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 a diversified energy company with midstream, chemicals, refining, and marketing and specialties businesses. AtJune 30, 2022 , we had total assets of$63 billion . Our common stock trades on theNew York Stock Exchange under the symbol PSX. Executive Overview In the second quarter of 2022, we reported earnings of$3.2 billion and generated cash from operating activities of$1.8 billion . We used available cash to repay$1.5 billion of debt, pay dividends on our common stock of$467 million and fund capital expenditures and investments of$376 million . We ended the second quarter of 2022 with$2.8 billion of cash and cash equivalents and$5.0 billion of total committed capacity available under our revolving credit facility. Our reported earnings for the second quarter of 2022, compared with the second quarter of 2021, reflect a significant improvement in realized refining margins from widening market crack spreads due to a recovery in global demand for refined petroleum products as the COVID-19 pandemic recedes and the market disruptions caused by the ongoing conflict betweenRussia andUkraine . This improvement was partially offset by lower equity earnings from our Chemicals segment, as margins in the second quarter of 2022 were impacted by higher feedstock costs, while margins in the second quarter of 2021 benefited from higher prices due to strong demand and tight supplies following the winter storms that occurred in the Central andGulf Coast regions in the first quarter of 2021. As uncertainty remains regarding the impacts on the global economy of the lingering pandemic, the conflict betweenRussia andUkraine and inflationary pressures, we will continue to be disciplined in our allocation of capital and monitor the performance of our portfolio. We continue to progress our multi-year business transformation focused on enterprise-wide opportunities to improve our cost structure. We recently started implementing initiatives and are targeting a sustainable run-rate cost reduction of at least$700 million per year by the end of 2023. During the second quarter of 2022, we recorded restructuring costs of$25 million associated with our business transformation. 30 -------------------------------------------------------------------------------- Table of Contents Phillips 66 Partners Merger OnMarch 9, 2022 , we completed the merger between us andPhillips 66 Partners LP (Phillips 66 Partners ). The merger resulted in the acquisition of all limited partnership interests inPhillips 66 Partners not already owned by us. Upon closing,Phillips 66 Partners became a wholly owned subsidiary ofPhillips 66 and its common units are no longer publicly traded. See Note 18-Phillips 66 Partners LP , in the Notes to Consolidated Financial Statements, for additional information on the merger transaction. CEO Transition OnApril 12, 2022 ,Greg C. Garland , Chairman of the Board and Chief Executive Officer ofPhillips 66 announced his intention to retire from his position as Chief Executive Officer effectiveJuly 1, 2022 .Mr. Garland continues to serve as Executive Chairman of the Board with an expected retirement date from this position in 2024.Mark E. Lashier became President and Chief Executive Officer effectiveJuly 1, 2022 . Business Environment The Midstream segment includes our Transportation and NGL businesses. Our Transportation business contains fee-based operations not directly exposed to commodity price risk. Our NGL business contains both fee-based operations and operations directly impacted by NGL prices. The Midstream segment also includes our 50% equity investment inDCP Midstream, LLC (DCP Midstream). During the second quarter of 2022, NGL prices increased significantly, compared with the second quarter of 2021, due to strong demand and higher crude oil and natural gas prices. 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 2022, the benchmark high-density polyethylene chain margin decreased, compared with the second quarter of 2021, mainly due to lower prices and higher feedstock costs. Our Refining segment results are driven by several factors, including market crack spreads, refinery throughput, feedstock costs, product yields, turnaround activity, and other operating costs. The price ofU.S. benchmark crude oil, West Texas Intermediate (WTI) atCushing, Oklahoma , increased to an average of$108.66 per barrel during the second quarter of 2022, compared with an average of$66.09 per barrel in the second quarter of 2021. Market crack spreads are used as indicators of refining margins and measure the difference between market prices for refined petroleum products and crude oil. Worldwide market crack spreads increased to an average of$46.72 per barrel during the second quarter of 2022, compared with an average of$17.76 per barrel in the second quarter of 2021. The increases in crude oil prices and market crack spreads were mainly driven by tight supply due to a significant increase in demand for refined petroleum products as economic activities continue to recover as the COVID-19 pandemic recedes, as well as market and trade flow disruptions from the conflict betweenRussia andUkraine . Results for our M&S segment depend largely on marketing fuel and lubricant margins, and sales volumes of our refined petroleum and other specialty products. While marketing fuel and lubricant margins are primarily driven by market factors, largely determined by the relationship between supply and demand, marketing fuel margins, in particular, are influenced by trends in spot prices, and where applicable, retail prices for refined petroleum products in the regions and countries where we operate. In general, 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. 31 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Unless otherwise indicated, discussion of results for the three and six months endedJune 30, 2022 , is based on a comparison with the corresponding periods of 2021. 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
2022 2021 2022 2021
Midstream $ 292 312 534 388
Chemicals 273 623 669 777
Refining 3,036 (729) 3,159 (1,769)
Marketing and Specialties 765 476 1,081 766
Corporate and Other (260) (246) (509) (497)
Income (loss) before income taxes 4,106 436 4,934 (335)
Income tax expense (benefit) 924 62 1,095 (70)
Net income (loss) 3,182 374 3,839 (265)
Less: net income attributable to noncontrolling interests 15
78 90 93
Net income (loss) attributable to Phillips 66 $ 3,167 296 3,749 (358)
Our net income attributable to
•Improved realized refining and marketing fuel margins.
•Higher equity earnings from DCP Midstream.
These improvements were partially offset by lower equity earnings from CPChem, an unrealized decrease in the fair value of our investment in NOVONIX Limited (NOVONIX), and an increase in income tax expense. Our net income attributable toPhillips 66 for the six months endedJune 30, 2022 , was$3.7 billion , compared with a net loss attributable toPhillips 66 of$358 million for the six months endedJune 30, 2021 . The improvement was primarily due to:
•Improved realized refining and marketing fuel margins.
•Higher equity earnings from DCP Midstream.
•Lower impairments in the Midstream segment.
These improvements were partially offset by lower equity earnings from CPChem, an unrealized decrease in the fair value of our investment in NOVONIX, and an increase in income tax expense.
See the "Segment Results" section for additional information on our segment performance and Note 17-Income Taxes, in the Notes to Consolidated Financial Statements, for additional information on income taxes.
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Statement of Operations Analysis
Sales and other operating revenues for the second quarter and six-month period
of 2022 increased 80% and 74%, respectively, and purchased crude oil and
products increased 69% and 68%, respectively. These increases were mainly due to
higher prices for refined petroleum products, crude oil and NGL.
Equity in earnings of affiliates increased 10% and 44% in the second quarter and
six-month period of 2022, respectively. The increase in both periods was
primarily due to higher equity earnings from WRB Refining LP (WRB) resulting
from improved realized refining margins and increased equity earnings from our
Midstream segment equity affiliates, partially offset by lower equity earnings
from CPChem. See Midstream and Chemicals segment analyses in the "Segment
Results" section for additional information on our Midstream equity affiliates
and CPChem, respectively.
Other income (loss) decreased $236 million and $394 million in the second
quarter and six-month period of 2022, respectively. The decrease in both periods
was primarily due to unrealized investment losses related to decreases in the
stock price of our investment in NOVONIX, which we acquired in September 2021 .
See Note 5-Investments, Loans and Long-Term Receivables, in the Notes to
Consolidated Financial Statements, for additional information regarding our
investment in NOVONIX.
Operating expenses increased 22% in the second quarter of 2022, mainly attributable to higher utility costs driven by increased commodity prices, as well as higher turnaround expenses.
Selling, general and administrative expenses increased 13% and 10% in the second quarter and six-month period of 2022, respectively. The increase in both periods was primarily due to restructuring costs associated with our business transformation, higher selling expenses driven by rising refined petroleum product prices and increased employee-related expenses. Impairments decreased 99% in the six-month period of 2022 due to a before-tax impairment of$198 million recorded in the first quarter of 2021 related toPhillips 66 Partners' decision to exit the Liberty Pipeline project. See Note 5-Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information regarding this impairment. We had income tax expense of$924 million and$1,095 million in the second quarter and six-month period of 2022, respectively, compared with income tax expense of$62 million in the second quarter of 2021, and an income tax benefit of$70 million in the six-month period of 2021. The fluctuation in income taxes between periods is primarily due to improved results. See Note 17-Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our effective income tax rates. Net income attributable to noncontrolling interests decreased 81% in the second quarter of 2022. The decrease was primarily driven by the merger between us andPhillips 66 Partners that occurred in the first quarter of 2022. Upon closing of the merger transaction,Phillips 66 Partners became a wholly owned subsidiary ofPhillips 66 . See Note 18-Phillips 66 Partners LP , in the Notes to Consolidated Financial Statements, for additional information on the merger transaction. 33 -------------------------------------------------------------------------------- Table of Contents Segment Results Midstream Three Months Ended Six Months Ended June 30 June 30 2022 2021 2022 2021 Millions of Dollars Income (Loss) Before Income Taxes Transportation$ 250 224 528 231 NGL and Other 152 79 243 114 DCP Midstream 130 9 161 43 NOVONIX (240) - (398) - Total Midstream$ 292 312 534 388 Thousands of Barrels Daily Transportation Volumes Pipelines* 3,066 3,424 3,082 3,114 Terminals 2,917 2,786 2,908 2,731 Operating Statistics NGL fractionated** 469 401 461 382 NGL production*** 438 406 419 381 * 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 Market Indicator Weighted-Average NGL Price*$ 1.15 0.71 1.13 0.70
* 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 50% equity investment in DCP Midstream, which includes the operations of DCP Midstream, LP (DCP Partners ), its master limited partnership, and our 16% investment in NOVONIX.
Results from our Midstream segment decreased
Results from our Transportation business increased$26 million and$297 million in the second quarter and six-month period of 2022, respectively. The increase in the second quarter of 2022 was primarily due to higher results from our wholly owned assets and increased equity earnings. The increase in the six-month period of 2022 was primarily due to a before-tax impairment of$198 million recorded in the first quarter of 2021 related toPhillips 66 Partners' decision to exit the Liberty Pipeline project, as well as higher results from our wholly owned assets and equity affiliates. Results from our NGL and Other business increased$73 million and$129 million in the second quarter and six-month period of 2022, respectively. The increase in both periods was primarily due to improved results from Fracs 1, 2 and 3 at the Sweeny Hub, favorable trading activities and higher equity earnings. 34
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Results from our investment in DCP Midstream increased
The fair value of our investment in NOVONIX decreased by
See Note 5-Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information regarding the Liberty Pipeline project impairment and our investment in NOVONIX.
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
2022 2021 2022 2021
Millions of Dollars
Income Before Income Taxes $ 273 623 669 777
Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins 4,829 4,778 9,894 9,348
Specialties, Aromatics and Styrenics 1,228 1,234 2,402 2,215
6,057 6,012 12,296 11,563
* 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) 94 % 102
96 88
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 decreased $350 million and $108 million in
the second quarter and six-month period of 2022, respectively. The decrease in
both periods was primarily due to lower O&P margins driven by increased
feedstock costs, as well as higher utility and maintenance costs, partially
offset by improved sales volumes. In addition, O&P margins in the second quarter
of 2021 benefited from higher prices due to strong demand and tight supplies,
following the winter storms that occurred in the Central and Gulf Coast regions
in the first quarter of 2021.
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
2022 2021 2022 2021
Millions of Dollars
Income (Loss) Before Income Taxes
Atlantic Basin/Europe $ 1,093 (110) 1,236 (263)
Gulf Coast 863 (264) 867 (517)
Central Corridor 490 (82) 355 (330)
West Coast 590 (273) 701 (659)
Worldwide $ 3,036 (729) 3,159 (1,769)
Dollars Per Barrel
Income (Loss) Before Income Taxes
Atlantic Basin/Europe $ 21.92 (2.20) 12.63 (2.83)
Gulf Coast 16.43 (3.81) 8.28 (4.17)
Central Corridor 21.65 (3.49) 7.66 (7.64)
West Coast 19.54 (9.70) 11.87 (12.19)
Worldwide 19.56 (4.26) 10.26 (5.63)
Realized Refining Margins*
Atlantic Basin/Europe $ 30.39 4.63 21.22 4.73
Gulf Coast 24.80 2.10 16.29 2.67
Central Corridor 26.72 6.40 17.12 6.21
West Coast 33.13 3.37 25.58 3.35
Worldwide 28.31 3.92 19.48 4.12
* 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
Three Months Ended Six Months Ended
June 30 June 30
Operating Statistics 2022 2021 2022 2021
Refining operations*
Atlantic Basin /Europe
Crude oil capacity 537 537 537 537
Crude oil processed 526 513 515 476
Capacity utilization (percent) 98 % 96 96 89
Refinery production 550 552 544 517
Gulf Coast**
Crude oil capacity 529 784 529 784
Crude oil processed 500 687 498 620
Capacity utilization (percent) 94 % 88 94 79
Refinery production 586 763 588 683
Central Corridor
Crude oil capacity 531 531 531 531
Crude oil processed 435 462 444 423
Capacity utilization (percent) 82 % 87 84 80
Refinery production 446 475 460 436
West Coast
Crude oil capacity 364 364 364 364
Crude oil processed 306 286 300 278
Capacity utilization (percent) 84 % 79 82 76
Refinery production 330 307 326 298
Worldwide
Crude oil capacity 1,961 2,216 1,961 2,216
Crude oil processed 1,767 1,948 1,757 1,797
Capacity utilization (percent) 90 % 88 90 81
Refinery production 1,912 2,097 1,918 1,934
* Includes our share of equity affiliates.
** Excludes operating statistics of the
The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, at 12 refineries inthe United States andEurope . In the fourth quarter of 2021, we shut down ourAlliance Refinery and subsequently converted it into a terminal. Results from our Refining segment increased$3,765 million and$4,928 million in the second quarter and six-month period of 2022, respectively, primarily due to higher realized refining margins driven by improved market crack spreads. Our worldwide refining crude oil capacity utilization rate was 90% in the second quarter and six-month period of 2022, compared with 88% and 81% in the second quarter and six-month period of 2021, respectively. The increase in both periods was primarily driven by improved market demand for refined petroleum products as the COVID-19 pandemic recedes, as well as refinery optimization to meet demand following supply constraints caused by the conflict betweenRussia andUkraine . The increase in the second quarter of 2022 was partially offset by higher turnaround and planned maintenance activity.
See the "Executive Overview and Business Environment" section for information on market factors impacting this quarter's results.
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Marketing and Specialties
Three Months
Ended Six Months Ended
June 30 June 30
2022 2021 2022 2021
Millions of Dollars
Income Before Income Taxes
Marketing and Other $ 656 389 859 600
Specialties 109 87 222 166
Total Marketing and Specialties $ 765 476 1,081 766
Dollars Per Barrel
Income Before Income Taxes
U.S. $ 2.86 2.15 2.00 1.79
International 7.30 1.96 4.14 2.09
Realized Marketing Fuel Margins*
U.S. $ 3.24 2.62 2.42 2.31
International 8.20 2.89 5.27 3.41
* 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 $ 3.88 2.44 3.48 2.24
Distillates 4.42 2.28 3.83 2.14
* On third-party branded petroleum product sales,
excluding excise taxes.
Thousands of Barrels Daily
Marketing Petroleum Products Sales Volumes
Gasoline 1,176 1,176 1,152 1,100
Distillates 960 947 986 882
Other 19 18 18 18
Total 2,155 2,141 2,156 2,000
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 $289 million in the second
quarter of 2022, primarily driven by higher realized marketing fuel margins.
Before-tax income from the M&S segment increased $315 million for the six-month
period of 2022, primarily driven by higher realized marketing fuel margins and
volumes, improved results from our chartered marine vessel business and
increased finished lubricant and Excel Paralubes base oil margins.
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
2022 2021 2022 2021
Loss Before Income Taxes
Net interest expense $ (127) (141) (259) (284)
Corporate overhead and other (133) (105) (250) (213)
Total Corporate and Other $ (260) (246) (509) (497)
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 decreased $14 million and $25 million , respectively, in the
second quarter and six-month period of 2022, primarily driven by lower average
debt principal balances, increased interest income, and higher capitalized
interest primarily related to the Sweeny Frac 4 capital project.
Corporate overhead and other costs increased $28 million and $37 million in the
second quarter and six-month period of 2022, respectively. The increase in both
periods is primarily due to restructuring costs associated with our business
transformation and higher employee-related expenses, partially offset by lower
environmental costs. See Note 19-Restructuring, in the Notes to Consolidated
Financial Statements, for additional information regarding restructuring costs.
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CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars,
Except as Indicated
June 30 December 31
2022 2021
Cash and cash equivalents $ 2,809 3,147
Short-term debt 526 1,489
Total debt 12,969 14,448
Total equity 24,573 21,637
Percent of total debt to capital* 35% 40
Percent of floating-rate debt to total debt -% 3
* 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 six months of 2022, we generated$2.9 billion of cash from operations. We used available cash primarily to pay down$1.5 billion in debt, pay dividends on our common stock of$871 million , fund capital expenditures and investments of$746 million , and repurchase$66 million of our common stock. During the first six months of 2022, cash and cash equivalents decreased$338 million to$2.8 billion .
Significant Sources of Capital
Operating Activities During the first six months of 2022, cash generated by operating activities was$2.9 billion , compared with$2.0 billion for the first six months of 2021. The increase was primarily due to improved realized refining and marketing fuel margins, partially offset by unfavorable working capital impacts. 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, including CPChem. During the first six months of 2022, cash from operations included aggregate distributions of$1.1 billion from our equity affiliates, including$515 million from CPChem. During the same period of 2021, cash from operations included aggregate distributions of$1.1 billion , including$527 million from CPChem. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured. 41
-------------------------------------------------------------------------------- Table of Contents Revolving Credit Facilities and Commercial Paper OnJune 23, 2022 , we entered into a new$5 billion revolving credit facility (the Facility) withPhillips 66 Company as the borrower andPhillips 66 as the guarantor and a scheduled maturity date ofJune 22, 2027 . The Facility replaced our previous$5 billion revolving credit facility withPhillips 66 as the borrower andPhillips 66 Company as the guarantor. The Facility contains usual and customary covenants that are similar to the previous revolving credit facility, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. We have the option to increase the overall capacity to$6 billion , subject to certain conditions. We also have the option to extend the scheduled maturity of the Facility for up to two additional one-year terms, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. Outstanding borrowings under the Facility bear interest at either (a) the Adjusted Term Secured Overnight Financing Rate (as described in the Facility) in effect from time to time plus the applicable margin; or (b) the reference rate (as described in the Facility) plus the applicable margin. The Facility also provides for customary fees, including commitment fees. The pricing levels for the commitment fees and interest-rate margins are determined based on the ratings in effect for our senior unsecured long-term debt from time to time. We may at any time prepay outstanding borrowings, in whole or in part, without premium or penalty. In connection with entering into the Facility, we terminatedPhillips 66 Partners' $750 million revolving credit facility. AtJune 30, 2022 , no amount had been drawn under the Facility orPhillips 66 Company's $5 billion uncommitted commercial paper program supported by the Facility. 42
-------------------------------------------------------------------------------- Table of Contents 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 atJune 30, 2022 . We also have residual value guarantees associated with railcar and airplane leases with maximum potential future exposures totaling$221 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 brought by theStanding Rock Sioux Tribe ordered theU.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) addressing an easement underLake Oahe inNorth Dakota . The court later vacated the easement. Although the easement is vacated, the USACE has indicated that it will not take action to stop pipeline operations while it proceeds with the EIS. InMay 2021 , theStanding Rock Sioux Tribe's request for an injunction to force a shutdown of the pipeline while the EIS is being prepared was denied. InJune 2021 , the trial court dismissed the litigation entirely. Once the EIS is completed, new litigation or challenges to the EIS could be filed. InSeptember 2021 , Dakota Access filed a writ of certiorari, requesting theU.S. Supreme Court to review the lower court's decision to order the EIS and vacate the easement. InFebruary 2022 , the writ was denied, and the requirement to prepare the EIS stands. Completion of the EIS was expected in the fall of 2022, but now may be delayed as the USACE engages with theStanding Rock Sioux Tribe on their reasons for withdrawing as a cooperating agency with respect to preparation of the EIS. Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access inMarch 2019 . OnApril 1, 2022 , Dakota Access' wholly owned subsidiary repaid$650 million aggregate principal amount of its outstanding senior notes upon maturity. We funded our 25% share, or$163 million , with a capital contribution of$89 million inMarch 2022 and$74 million of distributions we elected not to receive from Dakota Access in the first quarter of 2022. AtJune 30, 2022 , the aggregate principal amount outstanding of Dakota Access' senior unsecured notes was$1.85 billion . In conjunction with the notes offering,Phillips 66 Partners , now a wholly owned subsidiary ofPhillips 66 , and its co-venturers in Dakota Access also provided a Contingent Equity Contribution Undertaking (CECU). Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the above-mentioned ongoing litigation. AtJune 30, 2022 , our 25% share of the maximum potential equity contributions under the CECU was approximately$467 million . If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we could be required to support our 25% share of the ongoing expenses, including scheduled interest payments on the notes of approximately$20 million annually, in addition to the potential obligations under the CECU atJune 30, 2022 .
See Note 9-Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.
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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 June 30, 2022 , and December 31, 2021 , was $13.0
billion and $14.4 billion , respectively. Our total debt-to-capital ratio was 35%
and 40% at June 30, 2022 , and December 31, 2021 , respectively.
In April 2022 , upon maturity, Phillips 66 repaid its 4.300% senior notes with an
aggregate principal amount of $1.0 billion and Phillips 66 Partners repaid its
$450 million term loan.
Debt Exchange
On May 5, 2022 , Phillips 66 Company , a wholly owned subsidiary of Phillips 66 ,
completed offers to exchange (the Exchange Offers) all validly tendered notes of
seven different series of notes issued by Phillips 66 Partners (collectively,
the Old Notes), with an aggregate principal amount of approximately $3.5
billion , for notes issued by Phillips 66 Company (collectively, the New Notes).
The New Notes are fully and unconditionally guaranteed by Phillips 66 and rank
equally with Phillips 66 Company's other unsecured and unsubordinated
indebtedness, and the guarantees rank equally with Phillips 66's other unsecured
and unsubordinated indebtedness.
Old Notes with an aggregate principal amount of approximately $3.2 billion were
tendered in the Exchange Offers. The New Notes have the same interest rates,
interest payment dates and maturity dates as the Old Notes. Holders that validly
tendered before the end of the early participation period on April 19, 2022 (the
Early Participation Date), received New Notes with an aggregate principal amount
equivalent to the Old Notes, while holders that validly tendered after the Early
Participation Date, but before the Expiration Date, received New Notes with an
aggregate principal amount 3% less than the Old Notes. Substantially all of the
Old Notes exchanged were tendered during the Early Participation Period.
Joint Venture Loans
We and our co-venturer have provided member loans to WRB. At June 30, 2022 , our
50% share of the outstanding member loan balance, including accrued interest,
was $570 million . The need for additional loans to WRB in the remainder of 2022,
as well as WRB's repayment schedule, will depend on market conditions.
Merger with Phillips 66 Partners
On March 9, 2022 , we completed the merger between us and Phillips 66 Partners .
The merger resulted in the acquisition of all limited partnership interests in
Phillips 66 Partners not already owned by us in exchange for approximately
42 million shares of Phillips 66 common stock issued from treasury stock.
Phillips 66 Partners common unitholders received 0.50 shares of Phillips 66
common stock for each outstanding Phillips 66 Partners common unit. Phillips 66
Partners' perpetual convertible preferred units were converted into common units
at a premium to the original issuance price prior to being exchanged for
Phillips 66 common stock. Upon closing, Phillips 66 Partners became a wholly
owned subsidiary of Phillips 66 and its common units are no longer publicly
traded. See Note 18-Phillips 66 Partners LP , in the Notes to Consolidated
Financial Statements, for additional information on the merger transaction.
Dividends
OnMay 11, 2022 , our board of directors declared a quarterly cash dividend of$0.97 per common share. This dividend was paid onJune 1, 2022 , to shareholders of record as of the close of business onMay 23, 2022 . OnJuly 12, 2022 , our board of directors declared a quarterly cash dividend of$0.97 per common share. This dividend is payable onSeptember 1, 2022 , to shareholders of record as of the close of business onAugust 18, 2022 . 44 -------------------------------------------------------------------------------- Table of Contents 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. Future 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 160 million shares at an aggregate cost of$12.6 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. We resumed our share repurchase program in the second quarter of 2022. Employee Benefit Plan Contributions During the six months endedJune 30, 2022 , we contributed$91 million to ourU.S. pension and other postretirement benefit plans and$12 million to our international pension plans. We currently expect to make additional contributions of approximately$45 million to ourU.S. pension and other postretirement benefit plans and approximately$12 million to our international pension plans during the remainder of 2022. 45 --------------------------------------------------------------------------------
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Capital Spending
Millions of Dollars
Six Months Ended
June 30
2022 2021
Capital Expenditures and Investments
Midstream $ 270 241
Chemicals - -
Refining 391 370
Marketing and Specialties 30 44
Corporate and Other 55 56
Total Capital Expenditures and Investments $ 746 711
Selected Equity Affiliates*
DCP Midstream $ 31 21
CPChem 274 151
WRB 89 106
$ 394 278
* Our share of joint venture's capital spending.
Midstream
During the first six months of 2022, capital spending in our Midstream segment included:
•Contribution to Dakota Access to fund our 25% share of Dakota Access' debt repayment.
•Continued development of additional
•Spending associated with other return, reliability, and maintenance projects in our Transportation and NGL businesses.
Chemicals
During the first six months of 2022, on a 100% basis, CPChem's capital expenditures and investments were$547 million . The capital spending was primarily for the development of petrochemical projects on theU.S. Gulf Coast and in theMiddle East , as well as sustaining, debottlenecking and optimization projects on existing assets. CPChem's capital program was self-funded, and we expect CPChem to continue self-funding its capital program for the remainder of 2022.
Refining
Capital spending for the Refining segment during the first six months of 2022 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.
Major capital activities included:
•Installation of facilities to improve product value at the
•Engineering of facilities and procurement of long-lead items to produce
biofuels at the
•Installation of facilities to improve product value at the jointly owned
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Marketing and Specialties
Capital spending for the M&S segment during the first six months of 2022 was
primarily for the continued development and enhancement of retail sites in
Europe and for Lubricants reliability and maintenance projects.
Corporate and Other
Capital spending for Corporate and Other during the first six months of 2022 was
primarily for information technology.
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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.
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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 2021 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 six months
ended June 30, 2022 and 2021, we incurred expenses of $271 million and
$422 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 $175 million and $178 million for the six months ended June 30, 2022
and 2021, 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, blending activities and renewable
volume obligation requirements.
We occasionally receive requests for information or notices of potential
liability from the EPA and state environmental agencies alleging that we are a
potentially responsible party under 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. At December 31, 2021 , we reported that we had been notified of
potential liability under CERCLA and comparable state laws at 25 sites within
the United States . In the first six months of 2022, we were notified of one
potentially new site through a CERCLA Section 104(e) information request issued
by the EPA , and two sites that were deemed resolved and closed, accordingly,
leaving 24 unresolved sites with potential liability at June 30, 2022 .
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.
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Climate Change
There has been a broad range of proposed or promulgated state, national and
international laws focusing on GHG emissions reduction, including various
regulations proposed or issued by the EPA . These proposed or promulgated laws
apply or could apply in states and/or countries where we have interests or may
have interests in the future. Laws regulating GHG emissions continue to evolve,
and while it is not possible to accurately estimate either a timetable for
implementation or our future compliance costs relating to implementation, such
laws potentially could have a material impact on our results of operations and
financial condition as a result of increasing costs of compliance, lengthening
project implementation and agency reviews, or reducing demand for certain
hydrocarbon products. 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 2021 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. InFebruary 2022 , we announced our intention to reduce our Scope 1 and Scope 2 GHG emissions intensity related to our operations by 50% of 2019 levels by the year 2050. This new target builds upon our previously announced 2030 GHG emissions intensity targets to reduce Scope 1 and Scope 2 emissions from our operations by 30% and Scope 3 emissions from our energy products by 15% compared to 2019 levels. 50
-------------------------------------------------------------------------------- Table of Contents GUARANTOR FINANCIAL INFORMATION We have various cross guarantees betweenPhillips 66 and its wholly owned subsidiaryPhillips 66 Company (theObligor Group ) with respect to publicly held debt securities.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.Phillips 66 has fully and unconditionally guaranteed the payment obligations ofPhillips 66 Company with respect to its publicly held debt securities. In addition,Phillips 66 Company has fully and unconditionally guaranteed the payment obligations ofPhillips 66 with respect to its publicly held debt securities. All guarantees are full and unconditional. AtJune 30, 2022 ,$12.5 billion of senior unsecured notes outstanding has been guaranteed by theObligor Group .
See the "Significant Sources of Capital" section for additional information
regarding the Exchange Offers by
Summarized financial information of 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. 51 -------------------------------------------------------------------------------- Table of Contents The summarized results of operations for the six months endedJune 30, 2022 , and the summarized financial position atJune 30, 2022 , andDecember 31, 2021 , for theObligor Group on a combined basis were: Summarized Combined Statement of Operations
Millions of Dollars
Six Months Ended June 30, 2022
Sales and other operating revenues $ 67,250
Revenues and other income-non-guarantor subsidiaries 2,193
Purchased crude oil and products-third parties 43,225
Purchased crude oil and products-related parties 6,175
Purchased crude oil and products-non-guarantor subsidiaries 13,446
Income before income taxes 3,405
Net income 2,627
Summarized Combined Balance Sheet Millions of Dollars
June 30 December 31
2022 2021
Accounts and notes receivable-third parties $ 7,312 3,772
Accounts and notes receivable-related parties 2,554 1,289
Due from non-guarantor subsidiaries, current 726 456
Total current assets 17,114 10,080
Investments and long-term receivables 9,868 10,324
Net properties, plants and equipment 11,543 11,541
Goodwill 1,047 1,047
Due from non-guarantor subsidiaries, noncurrent 2,116 5,699
Other assets associated with non-guarantor subsidiaries 2,355 2,565
Total noncurrent assets 28,657 32,935
Total assets 45,771 43,015
Due to non-guarantor subsidiaries, current $ 3,900 2,227
Total current liabilities 15,507 10,551
Long-term debt 12,056 9,364
Due to non-guarantor subsidiaries, noncurrent 6,540 9,341
Total noncurrent liabilities 24,196 24,094
Total liabilities 39,703 34,645
Total equity 6,068 8,370
Total liabilities and equity 45,771 43,015
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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) 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:
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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, 2022
Income before income taxes $ 1,093 863 490 590 3,036
Plus:
Taxes other than income taxes 14 21 18 19 72 Depreciation, amortization and impairments 51 64 36 63 214 Selling, general and administrative expenses 16 14 13 9 52 Operating expenses 296 311 264 306 1,177 Equity in (earnings) losses of affiliates 2 3 (228) - (223) Other segment expense, net 8 1 2 - 11 Proportional share of refining gross margins contributed by equity affiliates 26 - 469 - 495
Special items:
Regulatory compliance costs 9 26 22 13 70 Realized refining margins$ 1,515 1,303 1,086 1,000 4,904
Total processed inputs (thousands of barrels) 49,854 52,523
22,635 30,199 155,211
Adjusted total processed inputs (thousands of
barrels)* 49,854 52,523 40,629 30,199 173,205
Income before income taxes per barrel (dollars per barrel)**
$ 21.92 16.43 21.65 19.54 19.56
Realized refining margins (dollars per barrel)*** 30.39 24.80
26.72 33.13 28.31
Three Months Ended June 30, 2021
Loss before income taxes $ (110) (264) (82) (273) (729)
Plus:
Taxes other than income taxes 18 25 11 22 76 Depreciation, amortization and impairments 52 77 34 57 220 Selling, general and administrative expenses 18 14 7 10 49 Operating expenses 217 299 125 281 922 Equity in losses of affiliates 2 - 65 - 67 Other segment income, net (8) (6) (8) (2) (24) Proportional share of refining gross margins contributed by equity affiliates 42 - 125 - 167 Realized refining margins$ 231 145 277 95 748
Total processed inputs (thousands of barrels) 49,979 69,364
23,466 28,158 170,967
Adjusted total processed inputs (thousands of
barrels)* 49,979 69,364 43,189 28,158 190,690
Loss before income taxes per barrel (dollars per barrel)**$ (2.20)
(3.81) (3.49) (9.70) (4.26) Realized refining margins (dollars per barrel)*** 4.63 2.10
6.40 3.37 3.92
* 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/ Gulf Central West
Realized Refining Margins Europe Coast Corridor Coast Worldwide
Six Months Ended June 30, 2022
Income before income taxes $ 1,236 867 355 701 3,159
Plus:
Taxes other than income taxes 33 48 36 43 160 Depreciation, amortization and impairments 103 115 71 123 412 Selling, general and administrative expenses 30 25 27 18 100 Operating expenses 592 618 448 611 2,269 Equity in (earnings) losses of affiliates 5 5 (212) - (202) Other segment (income) expense, net 20 1 (2) 1 20 Proportional share of refining gross margins contributed by equity affiliates 49 - 674 - 723 Special items: Regulatory compliance costs 9 26 22 13 70 Realized refining margins$ 2,077 1,705 1,419 1,510 6,711 Total processed inputs (thousands of barrels) 97,869
104,674 46,326 59,076 307,945 Adjusted total processed inputs (thousands of barrels)*
97,869 104,674 82,896 59,076 344,515
Income before income taxes per barrel (dollars per barrel)**
$ 12.63 8.28 7.66 11.87 10.26 Realized refining margins (dollars per barrel)*** 21.22 16.29 17.12 25.58 19.48 Six Months EndedJune 30, 2021 Loss before income taxes$ (263) (517) (330) (659) (1,769) Plus: Taxes other than income taxes 38 52 26 45 161 Depreciation, amortization and impairments 104 154 68 111 437 Selling, general and administrative expenses 32 24 14 21 91 Operating expenses 447 620 330 663 2,060 Equity in losses of affiliates 4 3 182 - 189 Other segment income, net (8) (6) (10) - (24) Proportional share of refining gross margins contributed by equity affiliates 85 - 211 - 296 Realized refining margins$ 439 330 491 181 1,441
Total processed inputs (thousands of barrels) 92,805 123,924
43,220 54,075 314,024
Adjusted total processed inputs (thousands of
barrels)* 92,805 123,924 78,900 54,075 349,704
Loss before income taxes per barrel (dollars per barrel)**$ (2.83) (4.17) (7.64) (12.19) (5.63) Realized refining margins (dollars per barrel)*** 4.73 2.67 6.21 3.35 4.12
* 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) 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
June 30, 2022 June 30, 2021
U.S. International U.S. International
Realized Marketing Fuel Margins
Income before income taxes $ 489 185 366 48
Plus:
Depreciation and amortization 3 19 5 19 Selling, general and administrative expenses 210 62 198 60 Equity in earnings of affiliates (16) (32) (15) (31) Other operating revenues* (139) (9) (110) (10) Other (income) expense, net 6 (3) 2 - Marketing margins 553 222 446 86 Less: margin for nonfuel related sales - 14 - 15 Realized marketing fuel margins$ 553 208 446 71
Total fuel sales volumes (thousands of barrels) 170,899 25,329
170,228 24,539
Income before income taxes per barrel (dollars
per barrel) $ 2.86 7.30 2.15 1.96
Realized marketing fuel margins (dollars per
barrel)** 3.24 8.20 2.62 2.89
* 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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Millions of Dollars, Except as Indicated
Six Months Ended Six Months Ended
June 30, 2022 June 30, 2021
U.S. International U.S. International
Realized Marketing Fuel Margins
Income before income taxes $ 680 208 565 96
Plus:
Depreciation and amortization 6 37 8 38 Selling, general and administrative expenses 392 125 363 120 Equity in earnings of affiliates (23) (58) (17) (55) Other operating revenues* (246) (21) (196) (15) Other expense, net 12 1 6 1 Marketing margins 821 292 729 185 Less: margin for nonfuel related sales - 27 - 28 Realized marketing fuel margins$ 821 265 729 157
Total fuel sales volumes (thousands of barrels) 340,095 50,255
316,022 46,013
Income before income taxes per barrel (dollars
per barrel) $ 2.00 4.14 1.79 2.09
Realized marketing fuel margins (dollars per
barrel)** 2.42 5.27 2.31 3.41
* 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:
•The negative impact on commercial activity and demand for refined petroleum
products from any widespread public health crisis, as well as the extent and
duration of recovery of economies and demand for our products following any such
crisis.
•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
•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, flooding or other destructive climate events.
•The inability to meet our sustainability goals, including reducing our GHG emissions intensity, developing and protecting new technologies, and commercializing lower-carbon opportunities.
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•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 GHG emissions reductions and reduced consumer demand for refined petroleum products.
•Liability resulting from litigation or for remedial actions, including removal and reclamation obligations under environmental regulations.
•Changes in tax, environmental and other laws and regulations (including alternative energy mandates) applicable to our business.
•Political and societal concerns about climate change that could result in changes to our business or operations or increase expenditures, including litigation-related expenses.
•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. •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 2021 Annual Report on Form 10-K.
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