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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-35349
Phillips 66
(Exact name of registrant as specified in its charter) 
Delaware   45-3779385
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

2331 CityWest Blvd., Houston, Texas 77042
(Address of principal executive offices) (Zip Code)
281-293-6600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 Par Value PSX New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer
Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No  
The registrant had 437,867,054 shares of common stock, $0.01 par value, outstanding as of March 31, 2021.


PHILLIPS 66

TABLE OF CONTENTS
 



PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
 
Consolidated Statement of Operations Phillips 66

  Millions of Dollars
  Three Months Ended
March 31
  2021  2020 
Revenues and Other Income
Sales and other operating revenues $ 21,627  20,878 
Equity in earnings of affiliates 285  365 
Net gain on dispositions  
Other income 15  — 
Total Revenues and Other Income 21,927  21,244 
Costs and Expenses
Purchased crude oil and products 20,065  18,440 
Operating expenses 1,380  1,341 
Selling, general and administrative expenses 408  319 
Depreciation and amortization 356  342 
Impairments 198  3,006 
Taxes other than income taxes 139  157 
Accretion on discounted liabilities 6 
Interest and debt expense 146  111 
Total Costs and Expenses 22,698  23,722 
Loss before income taxes (771) (2,478)
Income tax benefit (132) (51)
Net Loss (639) (2,427)
Less: net income attributable to noncontrolling interests 15  69 
Net Loss Attributable to Phillips 66 $ (654) (2,496)
Net Loss Attributable to Phillips 66 Per Share of Common Stock (dollars)
Basic
$ (1.49) (5.66)
Diluted
(1.49) (5.66)
Weighted-Average Common Shares Outstanding (thousands)
Basic 439,504  441,345 
Diluted 439,504  441,345 
See Notes to Consolidated Financial Statements.
1

Consolidated Statement of Comprehensive Loss Phillips 66
 
  Millions of Dollars
  Three Months Ended
March 31
  2021  2020 
Net Loss $ (639) (2,427)
Other comprehensive income (loss)
Defined benefit plans
Amortization of net actuarial loss and prior service credit 22  23 
Plans sponsored by equity affiliates 6 
Income taxes on defined benefit plans (6) (5)
Defined benefit plans, net of income taxes 22  20 
Foreign currency translation adjustments (15) (222)
Income taxes on foreign currency translation adjustments
 
Foreign currency translation adjustments, net of income taxes
(15) (221)
Cash flow hedges 2  (9)
Income taxes on hedging activities  
Hedging activities, net of income taxes 2  (7)
Other Comprehensive Income (Loss), Net of Income Taxes 9  (208)
Comprehensive Loss (630) (2,635)
Less: comprehensive income attributable to noncontrolling interests 15  69 
Comprehensive Loss Attributable to Phillips 66 $ (645) (2,704)
See Notes to Consolidated Financial Statements.
2

Consolidated Balance Sheet Phillips 66
 
  Millions of Dollars
  March 31
2021
December 31
2020
Assets
Cash and cash equivalents $ 1,351  2,514 
Accounts and notes receivable (net of allowances of $51 million in 2021 and $37 million in 2020)
7,161  5,688 
Accounts and notes receivable—related parties 1,004  834 
Inventories 4,273  3,893 
Prepaid expenses and other current assets 629  347 
Total Current Assets 14,418  13,276 
Investments and long-term receivables 13,376  13,624 
Net properties, plants and equipment 23,677  23,716 
Goodwill 1,425  1,425 
Intangibles 836  843 
Other assets 1,764  1,837 
Total Assets $ 55,496  54,721 
Liabilities
Accounts payable $ 7,484  5,171 
Accounts payable—related parties 762  378 
Short-term debt 516  987 
Accrued income and other taxes 1,149  1,351 
Employee benefit obligations 316  573 
Other accruals 1,204  1,058 
Total Current Liabilities 11,431  9,518 
Long-term debt 14,906  14,906 
Asset retirement obligations and accrued environmental costs 682  657 
Deferred income taxes 5,547  5,644 
Employee benefit obligations 1,351  1,341 
Other liabilities and deferred credits 1,122  1,132 
Total Liabilities 35,039  33,198 
Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value)
     Issued (2021—649,638,881 shares; 2020—648,643,223 shares)
Par value 6 
Capital in excess of par 20,420  20,383 
Treasury stock (at cost: 2021 and 2020—211,771,827 shares)
(17,116) (17,116)
Retained earnings 15,449  16,500 
Accumulated other comprehensive loss (780) (789)
Total Stockholders’ Equity 17,979  18,984 
Noncontrolling interests 2,478  2,539 
Total Equity 20,457  21,523 
Total Liabilities and Equity $ 55,496  54,721 
See Notes to Consolidated Financial Statements.
3

Consolidated Statement of Cash Flows Phillips 66
  Millions of Dollars
  Three Months Ended
March 31
  2021  2020 
Cash Flows From Operating Activities
Net loss $ (639) (2,427)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization 356  342 
Impairments 198  3,006 
Accretion on discounted liabilities 6 
Deferred income taxes (103) (47)
Undistributed equity earnings 217  (4)
Net gain on dispositions   (1)
Other 138  (139)
Working capital adjustments
Accounts and notes receivable (1,740) 3,900 
Inventories (377) (1,620)
Prepaid expenses and other current assets (283) (90)
Accounts payable 2,779  (3,239)
Taxes and other accruals (281) 530 
Net Cash Provided by Operating Activities 271  217 
Cash Flows From Investing Activities
Capital expenditures and investments (331) (923)
Return of investments in equity affiliates 58  38 
Proceeds from asset dispositions  
Advances/loans—related parties (155) (8)
Other (39) 15 
Net Cash Used in Investing Activities (467) (877)
Cash Flows From Financing Activities
Issuance of debt 450  1,199 
Repayment of debt (925) (7)
Issuance of common stock 20 
Repurchase of common stock   (443)
Dividends paid on common stock (394) (396)
Distributions to noncontrolling interests (76) (61)
Other (20) (22)
Net Cash Provided by (Used in) Financing Activities (945) 276 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(22) (9)
Net Change in Cash and Cash Equivalents (1,163) (393)
Cash and cash equivalents at beginning of period 2,514  1,614 
Cash and Cash Equivalents at End of Period $ 1,351  1,221 
See Notes to Consolidated Financial Statements.

4

Consolidated Statement of Changes in Equity Phillips 66

Millions of Dollars
Three Months Ended March 31
  Attributable to Phillips 66  
  Common Stock      
  Par Value Capital in Excess of Par Treasury Stock Retained Earnings Accum. Other Comprehensive Loss Noncontrolling Interests Total
December 31, 2020 $ 20,383  (17,116) 16,500  (789) 2,539  21,523 
Net income (loss)       (654)   15  (639)
Other comprehensive income         9    9 
Dividends paid on common stock ($0.90 per share)
      (394)     (394)
Benefit plan activity
  37    (3)     34 
Distributions to noncontrolling interests
          (76) (76)
March 31, 2021 $ 6  20,420  (17,116) 15,449  (780) 2,478  20,457 
December 31, 2019 $ 20,301  (16,673) 22,064  (788) 2,259  27,169 
Net income (loss) —  —  —  (2,496) —  69  (2,427)
Other comprehensive loss —  —  —  —  (208) —  (208)
Dividends paid on common stock ($0.90 per share)
—  —  —  (396) —  —  (396)
Repurchase of common stock —  —  (443) —  —  —  (443)
Benefit plan activity —  —  (2) —  — 
Distributions to noncontrolling interests —  —  —  —  —  (61) (61)
Other —  —  —  (2) — 
March 31, 2020 $ 20,305  (17,116) 19,168  (991) 2,267  23,639 


Shares
Three Months Ended March 31
  Common Stock Issued Treasury Stock
December 31, 2020 648,643,223  211,771,827 
Repurchase of common stock    
Shares issued—share-based compensation 995,658   
March 31, 2021 649,638,881  211,771,827 
December 31, 2019 647,416,633  206,390,806 
Repurchase of common stock —  5,381,021 
Shares issued—share-based compensation 1,029,901  — 
March 31, 2020 648,446,534  211,771,827 
See Notes to Consolidated Financial Statements.




5

Notes to Consolidated Financial Statements Phillips 66

Note 1—Interim Financial Information

The unaudited interim financial information presented in the financial statements included in this report is prepared in accordance with generally accepted accounting principles in the United States (GAAP) and includes all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of the consolidated financial position of Phillips 66 and its results of operations and cash flows for the periods presented. Unless otherwise specified, all such adjustments are of a normal and recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2020 Annual Report on Form 10-K. The results of operations for the three months ended March 31, 2021, are not necessarily indicative of the results expected for the full year.


Note 2—Sales and Other Operating Revenues

Disaggregated Revenues
The following tables present our disaggregated sales and other operating revenues:

  Millions of Dollars
  Three Months Ended
March 31
  2021  2020 
Product Line and Services
Refined petroleum products $ 16,343  16,157 
Crude oil resales 3,189  2,877 
Natural gas liquids (NGL) 1,774  979 
Services and other*
321  865 
Consolidated sales and other operating revenues
$ 21,627  20,878 
Geographic Location**
United States $ 16,612  15,710 
United Kingdom 2,287  2,309 
Germany 817  858 
Other foreign countries 1,911  2,001 
Consolidated sales and other operating revenues
$ 21,627  20,878 
* Includes derivatives-related activities. See Note 12—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 March 31, 2021, and December 31, 2020, receivables from contracts with customers were $5,375 million and $3,911 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 March 31, 2021, and December 31, 2020, our asset balances related to such payments were $414 million and $404 million, respectively.

Our contract liabilities represent advances from our customers prior to product or service delivery. At March 31, 2021, and December 31, 2020, contract liabilities were immaterial.
6

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 the unsatisfied performance obligations. We also have certain contracts in our Midstream segment that include minimum volume commitments with fixed pricing, which mostly expire by 2022. At March 31, 2021, the remaining performance obligations related to these minimum volume commitment contracts were immaterial.


Note 3—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) have increased 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 March 31, 2021, and December 31, 2020, we reported $8,165 million and $6,522 million of accounts and notes receivable, net of allowances of $51 million and $37 million, respectively. Based on an aging analysis at March 31, 2021, more than 95% 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 10—Guarantees, and Note 11—Contingencies and Commitments, for more information on these off-balance sheet exposures.


Note 4—Inventories

Inventories consisted of the following:

  Millions of Dollars
  March 31
2021
December 31
2020
Crude oil and petroleum products $ 3,915  3,536 
Materials and supplies 358  357 
$ 4,273  3,893 


Inventories valued on the last-in, first-out (LIFO) basis totaled $3,740 million and $3,368 million at March 31, 2021, and December 31, 2020, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $4.2 billion and $2.7 billion at March 31, 2021, and December 31, 2020, respectively.


7

Note 5—Investments, Loans and Long-Term Receivables

Equity Investments

Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)
In March 2019, a wholly owned subsidiary of Dakota Access issued $2.5 billion aggregate principal amount of senior unsecured notes. Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners LP (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 March 31, 2021, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU was approximately $631 million.

In July 2020, the trial court presiding over the litigation vacated Dakota Access’ easement under Lake Oahe and ordered the Dakota Access Pipeline to be shut down and emptied of crude oil pending the preparation of an Environmental Impact Statement (EIS) by the USACE, which had been ordered by the court in March 2020 and is now expected to be completed by March 2022. In August 2020, pending an appeal of the trial court’s decisions, an appellate court denied Dakota Access’ motion to stay the order vacating the easement, but granted its motion to stay the order that the pipeline be shut down while the EIS is prepared. In January 2021, the appellate court affirmed the trial court’s order vacating the easement and directing the USACE to prepare an EIS and reversed the order directing the pipeline to be shut down. Notwithstanding that the easement has been vacated, in April 2021, the USACE indicated that it currently intends to allow the pipeline to continue to operate while it proceeds with the EIS. Currently, there is a motion for a permanent injunction to shut down the pipeline before the trial court that could be decided at any time. Additionally, Dakota Access has requested the appellate court to stay its January 2021 decision pending a filing and disposition of a petition for writ of certiorari to the U.S. Supreme Court.

If the pipeline is required to cease operations, either permanently or pending the preparation of the EIS, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, Phillips 66 Partners also could be required to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually, in addition to the potential obligations under the CECU.

At March 31, 2021, the aggregate book value of Phillips 66 Partners’ investments in Dakota Access and ETCO was $575 million.

CF United LLC (CF United)
We hold 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 variable interest entity (VIE) because our co-venturer has an option to require us to purchase its interest 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 March 31, 2021, our maximum exposure to loss was comprised of our $334 million investment in CF United, and any potential future loss resulting from the put option should the purchase price based on a fixed multiple exceed the then-current fair value of CF United.


8

OnCue Holdings, LLC (OnCue)
We hold a 50% interest in OnCue, a 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 March 31, 2021, our maximum exposure to loss was $178 million, which represented the book value of our investment in OnCue of $99 million and guaranteed debt obligations of $79 million.

Liberty Pipeline LLC (Liberty)
At March 31, 2021, Phillips 66 Partners held a 50% interest in Liberty, a joint venture formed to develop and construct the Liberty Pipeline system. Liberty 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. It was determined that Phillips 66 Partners was not the primary beneficiary because Phillips 66 Partners and its co-venturer jointly directed the activities of Liberty that most significantly impact economic performance.

In the first quarter of 2021, Phillips 66 Partners’ decision to exit the Liberty Pipeline project resulted in a $198 million before-tax impairment of its investment in Liberty. The impairment is included in the “Impairments” line item on our consolidated statement of operations for the three months ended March 31, 2021. See Note 7—Impairments, and Note 13—Fair Value Measurements, for additional information regarding the impairment and the techniques used to determine the fair value of Phillips 66 Partners’ investment in Liberty. At March 31, 2021, the book value of Phillips 66 Partners’ investment in Liberty was $46 million.

In April 2021, Phillips 66 Partners transferred its ownership interest in Liberty to its co-venturer for cash and certain pipeline assets with an estimated fair value that approximated its book value at March 31, 2021.

Related Party Loans
We and our co-venturer provided member loans to WRB Refining LP (WRB). At March 31, 2021, our 50% share of the outstanding member loan balance, including accrued interest, was $434 million.


Note 6—Properties, Plants and Equipment

Our gross investment in properties, plants and equipment (PP&E) and the associated accumulated depreciation and amortization (Accum. D&A) balances were as follows:

  Millions of Dollars
  March 31, 2021 December 31, 2020
  Gross
PP&E
Accum.
D&A
  Net
PP&E
Gross
PP&E
Accum.
D&A
Net
PP&E
Midstream $ 12,184  2,796  9,388  12,313  2,815  9,498 
Chemicals       —  —  — 
Refining 25,095  12,351  12,744  24,647  12,019  12,628 
Marketing and Specialties 1,770  994  776  1,815  1,007  808 
Corporate and Other 1,455  686  769  1,448  666  782 
$ 40,504  16,827  23,677  40,223  16,507  23,716 


9

Note 7—Impairments

Millions of Dollars
  Three Months Ended
March 31
  2021 2020
Midstream $ 198  1,161 
Refining   1,845 
Total impairments $ 198  3,006 


Equity Investments

Liberty
In the first quarter of 2021, Phillips 66 Partners decided to exit the Liberty Pipeline project, which had previously been deferred due to the challenging business environment caused by the COVID-19 pandemic. As a result, Phillips 66 Partners recorded a $198 million before-tax impairment to reduce the book value of its investment in Liberty at March 31, 2021, to estimated fair value.

DCP Midstream, LLC (DCP Midstream)
In the first quarter of 2020, the market value of DCP Partners, LP (DCP Partners) common units 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.

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 13—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 refining margins and decreased volumes through refineries and logistics infrastructure. Demand for refined petroleum products started to recover following the distribution of COVID-19 vaccines at the beginning of 2021, and consequently, refining margins have improved. However, the depth and duration of the economic consequences of the COVID-19 pandemic remain uncertain. 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.


10

Note 8—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.
  Three Months Ended
March 31
  2021 2020
Basic Diluted Basic Diluted
Amounts Attributed to Phillips 66 Common Stockholders (millions):
Net loss attributable to Phillips 66 $ (654) (654) (2,496) (2,496)
Income allocated to participating securities (2) (2) (1) (1)
Net loss available to common stockholders $ (656) (656) (2,497) (2,497)
Weighted-average common shares outstanding (thousands):
437,369  439,504  439,014  441,345 
Effect of share-based compensation 2,135    2,331  — 
Weighted-average common shares outstanding—EPS 439,504  439,504  441,345  441,345 
Loss Per Share of Common Stock (dollars)
$ (1.49) (1.49) (5.66) (5.66)


11

Note 9—Debt

2021 Debt Issuances and Repayments
At March 31, 2021, borrowings of $450 million were outstanding and $1 million in letters of credit had been drawn under Phillips 66 Partners’ $750 million revolving credit facility.

In April 2021, Phillips 66 Partners entered into a $450 million term loan agreement and borrowed the full amount. The term loan agreement has a maturity date of April 5, 2022, and the outstanding borrowings can be repaid at any time and from time to time, in whole or in part, without premium or penalty. Borrowings bear interest at a floating rate based on either a Eurodollar rate or a reference rate, plus a margin of 0.875%. Proceeds were primarily used to repay amounts borrowed under Phillips 66 Partners’ $750 million revolving credit facility.

In February 2021, Phillips 66 repaid $500 million outstanding principal balance of its floating-rate senior notes due February 2021.

2020 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 a Eurodollar rate or a reference rate, plus a margin determined by the credit rating of Phillips 66’s senior unsecured long-term debt. Phillips 66 used the proceeds for general corporate purposes.


12

Note 10—Guarantees

At March 31, 2021, 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
Under the operating lease agreement for our headquarters facility in Houston, Texas, we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at March 31, 2021. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling $371 million. These operating leases have remaining terms of up to nine years.

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 5—Investments, Loans and Long-Term Receivables, for additional information on Dakota Access and the CECU.

At March 31, 2021, we also had other guarantees outstanding for our portion of certain joint venture debt 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 $197 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. The carrying amount of recorded indemnifications was $145 million at both March 31, 2021, and December 31, 2020.

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 March 31, 2021, and December 31, 2020, environmental accruals for known contamination of $103 million and $104 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 11—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.


13

Note 11—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 uncertain.

Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.

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. At March 31, 2021, our total environmental accruals were $437 million, compared with $427 million at December 31, 2020. We expect to incur a substantial amount of these expenditures within the next 30 years. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.


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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 March 31, 2021, we had performance obligations secured by letters of credit and bank guarantees of $791 million related to various purchase and other commitments incident to the ordinary conduct of business.


Note 12—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 13—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.


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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
  March 31, 2021 December 31, 2020
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 $ 652  (595) (8) 49  13  —  —  13 
Other assets 17  (16)   1  (4) — 
Liabilities
Other accruals 437  (529) 78  (14) 665  (721) 46  (10)
Total $ 1,106  (1,140) 70  36  683  (725) 46 

At March 31, 2021, and December 31, 2020, 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
  Three Months Ended
March 31
  2021  2020 
Sales and other operating revenues $ (123) 679 
Other income 1 
Purchased crude oil and products (135) 441 
Net gain (loss) from commodity derivative activity $ (257) 1,123 


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 more than 95% at March 31, 2021, and December 31, 2020.

  Open Position
Long / (Short)
  March 31
2021
December 31
2020
Commodity
Crude oil, refined petroleum products and NGL (millions of barrels)
(25) (13)

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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 London Interbank Offered Rate (LIBOR) and changes, if any, in our credit rating. The pay-fixed, receive-floating interest rate swaps have an aggregate notional value of $650 million and ended in April 2021. We have designated these swaps as cash flow hedges.

The aggregate net fair value of these swaps was immaterial at March 31, 2021, and December 31, 2020. 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 (loss) in the same period during which the hedged transaction affects earnings (loss). Net realized gains and losses from settlements of the swaps were immaterial for the three months ended March 31, 2021 and 2020.

Credit Risk from Derivative Instruments
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 March 31, 2021, and December 31, 2020.


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Note 13—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.

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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:

  Millions of Dollars
  March 31, 2021
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 Level 3
Commodity Derivative Assets
Exchange-cleared instruments $ 746  337    1,083  (1,048) (8)   27 
Physical forward contracts   23    23        23 
Rabbi trust assets 150      150  N/A N/A   150 
$ 896  360    1,256  (1,048) (8)   200 
Commodity Derivative Liabilities
Exchange-cleared instruments $ 794  332    1,126  (1,048) (78)    
OTC instruments   1    1        1 
Physical forward contracts   13    13        13 
Interest-rate derivatives   1    1        1 
Floating-rate debt   1,475    1,475  N/A N/A   1,475 
Fixed-rate debt, excluding finance leases
  15,064    15,064  N/A N/A (1,391) 13,673 
$ 794  16,886    17,680  (1,048) (78) (1,391) 15,163 


  Millions of Dollars
  December 31, 2020
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 Level 3
Commodity Derivative Assets
Exchange-cleared instruments $ 314  356  —  670  (669) —  — 
Physical forward contracts —  13  —  13  —  —  —  13 
Rabbi trust assets 143  —  —  143  N/A N/A —  143 
$ 457  369  —  826  (669) —  —  157 
Commodity Derivative Liabilities
Exchange-cleared instruments $ 351  364  —  715  (669) (46) —  — 
Physical forward contracts —  10  —  10  —  —  —  10 
Interest-rate derivatives —  —  —  —  — 
Floating-rate debt —  1,940  —  1,940  N/A N/A —  1,940 
Fixed-rate debt, excluding finance leases
—  15,597  —  15,597  N/A N/A (1,927) 13,670 
$ 351  17,914  —  18,265  (669) (46) (1,927) 15,623 


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 12—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.
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Nonrecurring Fair Value Measurements
Equity Investments
In the first quarter of 2021, Phillips 66 Partners wrote down the book value of its investment in Liberty to estimated fair value using a Level 3 nonrecurring fair value measurement. This nonrecurring measurement was based on the estimated fair value of Phillip 66 Partners’ share of the joint venture’s pipeline assets and net working capital. See Note 5—Investments, Loans and Long-Term Receivables, for more information regarding Phillips 66 Partners’ transfer of its ownership in Liberty to its co-venturer in April 2021.

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.

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 used a discounted cash flow model that included 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 used 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 Level 3 fair value 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 7—Impairments, for additional information on the above impairments.


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Note 14—Pension and Postretirement Plans

The components of net periodic benefit cost for the three months ended March 31, 2021 and 2020, were as follows:
  Millions of Dollars
  Pension Benefits Other Benefits
  2021 2020 2021  2020 
U.S. Int’l. U.S. Int’l.
Components of Net Periodic Benefit Cost
Three Months Ended March 31
Service cost $ 37  9  33  1 
Interest cost 20  5  25  1 
Expected return on plan assets (41) (15) (41) (13)   — 
Amortization of prior service credit     —  —  (1) (1)
Recognized net actuarial loss 15  6  14    — 
Net periodic benefit cost* $ 31  5  31  1 
* Included in the “Operating expenses” and “Selling, general and administrative expenses” line items on our consolidated statement of operations.


During the three months ended March 31, 2021, we contributed $5 million to our U.S. pension and other postretirement benefit plans and $7 million to our international pension plans. We currently expect to make additional contributions of approximately $35 million to our U.S. pension and other postretirement benefit plans and $23 million to our international pension plans during the remainder of 2021.


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Note 15—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, 2020 $ (809) 25  (5) (789)
Other comprehensive income (loss) before reclassifications 5  (15)   (10)
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss and prior service credit 17      17 
Foreign currency translation        
Hedging     2  2 
Net current period other comprehensive income (loss) 22  (15) 2  9 
March 31, 2021 $ (787) 10  (3) (780)
December 31, 2019 $ (656) (131) (1) (788)
Other comprehensive income (loss) before reclassifications (221) (7) (227)
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss and prior service credit 19  —  —  19 
Foreign currency translation —  —  —  — 
Hedging —  —  —  — 
Net current period other comprehensive income (loss) 20  (221) (7) (208)
Other —  — 
March 31, 2020 $ (636) (347) (8) (991)
* Included in the computation of net periodic benefit cost. See Note 14—Pension and Postretirement Plans, for additional information.

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Note 16—Related Party Transactions

Significant transactions with related parties were:

  Millions of Dollars
  Three Months Ended
March 31
  2021  2020 
Operating revenues and other income (a) $ 770  534 
Purchases (b) 2,357  2,126 
Operating expenses and selling, general and administrative expenses (c)
68  51 

(a)We sold NGL, other petrochemical feedstocks and solvents to Chevron Phillips Chemical Company LLC (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 an 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, NGL and solvents from WRB. 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.


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Note 17—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.

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Analysis of Results by Operating Segment

  Millions of Dollars
  Three Months Ended
March 31
  2021  2020 
Sales and Other Operating Revenues*
Midstream
Total sales $ 2,384  1,538 
Intersegment eliminations (627) (495)
Total Midstream 1,757  1,043 
Chemicals 1 
Refining
Total sales 15,053  13,781 
Intersegment eliminations (8,456) (7,633)
Total Refining 6,597  6,148 
Marketing and Specialties
Total sales 13,598  14,249 
Intersegment eliminations (333) (570)
Total Marketing and Specialties 13,265  13,679 
Corporate and Other 7 
Consolidated sales and other operating revenues $ 21,627  20,878 
* See Note 2—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues.
Income (Loss) Before Income Taxes
Midstream $ 76  (702)
Chemicals 154  169 
Refining (1,040) (2,261)
Marketing and Specialties 290  513 
Corporate and Other (251) (197)
Consolidated loss before income taxes $ (771) (2,478)


  Millions of Dollars
  March 31
2021
December 31
2020
Total Assets
Midstream $ 15,296  15,596 
Chemicals 6,133  6,183 
Refining 21,893  20,404 
Marketing and Specialties 7,962  7,180 
Corporate and Other 4,212  5,358 
Consolidated total assets $ 55,496  54,721 

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Note 18—Income Taxes

Our effective income tax rate for the three months ended March 31, 2021, was 17%, compared with 2% for the corresponding period of 2020. The increase in our effective tax rate for the three months ended March 31, 2021, was primarily attributable to the current-year impact of our foreign operations and income attributable to noncontrolling interests and the prior-year impact of a nondeductible goodwill impairment and a net operating loss carryback to a year with a 35% tax rate.

The effective income tax rate for the three months ended March 31, 2021, varied from the U.S. federal statutory income tax rate of 21%, primarily due to foreign operations and income attributable to noncontrolling interests.

An income tax receivable of $1.5 billion, which reflects tax refunds we expect to receive within the next 12 months, is included in the “Accounts and notes receivable” line item on our consolidated balance sheet as of March 31, 2021.


Note 19—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.

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 in our financial statements. At March 31, 2021, we owned 170 million Phillips 66 Partners common units, representing a 74% limited partner interest in Phillips 66 Partners, while the public owned a 26% limited partner interest and 13.8 million perpetual convertible preferred units.

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
  March 31
2021
December 31
2020
Equity investments* $ 3,029  3,244 
Net properties, plants and equipment 3,646  3,639 
Short-term debt 500  465 
Long-term debt 3,444  3,444 
* Included in the “Investments and long-term receivables” line item on the Phillips 66 consolidated balance sheet.


See Note 5—Investments, Loans and Long-Term Receivables, for further discussion regarding Phillips 66 Partners’ investments in Dakota Access and ETCO, and Liberty.

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Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise indicated, “the company,” “we,” “our,” “us” and “Phillips 66” are used in this report to refer to the businesses of Phillips 66 and its consolidated subsidiaries.

Management’s Discussion and Analysis is the company’s analysis of its financial performance, financial condition, and significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions often identify forward-looking statements, but the absence of these words does not mean a statement is not forward-looking. The company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the company’s disclosures under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSES OF THE ‘SAFE HARBOR’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.”

The terms “earnings” and “loss” as used in Management’s Discussion and Analysis refer to net income (loss) attributable to Phillips 66. The terms “results,” “before-tax income” or “before-tax loss” as used in Management’s Discussion and Analysis refer to income (loss) before income taxes.


EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT

Phillips 66 is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. At March 31, 2021, we had total assets of $55.5 billion. Our common stock trades on the New York Stock Exchange under the symbol PSX.

Executive Overview
The Coronavirus Disease 2019 (COVID-19) pandemic continues to disrupt economic activities globally. Actions taken by governments to prevent the spread of the disease, including travel and business restrictions, have resulted in substantial decreases in the demand for many refined petroleum products, particularly gasoline and jet fuel. Demand for refined petroleum products started to recover following the distribution of COVID-19 vaccines at the beginning of 2021, and consequently, refining margins have improved. Ongoing market discipline of OPEC producers has reduced excess supplies of crude oil and the current balance has supported higher crude oil and natural gas liquids (NGL) prices. During the first quarter of 2021, winter storms significantly impacted refining, midstream and chemical operations in the Central and Gulf Coast regions, which resulted in lower asset utilization, as well as higher costs.

In the first quarter of 2021, we reported a loss of $654 million and generated cash from operating activities of $271 million. We used available cash for capital expenditures and investments of $331 million, repayment of $500 million of maturing debt, dividend payments on our common stock of $394 million, and an additional member loan to an equity affiliate of $155 million. We ended the first quarter of 2021 with $1.4 billion of cash and cash equivalents and approximately $5.3 billion of total committed capacity available under our revolving credit facilities.

Our results in the first quarter of 2021 reflect the adverse effects of the COVID-19 pandemic and severe winter storms that occurred in the Central and Gulf Coast regions in February 2021. The adverse effects of the COVID-19 pandemic may continue to be significant in the near term, and the depth and duration of the resulting economic consequences remain unknown. We continuously monitor our asset and investment portfolio for impairments, as well as optimization opportunities, in this challenging business environment. As such, additional asset and investment impairments may be required in the future.



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Business Environment
The Midstream segment includes our Transportation and NGL businesses. Our Transportation business contains fee-based operations that are not directly exposed to commodity price risk. Our NGL business contains both fee-based operations and operations that are directly impacted by NGL prices. The Midstream segment also includes our 50% equity investment in DCP Midstream, LLC (DCP Midstream). During the first quarter of 2021, NGL prices increased, compared with the first quarter of 2020, due to higher demand and supply disruptions caused by the winter storms that occurred in the Central and Gulf Coast regions in February 2021.

The Chemicals segment consists of our 50% equity investment in Chevron Phillips Chemical Company LLC (CPChem). The chemicals and plastics industry is mainly a commodity-based industry where the margins for key products are based on supply and demand, as well as cost factors. During the first quarter of 2021, the benchmark high-density polyethylene chain margin increased significantly, compared with the first quarter of 2020. This increase was driven by strong demand, low inventories, and tight supply due to operational impacts from the winter storms that occurred in the Central and Gulf Coast regions in February 2021.

Our Refining segment results are driven by several factors, including refining margins, refinery throughput, feedstock costs, product yields, turnaround activity, and other operating costs. The price of U.S. benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, increased to an average of $57.84 per barrel during the first quarter of 2021, compared with an average of $45.97 per barrel in the first quarter of 2020. Market crack spreads are used as indicators of refining margins and measure the difference between market prices for refined petroleum products and crude oil. During the first quarter of 2021, worldwide market crack spreads were significantly higher than the first quarter of 2020. The increases in crude oil prices and market crack spreads were mainly driven by an increase in demand for refined petroleum products and crude oil in the first quarter of 2021 following the distribution of COVID-19 vaccines. Additionally, product prices increased due to operational impacts from the winter storms that occurred in the Central and Gulf Coast regions in February 2021. However, during the first quarter of 2021, the improved market crack spreads were partially offset by a significant increase in cost of RINs, compared with the first quarter of 2020.

Results for our Marketing and Specialties (M&S) segment depend largely on marketing fuel and lubricant margins, and sales volumes of our refined petroleum and other specialty products. While M&S margins are primarily driven by market factors, largely determined by the relationship between supply and demand, marketing fuel margins, in particular, are influenced by the trend in spot prices for refined petroleum products. Generally speaking, a downward trend of spot prices has a favorable impact on marketing fuel margins, while an upward trend of spot prices has an unfavorable impact on marketing fuel margins. The global disruption caused by the COVID-19 pandemic has resulted in reduced demand for refined petroleum and specialty products since March 2020. With the distribution of COVID-19 vaccines in 2021, the global economy has begun to recover, and demand for refined petroleum and specialty products is improving.
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RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three months ended March 31, 2021, is based on a comparison with the corresponding period of 2020.


Consolidated Results

A summary of income (loss) before income taxes by business segment with a reconciliation to net loss attributable to Phillips 66 follows:

  Millions of Dollars
  Three Months Ended
March 31
  2021  2020 
Midstream $ 76  (702)
Chemicals 154  169 
Refining (1,040) (2,261)
Marketing and Specialties 290  513 
Corporate and Other (251) (197)
Loss before income taxes (771) (2,478)
Income tax benefit (132) (51)
Net loss (639) (2,427)
Less: net income attributable to noncontrolling interests 15  69 
Net loss attributable to Phillips 66 $ (654) (2,496)


Our net loss attributable to Phillips 66 in the first quarter of 2021 was $654 million, compared with $2,496 million in the first quarter of 2020. The lower net loss attributable to Phillips 66 reflects a before-tax impairment in the first quarter of 2021 of $198 million, compared with before-tax impairments of $3,006 million in the first quarter of 2020. Excluding these impairments, our results for the first quarter of 2021 decreased, primarily driven by lower realized refining margins, decreased realized marketing fuel margins and lower sales volumes in the first quarter of 2021.

See the “Segment Results” section for additional information on our segment results.







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Statement of Operations Analysis

Sales and other operating revenues and purchased crude oil and products increased 4% and 9%, respectively, in the first quarter of 2021. These increases were mainly due to higher prices for refined petroleum products, crude oil and NGL, partially offset by lower volumes.

Equity in earnings of affiliates decreased 22% in the first quarter of 2021. The decrease was primarily due to lower realized refining margins and decreased refinery production at WRB Refining LP (WRB), as well as lower earnings from CPChem caused by the adverse impacts from the winter storms that occurred in the Central and Gulf Coast regions in February 2021. See Chemicals segment analysis in the “Segment Results” section for additional information on CPChem.

Selling, general and administrative expenses increased 28% in the first quarter of 2021. The increase was primarily due to higher employee-related expenses and increased selling expenses reflecting a benefit received from a legal settlement in the first quarter of 2020.

Impairments decreased $2,808 million in the first quarter of 2021. During the first quarter of 2021, a before-tax impairment of $198 million was recorded relating to Phillips 66 Partners LP’s investment in the Liberty Pipeline project. In the first quarter of 2020, before-tax impairments of $3,006 million were recorded for our investment in DCP Midstream and goodwill in our Refining segment. See Note 7—Impairments, and Note 13—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding these impairments.

Interest and debt expense increased 32% in the first quarter of 2021. The increase was primarily driven by higher average debt principal balances, reflecting new debt issuances during 2020, and lower capitalized interest due to the completion of capital projects and the placement of assets into service.

Our income tax benefit was $132 million in the first quarter of 2021, compared with $51 million in the corresponding period of 2020. See Note 18—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our effective income tax rates.

Net income attributable to noncontrolling interests decreased 78% in the first quarter of 2021. The decrease was primarily driven by a net loss from Phillips 66 Partners LP (Phillips 66 Partners) due to the before-tax impairment associated with Phillips 66 Partners’ investment in the Liberty Pipeline project described above.

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Segment Results

Midstream

  Three Months Ended
March 31
  2021  2020 
Millions of Dollars
Income (Loss) Before Income Taxes
Transportation $ 7  200 
NGL and Other 35  179 
DCP Midstream 34  (1,081)
Total Midstream $ 76  (702)

  Thousands of Barrels Daily
Transportation Volumes
Pipelines* 2,801  3,178 
Terminals 2,675  3,148 
Operating Statistics
NGL fractionated** 363  198 
NGL production*** 356  396 
* Pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment.
** Excludes DCP Midstream.
*** Includes 100% of DCP Midstream’s volumes.

Dollars Per Gallon
Weighted-Average NGL Price*
DCP Midstream $ 0.69  0.39 
* Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component mix.


The Midstream segment provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and NGL transportation, storage, fractionation, processing and marketing services, mainly in the United States. This segment includes our master limited partnership (MLP), Phillips 66 Partners, as well as our 50% equity investment in DCP Midstream, which includes the operations of DCP Midstream, LP (DCP Partners), its MLP.

Results from our Midstream segment increased $778 million in the first quarter of 2021.

Results from our Transportation business decreased $193 million in the first quarter of 2021. The decrease was primarily attributable to a before-tax impairment of $198 million associated with Phillips 66 Partners’ decision to exit the Liberty Pipeline project.

Results from our NGL and Other business decreased $144 million in the first quarter of 2021. The decrease was primarily due to higher operating expenses driven by the winter storms that occurred in the Gulf Coast region in February 2021, lower results from our trading activities, reduced cargo margins at the Sweeny Hub, and decreased equity earnings. These decreases were partially offset by increased fractionation volumes from the startup of Fracs 2 and 3 at the Sweeny Hub in late 2020, leading to higher exported cargoes.


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Results from our investment in DCP Midstream increased $1,115 million in the first quarter of 2021. The increased results reflect a $1,161 million before-tax impairment of our investment in DCP Midstream recorded in the first quarter of 2020. Excluding this impairment, results from our investment in DCP Midstream decreased in the first quarter of 2021, mainly due to unfavorable impacts from DCP Midstream’s commodity price risk management activities.

See Note 7—Impairments, and Note 13—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding the Liberty Pipeline project and DCP Midstream investment impairments.

See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.


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Chemicals

  Three Months Ended
March 31
  2021  2020 
Millions of Dollars
Income Before Income Taxes $ 154  169 
 
  Millions of Pounds
CPChem Externally Marketed Sales Volumes*
Olefins and Polyolefins 4,570  5,113 
Specialties, Aromatics and Styrenics 981  1,188 
5,551  6,301 
* Represents 100% of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates.

Olefins and Polyolefins Capacity Utilization (percent) 79  % 98 


The Chemicals segment consists of our 50% interest in CPChem, which we account for under the equity method. CPChem uses NGL and other feedstocks to produce petrochemicals. These products are then marketed and sold or used as feedstocks to produce plastics and other chemicals. We structure our reporting of CPChem’s operations around two primary business lines: Olefins and Polyolefins (O&P) and Specialties, Aromatics and Styrenics (SA&S).

Results from the Chemicals segment decreased $15 million in the first quarter of 2021. The decrease was primarily due to higher utility, maintenance and repair costs, as well as lower sales volumes, resulting from the winter storms that occurred in the Central and Gulf Coast regions in February 2021. These negative effects were partially offset by higher margins and increased earnings from CPChem’s equity affiliates.

See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.
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Refining
  Three Months Ended
March 31
  2021  2020 
Millions of Dollars
Loss Before Income Taxes
Atlantic Basin/Europe $ (153) (637)
Gulf Coast (253) (843)
Central Corridor (248) (227)
West Coast (386) (554)
Worldwide $ (1,040) (2,261)

Dollars Per Barrel
Loss Before Income Taxes
Atlantic Basin/Europe $ (3.57) (15.41)
Gulf Coast (4.64) (13.16)
Central Corridor (12.55) (9.72)
West Coast (14.89) (19.87)
Worldwide (7.27) (14.44)
Realized Refining Margins*
Atlantic Basin/Europe $ 4.86  2.38 
Gulf Coast 3.39  6.76 
Central Corridor 5.97  13.50 
West Coast 3.33  4.80 
Worldwide 4.36  7.11 
* See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable measure under generally accepted accounting principles in the United States (GAAP), income (loss) before income taxes per barrel.
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Thousands of Barrels Daily
  Three Months Ended
March 31
Operating Statistics 2021 2020 
Refining operations*
Atlantic Basin/Europe
Crude oil capacity 537  537 
Crude oil processed 438  437 
Capacity utilization (percent) 82  % 81 
Refinery production 482  456 
Gulf Coast
Crude oil capacity 784  769 
Crude oil processed 553  645 
Capacity utilization (percent) 71  % 84 
Refinery production 603  703 
Central Corridor
Crude oil capacity 531  530 
Crude oil processed 384  471 
Capacity utilization (percent) 72  % 89 
Refinery production 398  488 
West Coast
Crude oil capacity 364  364 
Crude oil processed 268  279 
Capacity utilization (percent) 74  % 77 
Refinery production 288  306 
Worldwide
Crude oil capacity 2,216  2,200 
Crude oil processed 1,643  1,832 
Capacity utilization (percent) 74  % 83 
Refinery production 1,771  1,953 
* Includes our share of equity affiliates.



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The Refining segment 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.

Results from our Refining segment improved by $1,221 million in the first quarter of 2021. The improved results reflect a $1,845 million before-tax goodwill impairment recorded in the first quarter of 2020. Excluding this impairment, results from our Refining segment decreased in the first quarter of 2021, mainly due to lower realized refining margins and decreased refinery production. Decreased refinery production was primarily driven by the reduced demand resulting from the COVID-19 pandemic and unplanned downtime caused by the winter storms that occurred in the Central and Gulf Coast regions in February 2021.

Our worldwide refining crude oil capacity utilization rate was 74% in the first quarter of 2021, compared with 83% in the first quarter of 2020. The decrease in the current quarter was primarily due to refinery run cuts resulting from the COVID-19 pandemic and unplanned downtime due to the winter storms.

See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.

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Marketing and Specialties

  Three Months Ended
March 31
2021  2020 
Millions of Dollars
Income Before Income Taxes
Marketing and Other $ 211  471 
Specialties 79  42 
Total Marketing and Specialties $ 290  513 

  Dollars Per Barrel
Income Before Income Taxes
U.S. $ 1.36  1.79 
International 2.24  6.58 
Realized Marketing Fuel Margins*
U.S. $ 1.94  2.08 
International 4.01  8.53 
* See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel.

Dollars Per Gallon
U.S. Average Wholesale Prices*
Gasoline $ 2.01  1.77 
Distillates 1.98  1.76 
* On third-party branded petroleum product sales, excluding excise taxes.

Thousands of Barrels Daily
Marketing Petroleum Products Sales Volumes
Gasoline 1,023  1,066 
Distillates 818  1,037 
Other 18  20 
Total 1,859  2,123 


The M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of specialty products, such as base oils and lubricants.

Before-tax income from the M&S segment decreased $223 million in the first quarter of 2021. The decrease was primarily due to lower realized marketing fuel margins driven by an increase in spot prices in the first quarter of 2021, compared with a significant decline in spot prices in the first quarter of 2020, as well as reduced demand caused by the COVID-19 pandemic.

See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting this quarter’s results.
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Corporate and Other

  Millions of Dollars
  Three Months Ended
March 31
  2021  2020 
Loss Before Income Taxes
Net interest expense $ (143) (103)
Corporate overhead and other (108) (94)
Total Corporate and Other $ (251) (197)


Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Corporate overhead and other includes general and administrative expenses, technology costs, environmental costs associated with sites no longer in operation, foreign currency transaction gains and losses, and other costs not directly associated with an operating segment.

Net interest expense increased $40 million in the first quarter of 2021, primarily driven by higher average debt principal balances, reflecting new debt issuances during 2020, and lower capitalized interest due to the completion of capital projects and the placement of assets into service.

Corporate overhead and other increased $14 million in the first quarter of 2021, reflecting higher employee-related expenses.

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CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators

Millions of Dollars,
Except as Indicated
March 31
2021
December 31
2020
Cash and cash equivalents $ 1,351 2,514 
Short-term debt 516 987 
Total debt 15,422 15,893 
Total equity 20,457 21,523 
Percent of total debt to capital* 43% 42 
Percent of floating-rate debt to total debt 10% 12 
* Capital includes total debt and total equity.


To meet our short- and long-term liquidity requirements, we use a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. During the first three months of 2021, we generated $271 million of cash from operations. We used available cash primarily for capital expenditures and investments of $331 million, repayment of $500 million of maturing debt, dividend payments on our common stock of $394 million, and an additional member loan to an equity affiliate of $155 million. During the first three months of 2021, cash and cash equivalents decreased $1,163 million to $1,351 million.

Significant Sources of Capital

Operating Activities
During the first three months of 2021, cash generated by operating activities was $271 million, compared with $217 million for the first three months of 2020. The increase was primarily due to higher distributions from equity affiliates and favorable working capital impacts, partially offset by lower realized refining margins and sales volumes.

Our short- and long-term operating cash flows are highly dependent upon refining and marketing margins, NGL prices and chemicals margins. Prices and margins in our industry are typically volatile, and are driven by market conditions over which we have little or no control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding change in our operating cash flows.

The level and quality of output from our refineries also impact our cash flows. Factors such as operating efficiency, maintenance turnarounds, market conditions, feedstock availability, and weather conditions can affect output. We actively manage the operations of our refineries, and any variability in their operations typically has not been as significant to cash flows as that caused by margins and prices.

Equity Affiliate Operating Distributions
Our operating cash flows are also impacted by distribution decisions made by our equity affiliates. During the first three months of 2021, cash from operations included distributions of $502 million from our equity affiliates, compared with $361 million during the same period of 2020. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured.

Tax Refunds
An income tax receivable of $1.5 billion, which reflects tax refunds we expect to receive within the next 12 months, is included in the “Accounts and notes receivable” line item on our consolidated balance sheet as of March 31, 2021.

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Phillips 66 Partners’ Unit Issuances
Phillips 66 Partners suspended issuances under its current continuous offering of common units, or at-the-market (ATM) program in the first quarter of 2020 due to low common unit prices. During the first three months of 2021, Phillips 66 Partners did not issue any common units under the ATM program.

Revolving Credit Facilities and Commercial Paper
At March 31, 2021, borrowings of $450 million were outstanding and $1 million in letters of credit had been drawn under Phillips 66 Partners’ $750 million revolving credit facility. At March 31, 2021, no amount had been drawn under Phillips 66’s $5 billion revolving credit facility or uncommitted $5 billion commercial paper program.

Term Loan Agreement
On April 6, 2021, Phillips 66 Partners entered into a $450 million term loan agreement and borrowed the full amount. The term loan agreement has a maturity date of April 5, 2022, and the outstanding borrowings can be repaid at any time and from time to time, in whole or in part, without premium or penalty. Borrowings bear interest at a floating rate based on either a Eurodollar rate or a reference rate, plus a margin of 0.875%. Proceeds were primarily used to repay amounts borrowed under Phillips 66 Partners’ $750 million revolving credit facility.




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Off-Balance Sheet Arrangements

Lease Residual Value Guarantees
Under the operating lease agreement for our headquarters facility in Houston, Texas, we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at March 31, 2021. We also have residual value guarantees associated with railcar and airplane leases with maximum potential future payments totaling $371 million. These operating leases have remaining terms of up to nine years.

Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)
In March 2019, a wholly owned subsidiary of Dakota Access issued $2.5 billion aggregate principal amount of senior unsecured notes. Dakota Access and ETCO have guaranteed repayment of the notes. In addition, Phillips 66 Partners and its co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the ongoing litigation related to an easement granted by 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 March 31, 2021, Phillips 66 Partners’ share of the maximum potential equity contributions under the CECU was approximately $631 million.

In July 2020, the trial court presiding over the litigation vacated Dakota Access’ easement under Lake Oahe and ordered the Dakota Access Pipeline to be shut down and emptied of crude oil pending the preparation of an Environmental Impact Statement (EIS) by the USACE, which had been ordered by the court in March 2020 and is now expected to be completed by March 2022. In August 2020, pending an appeal of the trial court’s decisions, an appellate court denied Dakota Access’ motion to stay the order vacating the easement, but granted its motion to stay the order that the pipeline be shut down while the EIS is prepared. In January 2021, the appellate court affirmed the trial court’s order vacating the easement and directing the USACE to prepare an EIS and reversed the order directing the pipeline to be shut down. Notwithstanding that the easement has been vacated, in April 2021, the USACE indicated that it currently intends to allow the pipeline to continue to operate while it proceeds with the EIS. Currently, there is a motion for a permanent injunction to shut down the pipeline before the trial court that could be decided at any time. Additionally, Dakota Access has requested the appellate court to stay its January 2021 decision pending a filing and disposition of a petition for writ of certiorari to the U.S. Supreme Court.

If the pipeline is required to cease operations, either permanently or pending the preparation of the EIS, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, Phillips 66 Partners also could be required to support its share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually, in addition to the potential obligations under the CECU.

See Note 10—Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.

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