PHILLIPS 66 Unless otherwise indicated, "the company," "we," "our," "us" and "Phillips 66"
are used in this report to refer to the businesses of
Management's Discussion and Analysis is the company's analysis of its financial performance, financial condition, and significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the company's plans, strategies, objectives, expectations and intentions that are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The words "anticipate," "estimate," "believe," "budget," "continue," "could," "intend," "may," "plan," "potential," "predict," "seek," "should," "will," "would," "expect," "objective," "projection," "forecast," "goal," "guidance," "outlook," "effort," "target" and similar expressions often identify forward-looking statements, but the absence of these words does not mean a statement is not forward-looking. The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the company's disclosures under the heading: "CAUTIONARY STATEMENT FOR THE PURPOSES OF THE 'SAFE HARBOR' PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995." The terms "earnings" and "loss" as used in Management's Discussion and Analysis refer to net income (loss) attributable toPhillips 66 . The terms "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. AtMarch 31, 2021 , we had total assets of$55.5 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. Actions taken by governments to prevent the spread of the disease, including travel and business restrictions, have resulted in substantial decreases in the demand for many refined petroleum products, particularly gasoline and jet fuel. Demand for refined petroleum products started to recover following the distribution of COVID-19 vaccines at the beginning of 2021, and consequently, refining margins have improved. Ongoing market discipline ofOPEC producers has reduced excess supplies of crude oil and the current balance has supported higher crude oil and natural gas liquids (NGL) prices. During the first quarter of 2021, winter storms significantly impacted refining, midstream and chemical operations in the Central andGulf Coast regions, which resulted in lower asset utilization, as well as higher costs. In the first quarter of 2021, we reported a loss of$654 million and generated cash from operating activities of$271 million . We used available cash for capital expenditures and investments of$331 million , repayment of$500 million of maturing debt, dividend payments on our common stock of$394 million , and an additional member loan to an equity affiliate of$155 million . We ended the first quarter of 2021 with$1.4 billion of cash and cash equivalents and approximately$5.3 billion of total committed capacity available under our revolving credit facilities. Our results in the first quarter of 2021 reflect the adverse effects of the COVID-19 pandemic and severe winter storms that occurred in the Central andGulf Coast regions inFebruary 2021 . The adverse effects of the COVID-19 pandemic may continue to be significant in the near term, and the depth and duration of the resulting economic consequences remain unknown. We continuously monitor our asset and investment portfolio for impairments, as well as optimization opportunities, in this challenging business environment. As such, additional asset and investment impairments may be required in the future. 27 -------------------------------------------------------------------------------- Table of Contents 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 first quarter of 2021, NGL prices increased, compared with the first quarter of 2020, due to higher demand and supply disruptions caused by the winter storms that occurred in the Central andGulf Coast regions inFebruary 2021 . 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 first quarter of 2021, the benchmark high-density polyethylene chain margin increased significantly, compared with the first quarter of 2020. This increase was driven by strong demand, low inventories, and tight supply due to operational impacts from the winter storms that occurred in the Central andGulf Coast regions inFebruary 2021 . 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$57.84 per barrel during the first quarter of 2021, compared with an average of$45.97 per barrel in the first 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 first quarter of 2021, worldwide market crack spreads were significantly higher than the first quarter of 2020. The increases in crude oil prices and market crack spreads were mainly driven by an increase in demand for refined petroleum products and crude oil in the first quarter of 2021 following the distribution of COVID-19 vaccines. Additionally, product prices increased due to operational impacts from the winter storms that occurred in the Central andGulf Coast regions inFebruary 2021 . However, during the first quarter of 2021, the improved market crack spreads were partially offset by a significant increase in cost of RINs, compared with the first 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 has resulted in reduced demand for refined petroleum and specialty products sinceMarch 2020 . With the distribution of COVID-19 vaccines in 2021, the global economy has begun to recover, and demand for refined petroleum and specialty products is improving. 28 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS
Unless otherwise indicated, discussion of results for the three months ended
Consolidated Results
A summary of income (loss) before income taxes by business segment with a
reconciliation to net loss attributable to
Millions of Dollars
Three Months Ended
March 31
2021 2020
Midstream $ 76 (702)
Chemicals 154 169
Refining (1,040) (2,261)Marketing and Specialties 290 513 Corporate and Other (251) (197) Loss before income taxes
(771) (2,478)
Income tax benefit (132) (51)
Net loss (639) (2,427)
Less: net income attributable to noncontrolling interests 15 69
Net loss attributable to Phillips 66 $ (654) (2,496)
Our net loss attributable to Phillips 66 in the first quarter of 2021 was $654
million , compared with $2,496 million in the first quarter of 2020. The lower
net loss attributable to Phillips 66 reflects a before-tax impairment in the
first quarter of 2021 of $198 million , compared with before-tax impairments of
$3,006 million in the first quarter of 2020. Excluding these impairments, our
results for the first quarter of 2021 decreased, primarily driven by lower
realized refining margins, decreased realized marketing fuel margins and lower
sales volumes in the first quarter of 2021.
See the "Segment Results" section for additional information on our segment results.
29-------------------------------------------------------------------------------- Table of Contents Statement of Operations Analysis Sales and other operating revenues and purchased crude oil and products increased 4% and 9%, respectively, in the first quarter of 2021. These increases were mainly due to higher prices for refined petroleum products, crude oil and NGL, partially offset by lower volumes. Equity in earnings of affiliates decreased 22% in the first quarter of 2021. The decrease was primarily due to lower realized refining margins and decreased refinery production atWRB Refining LP (WRB), as well as lower earnings from CPChem caused by the adverse impacts from the winter storms that occurred in the Central andGulf Coast regions inFebruary 2021 . See Chemicals segment analysis in the "Segment Results" section for additional information on CPChem. Selling, general and administrative expenses increased 28% in the first quarter of 2021. The increase was primarily due to higher employee-related expenses and increased selling expenses reflecting a benefit received from a legal settlement in the first quarter of 2020. Impairments decreased$2,808 million in the first quarter of 2021. During the first quarter of 2021, a before-tax impairment of$198 million was recorded relating toPhillips 66 Partners LP's investment in the Liberty Pipeline project. In the first quarter of 2020, before-tax impairments of$3,006 million were recorded for our investment in DCP Midstream and goodwill in our Refining segment. See Note 7-Impairments, and Note 13-Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding these impairments.
Interest and debt expense increased 32% in the first quarter of 2021. The increase was primarily driven by higher average debt principal balances, reflecting new debt issuances during 2020, and lower capitalized interest due to the completion of capital projects and the placement of assets into service.
Our income tax benefit was$132 million in the first quarter of 2021, compared with$51 million in the corresponding period of 2020. See Note 18-Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our effective income tax rates. Net income attributable to noncontrolling interests decreased 78% in the first quarter of 2021. The decrease was primarily driven by a net loss fromPhillips 66 Partners LP (Phillips 66 Partners ) due to the before-tax impairment associated withPhillips 66 Partners' investment in the Liberty Pipeline project described above. 30 --------------------------------------------------------------------------------
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Segment Results
Midstream
Three Months Ended
March 31
2021 2020
Millions of Dollars
Income (Loss) Before Income Taxes
Transportation $ 7 200
NGL and Other 35 179
DCP Midstream 34 (1,081)
Total Midstream $ 76 (702)
Thousands of Barrels Daily
Transportation Volumes
Pipelines* 2,801 3,178
Terminals 2,675 3,148
Operating Statistics
NGL fractionated** 363 198
NGL production*** 356 396
* 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 $ 0.69 0.39
* 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 , as well as our 50% equity investment in DCP Midstream, which includes the operations of DCP Midstream, LP (DCP Partners ), its MLP.
Results from our Midstream segment increased
Results from our Transportation business decreased$193 million in the first quarter of 2021. The decrease was primarily attributable to a before-tax impairment of$198 million associated withPhillips 66 Partners' decision to exit the Liberty Pipeline project. Results from our NGL and Other business decreased$144 million in the first quarter of 2021. The decrease was primarily due to higher operating expenses driven by the winter storms that occurred in theGulf Coast region inFebruary 2021 , lower results from our trading activities, reduced cargo margins at the Sweeny Hub, and decreased equity earnings. These decreases were partially offset by increased fractionation volumes from the startup of Fracs 2 and 3 at the Sweeny Hub in late 2020, leading to higher exported cargoes. 31 -------------------------------------------------------------------------------- Table of Contents Results from our investment in DCP Midstream increased$1,115 million in the first quarter of 2021. The increased results reflect a$1,161 million before-tax impairment of our investment in DCP Midstream recorded in the first quarter of 2020. Excluding this impairment, results from our investment in DCP Midstream decreased in the first quarter of 2021, mainly due to unfavorable impacts from DCP Midstream's commodity price risk management activities.
See Note 7-Impairments, and Note 13-Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding the Liberty Pipeline project and DCP Midstream investment impairments.
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
March 31
2021 2020
Millions of Dollars
Income Before Income Taxes $ 154 169
Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins 4,570 5,113
Specialties, Aromatics and Styrenics 981 1,188
5,551 6,301
* 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) 79 % 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 decreased$15 million in the first quarter of 2021. The decrease was primarily due to higher utility, maintenance and repair costs, as well as lower sales volumes, resulting from the winter storms that occurred in the Central andGulf Coast regions inFebruary 2021 . These negative effects were partially offset by higher margins and increased earnings from CPChem's equity affiliates.
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
March 31
2021 2020
Millions of Dollars
Loss Before Income Taxes
Atlantic Basin/Europe $ (153) (637)
Gulf Coast (253) (843)
Central Corridor (248) (227)
West Coast (386) (554)
Worldwide $ (1,040) (2,261)
Dollars Per Barrel
Loss Before Income Taxes
Atlantic Basin/Europe $ (3.57) (15.41)
Gulf Coast (4.64) (13.16)
Central Corridor (12.55) (9.72)
West Coast (14.89) (19.87)
Worldwide (7.27) (14.44)
Realized Refining Margins*
Atlantic Basin/Europe $ 4.86 2.38
Gulf Coast 3.39 6.76
Central Corridor 5.97 13.50
West Coast 3.33 4.80
Worldwide 4.36 7.11
* 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
34--------------------------------------------------------------------------------
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Thousands of Barrels Daily
Three Months Ended
March 31
Operating Statistics 2021 2020
Refining operations*
Atlantic Basin /Europe
Crude oil capacity 537 537
Crude oil processed 438 437
Capacity utilization (percent) 82 % 81
Refinery production 482 456
Gulf Coast
Crude oil capacity 784 769
Crude oil processed 553 645
Capacity utilization (percent) 71 % 84
Refinery production 603 703
Central Corridor
Crude oil capacity 531 530
Crude oil processed 384 471
Capacity utilization (percent) 72 % 89
Refinery production 398 488
West Coast
Crude oil capacity 364 364
Crude oil processed 268 279
Capacity utilization (percent) 74 % 77
Refinery production 288 306
Worldwide
Crude oil capacity 2,216 2,200
Crude oil processed 1,643 1,832
Capacity utilization (percent) 74 % 83
Refinery production 1,771
1,953
* Includes our share of equity affiliates.
35-------------------------------------------------------------------------------- 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 improved by$1,221 million in the first quarter of 2021. The improved results reflect a$1,845 million before-tax goodwill impairment recorded in the first quarter of 2020. Excluding this impairment, results from our Refining segment decreased in the first quarter of 2021, mainly due to lower realized refining margins and decreased refinery production. Decreased refinery production was primarily driven by the reduced demand resulting from the COVID-19 pandemic and unplanned downtime caused by the winter storms that occurred in the Central andGulf Coast regions inFebruary 2021 . Our worldwide refining crude oil capacity utilization rate was 74% in the first quarter of 2021, compared with 83% in the first quarter of 2020. The decrease in the current quarter was primarily due to refinery run cuts resulting from the COVID-19 pandemic and unplanned downtime due to the winter storms.
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
March 31
2021 2020
Millions of Dollars
Income Before Income Taxes
Marketing and Other $ 211 471
Specialties 79 42
Total Marketing and Specialties $ 290 513
Dollars Per Barrel
Income Before Income Taxes
U.S. $ 1.36 1.79
International 2.24 6.58
Realized Marketing Fuel Margins*
U.S. $ 1.94 2.08
International 4.01 8.53
* 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 $ 2.01 1.77
Distillates 1.98 1.76
* On third-party branded petroleum product sales, excluding
excise taxes.
Thousands of Barrels Daily
Marketing Petroleum Products Sales Volumes
Gasoline 1,023 1,066
Distillates 818 1,037
Other 18 20
Total 1,859 2,123
The M&S segment purchases for resale and markets refined petroleum products,
such as gasoline, distillates and aviation fuels, mainly in the United States
and Europe . In addition, this segment includes the manufacturing and marketing
of specialty products, such as base oils and lubricants.
Before-tax income from the M&S segment decreased $223 million in the first
quarter of 2021. The decrease was primarily due to lower realized marketing fuel
margins driven by an increase in spot prices in the first quarter of 2021,
compared with a significant decline in spot prices in the first quarter of 2020,
as well as reduced demand caused by the COVID-19 pandemic.
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
March 31
2021 2020
Loss Before Income Taxes
Net interest expense $ (143) (103)
Corporate overhead and other (108) (94)
Total Corporate and Other $ (251) (197)
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 $40 million in the first quarter of 2021,
primarily driven by higher average debt principal balances, reflecting new debt
issuances during 2020, and lower capitalized interest due to the completion of
capital projects and the placement of assets into service.
Corporate overhead and other increased
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CAPITAL RESOURCES AND LIQUIDITY
Financial Indicators
Millions of Dollars,
Except as Indicated
March 31 December 31
2021 2020
Cash and cash equivalents $ 1,351 2,514
Short-term debt 516 987
Total debt 15,422 15,893
Total equity 20,457 21,523
Percent of total debt to capital* 43% 42
Percent of floating-rate debt to total debt 10% 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 three months of 2021, we generated$271 million of cash from operations. We used available cash primarily for capital expenditures and investments of$331 million , repayment of$500 million of maturing debt, dividend payments on our common stock of$394 million , and an additional member loan to an equity affiliate of$155 million . During the first three months of 2021, cash and cash equivalents decreased$1,163 million to$1,351 million .
Significant Sources of Capital
Operating Activities During the first three months of 2021, cash generated by operating activities was$271 million , compared with$217 million for the first three months of 2020. The increase was primarily due to higher distributions from equity affiliates and favorable working capital impacts, partially offset by lower realized refining margins and sales volumes. 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 three months of 2021, cash from operations included distributions of$502 million from our equity affiliates, compared with$361 million 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 An income tax receivable of$1.5 billion , which reflects tax refunds we expect to receive within the next 12 months, is included in the "Accounts and notes receivable" line item on our consolidated balance sheet as ofMarch 31, 2021 . 39 -------------------------------------------------------------------------------- Table of ContentsPhillips 66 Partners' Unit IssuancesPhillips 66 Partners suspended issuances under its current continuous offering of common units, or at-the-market (ATM) program in the first quarter of 2020 due to low common unit prices. During the first three months of 2021,Phillips 66 Partners did not issue any common units under the ATM program. Revolving Credit Facilities and Commercial Paper AtMarch 31, 2021 , borrowings of$450 million were outstanding and$1 million in letters of credit had been drawn underPhillips 66 Partners' $750 million revolving credit facility. AtMarch 31, 2021 , no amount had been drawn underPhillips 66's $5 billion revolving credit facility or uncommitted$5 billion commercial paper program. Term Loan Agreement OnApril 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 ofApril 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 underPhillips 66 Partners' $750 million revolving credit facility. 40
-------------------------------------------------------------------------------- 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 atMarch 31, 2021 . We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling$371 million . These operating leases have remaining terms of up to nine years.Dakota Access, LLC (Dakota Access) andEnergy Transfer Crude Oil Company, LLC (ETCO) InMarch 2019 , a wholly owned subsidiary of Dakota Access issued$2.5 billion aggregate principal amount of senior unsecured notes. Dakota Access and ETCO have guaranteed repayment of the notes. In addition,Phillips 66 Partners and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the ongoing litigation related to an easement granted by theU.S. Army Corps of Engineers (USACE) to allow the pipeline to be constructed underLake Oahe inNorth Dakota . Contributions may be required if Dakota Access determines that the issues included in any such final judgment cannot be remediated and Dakota Access has or is projected to have insufficient funds to satisfy repayment of the notes. If Dakota Access undertakes remediation to cure issues raised in a final judgment, contributions may be required if any series of the notes become due, whether by acceleration or at maturity, during such time, to the extent Dakota Access has or is projected to have insufficient funds to pay such amounts. AtMarch 31, 2021 ,Phillips 66 Partners' share of the maximum potential equity contributions under the CECU was approximately$631 million . InJuly 2020 , the trial court presiding over the litigation vacated Dakota Access' easement underLake Oahe and ordered the Dakota Access Pipeline to be shut down and emptied of crude oil pending the preparation of an Environmental Impact Statement (EIS) by the USACE, which had been ordered by the court inMarch 2020 and is now expected to be completed byMarch 2022 . InAugust 2020 , pending an appeal of the trial court's decisions, an appellate court denied Dakota Access' motion to stay the order vacating the easement, but granted its motion to stay the order that the pipeline be shut down while the EIS is prepared. InJanuary 2021 , the appellate court affirmed the trial court's order vacating the easement and directing the USACE to prepare an EIS and reversed the order directing the pipeline to be shut down. Notwithstanding that the easement has been vacated, inApril 2021 , the USACE indicated that it currently intends to allow the pipeline to continue to operate while it proceeds with the EIS. Currently, there is a motion for a permanent injunction to shut down the pipeline before the trial court that could be decided at any time. Additionally, Dakota Access has requested the appellate court to stay itsJanuary 2021 decision pending a filing and disposition of a petition for writ of certiorari to theU.S. Supreme Court . If the pipeline is required to cease operations, either permanently or pending the preparation of the EIS, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses,Phillips 66 Partners also could be 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.
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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 March 31, 2021 , and December 31, 2020 , was $15.4
billion and $15.9 billion , respectively. Our total debt-to-capital ratio was 43%
and 42% at March 31, 2021 , and December 31, 2020 , respectively.
Joint Venture Loans
We and our co-venturer provided member loans to WRB. At March 31, 2021 , our 50%
share of the outstanding member loan balance, including accrued interest, was
$434 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.
Dividends
OnFebruary 10, 2021 , our Board of Directors declared a quarterly cash dividend of$0.90 per common share. The dividend was paid onMarch 1, 2021 , to holders of record at the close of business onFebruary 22, 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. 42 -------------------------------------------------------------------------------- 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 Three Months Ended March 31 2021 2020 Capital Expenditures and Investments Midstream $ 100 603 Chemicals - - Refining 184 245 Marketing and Specialties 22 25 Corporate and Other 25 50 Total Capital Expenditures and Investments 331 923 Less: capital spending funded by a joint venture partner* - 23 Adjusted Capital Spending $ 331 900 Selected Equity Affiliates** DCP Midstream $ 7 46 CPChem 79 126 WRB 59 37 $ 145 209 * Included in the Midstream segment. ** Our share of joint venture's capital spending.
Midstream
During the first three months of 2021, capital spending in our Midstream segment included:
•Construction activities on
•Construction activities on a new 35-mile, 12-inch hydrogen gas pipeline
connecting
•Contributions by
•Continued development of additional
•Spending associated with other return, reliability, and maintenance projects in our Transportation and NGL businesses.
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Chemicals
During the first three months of 2021, on a 100% basis, CPChem's capital
expenditures and investments were $157 million . The capital spending was
primarily for sustaining, optimization and debottlenecking 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 2021.
Refining
Capital spending for the Refining segment during the first three 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.
Major construction activities included:
•Installation of facilities to improve product value at thePonca City refinery . •Installation of facilities to provide flexibility to produce renewable diesel at theSan Francisco refinery . Marketing and Specialties Capital spending for the M&S segment during the first three 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 three months of 2021 was primarily for information technology and facilities. 44 -------------------------------------------------------------------------------- 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.
Environmental
Like other companies in our industry, we are subject to numerous international, federal, state and local environmental laws and regulations. For a discussion of the most significant of these international and federal environmental laws and regulations, see the "Environmental" section in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K. 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. AtMarch 31, 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 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. 45 -------------------------------------------------------------------------------- Table of Contents Climate Change There has been a broad range of proposed or promulgated state, national and international laws focusing on greenhouse gas (GHG) emissions reduction, including various regulations proposed or issued by theEPA . These proposed or promulgated laws apply or could apply in states and/or countries where we have interests or may have interests in the future. Laws regulating GHG emissions continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws potentially could have a material impact on our results of operations and financial condition as a result of increasing costs of compliance, lengthening project implementation and agency reviews, or reducing demand for certain hydrocarbon products. We continue to monitor legislative and regulatory actions and legal proceedings globally relating to GHG emissions for potential impacts on our operations.
For examples of legislation and regulation or precursors for possible regulation that do or could affect our operations, see the "Climate Change" section in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K.
We consider and take into account anticipated future GHG emissions in designing
and developing major facilities and projects, and implement energy efficiency
initiatives to reduce GHG emissions. Data on our GHG emissions, legal
requirements regulating such emissions, and the possible physical effects of
climate change on our coastal assets are incorporated into our planning,
investment, and risk management decision-making. We are working to continuously
improve operational and energy efficiency through resource and energy
conservation throughout our operations.
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GUARANTOR FINANCIAL INFORMATION
At March 31, 2021 , Phillips 66 had $10.8 billion of senior unsecured notes
outstanding guaranteed by Phillips 66 Company , a direct, wholly owned operating
subsidiary of Phillips 66 . Phillips 66 conducts substantially all of its
operations through subsidiaries, including Phillips 66 Company , and those
subsidiaries generate substantially all of its operating income and cash flow.
The guarantees are (1) unsecured obligations of Phillips 66 Company , (2) rank
equally with all of Phillips 66 Company's other unsecured and unsubordinated
indebtedness, and (3) are full and unconditional.
Summarized financial information of Phillips 66 and Phillips 66 Company (the
Obligor Group ) is presented on a combined basis. Intercompany transactions among
the members of the Obligor 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 the Obligor Group and non-guarantor subsidiaries are presented
separately in the summarized financial information.
The summarized results of operations for the three months ended March 31, 2021 ,
and the summarized financial position at March 31, 2021 , and December 31, 2020 ,
for the Obligor Group on a combined basis were:
Summarized Combined Statement of Operations Millions of Dollars
Sales and other operating revenues $ 16,191
Revenues and other income-non-guarantor subsidiaries 1,125
Purchased crude oil and products-third parties 10,768
Purchased crude oil and products-related parties 2,316
Purchased crude oil and products-non-guarantor subsidiaries 3,323
Loss before income taxes (895)
Net loss (741)
Millions of Dollars
Summarized Combined Balance Sheet March 31 2021 December 31 2020
Accounts and notes receivable-third parties $ 4,664 4,060
Accounts and notes receivable-related parties 970 804
Due from non-guarantor subsidiaries, current 494 288
Total current assets 10,061 8,965
Investments and long-term receivables 9,269 9,229
Net properties, plants and equipment 12,852 12,815
Goodwill 1,047 1,047
Due from non-guarantor subsidiaries, noncurrent 6,070 6,173
Other assets associated with non-guarantor subsidiaries 2,815 2,870
Total noncurrent assets 33,928 34,034
Total assets 43,989 42,999
Due to non-guarantor subsidiaries, current $ 2,724 2,203
Total current liabilities 9,467 7,938
Long-term debt 11,330 11,330
Due to non-guarantor subsidiaries, noncurrent 9,937 9,316
Total noncurrent liabilities 26,600 26,044
Total liabilities 36,067 33,982
Total equity 7,922 9,017
Total liabilities and equity 43,989 42,999
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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 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 March 31, 2021
Loss before income taxes $ (153) (253) (248) (386) (1,040)
Plus:
Taxes other than income taxes 20 27 15 23 85 Depreciation, amortization and impairments 52 77 34 54 217 Selling, general and administrative expenses 14 10 7 11 42 Operating expenses 230 321 205 382 1,138 Equity in losses of affiliates 2 3 117 - 122 Other segment (income) expense, net - - (2) 2 - Proportional share of refining gross margins contributed by equity affiliates 43 - 86 - 129 Realized refining margins$ 208 185 214 86 693 Total processed inputs (thousands of barrels) 42,826 54,560 19,754 25,917 143,057
Adjusted total processed inputs (thousands of barrels)* 42,826 54,560 35,711
25,917 159,014
Loss before income taxes per barrel (dollars per
barrel)** $ (3.57) (4.64) (12.55) (14.89) (7.27)
Realized refining margins (dollars per barrel)*** 4.86 3.39 5.97 3.33 4.36
Three Months Ended March 31, 2020
Loss before income taxes $ (637) (843) (227) (554) (2,261)
Plus:
Taxes other than income taxes 19 37 17 31 104 Depreciation, amortization and impairments 492 741 469 364 2,066 Selling, general and administrative expenses 13 7 6 10 36 Operating expenses 194 492 136 283 1,105 Equity in (earnings) losses of affiliates 2 (1) 51 - 52 Other segment (income) expense, net (2) 1 (3) 1 (3)
Proportional share of refining gross margins contributed by equity affiliates
16 - 113 - 129
Special items:
Lower-of-cost-or-market inventory adjustments - - 35 - 35 Realized refining margins$ 97 434 597 135 1,263 Total processed inputs (thousands of barrels) 41,335 64,066 23,345 27,877 156,623
Adjusted total processed inputs (thousands of barrels)* 41,335 64,066 44,291
27,877 177,569
Loss before income taxes per barrel (dollars per
barrel)** $ (15.41) (13.16) (9.72) (19.87) (14.44) Realized refining margins (dollars per barrel)***
2.38 6.76 13.50 4.80 7.11
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.
** Loss before income taxes divided by total processed inputs. *** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.
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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
March 31, 2021 March 31, 2020
U.S. International U.S. International
Realized Marketing Fuel Margins
Income before income taxes $ 199 48 299 171
Plus:
Taxes other than income taxes 4 2 2 1 Depreciation and amortization 3 19 3 17 Selling, general and administrative expenses 165 60 127 63 Equity in earnings of affiliates (2) (24) - (22) Other operating revenues* (86) (5) (84) 2 Other segment income, net - (1) - - Marketing margins 283 99 347 232 Less: margin for nonfuel related sales - 13 - 10 Realized marketing fuel margins$ 283 86 347 222
Total fuel sales volumes (thousands of barrels) 145,794 21,474
167,178 25,979
Income before income taxes per barrel (dollars
per barrel) $ 1.36 2.24 1.79 6.58
Realized marketing fuel margins (dollars per
barrel)** 1.94 4.01 2.08 8.53
* 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 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 (including as a result of climate change), civil unrest,
insurrections, political events, terrorism or cyberattacks.
•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.
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•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 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 2020 Annual
Report on Form 10-K.
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