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" or "loss" as used in Management's Discussion and Analysis refer to net income (loss) attributable toPhillips 66 . The terms "results," "before-tax income" or "before-tax loss" as used in Management's Discussion and Analysis refer to income (loss) before income taxes.
EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT
Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. AtSeptember 30, 2021 , we had total assets of$56 billion . Our common stock trades on theNew York Stock Exchange under the symbol PSX. Executive Overview The Coronavirus Disease 2019 (COVID-19) pandemic continues to disrupt economic activities globally. Reduced demand for refined petroleum products resulted in low refining margins and decreased volumes through refineries and logistics infrastructure in 2020. Global refined product demand has been steadily recovering through 2021 due to the easing of pandemic restrictions and the administration of COVID-19 vaccines. Consequently, refining margins have improved, as has volume throughput. The depth and duration of the economic consequences of the COVID-19 pandemic remain uncertain and we continue to monitor our asset and investment portfolio. The consequences of the sustained disruption of economic activities by the pandemic may include additional asset impairments and portfolio rationalization in the future. In the third quarter of 2021, we reported earnings of$402 million and generated cash from operating activities of$2.2 billion . We used available cash to fund capital expenditures and investments of$552 million , including our strategic investment in NOVONIX Limited (NOVONIX), repay the$500 million of outstanding borrowings under our 364-day delayed draw term loan facility dueNovember 2023 , and pay dividends on our common stock of$394 million . We ended the third quarter of 2021 with$2.9 billion of cash and cash equivalents and approximately$5.7 billion of total committed capacity available under our revolving credit facilities. InSeptember 2021 , we announced a set of company-wide greenhouse gas (GHG) emissions reduction targets that are impactful, attainable and measurable. By 2030, we expect to reduce GHG emissions intensity by 30% for Scope 1 and 2 emissions from our operations and by 15% for Scope 3 emissions from our energy products, below 2019 levels. Also inSeptember 2021 , we acquired a 16% interest in NOVONIX, aBrisbane, Australia -based company that develops and supplies materials for lithium-ion batteries. This investment reflects our commitment to building a lower-carbon business platform. 34 -------------------------------------------------------------------------------- Table of Contents OnOctober 26, 2021 , we entered into a definitive merger agreement withPhillips 66 Partners to acquire all of the publicly held common units representing limited partner interests inPhillips 66 Partners not already owned by us on the closing date of the transaction. The agreement provides for an all-stock transaction in which each outstandingPhillips 66 Partners common unitholder would receive 0.50 shares ofPhillips 66 common stock for eachPhillips 66 Partners common unit.Phillips 66 Partners' perpetual convertible preferred units will be converted into common units at a premium to the original issuance price prior to exchange forPhillips 66 common stock. This merger is expected to close in the first quarter of 2022, subject to customary closing conditions. Upon closing,Phillips 66 Partners will become a wholly owned subsidiary ofPhillips 66 and will no longer be a publicly traded partnership. See Note 19-Phillips 66 Partners LP , in the Notes to Consolidated Financial Statements, for additional information on the pending merger transaction. Business Environment The Midstream segment includes our Transportation and NGL businesses. Our Transportation business contains fee-based operations that are not directly exposed to commodity price risk. Our NGL business contains both fee-based operations and operations that are directly impacted by NGL prices. The Midstream segment also includes our 50% equity investment inDCP Midstream, LLC (DCP Midstream). During the third quarter of 2021, NGL prices increased significantly, compared with the third quarter of 2020, due to strong demand as economic activities gradually recovered following the administration of COVID-19 vaccines and the easing of pandemic restrictions. 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 third quarter of 2021, the benchmark high-density polyethylene chain margin increased significantly, compared with the third quarter of 2020. This significant increase was due to continued strong demand and tight supply. 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 , increased to an average of$70.58 per barrel during the third quarter of 2021, compared with an average of$40.91 per barrel in the third quarter of 2020. 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 third quarter of 2021, worldwide market crack spreads were significantly higher than the third quarter of 2020. The increases in crude oil prices and market crack spreads were mainly driven by a significant increase in demand for refined petroleum products, as economic activities gradually recovered following the administration of COVID-19 vaccines and the easing of pandemic restrictions, as well as a tightening supply. In addition, in the third quarter of 2021, renewable identification number (RIN) costs increased significantly, compared with the third quarter of 2020. 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 global disruption caused by the COVID-19 pandemic resulted in reduced demand for refined petroleum and specialty products sinceMarch 2020 . Following the administration of COVID-19 vaccines in 2021 and the easing of pandemic restrictions, demand for refined petroleum and specialty products in the third quarter of 2021 has improved, compared with the third quarter of 2020. 35 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS
Unless otherwise indicated, discussion of results for the three and nine months
ended
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 Nine Months Ended
September 30 September 30
2021 2020 2021 2020
Midstream $ 629 146 1,017 (232)
Chemicals 631 231 1,408 442
Refining (1,126) (1,903) (2,895) (5,042)
Marketing and Specialties 545 415 1,311 1,214
Corporate and Other (231) (239) (728) (655)
Income (loss) before income taxes 448 (1,350) 113 (4,273)
Income tax benefit (40) (624) (110) (1,053)
Net income (loss) 488 (726) 223 (3,220)Less: net income attributable to noncontrolling interests 86
73 179 216
Net income (loss) attributable to Phillips 66 $ 402 (799) 44 (3,436)
Our net income attributable to Phillips 66 in the third quarter of 2021 was $402
million , compared with a net loss attributable to Phillips 66 of $799 million in
third quarter of 2020. The improvement was primarily due to:
•Improved realized refining margins.
•Higher equity earnings from CPChem.
•An unrealized gain on our investment in NOVONIX in our Midstream segment.
These improvements were partially offset by a lower income tax benefit and higher impairments.
Our net income attributable toPhillips 66 for the nine months endedSeptember 30, 2021 , was$44 million , compared with a net loss attributable toPhillips 66 of$3,436 million for the nine months endedSeptember 30, 2020 . The improvement was primarily driven by: •Lower impairments. •Improved realized refining margins. •Increased equity earnings from CPChem.
These improvements were partially offset by a lower income tax benefit.
See the "Segment Results" section for additional information on our segment
performance, and Note 5-Investments, Loans and Long-Term Receivables, Note
7-Impairments, and Note 18-Income Taxes, in the Notes to Consolidated Financial
Statements, for additional information on our investment in NOVONIX, impairments
and income taxes, respectively.
36
--------------------------------------------------------------------------------
Table of Contents
Statement of Operations Analysis
Sales and other operating revenues for the third quarter and nine-month period
of 2021 increased 90% and 65%, respectively, and purchased crude oil and
products increased 90% and 71%, respectively. These increases were mainly due to
higher prices for refined petroleum products, crude oil and NGL, as well as
increased volumes.
Equity in earnings of affiliates increased $633 million and $1,226 million in
the third quarter and nine-month period of 2021, respectively. The increase in
both periods was primarily due to higher equity earnings from CPChem mainly
driven by increased margins, WRB Refining LP (WRB) resulting from improved
realized refining margins and refinery production, and Excel Paralubes LLC
(Excel) attributable to higher base oil margins. See Chemicals segment analysis
in the "Segment Results" section for additional information on CPChem.
Net gain on dispositions decreased 87% in the nine-month period of 2021,
primarily due to a before-tax gain of $84 million recognized in the second
quarter of 2020 associated with a co-venturer's acquisition of an ownership
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 regarding the gain recognition.
Other income increased $218 million and $256 million in the third quarter and
nine-month period of 2021, respectively. The increase in both periods was
primarily due to an unrealized gain of $224 million related to the change in
fair value of our investment in NOVONIX, which we acquired in the third quarter
of 2021.
Operating expenses increased 15% and 10% in the third quarter and nine-month
period of 2021, respectively. The increase in the third quarter of 2021 was
primarily driven by higher utility, turnaround, maintenance and repair costs.
The increase in the nine-month period was mainly due to higher utility costs,
and increased maintenance and repair costs primarily driven by the winter storms
that occurred in the Central and Gulf Coast regions in February 2021 .
Selling, general and administrative expenses increased 10% and 14% in the third
quarter and nine-month period of 2021, respectively. The increase in both
periods was primarily due to increased employee-related expenses, as well as
higher selling expenses due to rising refined petroleum product prices and
demand. The increase in the nine-month period also reflects a benefit received
from a legal settlement in the first quarter of 2020.
Impairments increased $158 million in the third quarter of 2021 and decreased
$2,650 million in the nine-month period of 2021. See Note 7-Impairments, in the
Notes to Consolidated Financial Statements, for additional information regarding
impairments.
Taxes other than income taxes decreased 20% in the third quarter of 2021,
primarily driven by tax credits received from renewable diesel blending activity
at our
Interest and debt expense increased 14% and 22% in the third quarter and nine-month period of 2021, respectively. The increase in both periods was primarily driven by lower capitalized interest due to the completion of capital projects and the placement of assets into service, as well as higher average debt principal balances. Income tax benefit decreased 94% and 90% in the third quarter and nine-month period of 2021, respectively. See Note 18-Income Taxes, in the Notes to Consolidated Financial Statements, for discussion on the effective income tax rates. Net income attributable to noncontrolling interests increased 18% in the third quarter of 2021 and decreased 17% in the nine-month period of 2021. The increase in the third quarter of 2021 was primarily due to higher net income fromPhillips 66 Partners . The decrease in the nine-month period of 2021 was primarily due to lower net income fromPhillips 66 Partners resulting from the before-tax impairment of$198 million associated with its investment in the Liberty Pipeline project. See Note 7-Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding the impairment. 37 --------------------------------------------------------------------------------
Table of Contents
Segment Results
Midstream
Three Months Ended Nine Months Ended
September 30 September 30
2021 2020 2021 2020
Millions of Dollars
Income (Loss) Before Income Taxes
Transportation $ 244 (3) 475 411
NGL and Other 354 99 468 356
DCP Midstream 31 50 74 (999)
Total Midstream $ 629 146 1,017 (232)
Thousands of Barrels Daily
Transportation Volumes
Pipelines* 3,483 3,076 3,238 3,032
Terminals 2,771 2,966 2,744 2,999
Operating Statistics
NGL fractionated** 420 217 395 195
NGL production*** 398 414 387 395
* 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 $ 0.91 0.44 0.77 0.38
* 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 , our 50% equity investment in DCP Midstream, which includes the operations of DCP Midstream, LP (DCP Partners ), its MLP, and our investment in NOVONIX.
Results from our Midstream segment increased
Results from our Transportation business increased$247 million and$64 million in the third quarter and nine-month period of 2021, respectively. The increase in the third quarter of 2021 reflects before-tax impairments of$204 million recorded in the third quarter of 2020 for the pipeline and terminal assets associated with the planned reconfiguration of ourSan Francisco Refinery into a renewable fuels plant and the cancellation of the Red Oak Pipeline project. Excluding these impairments, the increase in the third quarter of 2021 was primarily due to higher earnings from equity affiliates driven by increased volumes. The increase in the nine-month period of 2021 was primarily due to increased earnings from equity affiliates, and higher pipeline volumes and margins from our consolidated assets. Increased pipeline volumes were mainly driven by higher refinery utilization. The increase in the nine-month period of 2021 was partially offset by a before-tax gain of$84 million recognized in the second quarter of 2020 associated with a co-venturer's acquisition of an ownership interest in the consolidated holding company that owns an interest inGray Oak Pipeline, LLC . 38 -------------------------------------------------------------------------------- Table of Contents Results from our NGL and Other business increased$255 million and$112 million in the third quarter and nine-month period of 2021, respectively. The increase in both periods was primarily due to an unrealized gain of$224 million related to the change in fair value of our investment in NOVONIX, which we acquired in the third quarter of 2021. The increase in the third quarter of 2021 also reflects higher fractionation volumes from the startup of Fracs 2 and 3 at the Sweeny Hub in late 2020. The increase in the nine-month period of 2021 was partially offset by trading inventory impacts and higher operating expenses due to the winter storms that occurred in theGulf Coast region inFebruary 2021 . Results from our investment in DCP Midstream decreased$19 million in the third quarter of 2021, and increased$1,073 million in the nine-month period of 2021. The decrease in the third quarter of 2021 was primarily due to unfavorable impacts from DCP Midstream's commodity price risk management activities. The increase in the nine-month period of 2021 reflects a$1,161 million before-tax impairment of our investment in DCP Midstream recorded in the first quarter of 2020. Excluding the impairment, results from our investment in DCP Midstream decreased$88 million in the nine-month period of 2021, mainly driven by unfavorable impacts from DCP Midstream's commodity price risk management activities.
See Note 7-Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding impairments in our Midstream segment.
See the "Executive Overview and Business Environment" section for information on market factors impacting this quarter's results.
39
--------------------------------------------------------------------------------
Table of Contents
Chemicals
Three Months Ended Nine Months Ended
September 30 September 30
2021 2020 2021 2020
Millions of Dollars
Income Before Income Taxes $ 631 231 1,408 442
Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins 4,912 5,069 14,260 15,559
Specialties, Aromatics and Styrenics 1,216 1,120 3,431 3,322
6,128 6,189 17,691 18,881
* 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) 102 % 94
94 98
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).
Results from the Chemicals segment increased $400 million and $966 million in
the third quarter and nine-month period of 2021, respectively. The increase in
both periods was primarily driven by improved margins, partially offset by
higher utility, turnaround, maintenance and repair costs. The increase in the
third quarter of 2021 was also partially offset by a favorable
lower-of-cost-or-market inventory adjustment recorded in the third quarter of
2020 attributable to petrochemical product price recovery.
See the "Executive Overview and Business Environment" section for information on market factors impacting this quarter's results.
40
--------------------------------------------------------------------------------
Table of Contents
Refining
Three Months
Ended Nine Months Ended
September 30 September 30
2021 2020 2021 2020
Millions of Dollars
Income (Loss) Before Income Taxes
Atlantic Basin/Europe $ 90 (199) (173) (1,063)
Gulf Coast (1,333) (405) (1,850) (1,613)
Central Corridor 229 (132) (101) (463)
West Coast (112) (1,167) (771) (1,903)
Worldwide $ (1,126) (1,903) (2,895) (5,042)
Dollars Per Barrel
Income (Loss) Before Income Taxes
Atlantic Basin/Europe $ 1.88 (4.61) (1.23) (8.60)
Gulf Coast (20.82) (7.86) (9.84) (9.13)
Central Corridor 8.68 (5.35) (1.45) (6.73)
West Coast (3.67) (38.12) (9.11) (22.59)
Worldwide (6.67) (12.69) (6.00) (11.12)
Realized Refining Margins*
Atlantic Basin/Europe $ 9.27 1.65 6.28 1.86
Gulf Coast 5.75 (0.61) 3.72 2.40
Central Corridor 12.47 4.46 8.53 8.09
West Coast 7.46 2.23 4.83 3.94
Worldwide 8.57 1.78 5.68 3.91
* 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
41--------------------------------------------------------------------------------
Table of Contents
Thousands of
Three Months Ended Nine Months Ended
September 30 September 30
Operating Statistics 2021 2020 2021 2020
Refining operations*
Atlantic Basin /Europe
Crude oil capacity 537 537 537 537
Crude oil processed 487 432 479 424
Capacity utilization (percent) 91 % 81 89 79
Refinery production 523 473 519 454
Gulf Coast
Crude oil capacity 784 769 784 769
Crude oil processed 623 506 621 586
Capacity utilization (percent) 80 % 66 79 76
Refinery production 700 563 689 647
Central Corridor
Crude oil capacity 531 530 531 530
Crude oil processed 493 455 447 437
Capacity utilization (percent) 93 % 86 84 82
Refinery production 510 469 461 451
West Coast
Crude oil capacity 364 364 364 364
Crude oil processed 302 311 286 285
Capacity utilization (percent) 83 % 85 78 78
Refinery production 329 334 308 307
Worldwide
Crude oil capacity 2,216 2,200 2,216 2,200
Crude oil processed 1,905 1,704 1,833 1,732
Capacity utilization (percent) 86 % 77 83 79
Refinery production 2,062 1,839 1,977 1,859
* Includes our share of equity affiliates.
42-------------------------------------------------------------------------------- Table of Contents The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, at 13 refineries inthe United States andEurope . Results from our Refining segment increased$777 million and$2,147 million in the third quarter and nine-month period of 2021, respectively. The increase in the third quarter was primarily due to improved realized refining margins, partially offset by higher impairments and increased utility, turnaround, maintenance and repair costs. The increase in the nine-month period was primarily due to improved realized refining margins and lower impairments, partially offset by higher utility, maintenance and repair costs. The improved realized refining margins in both periods were mainly attributable to increased market crack spreads, partially offset by higher RIN costs, lower clean product differentials, and decreased secondary products margins. Our worldwide refining crude oil capacity utilization rate was 86% and 83% in the third quarter and nine-month period of 2021, respectively, compared with 77% and 79% in the third quarter and nine-month period of 2020, respectively. The increase in both periods was primarily driven by improved market demand for refined petroleum products following the administration of COVID-19 vaccines and the easing of pandemic restrictions since the beginning of 2021. During the third quarter of 2021, ourAlliance Refinery sustained significant impacts from Hurricane Ida and is expected to remain shut down through the fourth quarter of 2021.
See Note 7-Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding impairments in our Refining segment.
See the "Executive Overview and Business Environment" section for information on market factors impacting this quarter's results.
43
--------------------------------------------------------------------------------
Table of Contents
Marketing and Specialties
Three Months Ended Nine Months Ended
September 30 September 30
2021 2020 2021 2020
Millions of Dollars
Income Before Income Taxes
Marketing and Other $ 452 365 1,052 1,091
Specialties 93 50 259 123
Total Marketing and Specialties $ 545 415 1,311 1,214
Dollars Per Barrel
Income Before Income Taxes
U.S. $ 1.93 1.74 1.84 1.60
International 4.84 5.01 3.09 5.16
Realized Marketing Fuel Margins*
U.S. $ 2.29 2.23 2.30 2.03
International 6.75 6.28 4.63 6.78
* 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 $ 2.65 1.62 2.39 1.57
Distillates 2.48 1.41 2.25 1.45
* On third-party branded petroleum product sales,
excluding excise taxes.
Thousands of Barrels Daily
Marketing Petroleum Products Sales Volumes
Gasoline 1,189 1,080 1,130 1,029
Distillates 1,074 863 947 915
Other 17 15 18 17
Total 2,280 1,958 2,095 1,961
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 increased $130 million and $97 million in
the third quarter and nine-month period of 2021, respectively. The increase in
the third quarter of 2021 was primarily due to higher realized U.S. marketing
fuel margins and sales volumes, both driven by improved market demand for
refined petroleum products, and increased equity earnings from Excel
attributable to improved base oil margins. The increase in the nine-month period
of 2021 was primarily driven by higher realized U.S. marketing fuel margins and
increased equity earnings from Excel attributable to improved base oil margins.
The increase in the nine-month period was partially offset by lower realized
international marketing fuel margins resulting from rising spot prices, and
decreased margins from chartered marine vessels.
See the "Executive Overview and Business Environment" section for information on marketing fuel margins and other market factors impacting this quarter's results.
44
--------------------------------------------------------------------------------
Table of Contents
Corporate and Other
Millions of Dollars
Three Months Ended Nine Months Ended
September 30 September 30
2021 2020 2021 2020
Loss Before Income Taxes
Net interest expense $ (148) (131) (432) (348)
Corporate overhead and other (83) (108) (296) (307)
Total Corporate and Other $ (231) (239) (728) (655)
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 $17 million and $84 million in the third quarter
and nine-month period of 2021, respectively. The increase in both periods was
primarily driven by lower capitalized interest due to the completion of capital
projects and the placement of assets into service, as well as higher average
debt principal balances.
Corporate overhead and other decreased $25 million and $11 million in the third
quarter and nine-month period of 2021, respectively. The decrease in both
periods was primarily due to a property impairment charge of $25 million in the
third quarter of 2020. The decrease in the nine-month period was partially
offset by higher environmental costs.
45
--------------------------------------------------------------------------------
Table of Contents
CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars,
Except as Indicated
September 30 December 31
2021 2020
Cash and cash equivalents $ 2,897 2,514
Short-term debt 1,489 987
Total debt 14,910 15,893
Total equity 20,597 21,523
Percent of total debt to capital* 42% 42
Percent of floating-rate debt to total debt 6% 12
* Capital includes total debt and total equity.
To meet our short- and long-term liquidity requirements, we use a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. During the first nine months of 2021, we generated$4.2 billion of cash from operations, including aU.S. federal income tax refund of$1.1 billion . We used available cash primarily for capital expenditures and investments of$1.3 billion , dividend payments on our common stock of$1.2 billion , net debt repayment of$1.0 billion , and an additional member loan to an equity affiliate of$310 million . During the first nine months of 2021, cash and cash equivalents increased$383 million to$2.9 billion .
Significant Sources of Capital
Operating Activities During the first nine months of 2021, cash generated by operating activities was$4.2 billion , compared with$1.5 billion for the first nine months of 2020. The increase was primarily due to improved realized refining margins, aU.S. federal income tax refund of$1.1 billion received in the second quarter of 2021, and higher cash distributions from our equity affiliates. 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. 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 any variability in their operations typically has not been as significant to cash flows as that caused by margins and prices. Equity Affiliate Operating Distributions Our operating cash flows are also impacted by distribution decisions made by our equity affiliates. During the first nine months of 2021, cash from operations included distributions of$2.0 billion from our equity affiliates, compared with$1.1 billion during the same period of 2020. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured.
Tax Refunds
We received a
46
--------------------------------------------------------------------------------
Table of Contents
Revolving Credit Facilities and Commercial Paper
At both September 30, 2021 , and December 31, 2020 , no amount had been drawn
under Phillips 66's $5 billion revolving credit facility or uncommitted
$5 billion commercial paper program. At September 30, 2021 , no borrowings were
outstanding and $1 million in letters of credit had been drawn under Phillips 66
Partners' $750 million revolving credit facility, compared with outstanding
borrowings of $415 million and $1 million in letters of credit drawn under the
facility at December 31, 2020 .
Term Loan Agreement
On April 6, 2021 , Phillips 66 Partners entered into a $450 million term loan
agreement and borrowed the full amount. The term loan agreement has a maturity
date of April 5, 2022 , and the outstanding borrowings can be repaid at any time
and from time to time, in whole or in part, without premium or penalty.
Borrowings bear interest at a floating rate based on either a Eurodollar rate or
a reference rate, plus a margin of 0.875%. Proceeds were primarily used to repay
amounts borrowed under Phillips 66 Partners' $750 million revolving credit
facility.
Off-Balance Sheet Arrangements
Lease Residual Value Guarantees Under the operating lease agreement for our headquarters facility inHouston, Texas , we have the option, at the end of the lease term inSeptember 2025 , to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of$514 million atSeptember 30, 2021 . We also have residual value guarantees associated with railcar and airplane leases with maximum potential future exposures totaling$209 million . These leases have remaining terms of up to ten years.Dakota Access, LLC (Dakota Access) andEnergy Transfer Crude Oil Company, LLC (ETCO) In 2020, the trial court presiding over litigation regarding the Dakota Access Pipeline ordered theU.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) relating to an easement underLake Oahe inNorth Dakota and later vacated the easement. Although the easement has been vacated, the USACE has indicated that it will not take action to stop pipeline operations while it proceeds with the EIS, which is expected to be completed in the second half of 2022. InMay 2021 , the court denied a request for an injunction to shut down the pipeline while the EIS is being prepared and inJune 2021 , dismissed the litigation. It is possible that the litigation could be reopened or new litigation challenging the EIS, once completed, could be filed. InSeptember 2021 , Dakota Access filed a writ of certiorari, requesting theU.S. Supreme Court to review the lower court's judgment that ordered the EIS and vacated the easement. Dakota Access and ETCO have guaranteed repayment of$2.5 billion aggregate principal amount of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access. 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 in certain circumstances relating to the litigation described above. AtSeptember 30, 2021 ,Phillips 66 Partners' share of the maximum potential equity contributions under the CECU was approximately$631 million . If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses,Phillips 66 Partners also could be required to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately$25 million annually, in addition to the potential obligations under the CECU.
See Note 10-Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.
47
--------------------------------------------------------------------------------
Table of Contents
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 at September 30, 2021 , and December 31, 2020 , was $14.9
billion and $15.9 billion , respectively. Our total debt-to-capital ratio was 42%
at both September 30, 2021 , and December 31, 2020 .
In September 2021 , Phillips 66 repaid the $500 million of outstanding borrowings
under its 364-day delayed draw term loan facility due November 2023 , and
classified $1 billion of its debt due within a year to long-term debt based on
its intent and ability to refinance the obligation with long-term debt.
In
In
In the fourth quarter of 2021, we expect to repay approximately
Joint Venture Loans We and our co-venturer provided member loans to WRB. AtSeptember 30, 2021 , our 50% share of the outstanding member loan balance, including accrued interest, was$593 million . The need for additional loans to WRB in the remainder of 2021, as well as WRB's repayment schedule, will depend on market conditions. Pending Merger withPhillips 66 Partners OnOctober 26, 2021 , we entered into a definitive merger agreement withPhillips 66 Partners to acquire all of the publicly held common units representing limited partner interests inPhillips 66 Partners not already owned by us on the closing date of the transaction. The agreement provides for an all-stock transaction in which each outstandingPhillips 66 Partners common unitholder would receive 0.50 shares ofPhillips 66 common stock for eachPhillips 66 Partners common unit.Phillips 66 Partners' perpetual convertible preferred units will be converted into common units at a premium to the original issuance price prior to exchange forPhillips 66 common stock. This merger is expected to close in the first quarter of 2022, subject to customary closing conditions. Based on the closing market prices ofPhillips 66 common stock andPhillips 66 Partners common units onOctober 26, 2021 , we currently expect to issue approximately 42 million shares of our common stock with a value of approximately$3.4 billion on the closing date of this transaction. The number of shares of common stock we will issue and the value of those shares are subject to change until the merger is closed. See Note 19-Phillips 66 Partners LP , in the Notes to Consolidated Financial Statements, for additional information on the pending merger transaction.
Dividends
OnJuly 14, 2021 , our board of directors declared a quarterly cash dividend of$0.90 per common share. The dividend was paid onSeptember 1, 2021 , to shareholders of record as of the close of business onAugust 18, 2021 . OnOctober 8, 2021 , our board of directors declared a quarterly cash dividend of$0.92 per common share. This dividend is payable onDecember 1, 2021 , to shareholders of record as of the close of business onNovember 17, 2021 . Share Repurchases SinceJuly 2012 , our board of directors has authorized an aggregate of$15 billion of repurchases of our outstanding common stock. The authorizations do not have expiration dates. The share repurchases are expected to be funded primarily through available cash. We are not obligated to repurchase any shares of common stock pursuant to these authorizations and may commence, suspend or terminate repurchases at any time. Since the inception of our share repurchase program in 2012, 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 global economic disruption caused by the COVID-19 pandemic. 48 -------------------------------------------------------------------------------- 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 a joint venture partner. Millions of Dollars Nine Months Ended September 30 2021 2020 Capital Expenditures and Investments Midstream $ 569 1,556 Chemicals - - Refining 528 577 Marketing and Specialties 72 139 Corporate and Other 94 142 Total Capital Expenditures and Investments 1,263 2,414 Less: capital spending funded by a joint venture partner* - 64 Adjusted Capital Spending $ 1,263 2,350 Selected Equity Affiliates** DCP Midstream $ 36 102 CPChem 239 204 WRB 167 110 $ 442 416 * Included in the Midstream segment. ** Our share of joint venture's capital spending.
Midstream
During the first nine months of 2021, capital spending in our Midstream segment included:
•Investments in NOVONIX and a renewable feedstock processing plant.
•Construction activities onPhillips 66 Partners' C2G Pipeline, a new 16-inch ethane pipeline that connectsPhillips 66 Partners' Clemens Caverns storage facility to petrochemical facilities inGregory, Texas , nearCorpus Christi, Texas .
•Contributions to Dakota Access by
•Continued development of additional
•Contributions by
•Spending associated with other return, reliability, and maintenance projects in our Transportation and NGL businesses.
49
--------------------------------------------------------------------------------
Table of Contents
Chemicals
During the first nine months of 2021, on a 100% basis, CPChem's capital
expenditures and investments were $478 million . The capital spending was
primarily for sustaining, debottlenecking and optimization projects on existing
assets, as well as growth projects. CPChem's capital program was self-funded,
and we expect CPChem to continue self-funding its capital program for the
remainder of 2021.
Refining
Capital spending for the Refining segment during the first nine months of 2021 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. In the second quarter of 2021, we started up facilities to improve product value at ourPonca City Refinery and facilities to provide flexibility to produce renewable diesel at ourSan Francisco Refinery . Other major construction activities included installation of facilities to improve product value at the jointly ownedWood River Refinery . Marketing and Specialties Capital spending for the M&S segment during the first nine months of 2021 was primarily for an investment in a retail marketing joint venture in the Central region and the development and enhancement of retail sites inEurope . Corporate and Other Capital spending for Corporate and Other during the first nine months of 2021 was primarily for information technology and facilities. 50 -------------------------------------------------------------------------------- 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 uncertain. Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. 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. 51 -------------------------------------------------------------------------------- Table of Contents 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 international and federal environmental laws and regulations to which we are subject, see the "Environmental" section in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K. We are required to purchase RINs in the open market to satisfy the portion of our obligation under the Renewable Fuel Standard (RFS) that is not fulfilled by blending renewable fuels into the motor fuels we produce. For the nine months endedSeptember 30, 2021 and 2020, we incurred expenses of$584 million and$227 million , respectively, associated with our obligation to purchase RINs in the open market to comply with the RFS for our wholly owned refineries. These expenses are included in the "Purchased crude oil and products" line item on our consolidated statement of operations. Our jointly owned refineries also incurred expenses associated with the purchase of RINs in the open market, of which our share was$284 million and$88 million for the nine months endedSeptember 30, 2021 and 2020, respectively. These expenses are included in the "Equity in earnings of affiliates" line item on our consolidated statement of operations. The amount of these expenses and fluctuations between periods is primarily driven by the market price of RINs, refinery production and blending activities. We occasionally receive requests for information or notices of potential liability from theEPA 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. AtSeptember 30, 2021 , andDecember 31, 2020 , we had been notified of potential liability under CERCLA and comparable state laws at 25 sites withinthe United States . Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses, environmental costs and liabilities are inherent concerns in certain of our operations and products, and those costs and liabilities could 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. 52 -------------------------------------------------------------------------------- Table of Contents 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 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 2020 Annual Report on Form 10-K.
InSeptember 2021 , we announced a set of company-wide GHG emissions reduction targets that are impactful, attainable and measurable. By 2030, we expect to reduce GHG emissions intensity by 30% for Scope 1 and 2 emissions from our operations and by 15% for Scope 3 emissions from our energy products, below 2019 levels. 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. 53 -------------------------------------------------------------------------------- Table of Contents GUARANTOR FINANCIAL INFORMATION AtSeptember 30, 2021 ,Phillips 66 had$10.8 billion of senior unsecured notes outstanding guaranteed byPhillips 66 Company , a direct, wholly owned operating subsidiary ofPhillips 66 .Phillips 66 conducts substantially all of its operations through subsidiaries, includingPhillips 66 Company , and those subsidiaries generate substantially all of its operating income and cash flow. The guarantees (1) are unsecured obligations ofPhillips 66 Company , (2) rank equally with all ofPhillips 66 Company's other unsecured and unsubordinated indebtedness, and (3) are full and unconditional. Summarized financial information ofPhillips 66 andPhillips 66 Company (theObligor Group ) is presented on a combined basis. Intercompany transactions among the members of theObligor Group have been eliminated. The financial information of non-guarantor subsidiaries has been excluded from the summarized financial information. Significant intercompany transactions and receivable/payable balances between theObligor Group and non-guarantor subsidiaries are presented separately in the summarized financial information.
The summarized results of operations for the nine months ended
Summarized Combined Statement of Operations
Millions of Dollars
Nine Months Ended September 30, 2021
Sales and other operating revenues $ 61,089
Revenues and other income-non-guarantor subsidiaries 3,527
Purchased crude oil and products-third parties 38,250
Purchased crude oil and products-related parties 9,659
Purchased crude oil and products-non-guarantor subsidiaries 12,620
Impairments 1,288
Loss before income taxes (677)
Net loss (413)
Millions of Dollars
September 30 December 31
Summarized Combined Balance Sheet 2021 2020
Accounts and notes receivable-third parties $ 4,176 4,060
Accounts and notes receivable-related parties 1,420 804
Due from non-guarantor subsidiaries, current 316 288
Total current assets 10,685 8,965
Investments and long-term receivables 10,052 9,229
Net properties, plants and equipment 11,499 12,815
Goodwill 1,047 1,047
Due from non-guarantor subsidiaries, noncurrent 5,647 6,173
Other assets associated with non-guarantor subsidiaries 2,664 2,870
Total noncurrent assets 32,750 34,034
Total assets 43,435 42,999
Due to non-guarantor subsidiaries, current $ 2,167 2,203
Total current liabilities 11,062 7,938
Long-term debt 9,830 11,330
Due to non-guarantor subsidiaries, noncurrent 9,533 9,316
Total noncurrent liabilities 24,408 26,044
Total liabilities 35,470 33,982
Total equity 7,965 9,017
Total liabilities and equity 43,435 42,999
54
--------------------------------------------------------------------------------
Table of Contents
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) 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 "Executive
Overview and Business Environment-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:
55--------------------------------------------------------------------------------
Table of Contents
Millions of Dollars, Except as Indicated
Atlantic
Basin/ Gulf Central West
Realized Refining Margins Europe Coast Corridor Coast Worldwide
Three Months Ended September 30, 2021
Income (loss) before income taxes $ 90 (1,333) 229 (112) (1,126)
Plus:
Taxes other than income taxes 15 13 12 4 44 Depreciation, amortization and impairments 52 1,361 34 57 1,504 Selling, general and administrative expenses 19 15 10 11 55 Operating expenses 239 312 126 266 943 Equity in (earnings) losses of affiliates 3 1 (31) - (27) Other segment (income) expense, net 6 (1) - 2 7 Proportional share of refining gross margins contributed by equity affiliates 19 - 201 - 220 Realized refining margins$ 443 368 581 228 1,620
Total processed inputs (thousands of barrels) 47,792 64,016
26,373 30,558 168,739
Adjusted total processed inputs (thousands of
barrels)* 47,792 64,016 46,592 30,558 188,958
Income (loss) before income taxes per barrel
(dollars per barrel)** $ 1.88 (20.82) 8.68 (3.67) (6.67)
Realized refining margins (dollars per barrel)*** 9.27 5.75
12.47 7.46 8.57
Three Months Ended September 30, 2020
Loss before income taxes $ (199) (405) (132) (1,167) (1,903) Plus:
Taxes other than income taxes 14 30 11 16 71 Depreciation, amortization and impairments 50 75 33 974 1,132 Selling, general and administrative expenses 6 11 7 9 33 Operating expenses 180 258 111 235 784 Equity in losses of affiliates 2 1 118 - 121 Other segment (income) expense, net - (1) (1) 1 (1) Proportional share of refining gross margins contributed by equity affiliates 18 - 45 - 63 Realized refining margins$ 71 (31) 192 68 300
Total processed inputs (thousands of barrels) 43,176 51,543
24,682 30,615 150,016
Adjusted total processed inputs (thousands of
barrels)* 43,176 51,543 42,979 30,615 168,313
Loss before income taxes per barrel (dollars per
barrel)** $ (4.61) (7.86) (5.35) (38.12) (12.69) Realized refining margins (dollars per barrel)*** 1.65 (0.61) 4.46
2.23 1.78
* 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.
56--------------------------------------------------------------------------------
Table of Contents
Millions of Dollars, Except as Indicated
Atlantic Basin/ Gulf Central West
Realized Refining Margins Europe Coast Corridor Coast Worldwide
Nine Months Ended September 30, 2021
Loss before income taxes $ (173) (1,850) (101) (771) (2,895)
Plus:
Taxes other than income taxes 53 65 38 49 205 Depreciation, amortization and impairments 156 1,515 102 168 1,941 Selling, general and administrative expenses 51 39 24 32 146 Operating expenses 686 932 456 929 3,003 Equity in losses of affiliates 7 4 151 - 162 Other segment (income) expense, net (2) (7) (10) 2 (17) Proportional share of refining gross margins contributed by equity affiliates 104 - 412 - 516 Realized refining margins $ 882 698 1,072 409 3,061 Total processed inputs (thousands of barrels) 140,597 187,940 69,593 84,633 482,763 Adjusted total processed inputs (thousands of barrels)* 140,597 187,940 125,492 84,633 538,662 Loss before income taxes per barrel (dollars per barrel)**$ (1.23) (9.84) (1.45) (9.11) (6.00) Realized refining margins (dollars per barrel)*** 6.28 3.72 8.53 4.83 5.68 Nine Months EndedSeptember 30, 2020 Loss before income taxes$ (1,063)
(1,613) (463) (1,903) (5,042) Plus:
Taxes other than income taxes 48 92 42 69 251 Depreciation, amortization and impairments 591 891 535 1,401 3,418 Selling, general and administrative expenses 31 28 20 28 107 Operating expenses 564 1,027 367 734 2,692 Equity in (earnings) losses of affiliates 7 (1) 248 - 254 Other segment (income) expense, net 1 - (1) 3 3 Proportional share of refining gross margins contributed by equity affiliates 50 - 250 - 300 Realized refining margins$ 229 424 998 332 1,983
Total processed inputs (thousands of barrels) 123,632 176,641
68,805 84,229 453,307
Adjusted total processed inputs (thousands of
barrels)* 123,632 176,641 123,337 84,229 507,839
Loss before income taxes per barrel (dollars per barrel)**$ (8.60)
(9.13) (6.73) (22.59) (11.12) Realized refining margins (dollars per barrel)*** 1.86 2.40
8.09 3.94 3.91
* 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.
57
--------------------------------------------------------------------------------
Table of Contents
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) 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
Three Months Ended Three Months Ended
September 30, 2021 September 30, 2020
U.S. International U.S. International
Realized Marketing Fuel Margins
Income before income taxes $ 354 128 271 121
Plus:
Taxes other than income taxes 2 1 - 1
Depreciation and amortization 3 18 3 18
Selling, general and administrative expenses 201 64 174 62
Equity in earnings of affiliates (18) (30) (10) (31)
Other operating (revenues) expenses* (120) 9 (90) (7)
Other segment (income) expense, net - 1 - (1)
Marketing margins 422 191 348 163
Less: margin for nonfuel related sales - 13 - 11
Realized marketing fuel margins $ 422 178 348 152
Total fuel sales volumes (thousands of barrels) 183,332 26,427
155,948 24,164
Income before income taxes per barrel (dollars
per barrel) $ 1.93 4.84 1.74 5.01
Realized marketing fuel margins (dollars per
barrel)** 2.29 6.75 2.23 6.28
* Includes other nonfuel revenues and expenses.
** 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.
58--------------------------------------------------------------------------------
Table of Contents
Millions of Dollars, Except as Indicated
Nine Months Ended September 30,
2021 Nine Months Ended September 30, 2020
U.S. International U.S. International
Realized Marketing Fuel Margins
Income before income taxes $ 919 224 749 360
Plus:
Taxes other than income taxes 8 4 4 4 Depreciation and amortization 11 56 9 51 Selling, general and administrative expenses 564 184 452 182 Equity in earnings of affiliates (35) (85) (21) (81) Other operating revenues* (316) (6) (245) (9) Other segment income, net - (1) - - Marketing margins 1,151 376 948 507 Less: margin for nonfuel related sales - 41 - 34 Realized marketing fuel margins$ 1,151 335 948 473
Total fuel sales volumes (thousands of barrels) 499,354 72,440
467,643 69,726
Income before income taxes per barrel (dollars
per barrel) $ 1.84 3.09 1.60 5.16
Realized marketing fuel margins (dollars per
barrel)** 2.30 4.63 2.03 6.78
* Includes other nonfuel revenues and expenses.
** 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.
59
--------------------------------------------------------------------------------
Table of Contents
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:
•The continuing effects of the COVID-19 pandemic and its negative impact on
commercial activity and demand for refined petroleum products, as well as the
extent and duration of recovery of economies and demand for our products after
the pandemic subsides.
•Fluctuations in NGL, crude oil, refined petroleum product and natural gas
prices and refining, marketing and petrochemical margins.
•Changes in governmental policies relating to NGL, crude oil, natural gas or
refined petroleum products pricing, regulation or taxation, including exports.
•Actions taken by OPEC and other countries impacting supply and demand and
correspondingly, commodity prices.
•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.
•Changes to worldwide government policies relating to renewable fuels and
greenhouse gas emissions that adversely affect programs like the renewable fuel
standards program, low carbon fuel standards and tax credits for biofuels.
•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, insurrections, political events, terrorism or
cyberattacks.
•Potential disruption or damage to our facilities as a result of significant
storms or other destructive climate events.
•The inability to meet our sustainability goals, including reducing our
emissions intensity, developing and protecting new technologies, and
commercializing lower-carbon opportunities.
60
--------------------------------------------------------------------------------
Table of Contents
•General domestic and international economic and political developments
including armed hostilities, expropriation of assets, and other political,
economic or diplomatic developments, including those caused by public health
issues, outbreaks of diseases and pandemics.
•Failure of new products and services to achieve market acceptance.
•International monetary conditions and exchange controls.
•Substantial investments required, or reduced demand for products, as a result
of existing or future environmental rules and regulations, including reduced
consumer demand for refined petroleum products.
•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.
•Changes in estimates or projections used to assess fair value of intangible
assets, goodwill and property and equipment and/or strategic decisions or other
developments with respect to our asset portfolio that cause impairment charges.
•The timing and completion of the agreement to purchase all of the outstanding
common units of Phillips 66 Partners not already owned.
•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.
•The operation, financing and distribution decisions of our joint ventures that
we do not control.
•The factors generally described in Item 1A.-Risk Factors in our 2020 Annual
Report on Form 10-K.
61--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
