PHILLIPS 66 Unless otherwise indicated, "the company," "we," "our," "us" and "Phillips 66"
are used in this report to refer to the businesses of
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 included elsewhere in this report. 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 often identify forward-looking statements, but the absence of these words does not mean a statement is not forward-looking. The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. 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 toPhillips 66 . The terms "before-tax income" or "before-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. AtJune 30, 2020 , we had total assets of$54.5 billion . Our common stock trades on theNew York Stock Exchange under the symbol PSX. Executive Overview The outbreak of Coronavirus Disease 2019 (COVID-19) and its development into a pandemic continues to result in significant economic disruption globally. Actions taken by governments to prevent the spread of the disease included travel and business restrictions, which resulted in substantial decreases in the demand for many refined petroleum products, particularly gasoline and jet fuel. The lack of demand for petroleum products has resulted in low crude oil prices and refining margins. Accordingly, crude oil producers have shut in high cost production, and refiners have reduced crude oil processing rates. The depth and duration of the economic consequences of the COVID-19 pandemic are currently unknown. The near-term outlook for petroleum product demand remains highly uncertain, prices remain volatile, and margins and volumes remain challenged. The adverse effects on our company have significantly impacted our second-quarter earnings and may continue to be significant in the near term.
During the first six months of 2020, we took the following significant steps to enhance our liquidity:
•Secured a$2 billion , 364-day term loan facility, under which we have drawn$1 billion to date. •Issued$2 billion of senior unsecured notes in three tranches of three-, five-, and ten-year maturities. •Temporarily suspended our share repurchase programs. •Reduced our consolidated capital spending plans in 2020 by$700 million . •Executed a plan to reduce operating and administrative costs by$500 million in 2020. 38 -------------------------------------------------------------------------------- Table of Contents In the second quarter of 2020, we reported a loss of$141 million , generated cash from operating activities of$764 million and received approximately$2.0 billion in net proceeds from two public offerings of senior unsecured notes. We used available cash to fund capital expenditures and investments of$939 million , repay$525 million of maturing debt, and pay dividends of$393 million . We ended the second quarter of 2020 with$1.9 billion of cash and cash equivalents and approximately$6.5 billion of total committed capacity available under our revolving credit facilities and new term loan facility. 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 results are primarily driven by fractionation and terminaling margins, throughput volumes, and impacts from NGL prices. The Midstream segment also includes our 50% equity investment inDCP Midstream, LLC (DCP Midstream). Compared with the second quarter of 2019, NGL prices decreased in the second quarter of 2020 due to the negative economic impacts caused by the COVID-19 pandemic. The Chemicals segment consists of our 50% equity investment inChevron Phillips Chemical Company LLC (CPChem). The chemicals and plastics industry is mainly a commodity-based industry where the margins for key products are based on supply and demand, as well as cost factors. During the second quarter of 2020, the benchmark high-density polyethylene chain margin decreased, compared with the second quarter of 2019, driven by the economic impacts of the COVID-19 pandemic and recent capacity additions. 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 ofU.S. benchmark crude oil, West Texas Intermediate (WTI) atCushing, Oklahoma , decreased to an average of$27.80 per barrel during the second quarter of 2020, compared with an average of$59.80 per barrel in the second quarter of 2019, driven by a significant decline in global demand for refined petroleum products in the second quarter of 2020, as a result of the negative global economic impacts of the COVID-19 pandemic. 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 the second quarter of 2020, the worldwide market crack spreads were significantly lower compared with the second quarter of 2019, mainly driven by a sharp decline in demand for refined petroleum products resulting from the significant global economic disruption caused by the COVID-19 pandemic. Results for our Marketing and Specialties (M&S) segment depend largely on marketing fuel and lubricant margins, and sales volumes of our refined petroleum and other specialty products. 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. The significant global disruption caused by COVID-19 also negatively impacted demand for our refined petroleum and specialty products in the second quarter of 2020 compared with the second quarter of 2019. 39 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Unless otherwise indicated, discussion of results for the three and six months endedJune 30, 2020 , is based on a comparison with the corresponding periods of 2019. Consolidated Results
A summary of income (loss) before income taxes by business segment with a
reconciliation to net income (loss) attributable to
Millions of Dollars
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Midstream $ 324 423 (378) 739
Chemicals 42 275 211 502
Refining (878) 983 (3,139) 785
Marketing and Specialties 286 353 799 558
Corporate and Other (219) (205) (416) (415)
Income (loss) before income taxes (445) 1,829 (2,923) 2,169
Income tax expense (benefit) (378) 325 (429) 395
Net income (loss) (67) 1,504 (2,494) 1,774
Less: net income attributable to noncontrolling interests 74 80 143 146
Net income (loss) attributable to Phillips 66 $ (141) 1,424 (2,637) 1,628
Our earnings decreased
•Lower realized refining margins and decreased refinery production. •Lower equity in earnings of affiliates in our Chemicals, Refining and Midstream segments.
These decreases were partially offset by:
•An income tax benefit recognized in the current quarter, compared with income tax expense recognized in the second quarter of 2019.
Our earnings decreased
•A
These decreases were partially offset by:
•An income tax benefit recognized in the current six-month period, compared with income tax expense recognized in the six-month period of 2019.
See the "Segment Results" section for additional information on our segment results.
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Statement of Operations Analysis
Sales and other operating revenues for the second quarter and six-month period
of 2020 decreased 61% and 38%, respectively, and purchased crude oil and
products decreased 61% and 39%, respectively. These decreases were mainly due to
lower prices for refined petroleum products, crude oil, and NGL, as well as
lower volumes.
Equity in earnings of affiliates decreased 76% and 55% in the second quarter and
six-month period of 2020, respectively. The decrease in both periods was
primarily due to lower realized refining margins and decreased refinery
production at WRB Refining LP (WRB) and lower equity earnings from CPChem. See
Chemicals segment analysis in "Segment Results" section for additional
information on CPChem. The second-quarter decrease was also driven by lower
equity earnings from certain of our Midstream joint ventures due to lower
volumes.
Net gain on dispositions increased $85 million in the second quarter and
six-month period of 2020. The increase in both periods was mainly due to a gain
of $84 million associated with a co-venturer's prior-year acquisition of a 35%
interest in the consolidated holding company that owns an interest in Gray Oak
Pipeline, LLC . See Note 19-Phillips 66 Partners LP , in the Notes to Consolidated
Financial Statements, for additional information.
Other income decreased $33 million in the six-month period of 2020. The decrease
was primarily driven by a decrease in the fair value of deferred compensation
investments in the first six months of 2020, compared with an increase in the
fair value of deferred compensation investments in the first six months of 2019,
as well as a decrease in interest income due to lower interest rates in the
first six months of 2020. See Note 13-Fair Value Measurements, in the Notes to
Consolidated Financial Statements, for additional information on the fair value
of the deferred compensation investments.
Operating expenses for the second quarter of 2020 decreased 12%, primarily due to lower refinery maintenance activities and decreased utility costs.
Impairments were$3,006 million for the six-month period of 2020, consisting of an impairment of$1,161 million associated with our investment in DCP Midstream, and a$1,845 million goodwill impairment in our Refining segment. See Note 5-Investments, Loans and Long-Term Receivables and Note 7-Goodwill , in the Notes to Consolidated Financial Statements, for additional information associated with these impairments. We had an income tax benefit of$378 million and$429 million in the second quarter and six-month period of 2020, respectively, compared with income tax expense of$325 million and$395 million , respectively, in the corresponding periods of 2019. See Note 18-Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our effective income tax rates. 41 --------------------------------------------------------------------------------
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Segment Results
Midstream
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Millions of Dollars
Income (Loss) Before Income Taxes
Transportation $ 214 245 414 448
NGL and Other 78 143 257 233
DCP Midstream 32 35 (1,049) 58
Total Midstream $ 324 423 (378) 739
Thousands of Barrels Daily
Transportation Volumes
Pipelines* 2,840 3,417 3,009 3,297
Terminals 2,883 3,261 3,016 3,163
Operating Statistics
NGL fractionated** 170 232 184 233
NGL production*** 374 423 385 425
* 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 $ 0.32 0.51 0.36 0.56
* Based on index prices from the
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 inthe United States . This segment includes our master limited partnership (MLP),Phillips 66 Partners LP (Phillips 66 Partners ), as well as our 50% equity investment in DCP Midstream, which includes the operations of DCP Midstream, LP (DCP Partners ), its MLP. The Midstream segment had before-tax income of$324 million and a before-tax loss of$378 million in the second quarter and six-month period of 2020, respectively, compared with before-tax income of$423 million and$739 million in the corresponding periods of 2019, respectively. The decrease in before-tax income in the second quarter of 2020 was primarily due to decreased results in our Transportation and NGL and Other businesses. The decreased results in the six-month period of 2020 were primarily driven by a$1,161 million before-tax impairment of our equity investment in DCP Midstream, slightly offset by improved results from our NGL and Other business. Before-tax income from our Transportation business decreased$31 million in the second quarter of 2020 and$34 million in the six-month period of 2020. The decrease in both periods was primarily attributable to lower pipeline and terminal volumes driven by decreased refinery utilization, lower equity earnings from joint ventures, and higher operating costs. These decreases were partially offset by a gain of$84 million associated with a co-venturer's prior-year acquisition of a 35% interest in the consolidated holding company that owns an interest inGray Oak Pipeline, LLC . See Note 19-Phillips 66 Partners LP , in the Notes to Consolidated Financial Statements, for additional information. The decrease in the second quarter of 2020 was also driven by unfavorable impacts of pipeline loss allowances due to lower commodity prices. 42 -------------------------------------------------------------------------------- Table of Contents Before-tax income from our NGL and Other business decreased$65 million in the second quarter of 2020 and increased$24 million in the six-month period of 2020. The decrease in the second quarter of 2020 was primarily due to unfavorable impacts associated with NGL inventory storage management, as well as lower margins and volumes at the Sweeny Hub, partially offset by the startup of a new isomerization unit at ourLake Charles Refinery in the second half of 2019. The increase in the six-month period of 2020 was mainly due to the startup of a new isomerization unit at ourLake Charles Refinery in the second half of 2019 and favorable inventory impacts, partially offset by implementation costs for additional fractionation capacity at the Sweeny Hub. The before-tax income (loss) from our investment in DCP Midstream decreased$3 million in the second quarter of 2020 and$1,107 million in the six-month period of 2020. The decrease in the six-month period was primarily due to a$1,161 million before-tax impairment of our equity investment in DCP Midstream as described below. Excluding the impairment, equity earnings from DCP Midstream increased$54 million in the six-month period endedJune 30, 2020 , mainly driven by the recognition of a benefit to equity earnings related to the amortization of the basis difference as described below, and lower operating costs. The fair value of our investment in DCP Midstream depends on the market value ofDCP Partners common units. The market value ofDCP Partners common units declined by approximately 85% in the first quarter of 2020. As a result, atMarch 31, 2020 , the fair value of our investment in DCP Midstream was significantly lower than its book value. We concluded the difference between its fair value and book value was not temporary primarily due to its magnitude. Accordingly, we recorded a$1,161 million before-tax impairment of our investment in the first quarter of 2020. This charge is included in the "Impairments" line item on our consolidated statement of operations for the six months endedJune 30, 2020 . The impairment increased the basis difference for our investment in DCP Midstream to$1.8 billion atMarch 31, 2020 , which indicated the carrying value of our investment was lower than our share of DCP Midstream's recorded net assets atMarch 31, 2020 . The basis difference is being amortized and recognized as a benefit to equity earnings over a period of 22 years, which was the estimated remaining useful life of DCP Midstream's properties, plants and equipment (PP&E) atMarch 31, 2020 . Equity earnings for the three and six months endedJune 30, 2020 , were increased by approximately$20 million and$30 million , respectively, due to the amortization of the basis difference. See Note 13-Fair Value Measurements, for additional information on the techniques used to determine the fair value of our investment in DCP Midstream.
See the "Executive Overview and Business Environment" section for information on market factors impacting this quarter's results.
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Chemicals
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Millions of Dollars
Income Before Income Taxes $ 42 275 211 502
Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins 4,890 4,592 9,490 9,284
Specialties, Aromatics and Styrenics 1,014 969 2,202 2,038
5,904 5,561 11,692 11,322
* 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) 103 % 95
100 97
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, and Aromatics and Styrenics (SA&S).
Before-tax income from the Chemicals segment decreased $233 million in the
second quarter of 2020 and $291 million in the six-month period of 2020. The
decrease in the second quarter and six-month period of 2020 was mainly driven by
lower margins from CPChem's portfolio of consolidated and joint venture assets,
partially offset by higher sales volumes and lower utility costs. In addition,
during the first six months of 2020, CPChem recorded lower-of-cost-or-market
write-downs of inventories valued on the last-in, first-out (LIFO) basis and an
asset write-off by an international joint venture. Our portion of the inventory
write-downs and asset write-off reduced our equity earnings from CPChem in the
second quarter and six-month period of 2020 by $47 million and $71 million ,
respectively.
See the "Executive Overview and Business Environment" section for information on market factors impacting this quarter's results.
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Refining
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Millions of Dollars
Income (Loss) Before Income Taxes
Atlantic Basin/Europe $ (227) 258 (864) 251
Gulf Coast (365) 222 (1,208) 104
Central Corridor (104) 520 (331) 597
West Coast (182) (17) (736) (167)
Worldwide $ (878) 983 (3,139) 785
Dollars Per Barrel
Income (Loss) Before Income Taxes
Atlantic Basin/Europe $ (5.80) 5.04 (10.74) 2.70
Gulf Coast (5.98) 2.88 (9.66) 0.73
Central Corridor (5.01) 19.81 (7.50) 11.91
West Coast (7.07) (0.52) (13.73) (2.63)
Worldwide (5.99) 5.25 (10.35) 2.25
Realized Refining Margins*
Atlantic Basin/Europe $ 1.53 10.85 1.97 9.47
Gulf Coast 0.36 8.20 3.64 6.93
Central Corridor 5.78 17.84 10.03 14.33
West Coast 5.05 9.94 4.92 8.16
Worldwide 2.60 11.37 4.96 9.46
* See the "Non-GAAP Reconciliations" section for a reconciliation of this
non-GAAP measure to the most directly comparable measure under generally
accepted accounting principles in
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Thousands of Barrels Daily
Three Months Ended Six Months Ended
June 30 June 30
Operating Statistics 2020 2019 2020 2019
Refining operations*
Atlantic Basin /Europe
Crude oil capacity 537 537 537 537
Crude oil processed 402 519 420 473
Capacity utilization (percent) 75 % 97 78 88
Refinery production 433 570 445 519
Gulf Coast
Crude oil capacity 769 764 769 764
Crude oil processed 609 757 627 706
Capacity utilization (percent) 79 % 99 81 92
Refinery production 675 850 689 787
Central Corridor
Crude oil capacity 530 515 530 515
Crude oil processed 386 521 428 483
Capacity utilization (percent) 73 % 101 81 94
Refinery production 396 541 442 504
West Coast
Crude oil capacity 364 364 364 364
Crude oil processed 263 317 271 312
Capacity utilization (percent) 72 % 87 75 86
Refinery production 280 357 293 349
Worldwide
Crude oil capacity 2,200 2,180 2,200 2,180
Crude oil processed 1,660 2,114 1,746 1,974
Capacity utilization (percent) 75 % 97 79 91
Refinery production 1,784 2,318 1,869 2,159
* 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 before-tax income (loss) from our Refining segment decreased$1,861 million in the second quarter of 2020 and$3,924 million in the six-month period of 2020. The decreased results in both periods were primarily due to significantly lower realized refining margins and decreased refinery production across all regions. A sharp decline in demand for refined petroleum products resulting from global economic disruption caused by the COVID-19 pandemic led to lower market crack spreads and reduced refinery production in the current periods. In addition, the decreased results in the six-month period included a goodwill impairment of$1,845 million recognized in the first quarter of 2020. 46 -------------------------------------------------------------------------------- Table of Contents Our stock price declined significantly in the first quarter of 2020 due to the volatility in global commodity and equity markets related to the COVID-19 pandemic and other factors. We assessed our goodwill for impairment due to the decline in our market capitalization and concluded that the carrying value of our Refining reporting unit atMarch 31, 2020 , was greater than its fair value by an amount in excess of its goodwill balance. Accordingly, we recorded a goodwill impairment charge of$1,845 million in our Refining segment during the first quarter of 2020. This charge is included in the "Impairments" line item on our consolidated statement of operations for the six months endedJune 30, 2020 . See Note 13-Fair Value Measurements for additional information on the techniques used to determine the fair value of our Refining reporting unit.
See the "Executive Overview and Business Environment" section for information on market factors impacting this quarter's results.
Our worldwide refining crude oil capacity utilization rate was 75% and 79% in
the second quarter and six-month period of 2020, respectively, compared with 97%
and 91% in the second quarter and six-month period of 2019, respectively. These
decreases were primarily due to reduced refining runs in the first half of 2020
driven by lower demand for refined petroleum products.
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Marketing and Specialties
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Millions of Dollars
Income Before Income Taxes
Marketing and Other $ 255 294 726 432
Specialties 31 59 73 126
Total Marketing and Specialties $ 286 353 799 558
Dollars Per Barrel
Income Before Income Taxes
U.S. $ 1.24 1.09 1.53 0.86
International 3.48 4.81 5.25 3.55
Realized Marketing Fuel Margins*
U.S.$ 1.75 1.53 1.92 1.31 International 5.07 6.03 7.04 4.94
* 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 $ 1.26 2.32 1.53 2.10
Distillates 1.17 2.20 1.47 2.12
* On third-party branded petroleum product sales,
excluding excise taxes.
Thousands of Barrels Daily
Marketing Petroleum Products Sales Volumes
Gasoline 941 1,240 1,003 1,197
Distillates 847 1,085 942 1,013
Other 15 19 18 18
Total 1,803 2,344 1,963 2,228
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.
Before-tax income from the M&S segment decreased $67 million in the second
quarter of 2020 and increased $241 million in the six-month period of 2020. The
decrease in the second quarter of 2020 was primarily due to lower sales volumes
driven by decreased demand for refined petroleum and specialty products,
partially offset by lower selling, general and administrative expenses. The
increase in the six-month period of 2020 was primarily attributable to higher
realized marketing margins and lower selling, general and administrative
expenses, partially offset by lower sales volumes for refined petroleum and
specialty products driven by decreased demand.
See the "Executive Overview and Business Environment" section for information on marketing fuel margins and other market factors impacting this quarter's results.
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Corporate and Other
Millions of Dollars
Three Months Ended Six Months Ended
June 30 June 30
2020 2019 2020 2019
Loss Before Income Taxes
Net interest expense $ (114) (105) (217) (213)
Corporate overhead and other (105) (100) (199) (202)
Total Corporate and Other $ (219) (205) (416) (415)
Net interest expense consists of interest and financing expense, net of interest
income and capitalized interest. 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. Net
interest expense increased $9 million and $4 million in the second quarter and
six-month period of 2020, respectively, primarily due to higher average debt
principal balances, reflecting new debt issuances in the first half of 2020,
partially offset by higher capitalized interest related to capital projects
under development in our Midstream segment. See Note 9-Debt, in the Notes to
Consolidated Financial Statements, for additional information on the new debt
issuances.
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CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars,
Except as Indicated
June 30 December 31
2020 2019
Cash and cash equivalents $ 1,890 1,614
Short-term debt 1,783 547
Total debt 14,446 11,763
Total equity 23,295 27,169
Percent of total debt to capital* 38 % 30
Percent of floating-rate debt to total debt 12 % 9
* Capital includes total debt and total equity.
To meet our short- and long-term liquidity requirements, we seek a variety of
funding sources but rely primarily on cash generated from operating activities
and debt financing. Additionally, Phillips 66 Partners has the ability to fund
its growth activities through debt and equity financings. During the first six
months of 2020, we generated $981 million of cash from operations, received
approximately $2.0 billion in proceeds from two public offerings of senior
unsecured notes, and borrowed $1.0 billion under our new term loan facility. We
used available cash primarily for capital expenditures and investments of
$1.9 billion , repayment of $525 million of maturing debt, and dividend payments
on our common stock of $789 million . During the first quarter of 2020, we spent
$443 million on common stock repurchases, before suspending our share repurchase
program in March 2020 . During the first six months of 2020, cash and cash
equivalents increased $276 million to $1.9 billion .
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, and debt repayments.
Significant Sources of Capital
Operating Activities During the first six months of 2020, cash generated by operating activities was$981 million , compared with$1,452 million for the first six months of 2019. The decrease in the first six months of 2020, compared with the same period in 2019, was primarily due to decreased refinery production and lower refining margins in the first half of 2020 driven by significant global economic disruption caused by the COVID-19 pandemic, as well as reduced cash distributions from our equity affiliates, partially offset by higher realized marketing margins and favorable working capital impacts. Our short- and long-term operating cash flows are highly dependent upon refining, marketing and chemical margins, as well as NGL prices. 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. The recent decline in demand for refined petroleum products has led to a decrease in refining margins. If the global economic disruption associated with the COVID-19 pandemic sustains, we expect refining, marketing and chemical margins, along with transportation volumes, to remain challenged in the near term, all of which could have an unfavorable impact on our future operating cash flows. 50 -------------------------------------------------------------------------------- Table of Contents The level and quality of output from our refineries also impact 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 variability in their operations typically has not been as significant to cash flows as that caused by margins and prices. However, the recent decline in demand for refined petroleum products has led to a reduction of our refinery production; and if the global economic disruption associated with the COVID-19 pandemic sustains, we expect the reduced refinery production to continue in the near term, which could have an unfavorable impact on our future operating cash flows. Equity Affiliate Operating Distributions Our operating cash flows are also impacted by distribution decisions made by our equity affiliates. During the first six months of 2020, cash from operations included distributions of$820 million from our equity affiliates, compared with$1,120 million during the same period of 2019. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured. If the global economic disruption associated with the COVID-19 pandemic sustains, we expect lower distributions from our equity affiliates.
Unit Issuances During the first six months of 2020, on a settlement-date basis,Phillips 66 Partners generated net proceeds of$2 million from common units issued under its active continuous offering of common units, or at-the-market (ATM) program. Transfer of Equity InterestGray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, which transports crude oil from the Permian andEagle Ford toTexas Gulf Coast destinations that includeCorpus Christi and theSweeny area, including the Phillips 66Sweeny Refinery , as well as access to theHouston market.Phillips 66 Partners has a consolidated holding company that owns 65% ofGray Oak Pipeline, LLC . InDecember 2018 , a third party exercised its option to acquire a 35% interest in the holding company. Because the holding company's sole asset was its ownership interest inGray Oak Pipeline, LLC , which was considered a financial asset, and because certain restrictions were placed on the third party's ability to transfer or sell its interest in the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP at that time. The Gray Oak Pipeline commenced full operations in the second quarter of 2020, and the restrictions placed on the co-venturer were lifted onJune 30, 2020 , resulting in the recognition of the sale under GAAP. Accordingly, atJune 30, 2020 , the co-venturer's 35% interest in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet. In addition, the premium of$84 million previously paid by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of operations for the three and six months endedJune 30, 2020 . For the six months endedJune 30, 2020 , the co-venturer contributed an aggregate of$61 million to the holding company to fund its portion ofGray Oak Pipeline, LLC's cash calls. Excluding the co-venturer's 35% interest in the consolidated holding company,Phillips 66 Partners has an effective ownership interest of 42.25% inGray Oak Pipeline, LLC . See Note 5-Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for further discussion regardingPhillips 66 Partners' investment inGray Oak Pipeline, LLC . Credit Facilities and Commercial Paper AtJune 30, 2020 , borrowings of$215 million were outstanding and$3 million in letters of credit had been drawn underPhillips 66 Partners' $750 million revolving credit facility. AtJune 30, 2020 , no amount had been drawn underPhillips 66's $5 billion revolving credit facility or uncommitted$5 billion commercial paper program. 51 -------------------------------------------------------------------------------- Table of Contents Other Debt Issuances and Financings OnJune 10, 2020 ,Phillips 66 closed its public offering of$1 billion aggregate principal amount of senior unsecured notes consisting of:
•$150 million aggregate principal amount of 3.850% Senior Notes due 2025. •$850 million aggregate principal amount of 2.150% Senior Notes due 2030.
On
•$500 million aggregate principal amount of 3.700% Senior Notes due 2023. •$500 million aggregate principal amount of 3.850% Senior Notes due 2025.
Interest on the Senior Notes due 2023 is payable semiannually onApril 6 andOctober 6 of each year, commencing onOctober 6, 2020 . The Senior Notes due 2025 issued onJune 10, 2020 , constitute a further issuance of the Senior Notes due 2025 originally issued onApril 9, 2020 . The$650 million in aggregate principal amount of Senior Notes due 2025 is treated as a single class of debt securities. Interest on the Senior Notes due 2025 is payable semiannually onApril 9 andOctober 9 of each year, commencing onOctober 9, 2020 . Interest on the Senior Notes due 2030 is payable semiannually onJune 15 andDecember 15 of each year, commencing onDecember 15, 2020 . Proceeds received from the public offerings of senior unsecured notes onJune 10, 2020 , andApril 9, 2020 , were$1,008 million exclusive of accrued interest received, and$993 million , respectively, net of underwriters' discounts or premiums and commissions, as well as debt issuance costs. These proceeds are being used for general corporate purposes. OnMarch 19, 2020 ,Phillips 66 entered into a$1 billion 364-day delayed draw term loan agreement (the Facility) and borrowed$1 billion under the Facility shortly thereafter. OnApril 6, 2020 ,Phillips 66 increased the size of the Facility to$2 billion , with$1 billion of capacity remaining undrawn atJune 30, 2020 . InJune 2020 , the Facility was amended to extend the commitment period toSeptember 19, 2020 . Borrowings under the Facility bear interest at a floating rate based on either the Eurodollar rate or the reference rate, plus a margin determined by the credit rating ofPhillips 66's senior unsecured long-term debt.Phillips 66 is using the proceeds from the debt issuance for general corporate purposes. 52
-------------------------------------------------------------------------------- Table of Contents Off-Balance Sheet Arrangements Lease Residual Value Guarantees Under the operating lease agreement on our headquarters facility inHouston, Texas , we have a residual value guarantee with a maximum future exposure of$554 million atJune 30, 2020 . The operating lease term ends inJune 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$351 million atJune 30, 2020 , which have remaining terms of up to four years.Dakota Access, LLC (Dakota Access) andEnergy Transfer Crude Oil Company, LLC (ETCO) InMarch 2019 , a wholly owned subsidiary of Dakota Access closed an offering of$2.5 billion aggregate principal amount of unsecured senior notes, consisting of:
•$650 million aggregate principal amount of 3.625% Senior Notes due 2022. •$1.0 billion aggregate principal amount of 3.900% Senior Notes due 2024. •$850 million aggregate principal amount of 4.625% Senior Notes due 2029.
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, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the ongoing litigation related to an easement granted by theU.S. Army Corps of Engineers (USACE) to allow the pipeline to be constructed underLake Oahe inNorth Dakota . Contributions may be required if Dakota Access determines that the issues included in any such final judgment cannot be remediated and Dakota Access has or is projected to have insufficient funds to satisfy repayment of the notes. If Dakota Access undertakes remediation to cure issues raised in a final judgment, contributions may be required if any series of the notes become due, whether by acceleration or at maturity, during such time, to the extent Dakota Access has or is projected to have insufficient funds to pay such amounts. AtJune 30, 2020 ,Phillips 66 Partners' share of the maximum potential equity contributions under the CECU was approximately$631 million . InMarch 2020 , the court presiding over this litigation ordered the USACE to prepare an Environmental Impact Statement (EIS), and requested additional information to enable a decision on whether the Dakota Access Pipeline should be shut down while the EIS is being prepared. OnJuly 6, 2020 , the court ordered the Dakota Access Pipeline to be shut down and emptied of crude oil byAugust 5, 2020 , and that the pipeline should remain shut down pending the preparation of the EIS by the USACE, which the USACE has indicated is expected to take approximately 13 months. Dakota Access filed an appeal and a request for a stay of the order. OnJuly 14, 2020 , an appeals court granted a temporary stay of the lower court's order directing the pipeline to be shut down and emptied of crude oil. The appeals court has not yet ruled on the motion for a stay during the appeals process. In addition to the potential obligations under the CECU, if the pipeline is required to cease operations pending the preparation of the EIS, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses,Phillips 66 Partners also could be asked to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately$25 million annually.Gray Oak Pipeline, LLC Gray Oak Pipeline, LLC has a third-party term loan facility with a borrowing capacity of$1,379 million , inclusive of accrued interest. Borrowings under the facility are due onJune 3, 2022 .Phillips 66 Partners and its co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions toGray Oak Pipeline, LLC up to the total outstanding loan amount, plus any additional accrued interest and associated fees, ifGray Oak Pipeline, LLC defaults on certain of its obligations thereunder. AtJune 30, 2020 , the term loan facility was fully utilized by GrayOak Pipeline, LLC , andPhillips 66 Partners' 42.25% proportionate exposure under the equity contribution agreement was$583 million . 53 -------------------------------------------------------------------------------- Table of Contents Other Guarantees AtJune 30, 2020 , we had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations, which have remaining terms of up to eight years. The maximum potential amount of future payments to third parties under these guarantees was approximately$155 million . Payment would be required if a joint venture defaults on its obligations.
See Note 10-Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.
Capital Requirements
Capital Expenditures and Investments For information about our capital expenditures and investments, see the "Capital Spending" section below. Debt Financing Our total debt balance atJune 30, 2020 , andDecember 31, 2019 , was$14.4 billion and$11.8 billion , respectively. Our total debt-to-capital ratio was 38% and 30% atJune 30, 2020 , andDecember 31, 2019 , respectively. InApril 2020 ,Phillips 66 repaid the$300 million outstanding principal balance of its floating-rate notes dueApril 2020 and the$200 million outstanding principal balance of its term loan facility dueApril 2020 . Also inApril 2020 ,Phillips 66 Partners repaid the$25 million outstanding principal balance of its tax-exempt bonds dueApril 2020 .
Dividends
OnMay 6, 2020 , our Board of Directors declared a quarterly cash dividend of$0.90 per common share. The dividend was paid onJune 1, 2020 , to shareholders of record at the close of business onMay 18, 2020 . OnJuly 8, 2020 , our Board of Directors declared a quarterly cash dividend of$0.90 per common share. This dividend is payable onSeptember 1, 2020 , to shareholders of record at the close of business onAugust 18, 2020 . Share Repurchases SinceJuly 2012 , our Board of Directors has, at various times, authorized repurchases of our outstanding common stock under our share repurchase programs, which aggregate to a total 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 throughMarch 17, 2020 , we have repurchased 159 million shares at an aggregate cost of$12.5 billion . Shares of stock repurchased are held as treasury shares. We suspended share repurchases inmid-March 2020 to preserve liquidity in response to the economic effects of the COVID-19 pandemic and other factors. 54 -------------------------------------------------------------------------------- Table of Contents 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 Six Months Ended June 30 2020 2019 Capital Expenditures and Investments Midstream $ 1,238 1,200 Chemicals - - Refining 409 391 Marketing and Specialties 111 42 Corporate and Other 104 95 Total Capital Expenditures and Investments 1,862 1,728 Less: capital spending funded by certain joint venture partners* 61 422 Adjusted Capital Spending $ 1,801 1,306 Selected Equity Affiliates** DCP Midstream $ 90 278 CPChem 139 175 WRB 71 81 $ 300 534 * Included in the Midstream segment. ** Our share of joint ventures' self-funded capital spending.
Midstream
During the first six months of 2020, capital spending in our Midstream segment included:
•Continued development of additionalGulf Coast fractionation capacity. •Cash contributions to our andPhillips 66 Partners' joint ventures to develop and construct theLiberty andRed Oak pipeline systems. •Cash contributions toPhillips 66 Partners' Gray Oak Pipeline andSouth Texas Gateway Terminal for their development activities. •Capacity expansion onPhillips 66 Partners' Sweeny toPasadena refined petroleum product pipeline. •Construction activities onPhillips 66 Partners' new ethane pipeline from Clemens Caverns to petrochemical facilities inGregory, Texas (C2G Pipeline). •Construction activities to increase storage capacity at our crude oil and refined petroleum product terminal located nearBeaumont, Texas . •Other reliability, return and maintenance projects. OnMarch 2, 2020 ,Phillips 66 Partners closed a transaction to acquire our 50% interest inLiberty Pipeline LLC for$75 million . The development and construction of our Red Oak Pipeline system and Sweeny Frac 4, as well asPhillips 66 Partners' Liberty Pipeline system projects have been deferred as a result of the current challenging business environment. 55 -------------------------------------------------------------------------------- Table of Contents During the first six months of 2020, DCP Midstream's self-funded capital expenditures and investments were$179 million on a 100% basis. Capital spending during this period was primarily for expansion projects, including the construction of the Latham II offload facilities and the Cheyenne Connector, and investments in theSand Hills andSouthern Hills joint ventures, as well as maintenance capital expenditures for existing assets. InApril 2020 , DCP Midstream announced capital and cost reduction plans, including a 75% growth capital reduction. We expect that DCP Midstream's capital program will continue to be self-funded for the remainder of 2020.
Chemicals
During the first six months of 2020, CPChem had a self-funded capital program. During this period, on a 100% basis, CPChem's capital expenditures and investments were$277 million . The capital spending was primarily for the continued development of its secondU.S. Gulf Coast petrochemical project and debottlenecking projects on existing assets. We expect CPChem to continue self-funding its capital program for the remainder of 2020.
Refining
Capital spending for the Refining segment during the first six months of 2020 was primarily for refinery upgrade projects to enhance the yield of high value products, renewable diesel projects, improvements to the operating integrity of key processing units, and safety-related projects. Our equity affiliates in the Refining segment had self-funded capital programs during the first six months of 2020, and we expect them to continue self-funding their capital programs for the remainder of 2020.
Major construction activities included:
•Installation and startup of facilities to improve product value at theSweeny Refinery . •Installation of facilities to improve product value at thePonca City and Bayway refineries. •Installation of facilities to produce biofuels at theHumber Refinery . Marketing and Specialties Capital spending for the M&S segment during the first six months of 2020 was primarily for an additional investment in theU.S. West Coast retail marketing joint venture, and the acquisition, development and enhancement of retail sites inEurope . Corporate and Other Capital spending for Corporate and Other during the first six months of 2020 was primarily for information technology. 56 -------------------------------------------------------------------------------- Table of Contents 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. 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.
Environmental
Like other companies in our industry, we are subject to numerous international, federal, state and local environmental laws and regulations. For a discussion of the most significant of these international and federal environmental laws and regulations, see the "Environmental" section in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K. We occasionally receive requests for information or notices of potential liability from theU.S. Environmental Protection Agency (EPA ) and state environmental agencies alleging that we are a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation and Liability Act (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. AtDecember 31, 2019 , we reported that we had been notified of potential liability under CERCLA and comparable state laws at 27 sites withinthe United States . In the second quarter of 2020, we were notified of two Superfund sites that were deemed resolved and closed, accordingly, leaving 25 unresolved sites with potential liability atJune 30, 2020 . 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. 57 -------------------------------------------------------------------------------- Table of Contents Climate Change There has been a broad range of proposed or promulgated state, national and international laws focusing on greenhouse gas (GHG) emissions reduction, including various regulations proposed or issued by theEPA . 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. We continue to monitor legislative and regulatory actions and legal proceedings globally relating to GHG emissions for potential impacts on our operations.
For examples of legislation and regulation or precursors for possible regulation that do or could affect our operations, see the "Climate Change" section in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K.
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.
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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 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:
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Millions of Dollars, Except as Indicated
Atlantic
Basin/ Gulf Central West
Realized Refining Margins Europe Coast Corridor Coast Worldwide
Three Months Ended June 30, 2020
Loss before income taxes $ (227) (365) (104) (182) (878)
Plus:
Taxes other than income taxes 15 25 14 22 76 Depreciation, amortization and impairments 49 75 33 63 220 Selling, general and administrative expenses 12 10 7 9 38 Operating expenses 190 277 120 216 803 Equity in (earnings) losses of affiliates 3 (1) 79 - 81 Other segment expense, net 3 - 3 1 7
Proportional share of refining gross margins contributed by equity affiliates
16 - 92 - 108
Special items:
Lower-of-cost-or-market inventory adjustments - - (35) - (35) Realized refining margins$ 61 21 209 129 420 Total processed inputs (thousands of barrels) 39,121 61,032 20,778 25,737 146,668
Adjusted total processed inputs (thousands of barrels)* 39,121 61,032
36,067 25,737 161,957
Loss before income taxes per barrel (dollars per
barrel)** $ (5.80) (5.98) (5.01) (7.07) (5.99)
Realized refining margins (dollars per barrel)*** 1.53 0.36 5.78 5.05 2.60
Three Months Ended June 30, 2019
Income (loss) before income taxes $ 258 222 520 (17) 983
Plus:
Taxes other than income taxes 11 16 10 21 58 Depreciation, amortization and impairments 49 68 34 63 214 Selling, general and administrative expenses 10 8 7 8 33 Operating expenses 201 322 134 249 906 Equity in (earnings) losses of affiliates 3 2 (133) - (128) Other segment (income) expense, net 4 (5) 4 1 4 Proportional share of refining gross margins contributed by equity affiliates 19 - 298 - 317 Realized refining margins$ 555 633 874 325 2,387 Total processed inputs (thousands of barrels) 51,172 77,186 26,244 32,697 187,299
Adjusted total processed inputs (thousands of barrels)* 51,172 77,186
48,932 32,697 209,987
Income (loss) before income taxes per barrel (dollars per barrel)**
$ 5.04 2.88 19.81 (0.52) 5.25 Realized refining margins (dollars per barrel)*** 10.85 8.20 17.84 9.94 11.37
* 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 differ from the presented per barrel amounts.
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Millions of Dollars, Except as Indicated
Atlantic
Basin/
Realized Refining Margins Europe Gulf Coast Central Corridor West Coast Worldwide
Six Months Ended June 30, 2020
Loss before income taxes $ (864) (1,208) (331) (736) (3,139)
Plus:
Taxes other than income taxes 34 62 31 53 180 Depreciation, amortization and impairments 541 816 502 427 2,286 Selling, general and administrative expenses 25 17 13 19 74 Operating expenses 384 769 256 499 1,908 Equity in (earnings) losses of affiliates 5 (2) 130 - 133 Other segment expense, net 1 1 - 2 4 Proportional share of refining gross margins contributed by equity affiliates 32 - 205 - 237 Realized refining margins$ 158 455 806 264 1,683
Total processed inputs (thousands of barrels) 80,456 125,098
44,123 53,614 303,291
Adjusted total processed inputs (thousands of
barrels)* 80,456 125,098 80,358 53,614 339,526
Loss before income taxes per barrel (dollars per
barrel)** $ (10.74) (9.66) (7.50) (13.73) (10.35)
Realized refining margins (dollars per barrel)*** 1.97 3.64 10.03 4.92 4.96
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.
** 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 differ from the presented per barrel amounts.
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Millions of Dollars, Except as Indicated
Atlantic
Basin/ Gulf West
Realized Refining Margins Europe Coast Central Corridor Coast Worldwide
Six Months Ended June 30, 2019
Income (loss) before income taxes $ 251 104 597 (167) 785
Plus:
Taxes other than income taxes 26 39 23 45 133 Depreciation, amortization and impairments 99 135 67 125 426 Selling, general and administrative expenses 17 6 8 13 44 Operating expenses 434 706 279 498 1,917 Equity in (earnings) losses of affiliates 6 2 (217) - (209) Other segment (income) expense, net 10 (4) 2 3 11 Proportional share of refining gross margins contributed by equity affiliates 36 - 565 - 601
Special items:
Pending claims and settlements - - (21) - (21) Realized refining margins$ 879 988 1,303 517 3,687 Total processed inputs (thousands of barrels) 92,854 142,620 50,137 63,400 349,011 Adjusted total processed inputs (thousands of barrels)* 92,854 142,620 90,828 63,400 389,702 Income (loss) before income taxes per barrel (dollars per barrel)**$ 2.70 0.73 11.91 (2.63) 2.25 Realized refining margins (dollars per barrel)*** 9.47 6.93 14.33 8.16 9.46
* 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 differ from the presented per barrel amounts.
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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:
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Millions of Dollars, Except as Indicated
Three Months Ended Three Months Ended
June 30, 2020 June 30, 2019
U.S. International U.S. International
Realized Marketing Fuel Margins
Income before income taxes $ 179 68 203 129
Plus:
Taxes other than income taxes 2 2 3 1
Depreciation and amortization 3 16 3 16
Selling, general and administrative expenses 151 57 183 61
Equity in earnings of affiliates (11) (28) (3) (25)
Other operating revenues* (71) (4) (103) (9)
Other segment expense, net - 1 - 1
Marketing margins 253 112 286 174
Less: margin for nonfuel related sales - 13 - 12
Realized marketing fuel margins $ 253 99 286 162
Total fuel sales volumes (thousands of barrels) 144,517 19,583 186,488 26,837
Income before income taxes per barrel (dollars per barrel)
$ 1.24 3.48 1.09 4.81 Realized marketing fuel margins (dollars per barrel)** 1.75 5.07 1.53 6.03
* 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 differ from the presented per barrel amounts.
Millions of Dollars, Except as Indicated
Six Months Ended Six Months Ended
June 30, 2020 June 30, 2019
U.S. International U.S. International
Realized Marketing Fuel Margins
Income before income taxes $ 478 239 301 187
Plus:
Taxes other than income taxes 4 3 5 3
Depreciation and amortization 6 33 5 32
Selling, general and administrative expenses 278 120 338 123
Equity in earnings of affiliates (11) (50) (4) (47)
Other operating revenues* (155) (2) (185) (15)
Other segment (income) expense, net - 1 - (1)
Marketing margins 600 344 460 282
Less: margin for nonfuel related sales - 23 - 22
Realized marketing fuel margins $ 600 321 460 260
Total fuel sales volumes (thousands of barrels) 311,695 45,562 350,546 52,633
Income before income taxes per barrel (dollars per barrel)
$ 1.53 5.25 0.86 3.55 Realized marketing fuel margins (dollars per barrel)** 1.92 7.04 1.31 4.94
* 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 differ from the presented per barrel amounts.
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CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. You can normally identify our forward-looking statements
by the words "anticipate," "estimate," "believe," "budget," "continue," "could,"
"intend," "may," "plan," "potential," "predict," "seek," "should," "will,"
"would," "expect," "objective," "projection," "forecast," "goal," "guidance,"
"outlook," "effort," "target" and similar expressions, but the absence of such
words does not mean a statement is not forward-looking.
We based the forward-looking statements on our current expectations, estimates
and projections about us, our operations, our joint ventures and entities in
which we have equity interests, as well as the industries in which we and they
operate in general. We caution you these statements are not guarantees of future
performance as they involve assumptions that, while made in good faith, may
prove to be incorrect, and involve risks and uncertainties we cannot predict. In
addition, we based many of these forward-looking statements on assumptions about
future events that may prove to be inaccurate. Accordingly, our actual outcomes
and results may differ materially from what we have expressed or forecast in the
forward-looking statements. Any differences could result from a variety of
factors, including the following:
•General domestic and international economic and political developments
including: armed hostilities; expropriation of assets; changes in governmental
policies relating to NGL, crude oil, natural gas or refined petroleum products
pricing, regulation or taxation; actions taken by the members of the
Organization of the Petroleum Exporting Countries (OPEC) affecting the
production and pricing of crude oil; and other political, economic or diplomatic
developments, including those caused by public health issues, outbreaks of
diseases and pandemics, including the COVID-19 pandemic.
•Fluctuations in NGL, crude oil, refined petroleum product and natural gas
prices and refining, marketing and petrochemical margins.
•Failure of new products and services to achieve market acceptance.
•Unexpected changes in costs or technical requirements for constructing,
modifying or operating our facilities or transporting our products.
•Unexpected technological or commercial difficulties in manufacturing, refining
or transporting our products, including chemical products.
•Lack of, or disruptions in, adequate and reliable transportation for our NGL,
crude oil, natural gas and refined petroleum products.
•The level and success of drilling and quality of production volumes around our
Midstream assets.
•The inability to timely obtain or maintain permits, including those necessary
for capital projects.
•The inability to comply with government regulations or make capital
expenditures required to maintain compliance.
•Failure to complete definitive agreements and feasibility studies for, and to
complete construction of, announced and future capital projects on time and
within budget.
•Potential disruption or interruption of our operations due to accidents,
weather events, civil unrest, political events, terrorism or cyberattacks.
•International monetary conditions and exchange controls.
•Substantial investment or reduced demand for products as a result of existing
or future environmental rules and regulations.
•Liability resulting from litigation or for remedial actions, including removal
and reclamation obligations under environmental regulations.
•Changes in tax, environmental and other laws and regulations (including
alternative energy mandates) applicable to our business.
•Limited access to capital or significantly higher cost of capital related to
changes to our credit profile or illiquidity or uncertainty in the domestic or
international financial markets.
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•The operation, financing and distribution decisions of our joint ventures that
we do not control.
•Domestic and foreign supplies of crude oil and other feedstocks.
•Domestic and foreign supplies of petrochemicals and refined petroleum products,
such as gasoline, diesel, aviation fuel and home heating oil.
•Governmental policies relating to exports of crude oil and natural gas.
•Overcapacity or undercapacity in the midstream, chemicals and refining
industries.
•Fluctuations in consumer demand for refined petroleum products.
•The factors generally described in Item 1A.-Risk Factors in our 2019 Annual
Report on Form 10-K and in Item 1A.-Risk Factors of Part II in this Quarterly
Report on Form 10-Q.
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