Note 1—Summary of Significant Accounting Policies
Consolidation Principles and Investments
Our consolidated financial statements include the accounts of majority-owned, controlled subsidiaries and variable interest entities (VIEs) where we are the primary beneficiary. Undivided interests in pipelines, natural gas plants and terminals are consolidated on a proportionate basis. See Note 27—Phillips 66 Partners LP, for further discussion on our significant consolidated VIE.
The equity method is used to account for investments in affiliates in which we have the ability to exert significant influence over the affiliates’ operating and financial policies, including VIEs, of which we are not the primary beneficiary. Other securities and investments are generally carried at fair value, or cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. See Note 6—Investments, Loans and Long-Term Receivables, for further discussion on our significant unconsolidated VIEs.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
Foreign Currency Translation
Adjustments resulting from the process of translating financial statements with foreign functional currencies into U.S. dollars are included in accumulated other comprehensive income (loss) in stockholders’ equity. Foreign currency transaction gains and losses result from remeasuring monetary assets and liabilities denominated in a foreign currency into the functional currency of our subsidiary holding the asset or liability. We include these transaction gains and losses in current earnings (loss). Most of our foreign operations use their local currency as the functional currency.
Cash Equivalents
Cash equivalents are highly liquid, short-term investments that are readily convertible to known amounts of cash and will mature within 90 days or less from the date of acquisition. We carry these investments at cost plus accrued interest.
Inventories
We have several valuation methods for our various types of inventories and consistently use the following methods for each type of inventory. Crude oil and refined petroleum products inventories are valued at the lower of cost or market in the aggregate, primarily on the last-in, first-out (LIFO) basis. Any necessary lower-of-cost-or-market write-downs at year end are recorded as permanent adjustments to the LIFO cost basis. LIFO is used to better match current inventory costs with current revenues and to meet tax-conformity requirements. Costs include both direct and indirect expenditures incurred in bringing an item or product to its existing condition and location. Materials and supplies inventories are valued using the weighted-average-cost method.
Fair Value Measurements
We categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability that are used to measure fair value to the extent that relevant observable inputs are not available, and that reflect the assumptions we believe market participants would use when pricing an asset or liability for which there is little, if any, market activity at the measurement date.
Derivative Instruments
Derivative instruments are recorded on the balance sheet at fair value. We have master netting agreements with our exchange-cleared instrument counterparties and certain of our counterparties to other commodity instrument contracts (e.g., physical commodity forward contracts). We have elected to net derivative assets and liabilities with the same counterparty on the balance sheet if the legal right of offset exists and certain other criteria are met. We also net collateral payables and receivables against derivative assets and derivative liabilities, respectively.
Recognition and classification of the gain or loss that results from recording and adjusting a derivative to fair value depends on the purpose for issuing or holding the derivative. All realized and unrealized gains and losses from derivative instruments for which we do not apply hedge accounting are immediately recognized in our consolidated statement of operations. Unrealized gains or losses from derivative instruments that qualify for and are designated as cash flow hedges are recognized in other comprehensive income (loss) and appear on the balance sheet in accumulated other comprehensive income (loss) until the hedged transactions are recognized in earnings. However, to the extent the change in the fair value of a derivative instrument exceeds the change in the anticipated cash flows of the hedged transaction, the excess gain or loss is recognized immediately in earnings.
Loans and Long-Term Receivables
We enter into agreements with other parties to pursue business opportunities, which may require us to provide loans or advances to certain affiliated and nonaffiliated companies. Loans are recorded when cash is transferred or seller financing is provided to the affiliated or nonaffiliated company pursuant to a loan agreement. The loan balance will increase as interest is earned on the outstanding loan balance and will decrease as interest and principal payments are received. Interest is earned at the loan agreement’s stated interest rate. Loans and long-term receivables are evaluated for impairment based on an expected credit loss assessment.
Impairment of Investments in Nonconsolidated Entities
Investments in nonconsolidated entities accounted for under the equity method are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value has occurred. When indicators exist, the fair value is estimated and compared to the investment carrying value. If any impairment is judgmentally determined to be other than temporary, the carrying value of the investment is written down to fair value. The fair value of the impaired investment is determined based on quoted market prices, if available, or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies.
Depreciation and Amortization
Depreciation and amortization of properties, plants and equipment (PP&E) are determined by either the individual-unit-straight-line method or the group-straight-line method (for those individual units that are highly integrated with other units).
Capitalized Interest
A portion of interest from external borrowings is capitalized on major projects with an expected construction period of one year or longer. Capitalized interest is added to the cost of the related asset, and is amortized over the useful life of the related asset.
Impairment of Properties, Plants and Equipment
PP&E used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in the future cash flows expected to be generated by an asset group. If indicators of potential impairment exist, an undiscounted cash flow test is performed. If the sum of the undiscounted expected future before-tax cash flows of an asset group is less than the carrying value of the asset group, including applicable liabilities, the carrying value of the PP&E included in the asset group is written down to estimated fair value and the write down is reported in the “Impairments” line item on our consolidated statement of operations in the period in which the impairment determination is made. Individual assets are grouped for impairment purposes at the lowest level for which identifiable cash flows are available. Because there is usually a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined using one or more of the following methods: the present values of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants; a market multiple of earnings for similar assets; historical market transactions including similar assets, adjusted using principal market participant assumptions when necessary; or replacement cost adjusted for physical deterioration and economic obsolescence. Long-lived assets held for sale are accounted for at the lower of amortized cost or fair value, less cost to sell, with fair value determined using a binding negotiated price, if available, estimated replacement cost, or present value of expected future cash flows as previously described.
The expected future cash flows used for impairment reviews and related fair value calculations are based on estimated future volumes, prices, costs, margins and capital project decisions, considering all available evidence at the date of review.
Property Dispositions
When complete units of depreciable property are sold, the asset cost and related accumulated depreciation are eliminated, with any gain or loss reflected in the “Net gain on dispositions” line item on our consolidated statement of operations. When less than complete units of depreciable property are disposed of or retired, the difference between asset cost and salvage value is charged or credited to accumulated depreciation.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination. Goodwill is not amortized, but is assessed for impairment annually and when events or changes in circumstance indicate that the fair value of a reporting unit with goodwill is below its carrying value. The impairment assessment requires allocating goodwill and other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the book value of the reporting unit. If the fair value of the reporting unit is less than the book value, an impairment is recognized for the amount by which the book value exceeds the reporting unit’s fair value. A goodwill loss cannot exceed the total amount of goodwill allocated to that reporting unit. For purposes of assessing goodwill for impairment, we have two reporting units with goodwill balances at the 2020 testing date: Transportation and Marketing and Specialties.
Intangible Assets Other Than Goodwill
Intangible assets with finite useful lives are amortized using the straight-line method over their useful lives. Intangible assets with indefinite useful lives are not amortized, but are tested at least annually for impairment. Each reporting period, we evaluate intangible assets with indefinite useful lives to determine whether events and circumstances continue to support this classification. Indefinite-lived intangible assets are considered impaired if their fair value is lower than their net book value. The fair value of intangible assets is determined based on quoted market prices in active markets, if available. If quoted market prices are not available, the fair value of intangible assets is determined based upon the present values of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants, or upon estimated replacement cost, if expected future cash flows from the intangible asset are not determinable.
Asset Retirement Obligations and Environmental Costs
The fair values of legal obligations to retire and remove long-lived assets are recorded in the period in which the obligations arise. When the liabilities are initially recorded, we capitalize these costs by increasing the carrying amount of the related PP&E. Over time, the liabilities are increased for the change in present value, and the capitalized costs in PP&E are depreciated over the useful life of the related assets. If our estimate of the liability changes after initial recognition, we record an adjustment to the liabilities and PP&E.
Environmental expenditures are expensed or capitalized, depending upon their future economic benefit. Expenditures relating to an existing condition caused by past operations, and those having no future economic benefit, are expensed. When environmental assessments or cleanups are probable and the costs can be reasonably estimated, environmental expenditures are accrued on an undiscounted basis (unless acquired in a business combination). Recoveries of environmental remediation costs from other parties, such as state reimbursement funds, are recorded as a reduction to environmental expenditures.
Guarantees
The fair value of a guarantee is determined and recorded as a liability at the time the guarantee is given. The initial liability is subsequently reduced as we are released from exposure under the guarantee. We amortize the guarantee liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of guarantee. We amortize the guarantee liability to the related statement of operations line item based on the nature of the guarantee. In cases where the guarantee term is indefinite, we reverse the liability when we have information to support the reversal. When the performance on the guarantee becomes probable and the liability can be reasonably estimated, we accrue a separate liability for the excess amount above the guarantee’s book value based on the facts and circumstances at that time. We reverse the fair value liability only when there is no further exposure under the guarantee.
Treasury Stock
We record treasury stock purchases at cost, which includes incremental direct transaction costs. Amounts are recorded as reductions of stockholders’ equity on the consolidated balance sheet.
Revenue Recognition
Our revenues are primarily associated with sales of refined petroleum products, crude oil and natural gas liquids (NGL). Each gallon, or other unit of measure of product, is separately identifiable and represents a distinct performance obligation to which a transaction price is allocated. The transaction prices of our contracts with customers are either fixed or variable, with variable pricing based upon various market indices. For our contracts that include variable consideration, we utilize the variable consideration allocation exception, whereby the variable consideration is only allocated to the performance obligations that are satisfied during the period. The related revenue is recognized at a point in time when control passes to the customer, which is when title and the risk of ownership passes to the customer and physical delivery of goods occurs, either immediately or within a fixed delivery schedule that is reasonable and customary in the industry. The payment terms with our customers vary based on the product or service provided, but usually are 30 days or less.
Revenues associated with pipeline transportation services are recognized at a point in time when the volumes are delivered based on contractual rates. Revenues associated with terminaling and storage services are recognized over time as the services are performed based on throughput volume or capacity utilization at contractual rates.
Revenues associated with transactions commonly called buy/sell contracts, in which the purchase and sale of inventory with the same counterparty are entered into in contemplation of one another, are combined and reported in the “Purchased crude oil and products” line item on our consolidated statement of operations (i.e., these transactions are recorded net).
Taxes Collected from Customers and Remitted to Governmental Authorities
Excise taxes on sales of refined petroleum products charged to our customers are presented net of taxes on sales of refined petroleum products payable to governmental authorities in the “Taxes other than income taxes” line item on our consolidated statement of operations. Other sales and value-added taxes are recorded net in the “Taxes other than income taxes” line item on our consolidated statement of operations.
Shipping and Handling Costs
We have elected to account for shipping and handling costs as fulfillment activities and include these activities in the “Purchased crude oil and products” line item on our consolidated statement of operations. Freight costs billed to customers are recorded in “Sales and other operating revenues.”
Maintenance and Repairs
Costs of maintenance and repairs, which are not significant improvements, are expensed when incurred. Major refinery maintenance turnarounds are expensed as incurred.
Share-Based Compensation
We recognize share-based compensation expense over the shorter of: (1) the service period (i.e., the stated period of time required to earn the award); or (2) the period beginning at the start of the service period and ending when an employee first becomes eligible for retirement, but not less than six months as this is the minimum period of time required for an award not to be subject to forfeiture. Our equity-classified programs generally provide accelerated vesting (i.e., a waiver of the remaining period of service required to earn an award) for awards held by employees at the time they become eligible for retirement (at age 55 with 5 years of service). We have elected to recognize expense on a straight-line basis over the service period for the entire award, irrespective of whether the award was granted with ratable or cliff vesting, and have elected to recognize forfeitures of awards when they occur.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date. Interest related to unrecognized income tax benefits is reflected in the “Interest and debt expense” line item, and penalties in the “Operating expenses” or “Selling, general and administrative expenses” line items on our consolidated statement of operations.
Note 2—Changes in Accounting Principles
Effective January 1, 2019, we elected to adopt ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU permits the deferred income tax effects stranded in accumulated other comprehensive income (AOCI) resulting from the U.S. Tax Cuts and Jobs Act (the Tax Act) enacted in December 2017 to be reclassified to retained earnings. As of January 1, 2019, we recorded a cumulative effect adjustment to our opening consolidated balance sheet to reclassify an aggregate income tax benefit of $89 million, primarily related to our pension plans, from accumulated other comprehensive loss to retained earnings.
Effective January 1, 2019, we early adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” using the modified retrospective transition method. This ASU amends the impairment model to utilize an expected loss methodology in place of the incurred loss methodology for financial instruments, including trade receivables, and off-balance sheet credit exposures. The amendment requires entities to consider a broader range of information to estimate expected credit losses, which may result in earlier recognition of losses. We recorded a noncash cumulative effect adjustment to retained earnings of $9 million, net of $3 million of income taxes, on our opening consolidated balance sheet as of January 1, 2019. See Note 4—Credit Losses, for more information on our presentation of credit losses.
Effective January 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842),” using the modified retrospective transition method. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12 months. Leases will continue to be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations.
We elected the package of practical expedients that allowed us to carry forward our determination of whether an arrangement contained a lease and lease classification, as well as our accounting for initial direct costs for existing contracts. We recorded a noncash cumulative effect adjustment, reflecting an aggregate operating lease ROU asset and corresponding lease liability of $1,415 million and immaterial adjustments to retained earnings and noncontrolling interests, on our opening consolidated balance sheet as of January 1, 2019. See Note 18—Leases, for the new lease disclosures required by this ASU.
Note 3—Sales and Other Operating Revenues
Disaggregated Revenues
The following tables present our disaggregated sales and other operating revenues:
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Millions of Dollars
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2020
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2019
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2018
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Product Line and Services
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Refined petroleum products
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$
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49,768
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87,902
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87,967
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Crude oil resales
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9,114
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14,125
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16,419
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NGL
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4,084
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4,814
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6,161
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Services and other*
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1,163
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452
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914
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Consolidated sales and other operating revenues
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$
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64,129
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107,293
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111,461
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Geographic Location**
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United States
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$
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48,711
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83,512
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86,401
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United Kingdom
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7,031
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9,863
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11,054
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Germany
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3,034
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4,053
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4,352
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Other foreign countries
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5,353
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9,865
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9,654
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Consolidated sales and other operating revenues
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$
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64,129
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107,293
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111,461
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* Includes derivatives-related activities. See Note 15—Derivatives and Financial Instruments, for additional information.
** Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.
Contract-Related Assets and Liabilities
At December 31, 2020 and 2019, receivables from contracts with customers were $3,911 million and $6,902 million, respectively. Significant noncustomer balances, such as buy/sell receivables and excise tax receivables, were excluded from these amounts.
Our contract-related assets also include payments we make to our marketing customers related to incentive programs. An incentive payment is initially recognized as an asset and subsequently amortized as a reduction to revenue over the contract term, which generally ranges from 5 to 15 years. At December 31, 2020 and 2019, our asset balances related to such payments were $404 million and $336 million, respectively.
Our contract liabilities represent advances from our customers prior to product or service delivery. At December 31, 2020 and 2019, contract liabilities were not material.
Remaining Performance Obligations
Most of our contracts with customers are spot contracts or term contracts with only variable consideration. We do not disclose remaining performance obligations for these contracts as the expected duration is one year or less or because the variable consideration has been allocated entirely to an unsatisfied performance obligation. We also have certain contracts in our Midstream segment that include minimum volume commitments with fixed pricing, which mostly expire by 2022. At December 31, 2020, the remaining performance obligations related to these minimum volume commitment contracts were not material.
Note 4—Credit Losses
We are exposed to credit losses primarily through our sales of refined petroleum products, crude oil and NGL. We assess each counterparty’s ability to pay for the products we sell by conducting a credit review. The credit review considers our expected billing exposure and timing for payment and the counterparty’s established credit rating or our assessment of the counterparty’s creditworthiness based on our analysis of their financial statements when a credit rating is not available. We also consider contract terms and conditions, country and political risk, and business strategy in our evaluation. A credit limit is established for each counterparty based on the outcome of this review. We may require collateralized asset support or a prepayment to mitigate credit risk.
We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. Our activities include timely account reconciliations, dispute resolution and payment confirmations. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.
The negative economic impacts associated with Coronavirus Disease 2019 (COVID-19) increase the probability that certain of our counterparties may not be able to completely fulfill their obligations in a timely manner. In response, we have enhanced our credit monitoring, sought collateral to support some transactions, and required prepayments from higher-risk counterparties.
At December 31, 2020 and 2019, we reported $6,522 million and $8,510 million of accounts and notes receivable, net of allowances of $37 million and $41 million, respectively. Based on an aging analysis at December 31, 2020, 99% of our accounts receivable were outstanding less than 60 days.
We are also exposed to credit losses from off-balance sheet exposures, such as guarantees of joint venture debt and standby letters of credit. See Note 13—Guarantees, and Note 14—Contingencies and Commitments, for more information on these off-balance sheet exposures.
Note 5—Inventories
Inventories at December 31 consisted of the following:
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Millions of Dollars
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2020
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2019
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Crude oil and petroleum products
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$
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3,536
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3,452
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Materials and supplies
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357
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324
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$
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3,893
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3,776
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Inventories valued on the LIFO basis totaled $3,368 million and $3,331 million at December 31, 2020 and 2019, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $2.7 billion and $4.3 billion at December 31, 2020 and 2019, respectively.
During each of the three years ended December 31, 2020, certain volume reductions in inventory caused liquidations of LIFO inventory values. These liquidations did not have a material impact on our results for the years ended December 31, 2020, 2019 and 2018.
Note 6—Investments, Loans and Long-Term Receivables
Components of investments and long-term receivables at December 31 were:
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Millions of Dollars
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2020
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2019
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Equity investments
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$
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13,037
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14,284
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Other investments
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145
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130
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Loans and long-term receivables
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442
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157
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$
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13,624
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14,571
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Equity Investments
Significant affiliated companies accounted for under the equity method, including nonconsolidated VIEs, at December 31, 2020 and 2019, included:
•Chevron Phillips Chemical Company LLC (CPChem)—50 percent-owned joint venture that manufactures and markets petrochemicals and plastics. We have multiple long-term supply and purchase agreements in place with CPChem with extension options. These agreements cover sales and purchases of refined petroleum products, solvents, fuel gas, natural gas, NGL, and other petrochemical feedstocks. All products are purchased and sold under specified pricing formulas based on various published pricing indices. At December 31, 2020 and 2019, the book value of our investment in CPChem was $6,126 million and $6,229 million, respectively.
•WRB Refining LP (WRB)—50 percent-owned joint venture that owns the Wood River and Borger refineries located in Roxana, Illinois, and Borger, Texas, respectively, for which we are the operator and managing partner. We have a basis difference for our investment in WRB because the carrying value of our investment is lower than our share of WRB’s recorded net assets. This basis difference was primarily the result of our contribution of these refineries to WRB. On the contribution closing date, a basis difference was created because the fair value of the contributed assets recorded by WRB exceeded our historical book value. The contribution-related basis difference is primarily being amortized and recognized as a benefit to equity earnings over a period of 26 years, which was the estimated remaining useful life of the refineries’ PP&E at the contribution closing date. At December 31, 2020, the aggregate remaining basis difference for this investment was $2,248 million. Equity earnings for the years ended December 31, 2020, 2019 and 2018, were increased by $180 million, $182 million and $177 million, respectively, due to the amortization of our aggregate basis difference. At December 31, 2020 and 2019, the book value of our investment in WRB was $1,819 million and $2,183 million, respectively.
During 2020, we and our co-venturer provided member loans to WRB. The outstanding member loan balance at December 31, 2020, was approximately $554 million, of which our share was approximately $277 million.
•Gray Oak Pipeline, LLC—Phillips 66 Partners LP (Phillips 66 Partners) has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. Phillips 66 Partners’ effective ownership interest in Gray Oak Pipeline, LLC is 42.25%, after considering a co-venturer’s 35% interest in the consolidated holding company. The Gray Oak Pipeline transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, Texas, and the Sweeny area, including our Sweeny Refinery. The pipeline commenced full operations in the second quarter of 2020.
In September 2020, Gray Oak Pipeline, LLC closed its offering of $1.4 billion aggregate principal amount of senior unsecured notes with maturities ranging from 2023 to 2027. These senior notes are not guaranteed by Phillips 66 Partners or any of its co-venturers. Net proceeds from the offering were used to repay a third-party term loan of $1,379 million, and for general company purposes. Concurrent with the full repayment of the third-party term loan facility, the associated equity contribution agreement was terminated and Phillips 66 Partners no longer has its proportionate exposure under this equity contribution agreement.
During its development phase, Gray Oak Pipeline, LLC was considered a VIE because it did not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We determined we were not the primary beneficiary because we and our co-venturers jointly directed the activities of Gray Oak Pipeline, LLC that most significantly impacted economic performance. Gray Oak Pipeline, LLC ceased being a VIE after the commencement of full operations in the second quarter of 2020.
At December 31, 2020 and 2019, Phillips 66 Partners’ investment in the Gray Oak Pipeline had a book value of $860 million and $759 million, respectively. See Note 27—Phillips 66 Partners LP, for additional information regarding Phillips 66 Partners’ ownership in the consolidated holding company and Gray Oak Pipeline, LLC.
•DCP Sand Hills Pipeline, LLC (Sand Hills)—Phillips 66 Partners’ 33 percent-owned joint venture that owns an NGL pipeline system that extends from the Permian Basin and Eagle Ford to facilities on the Texas Gulf Coast and to the Mont Belvieu, Texas, market hub. The Sand Hills Pipeline system is operated by DCP Midstream, LP (DCP Partners). At December 31, 2020 and 2019, the book value of Phillips 66 Partners’ investment in Sand Hills was $582 million and $595 million, respectively.
•Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)—Two Phillips 66 Partners 25 percent-owned joint ventures. Dakota Access owns a pipeline system that transports crude oil from the Bakken/Three Forks production area in North Dakota to Patoka, Illinois, and ETCO owns a connecting crude oil pipeline system from Patoka to Nederland, Texas. These two pipeline systems collectively form the Bakken Pipeline system, which is operated by a co-venturer.
In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $2.5 billion aggregate principal amount of senior unsecured notes, consisting of:
•$650 million aggregate principal amount of 3.625% Senior Notes due 2022.
•$1.0 billion aggregate principal amount of 3.900% Senior Notes due 2024.
•$850 million aggregate principal amount of 4.625% Senior Notes due 2029.
Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the ongoing litigation related to an easement granted by the U.S. Army Corps of Engineers (USACE) to allow the pipeline to be constructed under Lake Oahe in North 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. At December 31, 2020, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU was approximately $631 million.
In March 2020, the trial court presiding over this litigation ordered the USACE to prepare an Environmental Impact Statement (EIS) and requested additional information to enable a decision on whether the Dakota Access Pipeline should be shut down while the EIS is being prepared. In July 2020, the trial court ordered the Dakota Access Pipeline to be shut down and emptied of crude oil within 30 days and that the pipeline should remain shut down pending the preparation of the EIS by the USACE, which the USACE has indicated is expected to take approximately 13 months. Dakota Access filed an appeal and a request for a stay of the order, which was granted. In January 2021, the appellate court affirmed the trial court’s order that: (1) vacated Dakota Access’s easement under Lake Oahe, and (2) directed the USACE to prepare an EIS. The appellate court did not affirm the trial court’s order that the Dakota Access Pipeline be shut down and emptied of crude oil. However, the appellate court acknowledged the precise consequences of the vacated easement remain uncertain. Since the pipeline is now an encroachment, the USACE could seek a shutdown of the pipeline during the preparation of the EIS. Alternatively, the trial court could again issue an injunction that the pipeline be shut down, assuming it makes all findings necessary for injunctive relief. A status hearing is scheduled for April 9, 2021, at which time the parties will discuss the appellate court’s decision and how the USACE plans to proceed given the vacating of the easement.
If the pipeline is required to cease operations pending the preparation of the EIS, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, Phillips 66 Partners also could be 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.
At December 31, 2020 and 2019, the aggregate book value of Phillips 66 Partners’ investments in Dakota Access and ETCO was $577 million and $592 million, respectively.
•Rockies Express Pipeline LLC (REX)—25 percent-owned joint venture that owns a natural gas pipeline system that extends from Wyoming and Colorado to Ohio with a bidirectional section that extends from Ohio to Illinois. The REX Pipeline system is operated by our co-venturer. In July 2018, we contributed $138 million to REX to cover our 25% share of a $550 million debt repayment. Our capital contribution was included in the “Capital expenditures and investments” line item on our consolidated statement of cash flows.
We have a basis difference for our investment in REX because the carrying value of our investment is lower than our share of REX’s recorded net assets. This basis difference was created by historical impairment charges we recorded for this investment and is being amortized and recognized as a benefit to equity earnings over a period of 25 years, which was the estimated remaining useful life of REX’s PP&E when the impairment charges were recorded. At December 31, 2020, the remaining basis difference for this investment was $319 million. Equity earnings for each of the years ended December 31, 2020, 2019 and 2018, were increased by $19 million due to the amortization of our basis difference. At December 31, 2020 and 2019, the book value of our investment in REX was $547 million and $590 million, respectively.
•CF United LLC (CF United)—In the fourth quarter of 2019, we acquired a 50% voting interest and a 48% economic interest in CF United, a retail marketing joint venture with operations primarily on the U.S. West Coast. CF United is considered a VIE, because our co-venturer has an option to sell its interest to us based on a fixed multiple. The put option becomes effective July 1, 2023, and expires on March 31, 2024. The put option is viewed as a variable interest as the purchase price on the exercise date may not represent the then-current fair value of CF United. We have determined that we are not the primary beneficiary because we and our co-venturer jointly direct the activities of CF United that most significantly impact economic performance. At December 31, 2020, our maximum exposure was comprised of our $332 million investment in CF United and any potential future loss resulting from the put option, if the purchase price based on a fixed multiple exceeds the then-current fair value of CF United. At December 31, 2019, the book value of our investment in CF United was $265 million.
•DCP Midstream, LLC (DCP Midstream)—50 percent-owned joint venture that owns and operates NGL and gas pipelines, gas plants, gathering systems, storage facilities and fractionation plants, through its subsidiary DCP Partners. DCP Midstream markets a portion of its NGL to us and our equity affiliates. On November 6, 2019, DCP Partners completed a transaction to eliminate all general partner economic interests in DCP Partners and incentive distribution rights (IDRs) in exchange for 65 million newly issued DCP Partners common units. At the completion of the transaction, DCP Midstream held a noneconomic general partner interest and approximately 118 million common units, representing approximately 57% of DCP Partners’ outstanding common units.
For the years ended December 31, 2020 and 2019, we recorded a before-tax impairment of $1,161 million and $853 million, respectively, on our investment in DCP Midstream. These impairments increased the difference between the carrying value of our investment in DCP Midstream and our share of DCP Midstream’s net assets at March 31, 2020, to $1.8 billion. This basis difference is being amortized and recognized as a benefit to equity earnings over a period of 22 years, which was the estimated remaining useful life of DCP Midstream’s PP&E at March 31, 2020. Equity earnings for the years ended December 31, 2020 and 2019, were increased by $71 million and $10 million, respectively, due to the amortization of our basis difference. At December 31, 2020, the aggregate remaining basis difference for this investment was $1.7 billion. See Note 9—Impairments and Note 16—Fair Value Measurements for additional information regarding the impairments and the techniques used to determine the fair value of our investment in DCP Midstream. At December 31, 2020 and 2019, the book value of our investment in DCP Midstream was $297 million and $1,374 million, respectively.
•Bayou Bridge Pipeline, LLC (Bayou Bridge)—Phillips 66 Partners’ 40 percent-owned joint venture that owns a pipeline that transports crude oil from Nederland, Texas, to St. James, Louisiana. A segment of the pipeline from Lake Charles to St. James, Louisiana, was completed on April 1, 2019. The Bayou Bridge Pipeline is operated by Phillips 66 Partners’ co-venturer. At December 31, 2020 and 2019, the book value of Phillips 66 Partners’ investment in Bayou Bridge was $288 million and $294 million, respectively.
•Liberty Pipeline LLC (Liberty)—Phillips 66 Partners’ 50 percent-owned joint venture that was formed to develop and construct the Liberty Pipeline system. Upon completion, this pipeline system will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. Liberty is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We have determined we are not the primary beneficiary because we and our co-venturer jointly direct the activities of Liberty that most significantly impact economic performance. The development and construction of the Liberty Pipeline system have been deferred as a result of the current challenging business environment. At December 31, 2020, the book value of Phillips 66 Partners’ investment in Liberty was $241 million.
•DCP Southern Hills Pipeline, LLC (Southern Hills)—Phillips 66 Partners’ 33 percent-owned joint venture that owns an NGL pipeline system that extends from the Midcontinent region to the Mont Belvieu, Texas market hub. The Southern Hills Pipeline system is operated by DCP Partners. At December 31, 2020 and 2019, the book value of Phillips 66 Partners’ investment in Southern Hills was $217 million and $215 million, respectively.
•OnCue Holdings, LLC (OnCue)—50 percent-owned joint venture that owns and operates retail convenience stores. We fully guaranteed various debt agreements of OnCue, and our co-venturer did not participate in the guarantees. This entity is considered a VIE because our debt guarantees resulted in OnCue not being exposed to all potential losses. We have determined we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact economic performance. At December 31, 2020, our maximum exposure to loss was $172 million, which represented the book value of our investment in OnCue of $96 million and guaranteed debt obligations of $76 million. At December 31, 2019, the book value of our investment in OnCue was $77 million.
Total distributions received from affiliates were $1,717 million, $2,055 million, and $2,942 million for the years ended December 31, 2020, 2019 and 2018, respectively. In addition, at December 31, 2020, retained earnings included approximately $2.4 billion related to the undistributed earnings of affiliated companies.
Summarized 100% financial information for all affiliated companies accounted for under the equity method, on a combined basis, was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
30,531
|
|
|
38,156
|
|
|
43,627
|
|
|
Income before income taxes
|
2,104
|
|
|
4,976
|
|
|
6,066
|
|
|
Net income
|
1,990
|
|
|
4,787
|
|
|
5,926
|
|
|
Current assets
|
6,210
|
|
|
6,654
|
|
|
6,791
|
|
|
Noncurrent assets
|
55,806
|
|
|
56,163
|
|
|
52,649
|
|
|
Current liabilities
|
5,391
|
|
|
6,094
|
|
|
8,047
|
|
|
Noncurrent liabilities
|
16,887
|
|
|
15,740
|
|
|
10,695
|
|
|
Noncontrolling interests
|
2,997
|
|
|
2,145
|
|
|
2,550
|
|
Note 7—Properties, Plants and Equipment
Our investment in PP&E is recorded at cost. Investments in refining and processing facilities are generally depreciated on a straight-line basis over a 25-year life, pipeline assets over a 45-year life and terminal assets over a 33-year life. The company’s investment in PP&E, with the associated accumulated depreciation and amortization (Accum. D&A), at December 31 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
|
Gross
PP&E
|
|
Accum.
D&A
|
|
Net
PP&E
|
|
Gross
PP&E
|
|
Accum.
D&A
|
|
Net
PP&E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midstream
|
$
|
12,313
|
|
|
2,815
|
|
|
9,498
|
|
|
11,221
|
|
|
2,391
|
|
|
8,830
|
|
|
Chemicals
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Refining
|
24,647
|
|
|
12,019
|
|
|
12,628
|
|
|
23,692
|
|
|
10,336
|
|
|
13,356
|
|
|
Marketing and Specialties
|
1,815
|
|
|
1,007
|
|
|
808
|
|
|
1,847
|
|
|
959
|
|
|
888
|
|
|
Corporate and Other
|
1,448
|
|
|
666
|
|
|
782
|
|
|
1,311
|
|
|
599
|
|
|
712
|
|
|
|
$
|
40,223
|
|
|
16,507
|
|
|
23,716
|
|
|
38,071
|
|
|
14,285
|
|
|
23,786
|
|
See Note 9—Impairments, for information regarding the PP&E impairment of our San Francisco Refinery asset group.
Note 8—Goodwill and Intangibles
The carrying amount of goodwill by segment at December 31 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Midstream
|
|
Refining
|
|
Marketing and Specialties
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019
|
$
|
626
|
|
|
1,805
|
|
|
839
|
|
|
3,270
|
|
|
Adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance at December 31, 2019
|
626
|
|
|
1,805
|
|
|
839
|
|
|
3,270
|
|
|
Asset transfer
|
—
|
|
|
40
|
|
|
(40)
|
|
|
—
|
|
|
Impairments*
|
—
|
|
|
(1,845)
|
|
|
—
|
|
|
(1,845)
|
|
|
Balance at December 31, 2020
|
$
|
626
|
|
|
—
|
|
|
799
|
|
|
1,425
|
|
* Represents accumulated impairment losses at December 31, 2020.
See Note 9—Impairments, for information regarding the goodwill impairment in the Refining reporting unit.
Intangible Assets
The gross carrying value of indefinite-lived intangible assets at December 31 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Trade names and trademarks
|
$
|
503
|
|
|
503
|
|
|
Refinery air and operating permits
|
222
|
|
|
249
|
|
|
|
|
|
|
|
|
$
|
725
|
|
|
752
|
|
The net book value of our amortized intangible assets was $118 million and $117 million at December 31, 2020 and 2019, respectively. Acquisitions of amortized intangible assets were not material in 2020 and 2019. For the years ended December 31, 2020, 2019 and 2018, amortization expense was $27 million, $17 million and $14 million, respectively, and is expected to be less than $20 million per year in future years.
See Note 9—Impairments, for information regarding the intangible asset impairment of our San Francisco Refinery assets group.
Note 9—Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Midstream
|
$
|
1,464
|
|
|
858
|
|
|
6
|
|
|
Refining
|
2,763
|
|
|
3
|
|
|
1
|
|
|
Corporate and Other
|
25
|
|
|
—
|
|
|
1
|
|
|
Total impairments
|
$
|
4,252
|
|
|
861
|
|
|
8
|
|
Equity Investments
DCP Midstream
At September 30, 2019, we estimated the fair value of our investment in DCP Midstream was below our book value due to a decline in the market values of DCP Partners common units and its then general partner interest. We concluded this difference was not temporary due to its duration and magnitude, and we recorded an $853 million before-tax impairment in the third quarter of 2019. After the elimination of its general partner economic interests in November 2019, the fair value of our investment in DCP Midstream depends solely on the market value of DCP Partners common units. In the first quarter of 2020, the market value of DCP Partners common units further declined by approximately 85%. As a result, at March 31, 2020, the fair value of our investment in DCP Midstream was significantly lower than its book value. We concluded this difference was not temporary primarily due to its magnitude, and we recorded a $1,161 million before-tax impairment of our investment in the first quarter of 2020.
Red Oak Pipeline LLC (Red Oak)
In the third quarter of 2020, the Red Oak Pipeline project was canceled. As a result, we recorded an $84 million before-tax impairment to reduce the carrying value of our investment to our share of the estimated salvage value of the joint venture’s assets at September 30, 2020.
Other
In the fourth quarter of 2020, Phillips 66 Partners assessed for impairment its equity method investments in two crude oil transportation and terminaling joint ventures, and concluded that the carrying values of these investments at December 31, 2020, were greater than their fair values. Phillips 66 Partners concluded these differences were not temporary, based on its projections of future crude oil production. As a result, Phillips 66 Partners recorded before-tax impairments totaling $96 million.
PP&E and Intangible Assets
In the third quarter of 2020, we announced a plan to reconfigure our San Francisco Refinery to produce renewable fuels at the Rodeo refining facility in Rodeo, California, starting in early 2024. Consequently, we plan to cease operation of the Santa Maria refining facility in Arroyo Grande, California, certain assets at the Rodeo refining facility, and associated Midstream assets in 2023. We assessed the San Francisco Refinery asset group for impairment and concluded that the carrying value of the asset group was not recoverable. As a result, we recorded a $1,030 million before-tax impairment to reduce the carrying value of the net PP&E and intangible assets in this asset group to its fair value of $940 million. The impairment resulted in a reduction of net PP&E totaling $1,009 million and intangible assets of $21 million. This impairment was primarily related to our Refining segment, with the exception of $120 million that was related to PP&E in our Midstream segment.
Goodwill
Our stock price declined significantly in the first quarter of 2020, mainly due to the disruption in global commodity and equity markets related to the COVID-19 pandemic. We assessed our goodwill for impairment due to the decline in our market capitalization and concluded that the carrying value of our Refining reporting unit at March 31, 2020, was greater than its fair value by an amount in excess of its goodwill balance. Accordingly, we recorded a before-tax goodwill impairment charge of $1,845 million in our Refining segment during the first quarter of 2020.
These impairment charges are included within the “Impairments” line item on our consolidated statement of operations. See Note 16—Fair Value Measurements for additional information on the determination of fair value used to record these impairments.
Outlook
The COVID-19 pandemic continues to disrupt economic activities globally. Reduced demand for petroleum products has resulted in low crude oil prices and refining margins, as well as decreased volumes through refineries and logistics infrastructure. The depth and duration of the economic consequences of the COVID-19 pandemic 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 impairments may be required in the future.
Note 10—Asset Retirement Obligations and Accrued Environmental Costs
Asset retirement obligations and accrued environmental costs at December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Asset retirement obligations
|
$
|
309
|
|
|
280
|
|
|
Accrued environmental costs
|
427
|
|
|
441
|
|
|
Total asset retirement obligations and accrued environmental costs
|
736
|
|
|
721
|
|
|
Asset retirement obligations and accrued environmental costs due within one year*
|
(79)
|
|
|
(83)
|
|
|
Long-term asset retirement obligations and accrued environmental costs
|
$
|
657
|
|
|
638
|
|
* Classified as a current liability on the consolidated balance sheet, under the caption “Other accruals.”
Asset Retirement Obligations
We have asset retirement obligations that we are required to perform under law or contract once an asset is permanently taken out of service. Most of these obligations are not expected to be paid until many years in the future and are expected to be funded from general company resources at the time of removal. Our largest individual obligations involve asbestos abatement at refineries.
During the years ended December 31, 2020 and 2019, our overall asset retirement obligation changed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Balance at January 1
|
$
|
280
|
|
|
261
|
|
|
Accretion of discount
|
15
|
|
|
10
|
|
|
New obligations
|
10
|
|
|
—
|
|
|
Changes in estimates of existing obligations
|
14
|
|
|
31
|
|
|
Spending on existing obligations
|
(11)
|
|
|
(22)
|
|
|
|
|
|
|
|
Foreign currency translation
|
1
|
|
|
—
|
|
|
Balance at December 31
|
$
|
309
|
|
|
280
|
|
Accrued Environmental Costs
For the year ended December 31, 2020, the $14 million decrease in total accrued environmental costs was due to payments and settlements during the year, which exceeded new accruals, accrual adjustments and accretion.
Of our total accrued environmental costs at December 31, 2020, $245 million was primarily related to cleanup at domestic refineries and underground storage tanks at U.S. service stations; $130 million was associated with nonoperator sites; and $52 million was related to sites at which we have been named a potentially responsible party under federal or state laws. A large portion of our expected environmental expenditures have been discounted as these obligations were acquired in various business combinations. Expected expenditures for acquired environmental obligations were discounted using a weighted-average discount rate of approximately 5%. At December 31, 2020, the accrued balance for acquired environmental liabilities was $238 million. The expected future undiscounted payments related to the portion of the accrued environmental costs that have been discounted are: $18 million in 2021, $27 million in 2022, $21 million in 2023, $21 million in 2024, $16 million in 2025, and $199 million in the aggregate for all years after 2025.
Note 11—Earnings (Loss) Per Share
The numerator of basic earnings (loss) per share (EPS) is net income (loss) attributable to Phillips 66, adjusted for noncancelable dividends paid on unvested share-based employee awards during the vesting period (participating securities). The denominator of basic EPS is the sum of the daily weighted-average number of common shares outstanding during the periods presented and fully vested stock and unit awards that have not yet been issued as common stock. The numerator of diluted EPS is also based on net income (loss) attributable to Phillips 66, which is reduced only by dividend equivalents paid on participating securities for which the dividends are more dilutive than the participation of the awards in the earnings (loss) of the periods presented. To the extent unvested stock, unit or option awards and vested unexercised stock options are dilutive, they are included with the weighted-average common shares outstanding in the denominator. Treasury stock is excluded from the denominator in both basic and diluted EPS.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
Basic
|
Diluted
|
|
Basic
|
Diluted
|
|
Basic
|
Diluted
|
|
Amounts Attributed to Phillips 66 Common Stockholders (millions):
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Phillips 66
|
$
|
(3,975)
|
|
(3,975)
|
|
|
3,076
|
|
3,076
|
|
|
5,595
|
|
5,595
|
|
|
Income allocated to participating securities
|
(8)
|
|
(8)
|
|
|
(6)
|
|
(2)
|
|
|
(6)
|
|
—
|
|
|
Net income (loss) available to common stockholders
|
$
|
(3,983)
|
|
(3,983)
|
|
|
3,070
|
|
3,074
|
|
|
5,589
|
|
5,595
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding (thousands):
|
437,327
|
|
439,530
|
|
|
448,787
|
|
451,364
|
|
|
467,483
|
|
470,708
|
|
|
Effect of share-based compensation
|
2,203
|
|
—
|
|
|
2,577
|
|
2,524
|
|
|
3,225
|
|
3,339
|
|
|
Weighted-average common shares outstanding—EPS
|
439,530
|
|
439,530
|
|
|
451,364
|
|
453,888
|
|
|
470,708
|
|
474,047
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share of Common Stock (dollars)
|
$
|
(9.06)
|
|
(9.06)
|
|
|
6.80
|
|
6.77
|
|
|
11.87
|
|
11.80
|
|
Note 12—Debt
Short-term and long-term debt at December 31 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phillips 66
|
|
|
|
|
4.300% Senior Notes due April 2022
|
$
|
2,000
|
|
|
2,000
|
|
|
3.700% Senior Notes due April 2023
|
500
|
|
|
—
|
|
|
0.900% Senior Notes due February 2024
|
800
|
|
|
—
|
|
|
3.850% Senior Notes due April 2025
|
650
|
|
|
—
|
|
|
1.300% Senior Notes due February 2026
|
500
|
|
|
—
|
|
|
3.900% Senior Notes due March 2028
|
800
|
|
|
800
|
|
|
2.150% Senior Notes due December 2030
|
850
|
|
|
—
|
|
|
4.650% Senior Notes due November 2034
|
1,000
|
|
|
1,000
|
|
|
5.875% Senior Notes due May 2042
|
1,500
|
|
|
1,500
|
|
|
4.875% Senior Notes due November 2044
|
1,700
|
|
|
1,700
|
|
|
Floating Rate Notes due April 2020 at 2.751% at year-end 2019
|
—
|
|
|
300
|
|
|
Term Loan due April 2020 at 2.699% at year-end 2019
|
—
|
|
|
200
|
|
|
Term Loan due November 2023 at 1.397% at year-end 2020
|
500
|
|
|
—
|
|
|
Floating Rate Senior Notes due February 2021 at 0.833% and 2.517% at year-end 2020 and 2019, respectively
|
500
|
|
|
500
|
|
|
Floating Rate Senior Notes due February 2024 at 0.840% at year-end 2020
|
450
|
|
|
—
|
|
|
Floating Rate Advance Term Loan due December 2034 at 0.755% and 2.392% at year-end 2020 and 2019, respectively—related party
|
25
|
|
|
25
|
|
|
Other
|
1
|
|
|
1
|
|
|
|
|
|
|
|
Phillips 66 Partners
|
|
|
|
|
|
|
|
|
|
2.450% Senior Notes due December 2024
|
300
|
|
|
300
|
|
|
3.605% Senior Notes due February 2025
|
500
|
|
|
500
|
|
|
3.550% Senior Notes due October 2026
|
500
|
|
|
500
|
|
|
3.750% Senior Notes due March 2028
|
500
|
|
|
500
|
|
|
3.150% Senior Notes due December 2029
|
600
|
|
|
600
|
|
|
4.680% Senior Notes due February 2045
|
450
|
|
|
450
|
|
|
4.900% Senior Notes due October 2046
|
625
|
|
|
625
|
|
|
Tax-Exempt Bonds due April 2020 and April 2021 at weighted-average rates of 0.360% and 1.850% at year-end 2020 and 2019, respectively
|
50
|
|
|
75
|
|
|
Revolving Credit Facility due January 2021 at weighted-average rate of 1.397% at year-end 2020
|
415
|
|
|
—
|
|
|
Debt at face value
|
15,716
|
|
|
11,576
|
|
|
Finance leases
|
264
|
|
|
277
|
|
|
Software obligations
|
19
|
|
|
10
|
|
|
Net unamortized discounts and debt issuance costs
|
(106)
|
|
|
(100)
|
|
|
Total debt
|
15,893
|
|
|
11,763
|
|
|
Short-term debt
|
(987)
|
|
|
(547)
|
|
|
Long-term debt
|
$
|
14,906
|
|
|
11,216
|
|
|
|
Maturities of borrowings outstanding at December 31, 2020, inclusive of net unamortized discounts and debt issuance costs, for each of the years from 2021 through 2025 are $987 million, $2,017 million, $1,015 million, $1,560 million and $1,176 million, respectively.
2020 Debt Issuances and Repayments
Senior Unsecured Notes
On November 18, 2020, Phillips 66 closed its public offering of $1.75 billion aggregate principal amount of senior unsecured notes consisting of:
•$450 million aggregate principal amount of Floating Rate Senior Notes due 2024 (the Floating Rate Notes).
•$800 million aggregate principal amount of 0.900% Senior Notes due 2024.
•$500 million aggregate principal amount of 1.300% Senior Notes due 2026.
The Floating Rate Notes will bear interest at a floating rate, reset quarterly, equal to the three-month London Interbank Offered Rate (LIBOR) plus 0.62% per year, subject to adjustment. Interest on the Senior Notes due 2024 and 2026 is payable semiannually on February 15 and August 15 of each year, commencing on February 15, 2021.
Proceeds received from the public offering of senior unsecured notes on November 18, 2020, were $1.74 billion, net of underwriters’ discounts and commissions, as well as debt issuance costs. On November 19, 2020, a portion of these proceeds were used to repay $500 million of outstanding borrowings under the term loan facility that Phillips 66 entered into in March 2020 (see the “Term Loan Facility” section below for a full description of the term loan facility). In addition, a portion of the proceeds will be used to repay the $500 million aggregate principal amount of our outstanding Floating Rate Senior Notes due February 2021. The remainder of the proceeds are being used for general corporate purposes.
On June 10, 2020, Phillips 66 closed its public offering of $1 billion aggregate principal amount of senior unsecured notes consisting of:
•$150 million aggregate principal amount of 3.850% Senior Notes due 2025.
•$850 million aggregate principal amount of 2.150% Senior Notes due 2030.
On April 9, 2020, Phillips 66 closed its public offering of $1 billion aggregate principal amount of senior unsecured notes consisting of:
•$500 million aggregate principal amount of 3.700% Senior Notes due 2023.
•$500 million aggregate principal amount of 3.850% Senior Notes due 2025.
Interest on the Senior Notes due 2023 is payable semiannually on April 6 and October 6 of each year, commencing on October 6, 2020. The Senior Notes due 2025 issued on June 10, 2020, constitute a further issuance of the Senior Notes due 2025 originally issued on April 9, 2020. The $650 million in aggregate principal amount of Senior Notes due 2025 is treated as a single class of debt securities. Interest on the Senior Notes due 2025 is payable semiannually on April 9 and October 9 of each year, commencing on October 9, 2020. Interest on the Senior Notes due 2030 is payable semiannually on June 15 and December 15 of each year, commencing on December 15, 2020.
Proceeds received from the public offerings of senior unsecured notes on June 10, 2020, and April 9, 2020, were $1,008 million and $993 million, respectively, net of underwriters’ discounts or premiums and commissions, as well as debt issuance costs. These proceeds are being used for general corporate purposes.
Term Loan Facility
On March 19, 2020, Phillips 66 entered into a $1 billion 364-day delayed draw term loan agreement (the Facility) and borrowed $1 billion under the Facility shortly thereafter. On April 6, 2020, Phillips 66 increased the size of the Facility to $2 billion, and in June 2020, the Facility was amended to extend the commitment period to September 19, 2020. We did not draw additional amounts under the Facility before the end of the commitment period or further extend the commitment period. In November 2020, we repaid $500 million of borrowings outstanding under the Facility, and the Facility was amended to extend the maturity date of the remaining $500 million outstanding borrowings from March 18, 2021, to November 20, 2023. Borrowings under the Facility bear interest at a floating rate based on either the Eurodollar rate or the reference rate, plus a margin determined by the credit rating of Phillips 66’s senior unsecured long-term debt. Phillips 66 is using the proceeds for general corporate purposes.
Other Debt Repayments
In April 2020, Phillips 66 repaid $300 million outstanding principal balance of its floating-rate notes due April 2020 and $200 million outstanding principal balance under the term loan facility due April 2020. Also in April 2020, Phillips 66 Partners repaid a $25 million tranche of its tax-exempt bonds due April 2020.
2019 Debt Issuances and Repayments
On October 15, 2019, Phillips 66 Partners repaid the aggregate $300 million outstanding principal balance of its 2.646% Senior Notes due February 2020.
On September 13, 2019, Phillips 66 Partners repaid the aggregate $400 million outstanding principal balance of the senior unsecured term loan facility that was drawn during the first half of 2019.
On September 6, 2019, Phillips 66 Partners closed on a public offering of $900 million aggregate principal amount of unsecured notes consisting of:
•$300 million aggregate principal amount of 2.450% Senior Notes due December 15, 2024.
•$600 million aggregate principal amount of 3.150% Senior Notes due December 15, 2029.
Interest on each series of senior notes is payable semiannually in arrears on June 15 and December 15 of each year, commencing on June 15, 2020. Net proceeds from the Senior Notes offering were used for the September 13, 2019 and October 15, 2019 debt repayments noted above and general business purposes.
On March 22, 2019, Phillips 66 Partners entered into a senior unsecured term loan facility with a borrowing capacity of $400 million due March 20, 2020. Phillips 66 Partners borrowed an aggregate amount of $400 million under the facility during the first half of 2019, which was repaid in full in September 2019.
Revolving Credit Facilities and Commercial Paper
Phillips 66 has a $5 billion revolving credit facility which may be used for direct bank borrowings, as support for issuances of letters of credit, and as support for our commercial paper program. We have an 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 after its July 30, 2024, maturity date, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. The facility is with a broad syndicate of financial institutions and contains covenants that are usual and customary for an agreement of this type, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. The facility has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; and violation of covenants. Outstanding borrowings under the facility bear interest, at our option, at either: (a) the Eurodollar rate 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 Phillips 66’s senior unsecured long-term debt from time to time. Phillips 66 may at any time prepay outstanding borrowings under the facility, in whole or in part, without premium or penalty. At December 31, 2020 and 2019, no amount had been drawn under the facility.
Phillips 66 also has a $5 billion uncommitted commercial paper program for short-term working capital needs that is supported by our revolving credit facility. Commercial paper maturities are contractually limited to 365 days. At December 31, 2020 and 2019, no borrowings were outstanding under the program.
Phillips 66 Partners has a $750 million revolving credit facility which may be used for direct bank borrowings and as support for issuances of letters of credit. Phillips 66 Partners has an option to increase the overall capacity to $1 billion, subject to certain conditions. Phillips 66 Partners also has the option to extend the facility for two additional one-year terms after its July 30, 2024, maturity date, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. The facility is with a broad syndicate of financial institutions and contains covenants that are usual and customary for an agreement of this type. The facility has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts; and violation of covenants. Outstanding revolving borrowings under the facility bear interest, at Phillips 66 Partners’ option, at either: (a) the Eurodollar rate 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 Phillips 66 Partners’ credit ratings in effect from time to time. Borrowings under the facility may be short-term or long-term in duration, and Phillips 66 Partners may at any time prepay outstanding borrowings under the facility, in whole or in part, without premium or penalty. At December 31, 2020, borrowings of $415 million were outstanding under this facility, compared with no borrowings outstanding at December 31, 2019. At both December 31, 2020 and 2019, $1 million in letters of credit had been issued that were supported by this facility.
We had approximately $5.3 billion and $5.7 billion of total committed capacity available under our revolving credit facilities at December 31, 2020 and 2019, respectively.
Note 13—Guarantees
At December 31, 2020, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability either because the guarantees were issued prior to December 31, 2002, or because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantees and expect future performance to be either immaterial or have only a remote chance of occurrence.
Lease Residual Value Guarantees
In September 2020, we amended the operating lease agreement for our headquarters facility in Houston, Texas, and extended the lease term from June 2021 to September 2025. Under this agreement, we have the option, at the end of the lease term, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at December 31, 2020. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling $381 million. These operating leases have remaining terms of up to nine years.
Guarantees of Joint Venture and Other Obligations
In March 2019, Phillips 66 Partners and its co-venturers in Dakota Access provided a CECU in conjunction with a senior unsecured notes offering. See Note 6—Investments, Loans and Long-Term Receivables, for additional information on Dakota Access and the CECU.
Gray Oak Pipeline, LLC had a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Phillips 66 Partners and its co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount, plus any additional accrued interest and associated fees, if Gray Oak Pipeline, LLC defaulted on certain of its obligations thereunder. In September 2020, concurrent with the full repayment of a third-party term loan facility by Gray Oak Pipeline, LLC, the associated guarantee issued by Phillips 66 Partners through an equity contribution agreement was terminated. See Note 6—Investments, Loans and Long-Term Receivables, for additional information on Gray Oak Pipeline, LLC.
At December 31, 2020, we also had other guarantees outstanding for our portion of certain joint venture debt obligations and purchase obligations, which have remaining terms of up to seven years. The maximum potential amount of future payments to third parties under these guarantees was approximately $191 million. Payment would be required if a joint venture defaults on its obligations.
Indemnifications
Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to indemnification. Agreements associated with these sales include indemnifications for taxes, litigation, environmental liabilities, permits and licenses, employee claims, and real estate tenant defaults. The provisions of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, which generally have indefinite terms and potentially unlimited exposure. At December 31, 2020 and 2019, the carrying amount of recorded indemnifications was $145 million and $153 million, respectively.
We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have information to support the reversal. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments. At December 31, 2020 and 2019, environmental accruals for known contamination of $104 million and $105 million, respectively, were included in the carrying amount of the recorded indemnifications noted above. These environmental accruals were primarily included in the “Asset retirement obligations and accrued environmental costs” line item on our consolidated balance sheet. For additional information about environmental liabilities, see Note 10—Asset Retirement Obligations and Accrued Environmental Costs and Note 14—Contingencies and Commitments.
Indemnification and Release Agreement
In 2012, in connection with our separation from ConocoPhillips, we entered into an Indemnification and Release Agreement. This agreement governs the treatment between ConocoPhillips and us of matters relating to indemnification, insurance, litigation responsibility and management, and litigation document sharing and cooperation arising in connection with the separation. Generally, the agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of ConocoPhillips’ business with ConocoPhillips. The agreement also establishes procedures for handling claims subject to indemnification and related matters.
Note 14—Contingencies and Commitments
A number of lawsuits involving a variety of claims that arose in the ordinary course of business have been filed against us or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain. See Note 21—Income Taxes, for additional information about income-tax-related contingencies.
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.
Environmental
We are subject to international, federal, state and local environmental laws and regulations. When we prepare our consolidated financial statements, we record accruals for environmental liabilities based on management’s best estimates, using information available at the time. We measure estimates and base contingent liabilities on currently available facts, existing technology and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring contingent environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the EPA or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.
Although liability for environmental remediation costs is generally joint and several for federal sites and frequently so for state sites, we are usually only one of many companies alleged to have liability at a particular site. Due to such joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been designated as a potentially responsible party. We have been successful to date in sharing cleanup costs with other financially sound companies. Many of the sites for which we are potentially responsible are still under investigation by the EPA or the state agencies concerned. Prior to actual cleanup, those potentially responsible normally assess the site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or may attain a settlement of liability. Where it appears that other potentially responsible parties may be financially unable to bear their proportional share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly. As a result of various acquisitions in the past, we assumed certain environmental obligations. Some of these environmental obligations are mitigated by indemnifications made by others for our benefit, although some of the indemnifications are subject to dollar and time limits.
We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those pertaining to sites acquired in a business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings. See Note 10—Asset Retirement Obligations and Accrued Environmental Costs, for a summary of our accrued environmental liabilities.
Legal Proceedings
Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. 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.
Other Contingencies
We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized.
At December 31, 2020, we had performance obligations secured by letters of credit and bank guarantees of $538 million related to various purchase and other commitments incident to the ordinary conduct of business.
Long-Term Throughput Agreements and Take-or-Pay Agreements
We have certain throughput agreements and take-or-pay agreements in support of third-party financing arrangements. The agreements typically provide for crude oil transportation to be used in the ordinary course of our business. At December 31, 2020, the estimated aggregate future payments under these agreements were $324 million per year for each year from 2021 through 2025 and $1,676 million in aggregate for all years after 2025. For the years ended December 31, 2020, 2019 and 2018, total payments under these agreements were $320 million, $321 million and $323 million, respectively.
Note 15—Derivatives and Financial Instruments
Derivative Instruments
We use financial and commodity-based derivative contracts to manage exposures to fluctuations in commodity prices, interest rates and foreign currency exchange rates, or to capture market opportunities. Because we do not apply hedge accounting for commodity derivative contracts, all realized and unrealized gains and losses from commodity derivative contracts are recognized in our consolidated statement of operations. Gains and losses from derivative contracts held for trading not directly related to our physical business are reported net in the “Other income” line item on our consolidated statement of operations. Cash flows from all our derivative activity for the periods presented appear in the operating section on our consolidated statement of cash flows.
Purchase and sales contracts with firm minimum notional volumes for commodities that are readily convertible to cash are recorded on our consolidated balance sheet as derivatives unless the contracts are eligible for, and we elect, the normal purchases and normal sales exception, whereby the contracts are recorded on an accrual basis. We generally apply the normal purchases and normal sales exception to eligible crude oil, refined petroleum product, NGL, natural gas and power commodity contracts to purchase or sell quantities we expect to use or sell in the normal course of business. All other derivative instruments are recorded at fair value on our consolidated balance sheet. For further information on the fair value of derivatives, see Note 16—Fair Value Measurements.
Commodity Derivative Contracts—We sell into or receive supply from the worldwide crude oil, refined petroleum product, NGL, natural gas and electric power markets, exposing our revenues, purchases, cost of operating activities and cash flows to fluctuations in the prices for these commodities. Generally, our policy is to remain exposed to the market prices of commodities; however, we use futures, forwards, swaps and options in various markets to balance physical systems, meet customer needs, manage price exposures on specific transactions, and do a limited amount of trading not directly related to our physical business, all of which may reduce our exposure to fluctuations in market prices. We also use the market knowledge gained from these activities to capture market opportunities such as moving physical commodities to more profitable locations, storing commodities to capture seasonal or time premiums, and blending commodities to capture quality upgrades.
The following table indicates the consolidated balance sheet line items that include the fair values of commodity derivative assets and liabilities. The balances in the following table are presented on a gross basis, before the effects of counterparty and collateral netting. However, we have elected to present our commodity derivative assets and liabilities with the same counterparty on a net basis on our consolidated balance sheet when the legal right of offset exists.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
Commodity Derivatives
|
Effect of Collateral Netting
|
Net Carrying Value Presented on the Balance Sheet
|
|
Commodity Derivatives
|
Effect of Collateral Netting
|
Net Carrying Value Presented on the Balance Sheet
|
|
|
|
Assets
|
Liabilities
|
Assets
|
Liabilities
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
$
|
13
|
|
—
|
|
—
|
|
13
|
|
|
23
|
|
—
|
|
—
|
|
23
|
|
|
|
Other assets
|
5
|
|
(4)
|
|
—
|
|
1
|
|
|
3
|
|
—
|
|
—
|
|
3
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Other accruals
|
665
|
|
(721)
|
|
46
|
|
(10)
|
|
|
1,188
|
|
(1,281)
|
|
80
|
|
(13)
|
|
|
|
Other liabilities and deferred credits
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
(1)
|
|
—
|
|
(1)
|
|
|
|
Total
|
$
|
683
|
|
(725)
|
|
46
|
|
4
|
|
|
1,214
|
|
(1,282)
|
|
80
|
|
12
|
|
|
At December 31, 2020 and 2019, there was no material cash collateral received or paid that was not offset on our consolidated balance sheet.
The realized and unrealized gains (losses) incurred from commodity derivatives, and the line items where they appear on our consolidated statement of operations, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Sales and other operating revenues
|
$
|
436
|
|
|
(150)
|
|
|
192
|
|
|
|
|
|
|
|
|
|
Other income
|
10
|
|
|
33
|
|
|
(15)
|
|
|
Purchased crude oil and products
|
174
|
|
|
(161)
|
|
|
(64)
|
|
|
Net gain (loss) from commodity derivative activity
|
$
|
620
|
|
|
(278)
|
|
|
113
|
|
The following table summarizes our material net exposures resulting from outstanding commodity derivative contracts. These financial and physical derivative contracts are primarily used to manage price exposure on our underlying operations. The underlying exposures may be from nonderivative positions such as inventory volumes. Financial derivative contracts may also offset physical derivative contracts, such as forward purchase and sales contracts. The percentage of our derivative contract volumes expiring within the next 12 months was at least 98% at December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open Position
Long / (Short)
|
|
|
2020
|
|
2019
|
|
Commodity
|
|
|
|
|
Crude oil, refined petroleum products and NGL (millions of barrels)
|
(13)
|
|
|
(16)
|
|
Interest Rate Derivative Contracts—In 2016, we entered into interest rate swaps to hedge the variability of lease payments on our headquarters facility. These monthly lease payments vary based on monthly changes in the one-month LIBOR and changes, if any, in our credit rating over the five-year term of the lease. The pay-fixed, receive-floating interest rate swaps have an aggregate notional value of $650 million and end in April 2021. We have designated these swaps as cash flow hedges.
The aggregate net fair value of these swaps was immaterial at December 31, 2020 and 2019.
We report the mark-to-market gains or losses on our interest rate swaps designated as highly effective cash flow hedges as a component of other comprehensive income (loss), and reclassify such gains and losses into earnings in the same period during which the hedged transaction affects earnings. Net realized gains and losses from settlements of the swaps were immaterial for the years ended December 31, 2020 and 2019.
We currently estimate that before-tax losses of $3 million will be reclassified from accumulated other comprehensive loss into general and administrative expenses during the next 12 months as the hedged transactions settle; however, the actual amounts that will be reclassified will vary based on changes in interest rates.
Credit Risk from Derivative Instruments
Financial instruments potentially exposed to concentrations of credit risk consist primarily of trade receivables and derivative contracts.
Our trade receivables result primarily from the sale of products from, or related to, our refinery operations and reflect a broad national and international customer base, which limits our exposure to concentrations of credit risk. The majority of these receivables have payment terms of 30 days or less. We continually monitor this exposure and the creditworthiness of the counterparties and recognize bad debt expense based on a probability assessment of credit loss. Generally, we do not require collateral to limit the exposure to loss; however, we will sometimes use letters of credit, prepayments or master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us to others to be offset against amounts owed to us.
The credit risk from our derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because these trades are cleared with an exchange clearinghouse and subject to mandatory margin requirements, typically on a daily basis, until settled.
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit rating. The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if our credit ratings fall below investment grade. Cash is the primary collateral in all contracts; however, many contracts also permit us to post letters of credit as collateral.
The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at December 31, 2020 and 2019.
Note 16—Fair Value Measurements
Recurring Fair Value Measurements
We carry certain assets and liabilities at fair value, which we measure at the reporting date using the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price), and disclose the quality of these fair values based on the valuation inputs used in these measurements under the following hierarchy:
•Level 1: Fair value measured with unadjusted quoted prices from an active market for identical assets or liabilities.
•Level 2: Fair value measured either with: (1) adjusted quoted prices from an active market for similar assets or liabilities; or (2) other valuation inputs that are directly or indirectly observable.
•Level 3: Fair value measured with unobservable inputs that are significant to the measurement.
We classify the fair value of an asset or liability based on the significance of its observable or unobservable inputs to the measurement. However, the fair value of an asset or liability initially reported as Level 3 will be subsequently reported as Level 2 if the unobservable inputs become inconsequential to its measurement or corroborating market data becomes available. Conversely, an asset or liability initially reported as Level 2 will be subsequently reported as Level 3 if corroborating market data becomes unavailable.
We used the following methods and assumptions to estimate the fair value of financial instruments:
•Cash and cash equivalents—The carrying amount reported on our consolidated balance sheet approximates fair value.
•Accounts and notes receivable—The carrying amount reported on our consolidated balance sheet approximates fair value.
•Derivative instruments—We fair value our exchange-traded contracts based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange or other exchanges, and classify them as Level 1 in the fair value hierarchy. When exchange-cleared contracts lack sufficient liquidity, or are valued using either adjusted exchange-provided prices or nonexchange quotes, we classify those contracts as Level 2.
Physical commodity forward purchase and sales contracts and over-the-counter (OTC) financial swaps are generally valued using forward quotes provided by brokers and price index developers, such as Platts and Oil Price Information Service. We corroborate these quotes with market data and classify the resulting fair values as Level 2. When forward market prices are not available, we estimate fair value using the forward price of a similar commodity, adjusted for the difference in quality or location. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, physical commodity purchase and sales contracts and OTC swaps are valued using internally developed methodologies that consider historical relationships among various commodities that result in management’s best estimate of fair value. We classify these contracts as Level 3. Physical and OTC commodity options are valued using industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and contractual prices for the underlying instruments, as well as other relevant economic measures. The degree to which these inputs are observable in the forward markets determines whether the options are classified as Level 2 or 3. We use a midmarket pricing convention (the midpoint between bid and ask prices). When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.
We determine the fair value of our interest rate swaps based on observable market valuations for interest rate swaps that have notional amounts, terms and pay and reset frequencies similar to ours.
•Rabbi trust assets—These deferred compensation investments are measured at fair value using unadjusted quoted prices available from national securities exchanges and are therefore categorized as Level 1 in the fair value hierarchy.
•Debt—The carrying amount of our floating-rate debt approximates fair value. The fair value of our fixed-rate debt is estimated based on observable market prices.
The following tables display the fair value hierarchy for our financial assets and liabilities either accounted for or disclosed at fair value on a recurring basis. These values are determined by treating each contract as the fundamental unit of account; therefore, derivative assets and liabilities with the same counterparty are shown on a gross basis in the hierarchy sections of these tables, before the effects of counterparty and collateral netting. The following tables also reflect the effect of netting derivative assets and liabilities with the same counterparty for which we have the legal right of offset and collateral netting.
The carrying values and fair values by hierarchy of our financial assets and liabilities, either carried or disclosed at fair value, including any effects of counterparty and collateral netting, were:
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|
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|
Millions of Dollars
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|
|
December 31, 2020
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|
|
Fair Value Hierarchy
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|
Total Fair Value of Gross Assets & Liabilities
|
Effect of Counterparty Netting
|
Effect of Collateral Netting
|
Difference in Carrying Value and Fair Value
|
Net Carrying Value Presented on the Balance Sheet
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|
|
Level 1
|
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Level 2
|
|
Level 3
|
|
Commodity Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-cleared instruments
|
$
|
314
|
|
|
356
|
|
|
—
|
|
|
670
|
|
(669)
|
|
—
|
|
—
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Physical forward contracts
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
—
|
|
—
|
|
—
|
|
13
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rabbi trust assets
|
143
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|
|
—
|
|
|
—
|
|
|
143
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|
N/A
|
N/A
|
—
|
|
143
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|
|
|
$
|
457
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|
|
369
|
|
|
—
|
|
|
826
|
|
(669)
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|
—
|
|
—
|
|
157
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Derivative Liabilities
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|
|
|
|
|
|
|
|
|
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Exchange-cleared instruments
|
$
|
351
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|
|
364
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|
|
—
|
|
|
715
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|
(669)
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|
(46)
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|
—
|
|
—
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Physical forward contracts
|
—
|
|
|
10
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|
|
—
|
|
|
10
|
|
—
|
|
—
|
|
—
|
|
10
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|
|
Interest-rate derivatives
|
—
|
|
|
3
|
|
|
—
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|
|
3
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|
—
|
|
—
|
|
—
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|
3
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|
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Floating-rate debt
|
—
|
|
|
1,940
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|
|
—
|
|
|
1,940
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|
N/A
|
N/A
|
—
|
|
1,940
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|
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Fixed-rate debt, excluding finance leases
|
—
|
|
|
15,597
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|
|
—
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|
|
15,597
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N/A
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N/A
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(1,927)
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|
13,670
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|
|
|
$
|
351
|
|
|
17,914
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|
|
—
|
|
|
18,265
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|
(669)
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|
(46)
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|
(1,927)
|
|
15,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
December 31, 2019
|
|
|
Fair Value Hierarchy
|
|
Total Fair Value of Gross Assets & Liabilities
|
Effect of Counterparty Netting
|
Effect of Collateral Netting
|
Difference in Carrying Value and Fair Value
|
Net Carrying Value Presented on the Balance Sheet
|
|
|
Level 1
|
|
Level 2
|
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Level 3
|
|
|
Commodity Derivative Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-cleared instruments
|
$
|
820
|
|
|
368
|
|
|
—
|
|
|
1,188
|
|
(1,188)
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Physical forward contracts
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
—
|
|
—
|
|
—
|
|
26
|
|
|
Interest rate derivatives
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
—
|
|
—
|
|
—
|
|
1
|
|
|
Rabbi trust assets
|
127
|
|
|
—
|
|
|
—
|
|
|
127
|
|
N/A
|
N/A
|
—
|
|
127
|
|
|
|
$
|
947
|
|
|
395
|
|
|
—
|
|
|
1,342
|
|
(1,188)
|
|
—
|
|
—
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-cleared instruments
|
$
|
884
|
|
|
385
|
|
|
—
|
|
|
1,269
|
|
(1,188)
|
|
(80)
|
|
—
|
|
1
|
|
|
OTC instruments
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
—
|
|
—
|
|
—
|
|
1
|
|
|
Physical forward contracts
|
—
|
|
|
12
|
|
|
—
|
|
|
12
|
|
—
|
|
—
|
|
—
|
|
12
|
|
|
Floating-rate debt
|
—
|
|
|
1,100
|
|
|
—
|
|
|
1,100
|
|
N/A
|
N/A
|
—
|
|
1,100
|
|
|
Fixed-rate debt, excluding finance leases
|
—
|
|
|
11,813
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|
|
—
|
|
|
11,813
|
|
N/A
|
N/A
|
(1,438)
|
|
10,375
|
|
|
|
$
|
884
|
|
|
13,311
|
|
|
—
|
|
|
14,195
|
|
(1,188)
|
|
(80)
|
|
(1,438)
|
|
11,489
|
|
The rabbi trust assets are recorded in the “Investments and long-term receivables” line item, and floating-rate and fixed-rate debt are recorded in the “Short-term debt” and “Long-term debt” line items on our consolidated balance sheet. See Note 15—Derivatives and Financial Instruments, for information regarding where the assets and liabilities related to our commodity and interest rate derivatives are recorded on our consolidated balance sheet.
Nonrecurring Fair Value Measurements
Equity Investments
In the first quarter of 2020, the nonrecurring fair value measurement used to record an impairment of our DCP Midstream investment was the fair value of our share of DCP Midstream’s limited partner interest in DCP Partners, which was estimated based on average market prices of DCP Partners common units for a multi-day trading period encompassing March 31, 2020. This valuation resulted in a Level 2 nonrecurring fair value measurement.
In the third quarter of 2019, the nonrecurring fair value measurement used to record an impairment of our DCP Midstream investment consisted of:
•The fair value of our share of DCP Midstream’s limited partner interest in DCP Partners, which was estimated based on an average market price of DCP Partners common units for a multi-day trading period encompassing September 30, 2019.
•The fair value of our share of DCP Midstream’s general partner interest in DCP Partners, which was estimated using two primary inputs: 1) estimated future cash flows of distributions attributable to the incentive distribution rights from DCP Partners, and 2) a multiple of those cash flows based on internal estimates and observation of IDR conversion transactions by other master limited partnerships.
Overall, we concluded the third-quarter 2019 valuation resulted in a Level 3 nonrecurring fair value measurement.
In the fourth quarter of 2020, the nonrecurring fair value measurements used by Phillips 66 Partners to impair its equity method investments in two crude oil transportation and terminaling joint ventures were calculated by weighting the results of different economic scenarios using the income approach. The income approach uses a discounted cash flow model that requires various observable and nonobservable inputs, including volumes, rates/tariffs, expenses and discount rates. These valuations resulted in a Level 3 nonrecurring fair value measurement.
PP&E and Intangible Assets
In the third quarter of 2020, we remeasured the carrying value of the net PP&E and intangible assets of our San Francisco Refinery asset group to fair value. The estimated fair value of the plants, equipment and intangible assets was determined using a replacement cost approach adjusted, as applicable, for physical deterioration, functional obsolescence and economic obsolescence. The estimated fair value of the properties was determined using a sales comparison approach. This valuation resulted in a Level 3 nonrecurring fair value measurement.
Goodwill
The carrying value of the Refining reporting unit’s goodwill was remeasured to fair value on a nonrecurring basis in the first quarter of 2020. The fair value of the Refining reporting unit was calculated by weighting the results from the income approach and the market approach. The income approach uses a discounted cash flow model that requires various observable and nonobservable inputs, such as prices, volumes, expenses, capital expenditures, discount rates and projected long-term growth rates and terminal values. The market approach uses peer company enterprise values relative to current and future net income (loss) before net interest expense, income taxes, depreciation and amortization (EBITDA) projections to arrive at an average multiple. This multiple was applied to the reporting unit’s current and projected EBITDA, with consideration for an estimated market participant acquisition premium. The resulting fair value Level 3 estimate was less than the Refining reporting unit’s carrying value by an amount that exceeded the existing goodwill balance of the reporting unit. As a result, the Refining reporting unit’s goodwill was impaired to zero. As part of our impairment analysis, the fair value of all reporting units was reconciled to the company’s market capitalization.
See Note 9—Impairments, for additional information on the above impairments.
Note 17—Equity
Preferred Stock
We have 500 million shares of preferred stock authorized, with a par value of $0.01 per share, none of which have been issued.
Treasury Stock
Since July 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 through December 31, 2020, we have repurchased a total of 159,349,212 shares at an aggregate cost of $12.5 billion. Shares of stock repurchased are held as treasury shares. We suspended share repurchases in mid-March 2020 to preserve liquidity in response to the global economic disruption caused by the COVID-19 pandemic.
In February 2018, we entered into a Stock Purchase and Sale Agreement (Purchase Agreement) with Berkshire Hathaway Inc. and National Indemnity Company, a wholly owned subsidiary of Berkshire Hathaway, to repurchase 35,000,000 shares of Phillips 66 common stock for an aggregate purchase price of $3,280 million. Pursuant to the Purchase Agreement, the purchase price per share of $93.725 was based on the volume-weighted-average price of our common stock on the New York Stock Exchange on February 13, 2018. The transaction closed in February 2018. We funded the repurchase with cash of $1,880 million and borrowings of $1,400 million under our commercial paper program. These borrowings were subsequently refinanced through a public offering of senior notes. This specific share repurchase transaction was separately authorized by our Board of Directors and therefore did not impact previously announced authorizations under our share repurchase program.
In 2014, we completed the exchange of our flow improver business for shares of Phillips 66 common stock owned by the other party to the transaction. We received 17,422,615 shares of our common stock with a fair value at the time of the exchange of $1,350 million. This specific share repurchase transaction was also separately authorized by our Board of Directors and therefore did not impact previously announced authorizations under our share repurchase program.
Common Stock Dividends
On February 10, 2021, our Board of Directors declared a quarterly cash dividend of $0.90 per common share, payable March 1, 2021, to holders of record at the close of business on February 22, 2021.
Noncontrolling Interests
Our noncontrolling interests primarily represent issuances of common and preferred units to the public by Phillips 66 Partners. See Note 27—Phillips 66 Partners LP, for information on Phillips 66 Partners.
Note 18—Leases
We lease marine vessels, pipelines, storage tanks, railcars, service station sites, office buildings, corporate aircraft, land and other facilities and equipment. In determining whether an agreement contains a lease, we consider our ability to control the asset and whether third-party participation or vendor substitution rights limit our control. Certain leases include escalation clauses for adjusting rental payments to reflect changes in price indices, as well as renewal options and/or options to purchase the leased property. Renewal options have been included only when reasonably certain of exercise. There are no significant restrictions imposed on us in our lease agreements with regards to dividend payments, asset dispositions or borrowing ability. Certain leases have residual value guarantees, which may require additional payments at the end of the lease term if future fair values decline below contractual lease balances.
In our implementation of ASU No. 2016-02, we elected to discount lease obligations using our incremental borrowing rate. Furthermore, we elected to separate costs for lease and service components for contracts involving marine vessels and consignment service stations. For these contracts, we allocate the consideration payable between the lease and service components using the relative standalone prices of each component. For contracts involving all other asset types, we elected the practical expedient to account for the lease and service components on a combined basis. Our right of way agreements in effect prior to January 1, 2019, were not accounted for as leases as they were not initially determined to be leases at their commencement dates. However, modifications to these agreements or new agreements will be assessed and accounted for accordingly under ASU No. 2016-02. For short-term leases, which are leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that is reasonably certain to be exercised, we elected to not recognize the ROU asset and corresponding lease liability on our consolidated balance sheet.
The following table indicates the consolidated balance sheet line items that include the ROU assets and lease liabilities for our finance and operating leases at December 31:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
|
Finance
Leases
|
|
Operating
Leases
|
|
Finance
Leases
|
|
Operating
Leases
|
|
Right-of-Use Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net properties, plants and equipment
|
$
|
264
|
|
|
—
|
|
|
284
|
|
|
—
|
|
|
Other assets
|
—
|
|
|
1,211
|
|
|
—
|
|
|
1,312
|
|
|
Total right-of-use assets
|
$
|
264
|
|
|
1,211
|
|
|
284
|
|
|
1,312
|
|
|
|
|
|
|
|
|
|
|
|
Lease Liabilities
|
|
|
|
|
|
|
|
|
Short-term debt
|
$
|
16
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
Other accruals
|
—
|
|
|
369
|
|
|
—
|
|
|
455
|
|
|
Long-term debt
|
248
|
|
|
—
|
|
|
259
|
|
|
—
|
|
|
Other liabilities and deferred credits
|
—
|
|
|
853
|
|
|
—
|
|
|
806
|
|
|
Total lease liabilities
|
$
|
264
|
|
|
1,222
|
|
|
277
|
|
|
1,261
|
|
Future minimum lease payments at December 31, 2020, for finance and operating lease liabilities were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
|
|
|
|
|
|
|
|
|
Finance
Leases
|
|
Operating
Leases
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
|
|
$
|
25
|
|
|
406
|
|
|
2022
|
|
|
|
|
23
|
|
|
273
|
|
|
2023
|
|
|
|
|
23
|
|
|
182
|
|
|
2024
|
|
|
|
|
23
|
|
|
138
|
|
|
2025
|
|
|
|
|
23
|
|
|
102
|
|
|
Remaining years
|
|
|
|
|
224
|
|
|
271
|
|
|
Future minimum lease payments
|
|
|
|
|
341
|
|
|
1,372
|
|
|
Amount representing interest or discounts
|
|
|
|
|
(77)
|
|
|
(150)
|
|
|
Total lease liabilities
|
|
|
|
|
$
|
264
|
|
|
1,222
|
|
Our finance lease liabilities relate primarily to service station consignment agreements with a marketing joint venture and an oil terminal in the United Kingdom. The lease liability for the oil terminal finance lease is subject to foreign currency translation adjustments each reporting period.
Components of net lease cost for the years ended December 31, 2020 and 2019, were:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
Finance lease cost
|
|
|
|
|
Amortization of right-of-use assets
|
$
|
21
|
|
|
20
|
|
|
Interest on lease liabilities
|
10
|
|
|
6
|
|
|
Total finance lease cost
|
31
|
|
|
26
|
|
|
Operating lease cost
|
527
|
|
|
531
|
|
|
Short-term lease cost
|
108
|
|
|
118
|
|
|
Variable lease cost
|
39
|
|
|
12
|
|
|
Sublease income
|
(22)
|
|
|
(16)
|
|
|
Total net lease cost
|
$
|
683
|
|
|
671
|
|
For the year ended December 31, 2018, operating lease rental expense was $603 million, including minimum rentals of $669 million and contingent rentals of $5 million, partially offset by sublease rental income of $71 million.
Cash paid for amounts included in the measurement of our lease liabilities for the years ended December 31, 2020 and 2019, was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
Operating cash outflows—finance leases
|
$
|
10
|
|
|
6
|
|
|
Operating cash outflows—operating leases
|
521
|
|
|
553
|
|
|
Financing cash outflows—finance leases
|
17
|
|
|
21
|
|
During the years ended December 31, 2020 and 2019, we recorded additional noncash ROU assets and corresponding operating lease liabilities totaling $363 million and $342 million, respectively, related to new and modified lease agreements.
At December 31, 2020 and 2019, the weighted-average remaining lease terms and discount rates for our lease liabilities were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Weighted-average remaining lease term—finance leases (years)
|
15.1
|
|
11.1
|
|
Weighted-average remaining lease term—operating leases (years)
|
5.7
|
|
5.6
|
|
|
|
|
|
|
Weighted-average discount rate—finance leases
|
3.6
|
%
|
|
3.1
|
|
|
Weighted-average discount rate—operating leases
|
3.6
|
%
|
|
3.8
|
|
Note 19—Pension and Postretirement Plans
The following table provides a reconciliation of the projected benefit obligations and plan assets for our pension plans and accumulated benefit obligations for our other postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Int’l.
|
|
U.S.
|
|
Int’l.
|
|
|
|
|
|
Change in Benefit Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at January 1
|
$
|
3,148
|
|
|
1,228
|
|
|
2,730
|
|
|
1,007
|
|
|
226
|
|
|
220
|
|
|
Service cost
|
138
|
|
|
28
|
|
|
127
|
|
|
23
|
|
|
5
|
|
|
5
|
|
|
Interest cost
|
91
|
|
|
22
|
|
|
109
|
|
|
26
|
|
|
7
|
|
|
9
|
|
|
Plan participant contributions
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
6
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan amendments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
Net actuarial loss (gain)
|
353
|
|
|
168
|
|
|
380
|
|
|
186
|
|
|
(13)
|
|
|
6
|
|
|
Benefits paid
|
(325)
|
|
|
(34)
|
|
|
(198)
|
|
|
(31)
|
|
|
(18)
|
|
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate change
|
—
|
|
|
66
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
Benefit obligations at December 31
|
$
|
3,405
|
|
|
1,480
|
|
|
3,148
|
|
|
1,228
|
|
|
213
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Fair Value of Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
$
|
2,702
|
|
|
1,046
|
|
|
2,377
|
|
|
902
|
|
|
—
|
|
|
—
|
|
|
Actual return on plan assets
|
342
|
|
|
118
|
|
|
478
|
|
|
121
|
|
|
—
|
|
|
—
|
|
|
Company contributions
|
19
|
|
|
26
|
|
|
45
|
|
|
28
|
|
|
12
|
|
|
12
|
|
|
Plan participant contributions
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
6
|
|
|
5
|
|
|
Benefits paid
|
(325)
|
|
|
(34)
|
|
|
(198)
|
|
|
(31)
|
|
|
(18)
|
|
|
(17)
|
|
|
Foreign currency exchange rate change
|
—
|
|
|
54
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
—
|
|
|
Fair value of plan assets at December 31
|
$
|
2,738
|
|
|
1,212
|
|
|
2,702
|
|
|
1,046
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status at December 31
|
$
|
(667)
|
|
|
(268)
|
|
|
(446)
|
|
|
(182)
|
|
|
(213)
|
|
|
(226)
|
|
Amounts recognized in the consolidated balance sheet for our pension and other postretirement benefit plans at December 31 include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Int’l.
|
|
U.S.
|
|
Int’l.
|
|
|
|
|
|
Amounts Recognized in the Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
Current liabilities
|
(25)
|
|
|
—
|
|
|
(25)
|
|
|
—
|
|
|
(15)
|
|
|
(15)
|
|
|
Noncurrent liabilities
|
(642)
|
|
|
(268)
|
|
|
(421)
|
|
|
(211)
|
|
|
(198)
|
|
|
(211)
|
|
|
Total recognized
|
$
|
(667)
|
|
|
(268)
|
|
|
(446)
|
|
|
(182)
|
|
|
(213)
|
|
|
(226)
|
|
Included in accumulated other comprehensive loss at December 31 were the following before-tax amounts that had not been recognized in net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Int’l.
|
|
U.S.
|
|
Int’l.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial loss (gain)
|
$
|
562
|
|
|
253
|
|
|
523
|
|
|
164
|
|
|
(13)
|
|
|
—
|
|
|
Unrecognized prior service credit
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(2)
|
|
|
(4)
|
|
|
(6)
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Int’l.
|
|
U.S.
|
|
Int’l.
|
|
|
|
|
|
Sources of Change in Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) arising during the period
|
$
|
(170)
|
|
|
(105)
|
|
|
(45)
|
|
|
(106)
|
|
|
13
|
|
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss (gain) and settlements
|
131
|
|
|
16
|
|
|
61
|
|
|
6
|
|
|
—
|
|
|
(1)
|
|
|
Prior service credit arising during the period
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Amortization of prior service credit
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
(2)
|
|
|
(2)
|
|
|
Total recognized in other comprehensive income (loss)
|
$
|
(39)
|
|
|
(90)
|
|
|
16
|
|
|
(101)
|
|
|
11
|
|
|
(8)
|
|
The accumulated benefit obligations for all U.S. and international pension plans were $3,076 million and $1,289 million, respectively, at December 31, 2020, and $2,855 million and $1,068 million, respectively, at December 31, 2019.
Information for U.S. and international pension plans with an accumulated benefit obligation in excess of plan assets at December 31 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Pension Benefits
|
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Int’l.
|
|
U.S.
|
|
Int’l.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
$
|
3,076
|
|
|
447
|
|
|
2,855
|
|
|
396
|
|
|
Fair value of plan assets
|
2,738
|
|
|
242
|
|
|
2,702
|
|
|
207
|
|
Information for U.S. and international pension plans with a projected benefit obligation in excess of plan assets at December 31 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Pension Benefits
|
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Int’l.
|
|
U.S.
|
|
Int’l.
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligations
|
$
|
3,405
|
|
|
1,480
|
|
|
3,148
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
2,738
|
|
|
1,212
|
|
|
2,702
|
|
|
207
|
|
Components of net periodic benefit cost for all defined benefit plans are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
|
U.S.
|
|
Int’l.
|
|
U.S.
|
|
Int’l.
|
|
U.S.
|
|
Int’l.
|
|
|
|
|
|
|
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
138
|
|
|
28
|
|
|
127
|
|
|
23
|
|
|
136
|
|
|
29
|
|
|
5
|
|
|
5
|
|
|
6
|
|
|
Interest cost
|
91
|
|
|
22
|
|
|
109
|
|
|
26
|
|
|
104
|
|
|
28
|
|
|
7
|
|
|
9
|
|
|
7
|
|
|
Expected return on plan assets
|
(159)
|
|
|
(50)
|
|
|
(143)
|
|
|
(44)
|
|
|
(169)
|
|
|
(46)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of prior service credit
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
|
(2)
|
|
|
(2)
|
|
|
(1)
|
|
|
Amortization of net actuarial loss (gain)
|
70
|
|
|
16
|
|
|
53
|
|
|
6
|
|
|
59
|
|
|
19
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
Settlements
|
61
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
72
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total net periodic benefit cost*
|
$
|
201
|
|
|
15
|
|
|
154
|
|
|
10
|
|
|
202
|
|
|
29
|
|
|
10
|
|
|
11
|
|
|
12
|
|
* Included in the “Operating expenses” and “Selling, general and administrative expenses” line items on our consolidated statement of operations.
In determining net periodic benefit cost, we amortize prior service costs on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan. For net actuarial gains and losses, we amortize 10% of the unamortized balance each year. The amount subject to amortization is determined on a plan-by-plan basis.
The following weighted-average assumptions were used to determine benefit obligations and net periodic benefit costs for years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
U.S.
|
|
Int’l.
|
|
U.S.
|
|
Int’l.
|
|
|
|
|
|
Assumptions Used to Determine Benefit Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
2.50
|
%
|
|
1.27
|
|
|
3.30
|
|
|
1.81
|
|
|
2.30
|
|
|
3.05
|
|
|
Rate of compensation increase
|
4.00
|
|
|
3.01
|
|
|
4.00
|
|
|
3.34
|
|
|
—
|
|
|
—
|
|
|
Interest crediting rate on cash balance plan
|
2.05
|
|
|
—
|
|
|
2.70
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions Used to Determine Net Periodic Benefit Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.00
|
%
|
|
1.81
|
|
|
4.30
|
|
|
2.59
|
|
|
3.05
|
|
|
4.15
|
|
|
Expected return on plan assets
|
6.50
|
|
|
4.86
|
|
|
6.50
|
|
|
4.93
|
|
|
—
|
|
|
—
|
|
|
Rate of compensation increase
|
4.00
|
|
|
3.34
|
|
|
4.00
|
|
|
3.34
|
|
|
—
|
|
|
—
|
|
|
Interest crediting rate on cash balance plan
|
2.22
|
|
|
—
|
|
|
3.25
|
|
|
—
|
|
|
—
|
|
|
—
|
|
For both U.S. and international pension plans, the overall expected long-term rate of return is developed from the expected future return of each asset class, weighted by the expected allocation of pension assets to that asset class. We rely on a variety of independent market forecasts in developing the expected rate of return for each class of assets.
For the year ended December 31, 2020, actuarial losses resulted in increases in our U.S. and international pension benefit obligations of $353 million and $168 million, respectively. For the year ended December 31, 2019, actuarial losses resulted in increases in our U.S. and international pension benefit obligations of $380 million and $186 million, respectively. The primary drivers for the actuarial losses in 2020 and 2019 were decreases in the discount rates and changes to the census data demographics.
For the year ended December 31, 2020, the weighted-average actual return on plan assets for our U.S. pension plans was 14%, which resulted in a $342 million increase in plan assets. For the year ended December 31, 2019, the weighted-average actual return on plan assets for our U.S. pension plans was 20%, which resulted in a $478 million increase in plan assets. The primary driver of the return on plan assets in 2020 and 2019 was fluctuations in the equity and fixed income markets.
Our other postretirement benefit plans for health insurance are contributory. Effective December 31, 2012, we terminated the subsidy for retiree medical plans. Since January 1, 2013, eligible employees have been able to utilize notional amounts credited to an account during their period of service with the company to pay all, or a portion, of their cost to participate in postretirement health insurance. In general, employees hired after December 31, 2012, will not receive credits to an account, but will have unsubsidized access to health insurance through the plan. The cost of health insurance will be adjusted annually by the company’s actuary to reflect actual experience and expected health care cost trends. The measurement of the accumulated benefit obligation assumes a health care cost trend rate of 6.50% in 2021 that declines to 5.00% by 2027.
Plan Assets
The investment strategy for managing pension plan assets is to seek a reasonable rate of return relative to an appropriate level of risk and provide adequate liquidity for benefit payments and portfolio management. We follow a policy of diversifying pension plan assets across asset classes, investment managers, and individual holdings. As a result, our plan assets have no significant concentrations of credit risk. Asset classes that are considered appropriate include equities, fixed income, cash, real estate, infrastructure and insurance contracts. Plan fiduciaries may consider and add other asset classes to the investment program from time to time. The target allocations for plan assets are approximately 46% equity securities, 38% debt securities, 8% real estate investments and 8% in all other types of investments as of December 31, 2020. Generally, the investments in the plans are publicly traded, therefore minimizing the liquidity risk in the portfolio.
The following is a description of the valuation methodologies used for the pension plan assets.
•Fair values of equity securities and government debt securities are based on quoted market prices.
•Fair values of corporate debt securities are estimated using recently executed transactions and market price quotations. If there have been no market transactions in a particular fixed income security, its fair value is calculated by pricing models that benchmark the security against other securities with actual market prices.
•Cash and cash equivalents are valued at cost, which approximates fair value.
•Fair values of insurance contracts are valued at the present value of the future benefit payments owed by the insurance company to the plans’ participants.
•Fair values of investments in common/collective trusts and real estate funds are valued at the net asset value (NAV) as a practical expedient. The NAV is based on the underlying net assets owned by the fund and the relative interest of each participating investor in the fair value of the underlying assets. These investments valued at NAV are not classified within the fair value hierarchy, but are presented in the fair value table to permit reconciliation of total plan assets to the amounts presented in the fair value table.
The fair values of our pension plan assets at December 31, by asset class, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
U.S.
|
|
International
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
446
|
|
|
—
|
|
|
—
|
|
|
446
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Government debt securities
|
424
|
|
|
—
|
|
|
—
|
|
|
424
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Corporate debt securities
|
—
|
|
|
138
|
|
|
—
|
|
|
138
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
31
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
Insurance contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in the fair value hierarchy
|
901
|
|
|
138
|
|
|
—
|
|
|
1,039
|
|
|
3
|
|
|
—
|
|
|
15
|
|
|
18
|
|
|
Common/collective trusts measured at NAV
|
|
|
|
|
|
|
1,538
|
|
|
|
|
|
|
|
|
1,103
|
|
|
Real estate funds measured at NAV
|
|
|
|
|
|
|
161
|
|
|
|
|
|
|
|
|
91
|
|
|
Total
|
$
|
901
|
|
|
138
|
|
|
—
|
|
|
2,738
|
|
|
3
|
|
|
—
|
|
|
15
|
|
|
1,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
U.S.
|
|
International
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
437
|
|
|
—
|
|
|
—
|
|
|
437
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Government debt securities
|
475
|
|
|
—
|
|
|
—
|
|
|
475
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Corporate debt securities
|
—
|
|
|
134
|
|
|
—
|
|
|
134
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cash and cash equivalents
|
136
|
|
|
—
|
|
|
—
|
|
|
136
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
Insurance contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in the fair value hierarchy
|
1,048
|
|
|
134
|
|
|
—
|
|
|
1,182
|
|
|
4
|
|
|
—
|
|
|
14
|
|
|
18
|
|
|
Common/collective trusts measured at NAV
|
|
|
|
|
|
|
1,364
|
|
|
|
|
|
|
|
|
938
|
|
|
Real estate funds measured at NAV
|
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
|
90
|
|
|
Total
|
$
|
1,048
|
|
|
134
|
|
|
—
|
|
|
2,702
|
|
|
4
|
|
|
—
|
|
|
14
|
|
|
1,046
|
|
Our funding policy for U.S. plans is to contribute at least the minimum required by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986, as amended. Contributions to international plans are subject to local laws and tax regulations. Actual contribution amounts are dependent upon plan asset returns, changes in pension obligations, regulatory environments, and other economic factors. In 2021, we expect to contribute approximately $40 million to our U.S. pension plans and other postretirement benefit plans and $30 million to our international pension plans.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid to plan participants in the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
U.S.
|
|
Int’l.
|
|
|
|
|
|
|
|
|
|
|
2021
|
$
|
469
|
|
|
24
|
|
|
18
|
|
|
2022
|
392
|
|
|
26
|
|
|
19
|
|
|
2023
|
320
|
|
|
28
|
|
|
19
|
|
|
2024
|
309
|
|
|
31
|
|
|
19
|
|
|
2025
|
288
|
|
|
33
|
|
|
19
|
|
|
2026-2030
|
1,241
|
|
|
194
|
|
|
85
|
|
Defined Contribution Plans
Most U.S. employees are eligible to participate in the Phillips 66 Savings Plan (Savings Plan). Employees can contribute up to 75% of their eligible pay, subject to certain statutory limits, in the Savings Plan to a choice of investment funds. Phillips 66 provides a company match of participant contributions up to 6% of eligible pay. Prior to January 1, 2019, the match was up to 5% of eligible pay. In addition, eligible participants receive an additional discretionary Success Share contribution from the company. The target for the Success Share contribution is 2% of eligible pay, but the Success Share contribution can range from 0% to 6% based on management discretion.
For the years ended December 31, 2020, 2019 and 2018, we recorded expense of $145 million, $192 million and $178 million, respectively, related to our contributions to the Savings Plan.
Note 20—Share-Based Compensation Plans
In accordance with the Employee Matters Agreement related to the separation, compensation awards based on ConocoPhillips stock and granted before April 30, 2012 (the Separation Date) were converted to compensation awards based on both ConocoPhillips and Phillips 66 stock if, on the Separation Date, the awards were: (1) options outstanding and exercisable; or (2) restricted stock or restricted stock units (RSUs) awarded for completed performance periods under the ConocoPhillips Performance Share Program. Phillips 66 restricted stock, RSUs and options issued in this conversion became subject to the “Omnibus Stock and Performance Incentive Plan of Phillips 66” (the 2012 Plan) on the Separation Date, whether held by grantees working for Phillips 66 or grantees that remained employees of ConocoPhillips. Some of these awards based on Phillips 66 stock and held by employees of ConocoPhillips are outstanding and appear in the activity tables for the Stock Option and the Performance Share Programs presented later in this note.
In May 2013, shareholders approved the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66 (the P66 Omnibus Plan). Subsequent to this approval, all new share-based awards are granted under the P66 Omnibus Plan, which authorizes the Human Resources and Compensation Committee (HRCC) of our Board of Directors to grant stock options, stock appreciation rights, stock awards (including restricted stock and RSU awards), cash awards, and performance awards to our employees, nonemployee directors and other plan participants. The number of new shares that may be issued under the P66 Omnibus Plan to settle share-based awards may not exceed 45 million.
We recognize share-based compensation expense over the shorter of: (1) the service period (i.e., the stated period of time required to earn the award); or (2) the period beginning at the start of the service period and ending when an employee first becomes eligible for retirement, but not less than six months as this is the minimum period of time required for an award not to be subject to forfeiture. Our equity-classified programs generally provide accelerated vesting (i.e., a waiver of the remaining period of service required to earn an award) for awards held by employees at the time they become eligible for retirement (at age 55 with 5 years of service). We have elected to recognize expense on a straight-line basis over the service period for the entire award, irrespective of whether the award was granted with ratable or cliff vesting, and have elected to recognize forfeitures of awards when they occur.
Total share-based compensation expense recognized in income and the associated income tax benefit for the years ended December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
$
|
127
|
|
|
169
|
|
|
100
|
|
|
Income tax benefit
|
(35)
|
|
|
(53)
|
|
|
(45)
|
|
Stock Options
Stock options granted under the provisions of the P66 Omnibus Plan and earlier plans permit purchases of our common stock at exercise prices equivalent to the average of the high and low market price of our stock on the date the options were granted. The options have terms of 10 years and vest ratably, with one-third of the options becoming exercisable on each anniversary date for the three years following the date of grant. Options awarded to employees eligible for retirement are not subject to forfeiture six months after the grant date.
The following table summarizes our stock option activity from January 1, 2020, to December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Options
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2020
|
4,779,404
|
|
|
$
|
72.55
|
|
|
|
|
|
|
Granted
|
1,015,000
|
|
|
89.57
|
|
|
$
|
15.80
|
|
|
|
|
Forfeited
|
(37,958)
|
|
|
91.90
|
|
|
|
|
|
|
Exercised
|
(322,458)
|
|
|
23.76
|
|
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
5,433,988
|
|
|
$
|
78.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at December 31, 2020
|
3,811,788
|
|
|
$
|
72.62
|
|
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2020
|
3,695,000
|
|
|
$
|
72.20
|
|
|
|
|
$
|
24
|
|
The weighted-average remaining contractual terms of vested options and exercisable options at December 31, 2020, were 4.78 years and 4.60 years, respectively. During 2020, we received $8 million in cash and realized an income tax benefit of less than $1 million from the exercise of options. At December 31, 2020, the remaining unrecognized compensation expense from unvested options was $5 million, which will be recognized over a weighted-average period of 21 months, the longest period being 25 months. The calculations of realized income tax benefits and weighted-average periods include awards based on both Phillips 66 and ConocoPhillips stock held by Phillips 66 employees.
During 2019 and 2018, we granted options with a weighted-average grant-date fair value of $17.58 and $20.69, respectively. During 2019 and 2018, employees exercised options with an aggregate intrinsic value of $51 million and $37 million, respectively.
The following table provides the significant assumptions used to calculate the grant-date fair values of options granted over the years shown below, as calculated using the Black-Scholes-Merton option-pricing model:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
1.58
|
%
|
|
2.68
|
|
|
2.81
|
|
|
Dividend yield
|
3.20
|
%
|
|
3.70
|
|
|
2.80
|
|
|
Volatility factor
|
25.23
|
%
|
|
25.61
|
|
|
25.41
|
|
|
Expected life (years)
|
6.96
|
|
7.06
|
|
7.18
|
We calculate the volatility factor using historical Phillips 66 end-of-week closing stock prices since the Separation Date. We periodically calculate the average period of time elapsed between grant dates and exercise dates of past grants to estimate the expected life of new option grants.
Restricted Stock Units
Generally, RSUs are granted annually under the provisions of the P66 Omnibus Plan and cliff vest at the end of three years. The grant date fair value is equal to the average of the high and low market price of our stock on the grant date. The recipients receive a quarterly dividend equivalent cash payment until the RSU is settled by issuing one share of our common stock for each RSU at the end of the service period. RSUs granted to retirement-eligible employees are not subject to forfeiture six months after the grant date. Special RSUs are granted to attract or retain key personnel and the terms and conditions may vary by award.
The following table summarizes our RSU activity from January 1, 2020, to December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Stock Units
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
Total Fair Value
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2020
|
2,374,584
|
|
|
$
|
90.47
|
|
|
|
|
Granted
|
1,289,842
|
|
|
83.48
|
|
|
|
|
Forfeited
|
(74,451)
|
|
|
94.17
|
|
|
|
|
Issued
|
(803,756)
|
|
|
80.72
|
|
|
$
|
69
|
|
|
Outstanding at December 31, 2020
|
2,786,219
|
|
|
$
|
89.95
|
|
|
|
|
|
|
|
|
|
|
|
Not Vested at December 31, 2020
|
1,964,339
|
|
|
$
|
89.05
|
|
|
|
At December 31, 2020, the remaining unrecognized compensation cost from unvested RSU awards was $74 million, which will be recognized over a weighted-average period of 20 months, the longest period being 50 months.
During 2019 and 2018, we granted RSUs with a weighted-average grant-date fair value of $95.16 and $96.16, respectively. During 2019 and 2018, we issued shares with an aggregate fair value of $80 million and $102 million, respectively, to settle RSUs.
Performance Share Units
Under the P66 Omnibus Plan, we annually grant to senior management restricted performance share units (PSUs) with three-year performance periods that vest when the HRCC approves the three-year performance results on the grant date. PSUs granted under the P66 Omnibus Plan are classified as liability awards and compensation expense is recognized beginning on the authorization date and ending on the vesting date.
PSUs granted under the P66 Omnibus Plan are settled by cash payments equal to the fair value of the awards, which is based on the market prices of our stock near the end of the performance periods. The HRCC must approve the three-year performance results prior to payout. Dividend equivalents are not paid on these awards.
PSUs granted under prior incentive compensation plans were classified as equity awards. These equity awards are settled upon an employee’s retirement by issuing one share of our common stock for each PSU held. Dividend equivalents are paid on these awards.
The following table summarizes our PSU activity from January 1, 2020, to December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Performance
Share Units
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
Total Fair Value
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2020
|
1,440,560
|
|
|
$
|
46.44
|
|
|
|
|
Granted
|
554,457
|
|
|
112.73
|
|
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
|
|
Issued
|
(482,770)
|
|
|
64.62
|
|
|
$
|
41
|
|
|
Cash settled
|
(554,457)
|
|
|
112.73
|
|
|
63
|
|
|
Outstanding at December 31, 2020
|
957,790
|
|
|
$
|
37.28
|
|
|
|
|
|
|
|
|
|
|
|
Not Vested at December 31, 2020
|
1,596
|
|
|
$
|
32.41
|
|
|
|
At December 31, 2020, the remaining unrecognized compensation cost from unvested PSU awards was immaterial. The calculations of unamortized expense and weighted-average periods include awards based on both Phillips 66 and ConocoPhillips stock held by Phillips 66 employees.
During 2019 and 2018, we granted PSUs with a weighted-average grant-date fair value of $87.42 and $99.74, respectively. During 2019 and 2018, we issued shares with an aggregate fair value of $44 million and $70 million, respectively, to settle PSUs. During 2019 and 2018, we cash settled PSUs with an aggregate fair value of $25 million and $49 million, respectively.
Note 21—Income Taxes
During the year ended December 31, 2020, in accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, we recorded a tax benefit reflecting the carryback of a significant portion of our 2020 net operating loss to a year that had a 35% federal statutory income tax rate. An income tax receivable of $1.5 billion is included in the “Accounts and notes receivable” line item on our consolidated balance sheet as of December 31, 2020, which reflects tax refunds we expect to receive within the next 12 months.
During the year ended December 31, 2019, we recorded adjustments to the one-time deemed repatriation tax, which decreased our income tax expense by $42 million. The adjustments were due to the issuance of additional guidance by the U.S. Internal Revenue Service related to the Tax Act.
During the year ended December 31, 2018, we recorded adjustments to finalize our accounting for the income tax effects of the Tax Act, which increased our income tax expense by $36 million. The adjustments were primarily due to the revision of our estimated revaluation of deferred income tax balances from 35% to 21% in conjunction with the filing of our 2017 income tax return and the issuance of additional guidance by the U.S. Internal Revenue Service related to the calculation of the one-time deemed repatriation tax.
Components of income tax expense (benefit) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
Income Tax Expense (Benefit)
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
Current
|
$
|
(1,324)
|
|
|
354
|
|
|
739
|
|
|
Deferred
|
171
|
|
|
177
|
|
|
257
|
|
|
Foreign
|
|
|
|
|
|
|
Current
|
9
|
|
|
204
|
|
|
326
|
|
|
Deferred
|
67
|
|
|
(50)
|
|
|
53
|
|
|
State and local
|
|
|
|
|
|
|
Current
|
(61)
|
|
|
61
|
|
|
255
|
|
|
Deferred
|
(112)
|
|
|
55
|
|
|
(58)
|
|
|
|
$
|
(1,250)
|
|
|
801
|
|
|
1,572
|
|
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax liabilities and assets at December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
Deferred Tax Liabilities
|
|
|
|
|
Properties, plants and equipment, and intangibles
|
$
|
3,487
|
|
|
3,297
|
|
|
Investment in joint ventures
|
1,859
|
|
|
2,137
|
|
|
Investment in subsidiaries
|
940
|
|
|
794
|
|
|
Inventory
|
77
|
|
|
—
|
|
|
Other
|
310
|
|
|
263
|
|
|
Total deferred tax liabilities
|
6,673
|
|
|
6,491
|
|
|
|
|
|
|
|
Deferred Tax Assets
|
|
|
|
|
Benefit plan accruals
|
499
|
|
|
460
|
|
|
Loss and credit carryforwards
|
148
|
|
|
54
|
|
|
Asset retirement obligations and accrued environmental costs
|
114
|
|
|
115
|
|
|
Other financial accruals and deferrals
|
73
|
|
|
38
|
|
|
Inventory
|
—
|
|
|
28
|
|
|
Other
|
289
|
|
|
313
|
|
|
Total deferred tax assets
|
1,123
|
|
|
1,008
|
|
|
Less: valuation allowance
|
40
|
|
|
22
|
|
|
Net deferred tax assets
|
1,083
|
|
|
986
|
|
|
Net deferred tax liabilities
|
$
|
5,590
|
|
|
5,505
|
|
At December 31, 2020, the loss and credit carryforward deferred tax assets were primarily related to a state tax net operating loss carryforward of $51 million; tax credit, capital loss and net operating loss carryforwards in the United Kingdom of $46 million; a foreign tax credit carryforward in the United States of $32 million; and a German interest deduction carryforward of $18 million. Foreign tax credit carryforwards, which have a full valuation allowance against them, begin to expire in 2029. The other loss and credit carryforwards, all of which relate to foreign operations, have indefinite lives.
Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During the year ended December 31, 2020, our total valuation allowance balance increased by $18 million. Based on our historical taxable income, expectations for the future and available tax planning strategies, management expects the remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and the tax consequences of future taxable income.
Earnings of our foreign subsidiaries and foreign joint ventures after December 31, 2017, are generally not subject to incremental income taxes in the United States or withholding taxes in foreign countries upon repatriation. As such, we only assert that the earnings of one of our foreign subsidiaries are permanently reinvested. At December 31, 2020 and 2019, the unrecorded deferred tax liability related to the undistributed earnings of this foreign subsidiary was not material.
As a result of the separation and pursuant to the Tax Sharing Agreement with ConocoPhillips, the unrecognized income tax benefits related to our operations for the periods for which ConocoPhillips was the taxpayer remain the responsibility of ConocoPhillips, and we have indemnified ConocoPhillips for such amounts. We file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Unrecognized tax benefits reflect the difference between positions taken on income tax returns and the amounts recognized in the financial statements. The following table is a reconciliation of the changes in our unrecognized income tax benefits balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Balance at January 1
|
$
|
40
|
|
|
23
|
|
|
34
|
|
|
Additions for tax positions of current year
|
—
|
|
|
2
|
|
|
—
|
|
|
Additions for tax positions of prior years
|
44
|
|
|
29
|
|
|
1
|
|
|
Reductions for tax positions of prior years
|
(28)
|
|
|
(14)
|
|
|
(2)
|
|
|
Settlements
|
—
|
|
|
—
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
$
|
56
|
|
|
40
|
|
|
23
|
|
Included in the balance of unrecognized income tax benefits at December 31, 2020, 2019 and 2018, were $37 million, $15 million and $1 million, respectively, which, if recognized, would affect our effective income tax rate. With respect to various unrecognized income tax benefits and the related accrued liabilities, we do not expect any to be recognized or paid within the next twelve months.
At December 31, 2020, 2019 and 2018, accrued liabilities for interest and penalties, net of accrued income taxes, totaled $5 million, $10 million and $5 million, respectively. These accruals decreased our results by $3 million for each of the years ended December 31, 2020 and 2019.
Audits in significant jurisdictions are generally complete as follows: United Kingdom (2018), Germany (2014) and United States (2013). Certain issues remain in dispute for audited years, and unrecognized income tax benefits for years still subject to or currently undergoing an audit are subject to change. As a consequence, the balance in unrecognized income tax benefits can be expected to fluctuate from period to period. Although it is reasonably possible such changes could be significant when compared with our total unrecognized income tax benefits, the amount of change is not estimable.
The amounts of U.S. and foreign income (loss) before income taxes, with a reconciliation of income tax at the federal statutory rate to the recorded income tax expense (benefit), were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
Percentage of
Income Before Income Taxes
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Income (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
(5,292)
|
|
|
3,267
|
|
|
5,716
|
|
|
106.6
|
%
|
|
78.2
|
|
|
76.8
|
|
|
Foreign
|
328
|
|
|
911
|
|
|
1,729
|
|
|
(6.6)
|
|
|
21.8
|
|
|
23.2
|
|
|
|
$
|
(4,964)
|
|
|
4,178
|
|
|
7,445
|
|
|
100.0
|
%
|
|
100.0
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory income tax
|
$
|
(1,043)
|
|
|
877
|
|
|
1,563
|
|
|
21.0
|
%
|
|
21.0
|
|
|
21.0
|
|
|
State income tax, net of federal benefit
|
(139)
|
|
|
92
|
|
|
155
|
|
|
2.8
|
|
|
2.2
|
|
|
2.1
|
|
|
Net operating loss carryback
|
(398)
|
|
|
—
|
|
|
—
|
|
|
8.0
|
|
|
—
|
|
|
—
|
|
|
Goodwill impairment
|
387
|
|
|
—
|
|
|
—
|
|
|
(7.8)
|
|
|
—
|
|
|
—
|
|
|
Noncontrolling interests
|
(54)
|
|
|
(61)
|
|
|
(58)
|
|
|
1.1
|
|
|
(1.5)
|
|
|
(0.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign rate differential
|
(11)
|
|
|
(31)
|
|
|
(3)
|
|
|
0.2
|
|
|
(0.7)
|
|
|
—
|
|
|
Tax Cuts and Jobs Act
|
—
|
|
|
(42)
|
|
|
36
|
|
|
—
|
|
|
(1.0)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other*
|
8
|
|
|
(34)
|
|
|
(121)
|
|
|
(0.1)
|
|
|
(0.8)
|
|
|
(1.7)
|
|
|
|
$
|
(1,250)
|
|
|
801
|
|
|
1,572
|
|
|
25.2
|
%
|
|
19.2
|
|
|
21.1
|
|
* Other includes individually immaterial items but is primarily attributable to foreign operations and change in valuation allowance.
An income tax benefit of $1 million for the year ended December 31, 2020, and income tax expense of $123 million and $13 million for the years ended December 31, 2019 and 2018, respectively, is reflected in the “Capital in Excess of Par” column on our consolidated statement of changes in equity.
Note 22—Accumulated Other Comprehensive Loss
Changes in the balances of each component of accumulated other comprehensive loss were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
Defined
Benefit
Plans
|
|
Foreign
Currency
Translation
|
|
Hedging
|
|
Accumulated
Other
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
$
|
(598)
|
|
|
(26)
|
|
|
7
|
|
|
(617)
|
|
|
Other comprehensive income (loss) before reclassifications
|
14
|
|
|
(192)
|
|
|
4
|
|
|
(174)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
Defined benefit plans*
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss, prior service credit and settlements
|
112
|
|
|
—
|
|
|
—
|
|
|
112
|
|
|
Foreign currency translation
|
—
|
|
|
(10)
|
|
|
—
|
|
|
(10)
|
|
|
Hedging
|
—
|
|
|
—
|
|
|
(3)
|
|
|
(3)
|
|
|
Net current period other comprehensive income (loss)
|
126
|
|
|
(202)
|
|
|
1
|
|
|
(75)
|
|
|
December 31, 2018
|
(472)
|
|
|
(228)
|
|
|
8
|
|
|
(692)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(140)
|
|
|
95
|
|
|
(5)
|
|
|
(50)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
Defined benefit plans*
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss, prior service credit and settlements
|
49
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Hedging
|
—
|
|
|
—
|
|
|
(6)
|
|
|
(6)
|
|
|
Net current period other comprehensive income (loss)
|
(91)
|
|
|
95
|
|
|
(11)
|
|
|
(7)
|
|
|
Income taxes reclassified to retained earnings**
|
(93)
|
|
|
2
|
|
|
2
|
|
|
(89)
|
|
|
December 31, 2019
|
(656)
|
|
|
(131)
|
|
|
(1)
|
|
|
(788)
|
|
|
Other comprehensive income (loss) before reclassifications
|
(262)
|
|
|
151
|
|
|
1
|
|
|
(110)
|
|
|
Amounts reclassified from accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
Defined benefit plans*
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss, prior service credit and settlements
|
109
|
|
|
—
|
|
|
—
|
|
|
109
|
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Hedging
|
—
|
|
|
—
|
|
|
(5)
|
|
|
(5)
|
|
|
Net current period other comprehensive income (loss)
|
(153)
|
|
|
151
|
|
|
(4)
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
December 31, 2020
|
$
|
(809)
|
|
|
25
|
|
|
(5)
|
|
|
(789)
|
|
* Included in the computation of net periodic benefit cost. See Note 19—Pension and Postretirement Plans, for additional information.
** As of January 1, 2019, stranded income taxes related to the enactment of the Tax Act in December 2017 were reclassified to retained earnings upon adoption of ASU No. 2018-02.
Note 23—Cash Flow Information
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Payments
|
|
|
|
|
|
|
Interest
|
$
|
478
|
|
|
426
|
|
|
465
|
|
|
Income taxes
|
103
|
|
|
955
|
|
|
984
|
|
Note 24—Other Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
Interest and Debt Expense
|
|
|
|
|
|
|
Incurred
|
|
|
|
|
|
|
Debt
|
$
|
550
|
|
|
504
|
|
|
493
|
|
|
Other
|
24
|
|
|
31
|
|
|
28
|
|
|
|
574
|
|
|
535
|
|
|
521
|
|
|
Capitalized
|
(75)
|
|
|
(77)
|
|
|
(17)
|
|
|
Expensed
|
$
|
499
|
|
|
458
|
|
|
504
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
Interest income
|
$
|
14
|
|
|
43
|
|
|
45
|
|
|
|
|
|
|
|
|
|
Other, net*
|
52
|
|
|
76
|
|
|
16
|
|
|
|
$
|
66
|
|
|
119
|
|
|
61
|
|
|
* Includes derivatives-related activities. See Note 15—Derivatives and Financial Instruments, for additional information.
|
|
|
|
|
|
|
|
|
Research and Development Expenses
|
$
|
48
|
|
|
54
|
|
|
55
|
|
|
|
|
|
|
|
|
|
Advertising Expenses
|
$
|
51
|
|
|
63
|
|
|
68
|
|
|
|
|
|
|
|
|
|
Foreign Currency Transaction (Gains) Losses
|
|
|
|
|
|
|
Midstream
|
$
|
—
|
|
|
—
|
|
|
—
|
|
|
Chemicals
|
—
|
|
|
—
|
|
|
—
|
|
|
Refining
|
4
|
|
|
—
|
|
|
(24)
|
|
|
Marketing and Specialties
|
—
|
|
|
—
|
|
|
1
|
|
|
Corporate and Other
|
8
|
|
|
5
|
|
|
(8)
|
|
|
|
$
|
12
|
|
|
5
|
|
|
(31)
|
|
Note 25—Related Party Transactions
Significant transactions with related parties were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Operating revenues and other income (a)
|
$
|
1,932
|
|
|
2,977
|
|
|
3,514
|
|
|
Purchases (b)
|
6,536
|
|
|
11,726
|
|
|
12,755
|
|
|
Operating expenses and selling, general and administrative expenses (c)
|
247
|
|
|
96
|
|
|
59
|
|
|
|
|
|
|
|
|
(a)We sold NGL, other petrochemical feedstocks and solvents to CPChem, NGL and certain feedstocks to DCP Midstream, gas oil and hydrogen feedstocks to Excel Paralubes (Excel), and refined petroleum products to several of our equity affiliates in the Marketing and Specialties segment, including OnCue and CF United. We also sold certain feedstocks and intermediate products to WRB and acted as agent for WRB in supplying crude oil and other feedstocks for a fee. In addition, we charged several of our equity affiliates, including CPChem, for the use of common facilities, such as steam generators, waste and water treaters and warehouse facilities.
(b)We purchased crude oil, refined petroleum products and NGL from WRB and also acted as agent for WRB in distributing solvents. We also purchased natural gas and NGL from DCP Midstream and CPChem, as well as other feedstocks from various equity affiliates, for use in our refinery and fractionation processes. In addition, we purchased base oils and fuel products from Excel for use in our specialty and refining businesses. We paid NGL fractionation fees to CPChem. We also paid fees to various pipeline equity affiliates for transporting crude oil, refined petroleum products and NGL.
(c)We paid consignment fees to CF United, and utility and processing fees to various equity affiliates.
Note 26—Segment Disclosures and Related Information
Our operating segments are:
1)Midstream—Provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and NGL transportation, storage, fractionation, processing and marketing services, mainly in the United States. The Midstream segment includes our master limited partnership (MLP), Phillips 66 Partners, as well as our 50% equity investment in DCP Midstream.
2)Chemicals—Consists of our 50% equity investment in CPChem, which manufactures and markets petrochemicals and plastics on a worldwide basis.
3)Refining—Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, at 13 refineries in the United States and Europe.
4)Marketing and Specialties—Purchases for resale and markets refined petroleum products, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products.
Corporate and Other includes general corporate overhead, interest expense, our investment in new technologies and various other corporate activities. Corporate assets include all cash, cash equivalents and income tax-related assets.
Intersegment sales are at prices that we believe approximate market.
Analysis of Results by Operating Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
Sales and Other Operating Revenues*
|
|
|
|
|
|
|
Midstream
|
|
|
|
|
|
|
Total sales
|
$
|
6,047
|
|
|
7,103
|
|
|
8,293
|
|
|
Intersegment eliminations
|
(1,873)
|
|
|
(2,122)
|
|
|
(2,176)
|
|
|
Total Midstream
|
4,174
|
|
|
4,981
|
|
|
6,117
|
|
|
Chemicals
|
3
|
|
|
3
|
|
|
5
|
|
|
Refining
|
|
|
|
|
|
|
Total sales
|
42,206
|
|
|
76,792
|
|
|
83,140
|
|
|
Intersegment eliminations
|
(24,176)
|
|
|
(45,871)
|
|
|
(49,343)
|
|
|
Total Refining
|
18,030
|
|
|
30,921
|
|
|
33,797
|
|
|
Marketing and Specialties
|
|
|
|
|
|
|
Total sales
|
43,164
|
|
|
73,616
|
|
|
73,414
|
|
|
Intersegment eliminations
|
(1,272)
|
|
|
(2,256)
|
|
|
(1,899)
|
|
|
Total Marketing and Specialties
|
41,892
|
|
|
71,360
|
|
|
71,515
|
|
|
Corporate and Other
|
30
|
|
|
28
|
|
|
27
|
|
|
Consolidated sales and other operating revenues
|
$
|
64,129
|
|
|
107,293
|
|
|
111,461
|
|
|
* See Note 3—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues.
|
|
|
|
|
|
|
|
|
Equity in Earnings (Loss) of Affiliates
|
|
|
|
|
|
|
Midstream
|
$
|
761
|
|
|
754
|
|
|
676
|
|
|
Chemicals
|
625
|
|
|
870
|
|
|
1,025
|
|
|
Refining
|
(376)
|
|
|
318
|
|
|
796
|
|
|
Marketing and Specialties
|
181
|
|
|
185
|
|
|
164
|
|
|
Corporate and Other
|
—
|
|
|
—
|
|
|
15
|
|
|
Consolidated equity in earnings of affiliates
|
$
|
1,191
|
|
|
2,127
|
|
|
2,676
|
|
|
|
|
|
|
|
|
|
Depreciation, Amortization and Impairments*
|
|
|
|
|
|
|
Midstream
|
$
|
1,795
|
|
|
1,162
|
|
|
326
|
|
|
Chemicals
|
—
|
|
|
—
|
|
|
—
|
|
|
Refining
|
3,642
|
|
|
857
|
|
|
841
|
|
|
Marketing and Specialties
|
103
|
|
|
103
|
|
|
114
|
|
|
Corporate and Other
|
107
|
|
|
80
|
|
|
83
|
|
|
Consolidated depreciation, amortization and impairments
|
$
|
5,647
|
|
|
2,202
|
|
|
1,364
|
|
|
* See Note 9—Impairments, for further details on impairments by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income and Expense
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other
|
$
|
14
|
|
|
43
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and debt expense
|
|
|
|
|
|
|
Corporate and Other
|
$
|
499
|
|
|
458
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
|
|
|
|
Midstream
|
$
|
(9)
|
|
|
684
|
|
|
1,181
|
|
|
Chemicals
|
635
|
|
|
879
|
|
|
1,025
|
|
|
Refining
|
(6,155)
|
|
|
1,986
|
|
|
4,535
|
|
|
Marketing and Specialties
|
1,446
|
|
|
1,433
|
|
|
1,557
|
|
|
Corporate and Other
|
(881)
|
|
|
(804)
|
|
|
(853)
|
|
|
Consolidated income (loss) before income taxes
|
$
|
(4,964)
|
|
|
4,178
|
|
|
7,445
|
|
|
|
|
|
|
|
|
|
Investments In and Advances To Affiliates
|
|
|
|
|
|
|
Midstream
|
$
|
4,255
|
|
|
5,131
|
|
|
5,423
|
|
|
Chemicals
|
6,126
|
|
|
6,229
|
|
|
6,233
|
|
|
Refining
|
2,202
|
|
|
2,290
|
|
|
2,226
|
|
|
Marketing and Specialties
|
744
|
|
|
650
|
|
|
349
|
|
|
Corporate and Other
|
—
|
|
|
—
|
|
|
—
|
|
|
Consolidated investments in and advances to affiliates
|
$
|
13,327
|
|
|
14,300
|
|
|
14,231
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
|
|
|
Midstream
|
$
|
15,596
|
|
|
15,716
|
|
|
14,329
|
|
|
Chemicals
|
6,183
|
|
|
6,249
|
|
|
6,235
|
|
|
Refining
|
20,404
|
|
|
25,150
|
|
|
23,230
|
|
|
Marketing and Specialties
|
7,180
|
|
|
8,659
|
|
|
6,572
|
|
|
Corporate and Other
|
5,358
|
|
|
2,946
|
|
|
3,936
|
|
|
Consolidated total assets
|
$
|
54,721
|
|
|
58,720
|
|
|
54,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures and Investments
|
|
|
|
|
|
|
Midstream
|
$
|
1,747
|
|
|
2,292
|
|
|
1,548
|
|
|
Chemicals
|
—
|
|
|
—
|
|
|
—
|
|
|
Refining
|
816
|
|
|
1,001
|
|
|
826
|
|
|
Marketing and Specialties
|
173
|
|
|
374
|
|
|
125
|
|
|
Corporate and Other
|
184
|
|
|
206
|
|
|
140
|
|
|
Consolidated capital expenditures and investments
|
$
|
2,920
|
|
|
3,873
|
|
|
2,639
|
|
Geographic Information
Long-lived assets, defined as net PP&E plus investments and long-term receivables, by geographic location at December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
United States
|
$
|
35,273
|
|
|
36,407
|
|
|
34,587
|
|
|
United Kingdom
|
1,313
|
|
|
1,256
|
|
|
1,191
|
|
|
Germany
|
653
|
|
|
601
|
|
|
570
|
|
|
Other foreign countries
|
101
|
|
|
93
|
|
|
91
|
|
|
Worldwide consolidated
|
$
|
37,340
|
|
|
38,357
|
|
|
36,439
|
|
Note 27—Phillips 66 Partners LP
Phillips 66 Partners, headquartered in Houston, Texas, is a publicly traded MLP formed in 2013 to own, operate, develop and acquire primarily fee-based midstream assets. Phillips 66 Partners’ operations currently consist of crude oil, refined petroleum product and NGL transportation, fractionation, processing, terminaling and storage assets.
On August 1, 2019, Phillips 66 Partners completed a restructuring transaction to eliminate the IDRs held by us and convert our 2% economic general partner interest into a noneconomic general partner interest in exchange for 101 million Phillips 66 Partners common units. As a result of the restructuring transaction, the balance of “Noncontrolling interests” in our consolidated balance sheet decreased $373 million, with a $275 million increase to “Capital in excess of par,” a $91 million increase in “Deferred income taxes” and $7 million of transaction costs. No distributions were made for the general partner interest after August 1, 2019.
At December 31, 2020, we owned 170 million Phillips 66 Partners common units, representing a 74% limited partner interest, while the public owned a 26% limited partner interest and 13.8 million perpetual convertible preferred units. Prior to October 2020, holders of the preferred units received cumulative quarterly distributions equal to $0.678375 per unit. Beginning in October 2020, holders receive quarterly distributions equal to the greater of $0.678375 per unit or the per-unit distribution paid to common unitholders.
We consolidate Phillips 66 Partners because we determined it is a VIE of which we are the primary beneficiary. As general partner of Phillips 66 Partners, we have the ability to control its financial interests, as well as the ability to direct the activities that most significantly impact its economic performance. As a result of this consolidation, the public common and perpetual convertible preferred unitholders’ ownership interests in Phillips 66 Partners are reflected as noncontrolling interests of $2,219 million and $2,228 million on our consolidated balance sheet at December 31, 2020 and 2019, respectively.
The most significant assets of Phillips 66 Partners that are available to settle only its obligations, along with its most significant liabilities for which its creditors do not have recourse to Phillips 66’s general credit, were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
|
December 31
2020
|
|
December 31
2019
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
7
|
|
|
286
|
|
|
Equity investments*
|
3,244
|
|
|
2,961
|
|
|
Net properties, plants and equipment
|
3,639
|
|
|
3,349
|
|
|
Short-term debt
|
465
|
|
|
25
|
|
|
Long-term debt
|
3,444
|
|
|
3,491
|
|
* Included in “Investments and long-term receivables” line item on the Phillips 66 consolidated balance sheet.
Phillips 66 Partners has authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. The first two programs concluded in June 2018 and December 2019, respectively. For the years ended December 31, 2020, 2019 and 2018, on a settlement-date basis, Phillips 66 Partners generated net proceeds of $2 million, $173 million and $128 million, respectively, from common units issued under the ATM programs. Since inception in June 2016 and through December 31, 2020, the ATM programs have generated net proceeds of $494 million.
Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, Texas, and the Sweeny area, including our Sweeny Refinery. Phillips 66 Partners has a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party acquired a 35% interest in the holding company. Because the holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which was considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP at that time. The Gray Oak Pipeline commenced full operations in the second quarter of 2020, and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the sale under GAAP. Accordingly, at June 30, 2020, the co-venturer’s 35% interest in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet, and the premium of $84 million previously paid by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of operations. For the year ended December 31, 2020, the co-venturer contributed an aggregate of $61 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls. Phillips 66 Partners’ effective ownership interest in Gray Oak Pipeline, LLC is 42.25% , after considering the co-venturer’s 35% interest in the consolidated holding company. See Note 6—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillips 66 Partners’ investment in Gray Oak Pipeline, LLC, as well as certain other joint ventures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
Per Share of Common Stock
|
|
|
Sales and Other Operating Revenues
|
Income (Loss) Before Income Taxes
|
Net Income (Loss)
|
Net Income (Loss) Attributable to Phillips 66
|
|
Net Income (Loss) Attributable to Phillips 66
|
|
|
|
Basic
|
Diluted
|
|
2020
|
|
|
|
|
|
|
|
|
First
|
$
|
20,878
|
|
(2,478)
|
|
(2,427)
|
|
(2,496)
|
|
|
(5.66)
|
|
(5.66)
|
|
|
Second
|
10,913
|
|
(445)
|
|
(67)
|
|
(141)
|
|
|
(0.33)
|
|
(0.33)
|
|
|
Third
|
15,929
|
|
(1,350)
|
|
(726)
|
|
(799)
|
|
|
(1.82)
|
|
(1.82)
|
|
|
Fourth
|
16,409
|
|
(691)
|
|
(494)
|
|
(539)
|
|
|
(1.23)
|
|
(1.23)
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
First
|
$
|
23,103
|
|
340
|
|
270
|
|
204
|
|
|
0.44
|
|
0.44
|
|
|
Second
|
27,847
|
|
1,829
|
|
1,504
|
|
1,424
|
|
|
3.13
|
|
3.12
|
|
|
Third
|
27,218
|
|
943
|
|
793
|
|
712
|
|
|
1.58
|
|
1.58
|
|
|
Fourth
|
29,125
|
|
1,066
|
|
810
|
|
736
|
|
|
1.65
|
|
1.64
|
|