019.

See the "Executive Overview and Business Environment" section for information on market factors impacting CPChem's 2019 results.

2018 vs. 2017


Pre-tax income from the Chemicals segment increased $309 million in 2018,
compared with 2017. The increased results reflected the commencement of full
operations at CPChem's new U.S. Gulf Coast petrochemicals assets in the second
quarter of 2018, which resulted in higher production and sales of polyethylene
and ethylene, partially offset by lower capitalized interest. Additionally,
lower hurricane-related costs and downtime, as well as lower impairment charges,
contributed to the increased results in 2018.





                                       42

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements


Refining

                                      Year Ended December 31
                                       2019       2018     2017
                                       Millions of Dollars
Income (Loss) Before Income Taxes
Atlantic Basin/Europe             $     608        567      448
Gulf Coast                              364      1,040      809
Central Corridor                      1,338      2,817      755
West Coast                             (324 )      111       64
Worldwide                         $   1,986      4,535    2,076

                                        Dollars Per Barrel
Income (Loss) Before Income Taxes
Atlantic Basin/Europe             $    3.11       3.05     2.25
Gulf Coast                             1.24       3.55     2.83
Central Corridor                      12.95      26.50     8.19
West Coast                            (2.49 )     0.81     0.48
Worldwide                              2.75       6.29     2.92

Realized Refining Margins*
Atlantic Basin/Europe             $    9.33      10.32     8.25
Gulf Coast                             7.42       9.48     7.07
Central Corridor                      14.91      22.22    12.44
West Coast                             9.18      11.20    10.49
Worldwide                              9.91      12.99     9.13

* See the "Non-GAAP Reconciliations" section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income (loss) before income taxes per barrel.

                                       43

--------------------------------------------------------------------------------

  Table of Contents
  Index to Financial Statements


                                              Thousands of Barrels Daily
                                                Year Ended December 31
                                               2019           2018     2017
Operating Statistics
Refining operations*
Atlantic Basin/Europe
Crude oil capacity                              537            537      520
Crude oil processed                             497            477      494
Capacity utilization (percent)                   92 %           89       95
Refinery production                             541            514      553
Gulf Coast
Crude oil capacity                              764            752      743
Crude oil processed                             725            717      709
Capacity utilization (percent)                   95 %           95       95
Refinery production                             804            808      789
Central Corridor
Crude oil capacity                              515            493      493
Crude oil processed                             498            507      467
Capacity utilization (percent)                   97 %          103       95
Refinery production                             518            530      489
West Coast
Crude oil capacity                              364            364      360
Crude oil processed                             323            343      342
Capacity utilization (percent)                   89 %           94       95
Refinery production                             354            373      368

Worldwide

Crude oil capacity                            2,180          2,146    2,116
Crude oil processed                           2,043          2,044    2,012
Capacity utilization (percent)                   94 %           95       95
Refinery production                           2,217          2,225    2,199

* Includes our share of equity affiliates.

The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, at 13 refineries in the United States and Europe.


2019 vs. 2018

Pre-tax income for the Refining segment decreased $2,549 million in 2019,
compared with 2018. The decrease was primarily driven by lower realized refining
margins and lower refinery production at certain refineries due to turnaround
activities and unplanned downtime. In 2019, the decrease in realized refining
margins was primarily due to lower feedstock advantage driven by narrowing heavy
crude differentials.

See the "Executive Overview and Business Environment" section for information on industry crack spreads and other market factors impacting this year's results.

Our worldwide refining crude oil capacity utilization rate was 94% and 95% in 2019 and 2018, respectively.

                                       44

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

2018 vs. 2017


Pre-tax income for the Refining segment increased $2,459 million in 2018,
compared with 2017. The increase was primarily due to higher realized refining
margins, partially offset by a noncash gain of $423 million recognized from the
consolidation of Merey Sweeny in February 2017.

The increased realized refining margins were primarily driven by higher feedstock advantage, improved premium coke margins, and increased optimization benefits from using our integrated logistics network to capture market opportunities related to widening Bakken, Canadian and other inland crude differentials. Improved clean product differentials and lower renewable identification number (RIN) costs also benefited margins. These items were partially offset by a decline in market crack spreads.

Our worldwide refining crude oil capacity utilization rate was 95% in both 2018 and 2017.




                                       45

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements


Marketing and Specialties

                                                                Year Ended December 31
                                                            2019                  2018           2017
                                                                 Millions of Dollars
Income Before Income Taxes
Marketing and Other                            $           1,199                 1,306            808
Specialties                                                  234                   251            212
Total Marketing and Specialties                $           1,433                 1,557          1,020

                                                                  Dollars Per Barrel
Income Before Income Taxes
U.S.                                           $            1.22                  1.21           0.89
International                                               3.58                  5.00           2.23

Realized Marketing Fuel Margins*
U.S.                                           $            1.57                  1.62           1.48
International                                               4.90                  6.87           4.21

* See the "Non-GAAP Reconciliations" section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel.


                                                                  Dollars Per Gallon
U.S. Average Wholesale Prices*
Gasoline                                       $            2.12                  2.20           1.87
Distillates                                                 2.12                  2.29           1.85
* On third-party branded refined petroleum
product sales, excluding excise taxes.

                                                              Thousands of Barrels Daily
Marketing Refined Petroleum Product Sales
Gasoline                                                   1,230                 1,195          1,246
Distillates                                                1,104                   975            931
Other                                                         18                    18             18
                                                           2,352                 2,188          2,195




The M&S segment purchases for resale and markets refined petroleum products,
such as gasoline, distillates and aviation fuels, mainly in the United States
and Europe. In addition, this segment includes the manufacturing and marketing
of specialty products, such as base oils and lubricants.

2019 vs. 2018


Pre-tax income from the M&S segment decreased $124 million in 2019, compared
with 2018. The decrease was primarily due to lower realized marketing fuel
margins, mainly driven by international marketing, partially offset by higher
sales volumes.

See the "Executive Overview and Business Environment" section for information on marketing fuel margins and other market factors impacting 2019 results.

2018 vs. 2017


Pre-tax income from the M&S segment increased $537 million in 2018, compared
with 2017. The increase was primarily due to higher realized marketing fuel
margins, mainly driven by international marketing, benefits from the retroactive
extension of the 2017 U.S. biodiesel blender's tax incentive in early 2018, as
well as improved specialty product service margins.

                                       46

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements


Corporate and Other

                                       Millions of Dollars
                                      Year Ended December 31
                                       2019      2018     2017
Income (Loss) Before Income Taxes
Net interest expense              $    (415 )    (459 )   (408 )
Corporate overhead and other           (389 )    (394 )   (487 )
Total Corporate and Other         $    (804 )    (853 )   (895 )




2019 vs. 2018

Net interest expense consists of interest and financing expense, net of interest
income and capitalized interest. Net interest expense decreased $44 million in
2019, compared with 2018, primarily due to higher capitalized interest related
to capital projects under development in our Midstream segment, partially offset
by higher debt balances in 2019.

Corporate overhead and other includes general and administrative expenses,
technology costs, environmental costs associated with sites no longer in
operation, foreign currency transaction gains and losses and other costs not
directly associated with an operating segment. During 2019, Corporate overhead
and other decreased $5 million, compared with 2018.

2018 vs. 2017


Net interest expense increased $51 million in 2018, compared with 2017, mainly
due to higher average debt principal balances from our issuance of senior notes
totaling $1,500 million in March 2018 and Phillips 66 Partners' issuance of
senior notes totaling $650 million in October 2017. This increase was partially
offset by higher interest income.

Corporate overhead and other decreased $93 million in 2018, compared with 2017,
primarily due to lower environmental-related expenses and higher equity earnings
from our share of income tax benefits recorded by equity affiliates due to the
enactment of the Tax Act in December 2017.




                                       47

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators

                                                 Millions of Dollars, Except as Indicated
                                                      2019               2018           2017

Cash and cash equivalents                    $       1,614              3,019          3,119
Net cash provided by operating activities            4,808              7,573          3,648
Short-term debt                                        547                 67             41
Total debt                                          11,763             11,160         10,110
Total equity                                        27,169             27,153         27,428
Percent of total debt to capital*                       30 %               29             27
Percent of floating-rate debt to total debt              9 %               11             11

* Capital includes total debt and total equity.





To meet our short- and long-term liquidity requirements, we look to a variety of
funding sources but rely primarily on cash generated from operating activities.
Additionally, Phillips 66 Partners has raised funds for its growth activities
through debt and equity financings. During 2019, we generated $4.8 billion in
cash from operations. In addition, Phillips 66 Partners had net debt issuances
of $0.5 billion and received $0.4 billion from its joint venture partners to
partially fund the Gray Oak Pipeline capital project. We used available cash
primarily for capital expenditures and investments of $3.9 billion; repurchases
of our common stock of $1.7 billion; and dividend payments on our common stock
of $1.6 billion. During 2019, cash and cash equivalents decreased $1.4 billion
to $1.6 billion.

In addition to cash flows from operating activities, we rely on our commercial
paper and credit facility programs, asset sales and our ability to issue debt
securities to support our short- and long-term liquidity requirements. We
believe current cash and cash equivalents and cash generated by operations,
together with access to external sources of funds as described below under
"Significant Sources of Capital," will be sufficient to meet our funding
requirements in the near and long term, including our capital spending, dividend
payments, defined benefit plan contributions, debt repayments and share
repurchases.

Significant Sources of Capital


Operating Activities
During 2019, cash generated by operating activities was $4,808 million, a 37%
decrease compared with 2018. The decrease was mainly driven by lower realized
refining margins and decreased distributions from our equity affiliates, along
with unfavorable working capital impacts, partially offset by improved results
from our Transportation and NGL and Other businesses.

During 2018, cash of $7,573 million was provided by operating activities, a 108%
increase compared with 2017. The increase was primarily attributable to higher
realized refining and marketing margins, increased distributions from our equity
affiliates and lower employee benefit plan contributions. These increases were
partially offset by unfavorable working capital impacts primarily driven by the
effects of changes in commodity prices and the timing of payments and
collections.

Our short- and long-term operating cash flows are highly dependent upon refining
and marketing margins, NGL prices and chemicals margins. Prices and margins in
our industry are typically volatile, and are driven by market conditions over
which we have little or no control. Absent other mitigating factors, as these
prices and margins fluctuate, we would expect a corresponding change in our
operating cash flows.


                                       48

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements



The level and quality of output from our refineries also impacts our cash flows.
Factors such as operating efficiency, maintenance turnarounds, market
conditions, feedstock availability and weather conditions can affect output. We
actively manage the operations of our refineries, and any variability in their
operations typically has not been as significant to cash flows as that caused by
margins and prices. Our worldwide refining crude oil capacity utilization was
94% in 2019 and 95% in both 2018 and 2017.

Equity Affiliate Operating Distributions
Our operating cash flows are also impacted by distribution decisions made by our
equity affiliates, including CPChem, DCP Midstream and WRB. Over the three years
ended December 31, 2019, we received aggregate distributions from our equity
affiliates of $6,097 million, including $280 million from DCP Midstream, $2,187
million from CPChem and $1,380 million from WRB. We cannot control the amount or
timing of future dividends from equity affiliates; therefore, future dividend
payments by these and other equity affiliates are not assured.

Phillips 66 Partners
In 2013, we formed Phillips 66 Partners, a publicly traded MLP, to own, operate,
develop and acquire primarily fee-based midstream assets.

Ownership and Restructuring Transaction
On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to
eliminate the incentive distribution rights (IDRs) held by us and to convert our
2% economic general partner interest into a noneconomic general partner interest
in exchange for 101 million Phillips 66 Partners common units.  No distributions
were made for the general partner interest after August 1, 2019. At December 31,
2019, we owned 170 million Phillips 66 Partners common units, representing 74%
of Phillips 66 Partners' limited partner units.

We consolidate Phillips 66 Partners as a variable interest entity for financial reporting purposes. See Note 27-Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on why we consolidate the partnership. As a result of this consolidation, the public common and preferred unitholders' interests in Phillips 66 Partners are reflected as noncontrolling interests of $2,228 million in our consolidated balance sheet at December 31, 2019.


Debt and Equity Financings
During the three years ended December 31, 2019, Phillips 66 Partners raised net
proceeds of approximately $3 billion from the following third-party debt and
equity offerings:

Phillips 66 Partners has authorized an aggregate of $750 million under

three $250 million continuous offerings of common units, or at-the-market

(ATM) programs. Phillips 66 Partners completed the first two programs in

June 2018 and December 2019, respectively, leaving $250 million available

under the third program. For the three years ended December 31, 2019, net

proceeds of $474 million have been received under these programs.

• In September 2019, Phillips 66 Partners received net proceeds of $892

million from the issuance of $300 million of 2.450% Senior Notes due

December 2024 and $600 million of 3.150% Senior Notes due December 2029.

• In March 2019, Phillips 66 Partners entered into a senior unsecured term

loan facility with a borrowing capacity of $400 million due March 20,

2020. Phillips 66 Partners borrowed an aggregate amount of $400 million

under the facility during the first half of 2019, which was repaid in full

       in September 2019.



• In October 2017, Phillips 66 Partners received net proceeds of $643

million from the issuance of $500 million of 3.750% Senior Notes due March

2028 and $150 million of 4.680% Senior Notes due February 2045.

• In October 2017, Phillips 66 Partners received net proceeds of $737

       million from a private placement of 13,819,791 perpetual convertible
       preferred units, at a price of $54.27 per unit.


• In October 2017, Phillips 66 Partners received net proceeds of $295

million from a private placement of 6,304,204 common units, at a price of

       $47.59 per unit.




                                       49

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements



Phillips 66 Partners primarily used these net proceeds to fund the cash portion
of acquisitions of assets from Phillips 66 and for capital spending and
investments. See Note 27-Phillips 66 Partners LP, in the Notes to Consolidated
Financial Statements, for additional information on Phillips 66 Partners.

Transfers of Equity Interests
In December 2018, a third party exercised an option to acquire a 35% interest in
Gray Oak Holdings LLC (Holdings LLC), a consolidated subsidiary of Phillips 66
Partners. This transfer did not qualify as a sale under generally accepted
accounting principles in the United States (GAAP) because of certain
restrictions placed on the acquirer. The contributions received by Holdings LLC
from the third party to cover capital calls from Gray Oak Pipeline, LLC are
presented as a long-term obligation on our consolidated balance sheet and as
financing cash inflows on our consolidated statement of cash flows until
construction of the Gray Oak Pipeline is fully completed and these restrictions
expire. During 2019, the third party contributed an aggregate of $342 million
into Holdings LLC, and Holdings LLC used these contributions to fund its portion
of Gray Oak Pipeline, LLC's cash calls.

In February 2019, Holdings LLC sold a 10% ownership interest in Gray Oak
Pipeline, LLC to a third party that exercised a purchase option, for proceeds of
$81 million. The proceeds received from this sale are presented as an investing
cash inflow on our consolidated statement of cash flows.

See Note 7-Investments, Loans and Long-Term Receivables and Note 27-Phillips 66
Partners LP, in the Notes to Consolidated Financial Statements, for additional
information regarding Phillip 66 Partners' investment in Gray Oak Pipeline, LLC.

Credit Facilities and Commercial Paper
Phillips 66 has a revolving credit facility that may be used for direct bank
borrowings, as support for issuances of letters of credit, or as support for our
commercial paper program. On July 30, 2019, this revolving credit agreement was
amended and restated to extend the scheduled maturity from October 3, 2021, to
July 30, 2024. No other material amendments were made to the agreement, and the
overall capacity remains at $5 billion with an option to increase the overall
capacity to $6 billion, subject to certain conditions. The facility is with a
broad syndicate of financial institutions and contains covenants that are usual
and customary for an agreement of this type for comparable commercial borrowers,
including a maximum consolidated net debt-to-capitalization ratio of 65%. The
agreement has customary events of default, such as nonpayment of principal when
due; nonpayment of interest, fees or other amounts; violation of covenants;
cross-payment default and cross-acceleration (in each case, to indebtedness in
excess of a threshold amount); and a change of control. Borrowings under the
facility will incur interest at the London Interbank Offered Rate (LIBOR) plus a
margin based on the credit rating of our senior unsecured long-term debt as
determined from time to time by Standard & Poor's Financial Services LLC (S&P)
and Moody's Investors Service, Inc. (Moody's). The facility also provides for
customary fees, including administrative agent fees and commitment fees. At
December 31, 2019 and 2018, no amount had been drawn under this revolving credit
agreement.

Phillips 66 has a $5 billion commercial paper program for short-term working
capital needs that is supported by our revolving credit facility. Commercial
paper maturities are generally limited to 90 days. At December 31, 2019 and
2018, no borrowings were outstanding under the commercial paper program. At
February 21, 2020, there was approximately $650 million in borrowings
outstanding under the program.


                                       50

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements



Phillips 66 Partners has a revolving credit facility with a broad syndicate of
financial institutions. The revolving credit facility contains covenants that
are usual and customary for an agreement of this type for comparable commercial
borrowers. At Phillips 66 Partners' option, outstanding borrowings under this
facility bear interest at either i) the Eurodollar rate plus a margin based on
its credit rating; or ii) the base rate (as described in the facility agreement)
plus a margin based on its credit rating. Eurodollar rate borrowings are due on
the facility's termination date, while base rate borrowings are due the earlier
of the facility's termination date or the fourteenth business day after such
borrowings were made. On July 30, 2019, Phillips 66 Partners amended and
restated its revolving credit agreement. The agreement extended the scheduled
maturity from October 3, 2021, to July 30, 2024. No other material amendments
were made to the agreement, and the overall capacity remains at $750 million
with an option to increase the overall capacity to $1 billion, subject to
certain conditions. At December 31, 2019, Phillips 66 Partners had no borrowings
outstanding under this facility; however, $1 million in letters of credit had
been issued that were supported by this facility. There was $125 million
outstanding under this facility at December 31, 2018.

We had approximately $5.7 billion and $5.6 billion of total committed capacity
available under our revolving credit facilities at December 31, 2019 and 2018,
respectively.

Other Debt Issuances and Financings On March 1, 2018, Phillips 66 closed on a public offering of $1,500 million aggregate principal amount of unsecured notes consisting of:

$500 million of floating-rate Senior Notes due February 2021. Interest on

these notes is equal to the three-month LIBOR plus 0.60% per annum and is

       payable quarterly in arrears on February 26, May 26, August 26 and
       November 26, beginning on May 29, 2018.


$800 million of 3.900% Senior Notes due March 2028. Interest on these

notes is payable semiannually on March 15 and September 15 of each year,

       beginning on September 15, 2018.


• An additional $200 million of our 4.875% Senior Notes due November 2044.

Interest on these notes is payable semiannually on May 15 and November 15

of each year, beginning on May 15, 2018.




Phillips 66 used the net proceeds from the issuance of these notes and cash on
hand to repay commercial paper borrowings during the first quarter of 2018, and
for general corporate purposes. The commercial paper borrowings during the first
quarter of 2018, were primarily used to repurchase shares of our common stock.
See Note 17-Equity, in the Notes to Consolidated Financial Statements, for
additional information.

In addition, we have finance lease obligations primarily related to consignment
agreements with a domestic retail marketing joint venture and an oil terminal in
the United Kingdom. These leases mature within the next twenty years. The
present value of our minimum finance lease payments for these obligations as of
December 31, 2019, was $277 million.

Availability of Debt and Equity Financing
Our senior unsecured long-term debt has been rated investment grade by S&P
(BBB+) and Moody's (A3). We do not have any ratings triggers on any of our
corporate debt that would cause an automatic default, and thereby impact our
access to liquidity, in the event of a downgrade of our credit rating. If our
credit rating deteriorated to a level prohibiting us from accessing the
commercial paper market, we would expect to be able to access funds under our
liquidity facilities mentioned above.


                                       51

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

Off-Balance Sheet Arrangements


Lease Residual Value Guarantees
Under the operating lease agreement on our headquarters facility in Houston,
Texas, we have a residual value guarantee with a maximum future exposure of $554
million at December 31, 2019. The operating lease term ends in June 2021 and
provides us the option, at the end of the lease term, to request to renew the
lease, purchase the facility or assist the lessor in marketing it for resale. We
also have residual value guarantees associated with railcar and airplane leases
with maximum potential future payments totaling $372 million at December 31,
2019. These leases have remaining terms of up to four years.

Dakota Access
In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of
$2,500 million aggregate principal amount of unsecured senior notes. The net
proceeds from the issuance of these notes were used to repay amounts outstanding
under existing credit facilities of Dakota Access and ETCO. Dakota Access and
ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners
and its co-venturers in Dakota Access provided a Contingent Equity Contribution
Undertaking (CECU) in conjunction with the notes offering. Under the CECU, if
Dakota Access receives an unfavorable court ruling related to certain disputed
construction permits and Dakota Access determines that an equity contribution
trigger event has occurred, the venturers may be severally required to make
proportionate equity contributions to Dakota Access and ETCO up to an aggregate
maximum of approximately $2,525 million. Phillips 66 Partners' share of the
maximum potential equity contributions under the CECU is approximately $631
million.

Gray Oak Pipeline
In June 2019, Gray Oak Pipeline, LLC entered into a third-party term loan
facility with an initial borrowing capacity of $1,230 million, which was
increased to $1,317 million in July 2019, and $1,379 million in January 2020,
inclusive of accrued interest. Borrowings under the facility are due on June 3,
2022. Phillips 66 Partners and its co-venturers provided a guarantee through an
equity contribution agreement requiring proportionate equity contributions to
Gray Oak Pipeline, LLC up to the total outstanding loan amount. Under the
agreement, Phillips 66 Partners' maximum potential amount of future obligations
is $583 million, plus any additional accrued interest and associated fees, which
would be required if the term loan facility is fully utilized and Gray Oak
Pipeline, LLC defaults on certain of its obligations thereunder. At December 31,
2019, Gray Oak Pipeline, LLC had outstanding borrowings of $1,170 million, and
Phillips 66 Partners' 42.25% proportionate exposure under the equity
contribution agreement was $494 million.

Other Guarantees
At December 31, 2019, we had other guarantees outstanding for our portion of
certain joint venture debt obligations and purchase obligations that have
remaining terms of up to six years. The maximum potential amount of future
payments to third parties under these guarantees was approximately $263 million.
Payment would be required if a joint venture defaults on its obligations.

See Note 13-Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.

                                       52

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

Capital Requirements


Capital Expenditures and Investments
For information about our capital expenditures and investments, see the "Capital
Spending" section below.

Debt Financing Our debt balance at December 31, 2019, was $11.8 billion and our total debt-to-capital ratio was 30%.


See Note 12-Debt, in the Notes to Consolidated Financial Statements, for our
annual debt maturities over the next five years and more information on debt
repayments.

Dividends

On February 5, 2020, our Board of Directors declared a quarterly cash dividend
of $0.90 per common share, payable March 2, 2020, to holders of record at the
close of business on February 18, 2020. We forecast that our quarterly dividend
will continue to increase in 2020.

Share Repurchases
On October 4, 2019, our Board of Directors approved a new share repurchase
program that authorizes us to repurchase up to $3 billion of our common stock,
bringing the total amount of share repurchases authorized by our Board of
Directors since July 2012 to an aggregate of $15 billion. The authorizations do
not have expiration dates. The share repurchases are expected to be funded
primarily through available cash. The shares under these authorizations are
repurchased from time to time in the open market at our discretion, subject to
market conditions and other factors, and in accordance with applicable
regulatory requirements. Since the inception of our share repurchase programs in
2012 through December 31, 2019, we have repurchased 154 million shares at an
aggregate cost of $12 billion. Shares of stock repurchased are held as treasury
shares.

Employee Benefit Plan Contributions
For the year ended December 31, 2019, we contributed $57 million to our U.S.
employee benefit plans and $28 million to our international employee benefit
plans. In 2020, we expect to contribute approximately $75 million to those
plans.


                                       53

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

Contractual Obligations

The following table summarizes our aggregate contractual fixed and variable obligations as of December 31, 2019:

                                                     Millions of Dollars
                                                    Payments Due by Period
                                                    Up to     Years    Years      After
                                          Total    1 Year       2-3      4-5    5 Years

Debt obligations (a)                  $  11,576       525     2,550      300      8,201
Finance lease obligations                   277        19        30       30        198
Software obligations                         10         3         5        2          -
Total debt                               11,863       547     2,585      332      8,399
Interest on debt                          7,323       497       914      779      5,133
Operating lease obligations               1,409       488       427      195        299
Purchase obligations (b)                 83,449    40,666     7,519    4,382     30,882
Other long-term liabilities (c)
Asset retirement obligations                280         8        39       25        208
Accrued environmental costs                 441        75       118       68        180
Repatriation income tax liability (d)        90         1        19       41         29
Total                                 $ 104,855    42,282    11,621    5,822     45,130



(a) For additional information, see Note 12-Debt, in the Notes to Consolidated

Financial Statements.

(b) Represents any agreement to purchase goods or services that is enforceable,

      legally binding and specifies all significant terms. We expect these
      purchase obligations will be fulfilled with operating cash flows in the
      applicable maturity period. The majority of the purchase obligations are

market-based contracts, including exchanges and futures, for the purchase

of products such as crude oil and raw NGL. The products are used to supply

our refineries and fractionators and optimize our supply chain. Product

      purchase commitments with third parties totaled $36,271 million. In
      addition, $21,779 million are product purchases from CPChem, mostly for
      fuel gas and natural gasoline over the remaining contractual term of 80
      years, and product purchases of $3,640 million from DCP Midstream for NGL
      over the remaining contractual term of nine years.


Purchase obligations of $6,187 million are related to agreements to access and
utilize the capacity of third-party equipment and facilities, including
pipelines and product terminals, to transport, process, treat, and store
products. The remainder is primarily our net share of purchase commitments for
materials and services for jointly owned facilities where we are the operator.
(c)   Excludes pensions and unrecognized income tax benefits. From 2020 through

2024, we expect to contribute an average of $110 million per year to our

qualified and nonqualified pension and other postretirement benefit plans

in the United States and an average of $25 million per year to our non-U.S.

plans. The U.S. five-year average consists of approximately $50 million for

2020 and $120 million per year for the remaining four years. Our minimum

funding in 2020 is expected to be $50 million in the United States and $25

million outside the United States. Unrecognized income tax benefits of $40

million and the associated interest and penalties of $10 million were

excluded because the ultimate disposition and timing of any payments to be

made with regard to such amounts are not reasonably estimable. Although

      unrecognized income tax benefits are not a contractual obligation, they
      represent potential demands on our liquidity.


(d)   We elected to pay the one-time deemed repatriation income tax on

foreign-sourced earnings, recognized as a result of the Tax Act enacted in

      December 2017, in installments over eight years beginning in 2018. The
      amount represents the remaining income tax liability.




                                       54

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

Capital Spending


Our capital expenditures and investments represent consolidated capital
spending. Our adjusted capital spending is a non-GAAP financial measure that
demonstrates our net share of capital spending, and reflects an adjustment for
the portion of our consolidated capital spending funded by certain joint venture
partners.

                                                      Millions of Dollars
                                           2020
                                         Budget          2019          2018          2017
Capital Expenditures and Investments
Midstream                            $    2,390         2,292         1,548           771
Chemicals                                     -             -             -             -
Refining                                  1,035         1,001           826           853
Marketing and Specialties                   161           374           125           108
Corporate and Other                         204           206           140           100
Total Capital Expenditures and
Investments                               3,790         3,873         2,639 

1,832

Less: capital spending funded by
certain joint venture partners*             469           423             -             -
Adjusted Capital Spending            $    3,321         3,450         2,639         1,832

Selected Equity Affiliates**
DCP Midstream                        $      350           472           484           268
CPChem                                      656           382           339           776
WRB                                         215           175           156           126
                                     $    1,221         1,029           979         1,170


* Included in the Midstream segment.
** Our share of joint venture's self-funded capital spending.


Midstream

Capital spending in our Midstream segment during the three-year period ended December 31, 2019, included:

• Construction activities related to additional Gulf Coast fractionation

       capacity projects.


• Contributions to Gray Oak Pipeline, LLC to progress construction of the

pipeline system, of which Phillips 66 Partners had a 42.25% effective

ownership interest at December 31, 2019. The Gray Oak Pipeline system will

transport crude oil from the Permian and Eagle Ford to Texas Gulf Coast

       destinations that include Corpus Christi, the Sweeny area, including our
       Sweeny Refinery, as well as access to the Houston market.



•      Construction activities related to increasing storage capacity at our

crude oil and refined petroleum products terminal located near Beaumont,

       Texas.


• Contributions to Bayou Bridge Pipeline, LLC (Bayou Bridge), a Phillips 66

Partners 40 percent-owned joint venture, for the construction of a

pipeline from Nederland, Texas, to Lake Charles, Louisiana, and a pipeline

       segment from Lake Charles to St. James, Louisiana.


• Completion of the construction of Phillips 66 Partners' new isomerization

       unit at the Lake Charles Refinery.



•      Contributions to Dakota Access and ETCO, two Phillips 66 Partners 25
       percent-owned joint ventures, for post-construction spending related to
       Bakken Pipeline.


• Construction activities related to Phillips 66 Partners' new ethane

pipeline from the Clemens Caverns to petrochemical facilities in Gregory,

       Texas, near Corpus Christi (C2G Pipeline).



                                       55

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

• Construction activities related to increasing capacity on the Sweeny to

       Pasadena refined petroleum products pipeline.


• Contributions to South Texas Gateway Terminal for construction activities

       related to the marine export terminal that connects to the Gray Oak
       Pipeline in Corpus Christi, Texas.


• Formation of a 50/50 joint venture, Liberty Pipeline LLC, to construct the

       Liberty Pipeline, which will transport crude oil from the Rockies and
       Bakken production areas to Cushing, Oklahoma.


• Formation of a 50/50 joint venture, Red Oak Pipeline, LLC, to construct

the Red Oak Pipeline System, which will transport crude oil from Cushing,

       Oklahoma, and the Permian to multiple destinations along the Texas Gulf
       Coast.



•      Spending associated with other return, reliability and maintenance
       projects in our Transportation and NGL businesses.



During the three-year period ended December 31, 2019, DCP Midstream's
self-funded capital expenditures and investments were $2.4 billion on a 100%
basis. Capital spending during this period was primarily for expansion projects,
including construction of the Mewbourn 3 and O'Connor 2 plants, and investments
in the expansion of Sand Hills NGL pipeline and the Gulf Coast Express pipeline
joint venture, as well as maintenance capital expenditures for existing assets.

Chemicals

During the three-year period ended December 31, 2019, CPChem had a self-funded
capital program that totaled $3.0 billion on a 100% basis. The capital spending
was primarily for the development of USGC petrochemical projects,
debottlenecking projects on existing assets, and the development of a
petrochemicals complex in Qatar.

Refining

Capital spending for the Refining segment during the three-year period ended
December 31, 2019, was $2.7 billion, primarily for refinery upgrade projects to
increase accessibility of advantaged crudes and improve product yields;
improvements to the operating integrity of key processing units; and
safety-related projects. Our equity affiliates in the Refining segment had
self-funding capital programs in 2019. During this three-year period, on a 100%
basis, WRB's capital expenditures and investments were $913 million.

Key projects completed during the three-year period included:

• Installation of facilities to improve clean product yield at the Lake

Charles, Ponca City, and Bayway refineries, as well as the jointly owned

       Borger and Wood River refineries.


• Installation of facilities to improve processing of advantaged crudes at

       the Billings and Lake Charles refineries.



•      Installation of facilities to comply with the U.S. Environmental
       Protection Agency (EPA) Tier 3 gasoline regulations at the Bayway,
       Ferndale, and Sweeny refineries.


Major construction activities in progress include:

• Installation of facilities to increase production of higher-value

petrochemical products and higher-octane gasoline at the Sweeny Refinery.

• Installation of facilities to produce biofuels at the Humber Refinery.

• Installation of facilities to improve clean product yield at the Bayway

and Ponca City refineries, as well as the jointly owned Borger Refinery.





                                       56

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements



Marketing and Specialties
Capital spending for the M&S segment during the three-year period ended December
31, 2019, was primarily for the investment in a retail joint venture with
operations primarily on the U.S. West Coast; acquisition, construction and
improvement of our international retail sites; and safety and reliability
projects at our lubricants facilities.

Corporate and Other Capital spending for Corporate and Other during the three-year period ended December 31, 2019, was primarily for information technology and facilities.


2020 Budget
Our 2020 capital budget is $3.8 billion, including $469 million of capital
expected to be funded by prospective joint venture partners. Our projected $3.8
billion capital budget excludes our portion of planned capital spending by our
major joint ventures DCP Midstream, CPChem and WRB totaling $1.2 billion, all of
which is expected to be self-funded. Phillips 66 Partners' planned capital
spending of $962 million, which includes $95 million of capital expected to be
funded by joint venture partners, is included in the $3.8 billion capital
budget.

The Midstream capital budget of $2.4 billion, of which $469 million will be
funded by joint venture partners, includes funding for the Liberty and Red Oak
crude oil pipeline joint ventures and 450,000 BPD of additional fractionation
capacity at the Sweeny Hub. The Midstream capital budget also includes growth
capital at Phillips 66 Partners to support organic projects, including the Gray
Oak Pipeline, the C2G Pipeline, the South Texas Gateway Terminal, and the Bakken
Pipeline, as well as sustaining capital. Refining's capital budget of $1.0
billion is primarily directed toward reliability, safety and environmental
projects, as well as high-return projects to enhance the yield of higher-value
products, including upgrades to the fluid catalytic cracking units at the Ponca
City and Sweeny refineries, renewable diesel projects and other high-return,
quick-payout projects designed to enhance margins. In M&S, our budgeted spending
includes approximately $160 million of growth and sustaining capital, primarily
to develop and enhance our retail sites in Europe. In Corporate and Other, we
plan to fund approximately $205 million in projects primarily related to
information technology projects, including an investment in a new enterprise
resource planning system.

Contingencies

A number of lawsuits involving a variety of claims that arose in the ordinary
course of business have been filed against us or are subject to indemnifications
provided by us. We also may be required to remove or mitigate the effects on the
environment of the placement, storage, disposal or release of certain chemical,
mineral and petroleum substances at various active and inactive sites. 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. 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. We do not reduce these liabilities for
potential insurance or third-party recoveries. If applicable, we accrue
receivables for probable insurance or other third-party recoveries. In the case
of income tax-related contingencies, we use a cumulative probability-weighted
loss accrual in cases where sustaining a tax position is less than certain.

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. Estimates particularly sensitive to future
changes include contingent liabilities recorded for environmental remediation,
tax and legal matters. Estimated future environmental remediation costs are
subject to change due to such factors as the uncertain magnitude of cleanup
costs, the unknown time and extent of such remedial actions that may be
required, and the determination of our liability in proportion to that of other
potentially responsible parties. Estimated future costs related to tax and legal
matters are subject to change as events evolve and as additional information
becomes available during the administrative and litigation processes.


                                       57

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements



Legal and Tax Matters
Our legal and tax matters are handled by our legal and tax organizations. These
organizations apply their knowledge, experience and professional judgment to the
specific characteristics of our cases and uncertain tax positions. We employ a
litigation management process to manage and monitor the legal proceedings. Our
process facilitates the early evaluation and quantification of potential
exposures in individual cases and enables the tracking of those cases that have
been scheduled for trial and/or mediation. Based on professional judgment and
experience in using these litigation management tools and available information
about current developments in all our cases, our legal organization regularly
assesses the adequacy of current accruals and determines if adjustment of
existing accruals, or establishment of new accruals, is required. 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. See Note 21-Income Taxes, in the
Notes to Consolidated Financial Statements, for additional information about
income tax-related contingencies.

Environmental

We are subject to international, federal, state and local environmental laws and regulations. Among the most significant of these international and federal environmental laws and regulations are the:

U.S. Federal Clean Air Act, which governs air emissions.

U.S. Federal Clean Water Act, which governs discharges into water bodies.

• European Union Regulation for Registration, Evaluation, Authorization and

     Restriction of Chemicals (REACH), which governs production, marketing and
     use of chemicals.


•    U.S. Federal Comprehensive Environmental Response, Compensation and

Liability Act (CERCLA), which imposes liability on generators, transporters

and arrangers of hazardous substances at sites where hazardous substance

releases have occurred or are threatening to occur.

U.S. Federal Resource Conservation and Recovery Act (RCRA), which governs

the treatment, storage and disposal of solid waste.

U.S. Federal Emergency Planning and Community Right-to-Know Act (EPCRA),

which requires facilities to report toxic chemical inventories to local

     emergency planning committees and response departments.


•    U.S. Federal Oil Pollution Act of 1990 (OPA90), under which owners and
     operators of onshore facilities and pipelines as well as owners and

operators of vessels are liable for removal costs and damages that result

from a discharge of oil into navigable waters of the United States.

• European Union Trading Directive resulting in the European Union Emissions

Trading Scheme (EU ETS), which uses a market-based mechanism to incentivize

the reduction of greenhouse gas (GHG) emissions.




These laws and their implementing regulations set limits on emissions and, in
the case of discharges to water, establish water quality limits. They also, in
most cases, require permits in association with new or modified operations.
These permits can require an applicant to collect substantial information in
connection with the application process, which can be expensive and time
consuming. In addition, there can be delays associated with notice and comment
periods and the agency's processing of the application. Many of the delays
associated with the permitting process are beyond the control of the applicant.
Many states and foreign countries where we operate also have, or are developing,
similar environmental laws and regulations governing these same types of
activities. While similar, in some cases these regulations may impose
additional, or more stringent, requirements that can add to the cost and
difficulty of developing infrastructure and marketing and transporting products
across state and international borders. For example, in California the South
Coast Air Quality Management District (SCAQMD) approved amendments to the
Regional Clean Air Incentives Market (RECLAIM) that became effective in 2016,
which require a phased reduction of nitrogen oxide emissions through 2022,
affecting refineries in the Los Angeles metropolitan area. In 2017, SCAQMD
required additional nitrogen dioxide emissions reductions through 2025 and is
now promulgating new regulations to replace the RECLAIM program with a
traditional command and control regulatory regime.

                                       58

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements



The ultimate financial impact arising from environmental laws and regulations is
neither clearly known nor easily determinable as new standards, such as air
emission standards, water quality standards and stricter fuel regulations,
continue to evolve. However, environmental laws and regulations, including those
that may arise to address concerns about global climate change, are expected to
continue to have an increasing impact on our operations in the United States and
in other countries in which we operate. Notable areas of potential impacts
include air emissions compliance and remediation obligations in the United
States.
An example of this in the fuels area is the Energy Independence and Security Act
of 2007 (EISA). It requires fuel producers and importers to provide additional
renewable fuels for transportation motor fuels and stipulates a mix of various
types. RINs form the mechanism used by the EPA to record compliance with the
Renewable Fuel Standard. If an obligated party has more RINs than it needs to
meet its obligation, it may sell or trade the extra RINs, or instead choose to
"bank" them for use the following year. We have met the stringent requirements
to date while establishing implementation, operating and capital strategies,
along with advanced technology development, to address projected future
requirements. It is uncertain how various future requirements contained in EISA,
and the regulations promulgated thereunder, may be implemented and what their
full impact may be on our operations. For the 2020 compliance year, the EPA has
set volumes of advanced and total renewable fuel at higher levels than in
previous years; it is uncertain if these increased obligations will be
achievable by fuel producers and shippers without drawing on the RIN bank.
Additionally, we may experience a decrease in demand for refined petroleum
products due to the regulatory program as currently promulgated. This program
continues to be the subject of possible Congressional review and re-promulgation
in revised form, and the EPA's regulations pertaining to the 2014 through 2019
compliance years are subject to legal challenge, further creating uncertainty
regarding renewable fuel volume requirements and obligations. Compliance with
the regulation has been further complicated as the market for RINs has been the
subject of fraudulent third-party activity, and it is possible that some RINs
that we have purchased may be determined to be invalid. Should that occur, we
could incur costs to replace those fraudulent RINs. Although the cost for
replacing any fraudulently marketed RINs is not reasonably estimable at this
time, we would not expect to incur the full financial impact of fraudulent RINs
replacement costs in any single interim or annual period, and would not expect
such costs to have a material impact on our results of operations or financial
condition.
We also are subject to certain laws and regulations relating to environmental
remediation obligations associated with current and past operations. Such laws
and regulations include CERCLA and RCRA and their state equivalents. Remediation
obligations include cleanup responsibility arising from petroleum releases from
underground storage tanks located at numerous previously and currently owned
and/or operated petroleum-marketing outlets throughout the United States.
Federal and state laws require contamination caused by such underground storage
tank releases be assessed and remediated to meet applicable standards. In
addition to other cleanup standards, many states have adopted cleanup criteria
for methyl tertiary-butyl ether for both soil and groundwater.
At RCRA-permitted facilities, we are required to assess environmental
conditions. If conditions warrant, we may be required to remediate contamination
caused by prior operations. In contrast to CERCLA, which is often referred to as
"Superfund," the cost of corrective action activities under RCRA corrective
action programs typically is borne solely by us. We anticipate increased
expenditures for RCRA remediation activities may be required, but such annual
expenditures for the near term are not expected to vary significantly from the
range of such expenditures we have experienced over the past few years.
Longer-term expenditures are subject to considerable uncertainty and may
fluctuate significantly.
We occasionally receive requests for information or notices of potential
liability from the EPA and state environmental agencies alleging that we are a
potentially responsible party under CERCLA or an equivalent state statute. On
occasion, we also have been made a party to cost recovery litigation by those
agencies or by private parties. These requests, notices and lawsuits assert
potential liability for remediation costs at various sites that typically are
not owned by us, but allegedly contain wastes attributable to our past
operations. As of December 31, 2018, we reported that we had been notified of
potential liability under CERCLA and comparable state laws at 27 sites within
the United States. During 2019, there were no new sites for which we received
notice of potential liability nor were any existing sites deemed resolved and
closed, leaving 27 unresolved sites with potential liability at December 31,
2019.

                                       59

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements



For the majority of Superfund sites, our potential liability will be less than
the total site remediation costs because the percentage of waste attributable to
us, versus that attributable to all other potentially responsible parties, is
relatively low. Although liability of those potentially responsible is generally
joint and several for federal sites and frequently so for state sites, other
potentially responsible parties at sites where we are a party typically have had
the financial strength to meet their obligations, and where they have not, or
where potentially responsible parties could not be located, our share of
liability has not increased materially. Many of the sites for which we are
potentially responsible are still under investigation by the EPA or the state
agencies concerned. Prior to actual cleanup, those potentially responsible
normally assess site conditions, apportion responsibility and determine the
appropriate remediation. In some instances, we may have no liability or attain a
settlement of liability. Actual cleanup costs generally occur after the parties
obtain the EPA or equivalent state agency approval of a remediation plan. There
are relatively few sites where we are a major participant, and given the timing
and amounts of anticipated expenditures, neither the cost of remediation at
those sites nor such costs at all CERCLA sites, in the aggregate, is expected to
have a material adverse effect on our competitive or financial condition.
Expensed environmental costs were $691 million in 2019 and are expected to be
approximately $765 million and $760 million in 2020 and 2021, respectively.
Capitalized environmental costs were $133 million in 2019 and are expected to be
approximately $155 million and $180 million, in 2020 and 2021, respectively.
This amount does not include capital expenditures made for another purpose that
have an indirect benefit on environmental compliance.
Accrued liabilities for remediation activities are not reduced for potential
recoveries from insurers or other third parties and are not discounted (except
those assumed in a business combination, which we record on a discounted basis).
Many of these liabilities result from CERCLA, RCRA and similar state laws that
require us to undertake certain investigative and remedial activities at sites
where we conduct, or once conducted, operations or at sites where our generated
waste was disposed. We also have accrued for a number of sites we identified
that may require environmental remediation, but which are not currently the
subject of CERCLA, RCRA or state enforcement activities. If applicable, we
accrue receivables for probable insurance or other third-party recoveries. In
the future, we may incur significant costs under both CERCLA and RCRA.
Remediation activities vary substantially in duration and cost from site to
site, depending on the mix of unique site characteristics, evolving remediation
technologies, diverse regulatory agencies and enforcement policies, and the
presence or absence of potentially liable third parties. Therefore, it is
difficult to develop reasonable estimates of future site remediation costs.
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. However, we currently do not expect
any material adverse effect on our results of operations or financial position
as a result of compliance with current environmental laws and regulations.

Climate Change
There has been a broad range of proposed or promulgated state, national and
international laws focusing on GHG emissions reduction, including various
regulations proposed or issued by the EPA. These proposed or promulgated laws
apply or could apply in states and/or countries where we have interests or may
have interests in the future. Laws regulating GHG emissions continue to evolve,
and while it is not possible to accurately estimate either a timetable for
implementation or our future compliance costs relating to implementation, such
laws potentially could have a material impact on our results of operations and
financial condition as a result of increasing costs of compliance, lengthening
project implementation and agency reviews, or reducing demand for certain
hydrocarbon products. Examples of legislation or precursors for possible
regulation that do or could affect our operations include:

EU ETS, which is part of the European Union's policy to combat climate

     change and is a key tool for reducing industrial GHG emissions. EU ETS
     impacts factories, power stations and other installations across all EU
     member states.

California's Senate Bill No. 32, which requires reduction of California's

GHG emissions to 40% below the 1990 emission level by 2030, and Assembly

Bills 398, which extends the California GHG emission cap-and-trade program

through 2030. Other GHG emissions programs in the western U.S. states have

been enacted or are under consideration or development, including amendments

to California's Low Carbon Fuel Standard, Oregon's Low Carbon Fuel Standard,

     and Washington's carbon reduction programs.



                                       60

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

The U.S. Supreme Court decision in Massachusetts v. EPA, 549 U.S. 497, 127

S. Ct. 1438 (2007), confirming that the EPA has the authority to regulate

carbon dioxide as an "air pollutant" under the Federal Clean Air Act.

• The EPA's announcement on March 29, 2010 (published as "Interpretation of

Regulations that Determine Pollutants Covered by Clean Air Act Permitting

Programs," 75 Fed. Reg. 17004 (April 2, 2010)), and the EPA's and U.S.

Department of Transportation's joint promulgation of a Final Rule on

April 1, 2010, that triggers regulation of GHGs under the Clean Air Act.

These collectively may lead to more climate-based claims for damages, and

may result in longer agency review time for development projects to

determine the extent of potential climate change.

• The EPA's 2015 Final Rule regulating GHG emissions from existing fossil

fuel-fired electrical generating units under the Federal Clean Air Act,

commonly referred to as the Clean Power Plan. The EPA commenced rulemaking

in 2017 to rescind the Clean Power Plan and, in August 2018, the EPA

proposed the Affordable Clean Energy (ACE) rule as its replacement. The ACE

rule has been judicially challenged by environmental organizations and

several states and municipalities.

Carbon taxes in certain jurisdictions.

• GHG emission cap and trade programs in certain jurisdictions.




In the EU, the first phase of the EU ETS completed at the end of 2007 and Phase
II was undertaken from 2008 through 2012. The current phase (Phase III) runs
from 2013 through to 2020, with the main changes being reduced allocation of
free allowances and increased auctioning of new allowances. Phillips 66 has
assets that are subject to the EU ETS, and the company is actively engaged in
minimizing any financial impact from the EU ETS.

From November 30 to December 12, 2015, more than 190 countries, including the
United States, participated in the United Nations Climate Change Conference in
Paris, France. The conference culminated in what is known as the "Paris
Agreement," which, upon certain conditions being met, entered into force on
November 4, 2016. The Paris Agreement establishes a commitment by signatory
parties to pursue domestic GHG emission reductions. In 2017, the President of
the United States announced his intention to withdraw the United States from the
Paris Agreement. On November 4, 2019, the United States submitted formal
notification of its withdrawal to the United Nations, triggering a one-year
waiting period to final withdrawal.

In the United States, some additional form of regulation is likely to be
forthcoming in the future at the state or federal levels with respect to GHG
emissions. Such regulation could take any of several forms that may result in
additional financial burden in the form of taxes, the restriction of output,
investments of capital to maintain compliance with laws and regulations, or
required acquisition or trading of emission allowances.

Compliance with changes in laws and regulations that create a GHG emission
trading program, GHG reduction requirements or carbon taxes could significantly
increase our costs, reduce demand for fossil energy derived products, impact the
cost and availability of capital and increase our exposure to litigation. Such
laws and regulations could also increase demand for less carbon intensive energy
sources.

An example of one such program is California's cap and trade program, which was
promulgated pursuant to the State's Global Warming Solutions Act. The program
had been limited to certain stationary sources, which include our refineries in
California, but beginning in January 2015 was expanded to include emissions from
transportation fuels distributed in California. Inclusion of transportation
fuels in California's cap and trade program as currently promulgated has
increased our cap and trade program compliance costs. The ultimate impact on our
financial performance, either positive or negative, from this and similar
programs, will depend on a number of factors, including, but not limited to:

• Whether and to what extent legislation or regulation is enacted.

• The nature of the legislation or regulation, such as a cap and trade system

or a tax on emissions.

• The GHG reductions required.

• The price and availability of offsets.

• The demand for, and amount and allocation of allowances.

• Technological and scientific developments leading to new products or services.




                                       61

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements


•    Any potential significant physical effects of climate change, such as
     increased severe weather events, changes in sea levels and changes in
     temperature.

• Whether, and the extent to which, increased compliance costs are ultimately

reflected in the prices of our products and services.




We consider and take into account anticipated future GHG emissions in designing
and developing major facilities and projects, and implement energy efficiency
initiatives to reduce GHG emissions. Data on our GHG emissions, legal
requirements regulating such emissions, and the possible physical effects of
climate change on our coastal assets are incorporated into our planning,
investment, and risk management decision-making. We are working to continuously
improve operational and energy efficiency through resource and energy
conservation throughout our operations.

                                       62

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

CRITICAL ACCOUNTING ESTIMATES


The preparation of financial statements in conformity with GAAP requires
management to select appropriate accounting policies and to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. See Note 1-Summary of Significant Accounting Policies, in the
Notes to Consolidated Financial Statements, for descriptions of our major
accounting policies. Some of these accounting policies involve judgments and
uncertainties to such an extent that there is a reasonable likelihood that
materially different amounts would have been reported under different
conditions, or if different assumptions had been used. The following discussion
of critical accounting estimates, along with the discussion of contingencies in
this report, address all important accounting areas where the nature of
accounting estimates or assumptions could be material due to the levels of
subjectivity and judgment necessary to account for highly uncertain matters or
the susceptibility of such matters to change.

Impairments

Long-lived assets used in operations are assessed for impairment whenever
changes in facts and circumstances indicate a possible significant deterioration
in future expected cash flows. If the sum of the undiscounted expected future
pre-tax cash flows of an asset group is less than the carrying value, including
applicable liabilities, the carrying value is written down to estimated fair
value. Individual assets are grouped for impairment purposes based on a
judgmental assessment of the lowest level for which there are identifiable cash
flows that are largely independent of the cash flows of other assets (for
example, at a refinery complex level). Because there usually is a lack of quoted
market prices for long-lived assets, the fair value of impaired assets is
typically determined using one or more of the following methods: the present
value of expected future cash flows using discount rates and other assumptions
believed to be consistent with those used by principal market participants; a
market multiple for similar assets; or historical market transactions including
similar assets, adjusted using principal market participant assumptions when
necessary. The expected future cash flows used for impairment reviews and
related fair value calculations are based on judgmental assessments, including
future volumes, commodity prices, operating costs, margins, discount rates and
capital project decisions, considering all available information at the date of
review.

Investments in nonconsolidated entities accounted for under the equity method
are assessed for impairment when there are indicators of a loss in value, such
as a lack of sustained earnings capacity or a current fair value less than the
investment's carrying amount. When it is determined that an indicated impairment
is other than temporary, a charge is recognized for the difference between the
investment's carrying value and its estimated fair value.

When determining whether a decline in value is other than temporary, management
considers factors such as the duration and extent of the decline, the investee's
financial condition and near-term prospects, and our ability and intention to
retain our investment for a period that allows for recovery. When quoted market
prices are not available, the fair value is usually based on the present value
of expected future cash flows using discount rates and other assumptions
believed to be consistent with those used by principal market participants and
observed market earnings multiples of comparable companies, if appropriate.
Different assumptions could affect the timing and the amount of an impairment of
an investment in any period.

Asset Retirement Obligations
Under various contracts, permits and regulations, we have legal obligations to
remove tangible equipment and restore the land at the end of operations at
certain operational sites. Our largest asset removal obligations involve
asbestos abatement at refineries. Estimating the timing and cost of future asset
removals is difficult. Most of these removal obligations are many years, or
decades, in the future, and the contracts and regulations often have vague
descriptions of what removal practices and criteria must be met when the removal
event actually occurs. Asset removal technologies and costs, regulatory and
other compliance considerations, expenditure timing, and other inputs into
valuation of the obligation, including discount and inflation rates, are also
subject to change.

Environmental Costs
In addition to asset retirement obligations discussed above, we have certain
obligations to complete environmental-related projects. These projects are
primarily related to cleanup at domestic refineries, underground storage sites
and nonoperated sites. Future environmental remediation costs are difficult to
estimate because they are subject to change due to such factors as the uncertain
magnitude of cleanup costs, timing and extent of such remedial actions that may
be required, and the determination of our liability in proportion to that of
other responsible parties.


                                       63

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements



Intangible Assets and Goodwill
At December 31, 2019, we had $752 million of intangible assets that we have
determined to have indefinite useful lives, and therefore do not amortize. The
judgmental determination that an intangible asset has an indefinite useful life
is continuously evaluated. If, due to changes in facts and circumstances,
management determines these intangible assets have finite useful lives,
amortization will commence at that time on a prospective basis. As long as these
intangible assets are determined to have indefinite lives, they will be subject
to at least annual impairment tests that require management's judgment of their
estimated fair value.

At December 31, 2019, we had $3.3 billion of goodwill recorded in conjunction
with past business combinations. Goodwill is not amortized. Instead, goodwill is
subject to at least annual tests for impairment at a reporting unit level. A
reporting unit is an operating segment or a component that is one level below an
operating segment and they are determined primarily based on the manner in which
the business is managed.

We perform our annual goodwill impairment test using a qualitative assessment
and a quantitative assessment, if one is deemed necessary. As part of our
qualitative assessment, we evaluate relevant events and circumstances that could
affect the fair value of our reporting units, including macroeconomic
conditions, overall industry and market considerations and regulatory changes,
as well as company-specific market metrics, performance and events. The
evaluation of company-specific events and circumstances includes evaluating
changes in our stock price and cost of capital, actual and forecasted financial
performance, as well as the effect of significant asset dispositions. If our
qualitative assessment indicates it is likely the fair value of a reporting unit
has declined below its carrying value (including goodwill), a quantitative
assessment is performed.

When a quantitative assessment is performed, management applies judgment in
determining the estimated fair values of the reporting units because quoted
market prices for our reporting units are not available. Management uses
available information to make this fair value determination, including estimated
future cash flows, cost of capital, observed market earnings multiples of
comparable companies, our common stock price and associated total company market
capitalization.

We completed our annual qualitative assessment of goodwill as of October 1, 2019, and concluded that the fair values of our reporting units continued to exceed their respective carrying values (including goodwill) by significant percentages. A decline in the estimated fair value of one or more of our reporting units in the future could result in an impairment. As such, we continue to monitor for indicators of impairment until our next annual impairment test is performed.


Tax Assets and Liabilities
Our operations are subject to various taxes, including federal, state and
foreign income taxes, property taxes, and transactional taxes such as excise,
sales/use, value-added and payroll taxes. We record tax liabilities based on our
assessment of existing tax laws and regulations. The recording of tax
liabilities requires significant judgment and estimates. We recognize the
financial statement effects of an income tax position when it is more likely
than not that the position will be sustained upon examination by a taxing
authority. A contingent liability related to a transactional tax claim is
recorded if the loss is both probable and reasonably estimable. Actual incurred
tax liabilities can vary from our estimates for a variety of reasons, including
different interpretations of tax laws and regulations and different assessments
of the amount of tax due.

In determining our income tax expense (benefit), we assess the likelihood our
deferred tax assets will be recovered through future taxable income. Valuation
allowances reduce deferred tax assets to an amount that will, more likely than
not, be realized. Judgment is required in estimating the amount of valuation
allowance, if any, that should be recorded against our deferred tax assets.
Based on our historical taxable income, our expectations for the future, and
available tax-planning strategies, we expect the net deferred tax assets will
more likely than not be realized as offsets to reversing deferred tax
liabilities and as reductions to future taxable income. If our actual results of
operations differ from such estimates or our estimates of future taxable income
change, the valuation allowance may need to be revised.

New tax laws and regulations, as well as changes to existing tax laws and
regulations, are continuously being proposed or promulgated. The implementation
of future legislative and regulatory tax initiatives could result in increased
income tax liabilities that cannot be predicted at this time.

                                       64

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements



Projected Benefit Obligations
Calculation of the projected benefit obligations for our defined benefit pension
and postretirement plans impacts the obligations on the balance sheet and the
amount of benefit expense in the income statement. The actuarial calculation of
projected benefit obligations and company contribution requirements involves
judgment about uncertain future events, including estimated retirement dates,
salary levels at retirement, mortality rates, lump-sum election rates, rates of
return on plan assets, future interest rates, future health care cost-trend
rates, and rates of utilization of health care services by retirees. We engage
outside actuarial firms to assist in the calculation of these projected benefit
obligations and company contribution requirements due to the specialized nature
of these calculations. As financial accounting rules and the pension plan
funding regulations promulgated by governmental agencies have different
objectives and requirements, the actuarial methods and assumptions for the two
purposes differ in certain important respects. Ultimately, we will be required
to fund all promised benefits under pension and postretirement benefit plans not
funded by plan assets or investment returns, but the judgmental assumptions used
in the actuarial calculations significantly affect periodic financial statements
and funding patterns over time. Benefit expense is particularly sensitive to the
discount rate and return on plan assets assumptions. A one percentage-point
decrease in the discount rate assumption used for the plan obligation would
increase annual benefit expense by an estimated $55 million, while a
one percentage-point decrease in the return on plan assets assumption would
increase annual benefit expense by an estimated $35 million. In determining the
discount rate, we use yields on high-quality fixed income investments with
payments matched to the estimated distributions of benefits from our plans.

The expected weighted-average long-term rate of return for worldwide pension
plan assets was approximately 6% for both 2019 and 2018, while the actual
weighted-average rate of return was 18% in 2019 and negative 4% in 2018. For the
past ten years, our actual weighted-average rate of return for worldwide pension
plan assets was 9%.



                                       65

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements


NON-GAAP RECONCILIATIONS

Refining

Our realized refining margins measure the difference between a) sales and other
operating revenues derived from the sale of petroleum products manufactured at
our refineries and b) purchase costs of feedstocks, primarily crude oil, used to
produce the petroleum products. The realized refining margins are adjusted to
include our proportional share of our joint venture refineries' realized
margins, as well as to exclude those items that are not representative of the
underlying operating performance of a period, which we call "special items." The
realized refining margins are converted to a per-barrel basis by dividing them
by total refinery processed inputs (primarily crude oil) measured on a barrel
basis, including our share of inputs processed by our joint venture refineries.
Our realized refining margin per barrel is intended to be comparable with
industry refining margins, which are known as "crack spreads." As discussed in
"Business Environment," industry crack spreads measure the difference between
market prices for refined petroleum products and crude oil. We believe realized
refining margin per barrel calculated on a similar basis as industry crack
spreads provides a useful measure of how well we performed relative to benchmark
industry refining margins.

The GAAP performance measure most directly comparable to realized refining
margin per barrel is the Refining segment's "income (loss) before income taxes
per barrel." Realized refining margin per barrel excludes items that are
typically included in a manufacturer's 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. It also includes our
proportional share of joint venture refineries' realized refining margins and
excludes special items. Because realized refining margin per barrel is
calculated in this manner, and because realized refining margin per barrel may
be defined differently by other companies in our industry, it has limitations as
an analytical tool. Following are reconciliations of income (loss) before income
taxes to realized refining margins:

                                       66

--------------------------------------------------------------------------------

  Table of Contents
  Index to Financial Statements


                                                   Millions of Dollars, Except as Indicated
                                          Atlantic         Gulf      Central         West
Realized Refining Margins             Basin/Europe        Coast    

Corridor Coast Worldwide


Year Ended December 31, 2019
Income (loss) before income taxes    $         608          364        1,338         (324 )       1,986
Plus:
Taxes other than income taxes                   52           73           40           85           250
Depreciation, amortization and
impairments                                    198          271          135          253           857
Selling, general and administrative
expenses                                        39           23           22           31           115
Operating expenses                             863        1,449          550        1,143         4,005
Equity in (earnings) losses of
affiliates                                      11            2         (331 )          -          (318 )
Other segment (income) expense, net            (16 )         (3 )          -            5           (14 )
Proportional share of refining gross
margins contributed by equity
affiliates                                      69            -        1,073            -         1,142
Special items:
Pending claims and settlements                   -            -          (21 )          -           (21 )
Realized refining margins            $       1,824        2,179        

2,806 1,193 8,002


Total processed inputs (thousands of
barrels)                                   195,506      293,666      103,294      130,014       722,480
Adjusted total processed inputs
(thousands of barrels)*                    195,506      293,666      

188,045 130,014 807,231


Income (loss) before income taxes
per barrel (dollars per barrel)**    $        3.11         1.24        12.95        (2.49 )        2.75
Realized refining margins (dollars
per barrel)***                                9.33         7.42        

14.91 9.18 9.91


Year Ended December 31, 2018
Income before income taxes           $         567        1,040        2,817          111         4,535
Plus:
Taxes other than income taxes                   56           88           43          100           287
Depreciation, amortization and
impairments                                    201          268          135          237           841
Selling, general and administrative
expenses                                        63           57           34           50           204
Operating expenses                             950        1,312          488        1,040         3,790
Equity in (earnings) losses of
affiliates                                      10            6         (812 )          -          (796 )
Other segment (income) expense, net            (11 )          3          (13 )         (9 )         (30 )
Proportional share of refining gross
margins contributed by equity
affiliates                                      87            -        1,565            -         1,652
Special items:
Certain tax impacts                             (5 )          -            -            -            (5 )
Realized refining margins            $       1,918        2,774        

4,257 1,529 10,478


Total processed inputs (thousands of
barrels)                                   186,042      292,665      106,299      136,332       721,338
Adjusted total processed inputs
(thousands of barrels)*                    186,042      292,665      

191,561 136,332 806,600


Income before income taxes per
barrel (dollars per barrel)**        $        3.05         3.55        26.50         0.81          6.29
Realized refining margins (dollars
per barrel)***                               10.32         9.48        

22.22 11.20 12.99

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

 ** 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. As such,
recalculated per barrel amounts using the rounded margins and barrels presented may slightly differ from
the presented per barrel amounts.



                                       67

--------------------------------------------------------------------------------

  Table of Contents
  Index to Financial Statements


                                                  Millions of Dollars, Except as Indicated
                                          Atlantic         Gulf      Central         West
Realized Refining Margins             Basin/Europe        Coast    

Corridor Coast Worldwide


Year Ended December 31, 2017
Income before income taxes           $         448          809          755           64       2,076

Plus:

Taxes other than income taxes                   56           97           46           64         263
Depreciation, amortization and
impairments                                    192          273          129          244         838
Selling, general and administrative
expenses                                        61           55           34           48         198
Operating expenses                             847        1,212          593          982       3,634
Equity in (earnings) losses of
affiliates                                      11           (4 )       (329 )          -        (322 )
Other segment (income) expense, net            (10 )       (421 )         13            5        (413 )
Proportional share of refining gross
margins contributed by equity
affiliates                                      59            1          959            -       1,019
Special items:
Certain tax impacts                            (23 )          -            -            -         (23 )
Realized refining margins            $       1,641        2,022        

2,200 1,407 7,270


Total processed inputs (thousands of
barrels)                                   199,068      285,951       92,146      134,089     711,254
Adjusted total processed inputs
(thousands of barrels)*                    199,068      285,951      

176,823 134,089 795,931


Income before income taxes per
barrel (dollars per barrel)**        $        2.25         2.83         8.19         0.48        2.92
Realized refining margins (dollars
per barrel)***                                8.25         7.07        

12.44 10.49 9.13

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

 ** Income 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. As such,
recalculated per barrel amounts using the rounded margins and barrels presented may slightly differ
from the presented per barrel amounts.




                                       68

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

Marketing


Our realized marketing fuel margins measure the difference between a) sales and
other operating revenues derived from the sale of fuels in our M&S segment and
b) purchase costs of those fuels. The realized marketing fuel margins are
adjusted to exclude those items that are not representative of the underlying
operating performance of a period, which we call "special items." The realized
marketing fuel margins are converted to a per-barrel basis by dividing them by
sales volumes measured on a barrel basis. 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. 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. Following are reconciliations of
income before income taxes to realized marketing fuel margins:

                                                    Millions of Dollars, Except as Indicated
                                                  U.S.                                   International
                                     2019         2018         2017              2019         2018         2017
Realized Marketing Fuel Margins

Income before income taxes $ 916 843 628

       380          505          217
Plus:
Taxes other than income taxes*          5           (2 )      5,481                 6            2        7,579
Depreciation, amortization and
impairment                             10           13           14                65           71           67
Selling, general and
administrative expenses               743          763          751               249          280          264
Equity in earnings of
affiliates                            (27 )         (8 )         (5 )             (99 )        (91 )        (83 )
Other operating revenues*            (379 )       (379 )     (5,815 )             (37 )        (32 )     (7,594 )
Other segment (income) expense,
net                                     -            -          (15 )               1            2            2
Special items:
Certain tax impacts                   (90 )       (100 )          -                 -            -            -
Marketing margins                   1,178        1,130        1,039               565          737          452
Less: margin for nonfuel
related sales                           -            -            -                44           44           42

Realized marketing fuel margins $ 1,178 1,130 1,039

      521          693          410

Total fuel sales volumes
(thousands of barrels)            752,064      697,696      703,928           106,263      100,949       97,346

Income before income taxes per
barrel (dollars per barrel)     $    1.22         1.21         0.89              3.58         5.00         2.23
Realized marketing fuel margins
(dollars per barrel)**               1.57         1.62         1.48              4.90         6.87         4.21
* Includes excise taxes on sales of refined petroleum products for the year ended December 31, 2017, prior to our
adoption of ASU No. 2014-09 on January 1, 2018. See Note 1-Summary of Significant Accounting Policies, in the
Notes to Consolidated Financial Statements, for further information on our adoption of this ASU. Other operating
revenues also includes other nonfuel revenues.
** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized
marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel
amounts using the rounded margins and barrels presented may slightly differ from the presented per barrel
amounts.




                                       69

--------------------------------------------------------------------------------

Table of Contents

Index to Financial Statements

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
share via e-mail
Latest news on PHILLIPS 66
03/26PHILLIPS 66 : Reports Unit Shutdown at Sweeny Refinery in Texas
DJ
03/25PHILLIPS 66 : Chevron leads wave of oil-sector spend cuts
AQ
03/24PHILLIPS 66 : Shares Up; Reduces Capital Spending
DJ
03/24PHILLIPS 66 : Entry into a Material Definitive Agreement, Creation of a Direct F..
AQ
03/24GLOBAL MARKETS LIVE: Aeronautics and oil industries hit hard
03/24PHILLIPS 66 : Reduces Capital Spending
DJ
03/24PHILLIPS 66 : Responds to Challenging Business Environment
BU
03/18PHILLIPS 66 : Announces Date Change for First-Quarter Financial Results Announce..
BU
03/16PHILLIPS 66 : Reports Operational Snag at Sweeny Refinery in Texas
DJ
02/28Trafigura forms venture with Phillips 66 for deepwater Texas oil port
RE
More news