filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHILLIPS 66
INDEX TO FINANCIAL STATEMENTS
Report of Management
Management prepared, and is responsible for, the consolidated financial statements and the other information appearing in this Annual Report. The consolidated financial statements present fairly the company’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States. In preparing its consolidated financial statements, the company includes amounts that are based on estimates and judgments management believes are reasonable under the circumstances. The company’s financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm appointed by the Audit and Finance Committee of the Board of Directors. Management has made available to Ernst & Young LLP all of the company’s financial records and related data, as well as the minutes of stockholders’ and directors’ meetings.
Assessment of Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Phillips 66’s internal control system was designed to provide reasonable assurance to the company’s management and directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2023. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on this assessment, management concluded the company’s internal control over financial reporting was effective as of December 31, 2023.
Ernst & Young LLP has issued an audit report on the company’s internal control over financial reporting as of December 31, 2023, and their report is included herein.
| /s/ Mark E. Lashier | /s/ Kevin J. Mitchell | |||||||
| Mark E. Lashier | Kevin J. Mitchell | |||||||
| President and Chief Executive Officer | Executive Vice President and | |||||||
| Chief Financial Officer | ||||||||
Date: February 21, 2024
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Phillips 66
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Phillips 66 (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audits and, for 2023 and 2022, the report of other auditors, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We did not audit the 2023 and 2022 financial statements of DCP Midstream, LP (DCP LP), a consolidated subsidiary, which reflect total assets constituting approximately 14% and 18% at December 31, 2023 and 2022 respectively, and total revenues constituting approximately 4% in 2023 and 3% in 2022 for the years then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for DCP LP for 2023 and 2022, is based solely on the report of the other auditors.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit and finance committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| Impairment Assessment of Certain Equity Method Investments | ||||||||
| Description of the Matter | As discussed in Note 1 to the consolidated financial statements, the Company assesses investments in nonconsolidated entities accounted for under the equity method for impairment when changes in the facts and circumstances indicate a loss in value has occurred. As discussed in Note 8 to the consolidated financial statements, the Company owns a 50% interest in WRB Refining LP (WRB), a joint venture that owns the Wood River and Borger refineries. The carrying value of the Company’s investment in WRB was $2.7 billion as of December 31, 2023. WRB’s earnings are subject to variability as they are dependent on market conditions, as well as the utilization of its refineries. Accordingly, significant judgment is required in determining whether events or changes in circumstances indicate a loss in value may have occurred that is indicative of a possible impairment. We determined that the identification and evaluation of events or changes in circumstances indicating that the carrying value of the investment in WRB may not be recoverable is a critical audit matter because of the judgement and assumptions management uses to perform its identification and evaluation of such factors. | |||||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for identifying and evaluating events or changes in circumstances that would indicate that the carrying value of the investment in WRB may not be recoverable and performed a walkthrough of the Company’s process and controls. Our evaluation of the Company’s analysis included an assessment of whether events or changes in circumstances indicating that the carrying value of the investment in WRB may not be recoverable were appropriately identified and evaluated by the Company. This included, but was not limited to, an evaluation of the investee’s earnings history and an evaluation of the sustainability of the investee’s earnings under current and expected market conditions. We exercised professional judgment based on our knowledge of the industry and the investee’s business to assess the appropriateness of management’s evaluation and conclusions. For example, we performed inquiries of management, considered WRB’s historical operating results, reviewed the projected investment recovery period, and assessed current and expected market conditions affecting WRB’s results. We performed an independent assessment using both internally and externally available information, such as utilization and margins for WRB’s and other regional refineries, as well as forecasted prices, market crack spreads and demand. We also considered other information, such as the Company’s internal valuations, to identify evidence contrary to management’s conclusion. Additionally, we evaluated management’s process to accurately forecast future operating income by comparing actual results to budgeted results. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2011.
Houston, Texas
February 21, 2024
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Phillips 66
Opinion on Internal Control over Financial Reporting
We have audited Phillips 66’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Phillips 66 (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We did not examine the effectiveness of internal control over financial reporting of DCP Midstream, LP whose financial statements reflect total assets and sales constituting 14% and 4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023. The effectiveness of DCP Midstream, LP’s internal control over financial reporting was audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the effectiveness of DCP Midstream, LP’s internal control over financial reporting, is based solely on the report of the other auditors.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and our report dated February 21, 2024, expressed an unqualified opinion thereon, based on our audit and the report of the other auditors.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included under the heading “Assessment of Internal Control Over Financial Reporting” in the accompanying “Report of Management.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Houston, Texas
February 21, 2024
Report of Independent Registered Public Accounting Firm
To the Board of Directors of DCP Midstream GP, LLC and the Unitholders of DCP Midstream, LP
Opinion on the Financial Statements
We have audited the consolidated balance sheets of DCP Midstream, LP and subsidiaries (the "Partnership") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows, for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”) (not presented herein). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We did not audit the financial statements of Gulf Coast Express Pipeline, LLC, the Partnership’s investment which is accounted for by use of the equity method. The consolidated financial statements of the Partnership include its equity investment in Gulf Coast Express Pipeline, LLC of $385 million and $408 million as of December 31, 2023 and 2022, and its equity earnings in Gulf Coast Express Pipeline, LLC of $68 million and $67 million for the years ended December 31, 2023 and 2022, respectively. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Gulf Coast Express Pipeline, LLC is based solely on the report of the other auditors.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and in accordance with auditing standards generally accepted in the United States of America, the Partnership’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2024, expressed an unqualified opinion on the Partnership’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to those charged with governance and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Property, Plant and Equipment, Net - Determination of Impairment Indicators and Recoverability Analysis for Asset Grouping in the South Region – Refer to Notes 2, 9 and 12 to the financial statements
Critical Audit Matter Description
The Partnership evaluates on a quarterly basis whether the carrying value of long-lived assets should be impaired when circumstances indicate the carrying value of such long-lived assets may not be recoverable. Management considers various factors when determining if long-lived assets should be evaluated for impairment including a significant adverse change in the legal or business climate, a current period operating or cash flow loss combined with a history of losses, an accumulation of costs significantly in excess of the amount originally expected, a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in the market value of an asset, or a current expectation that the asset will be sold or otherwise disposed of before the end of its useful life.
The Partnership’s determination of whether impairment indicators exist for long lived assets requires management to apply significant judgments and assumptions. When events or circumstances exist that indicate the carrying value of long-lived assets may not be recoverable, the Partnership evaluates its long-lived assets for impairment by comparing the carrying amount of the applicable asset group to the sum of the undiscounted cash flows expected to result from the use of the asset (“recoverability analysis”) using the income approach and selecting a discount rate reflective of the risk inherent in future cash flows, and applying that discount rate to the cash flow projections. If management determines the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value. This analysis resulted in management determining that an impairment triggering event had occurred at a certain asset group in the South region of the Gathering and Processing segment. The triggering event is a reflection of the diminished probability of new well connects and margin degradation, commodity prices in the recently prepared budget forecasts, and a negative outlook for long-term production volume forecasts. Management prepared a recoverability analysis and recognized a $209 million impairment loss for the year ended December 31, 2023.
We considered the identification of impairment indicators for property, plant and equipment and the associated recoverability analysis as a critical audit matter because of the significant assumptions that management makes when determining whether events or changes in circumstances have occurred or could occur indicating that the carrying amounts of property, plant and equipment may not be recoverable as well as the significant judgements and assumptions made in the undiscounted cash flow analysis used to evaluate recoverability. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate, the terminal value multiple, forecasted future gathering and processing volumes and future commodity pricing.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the identification of impairment indicators for long-lived assets included the following, among others:
-
We tested the effectiveness of internal controls over financial reporting related to management’s identification of possible impairment indicators for long-lived assets that may indicate the carrying amount of long-lived assets may not be recoverable.
-
We tested the effectiveness of controls over estimates of future volumes of raw natural gas, or other applicable throughput.
- We evaluated management’s analysis of impairment indicators by:
–Considering industry and analysts reports and the impact of macroeconomic factors, such as adverse changes in the regulatory environment, legislation, significant weather events or other factors that may represent impairment indicators not previously contemplated in management's analysis
–Evaluating management’s forecasts by comparing such forecasts to recent results of operations
–Inquiry of management over whether long-lived assets may be sold or otherwise disposed of significantly before the end of the assets' previously estimated useful life
–Inspecting minutes of the board of directors and committees of executive management to understand if there were factors that would represent potential impairment indicators for long-lived assets
Our further audit procedures on the recoverability analysis included evaluating Management’s significant inputs, including forecasted gathering and processing volumes, future commodity prices, the terminal value multiple, and the selection of the discount rate applied to estimated future cash flows included in Management’s cash flow model, included the following, among others:
-
We tested the effectiveness of internal controls over financial reporting related to management’s preparation and review of significant underlying assumptions used in the undiscounted cash flow model
-
For asset groups for which a recoverability analysis was performed, we evaluated management’s estimates for significant inputs by:
–Evaluating the reasonableness of volumetric assumptions by comparing forecasts to permits and rig count data including researching industry trends
–Performing a sensitivity analysis to evaluate the change in undiscounted cash flows that would result from changes in significant underlying assumptions
–Performing a lookback analysis by comparing historical results to management’s future assumptions to assess the reasonableness of estimates
–Evaluating the reasonableness of management’s future commodity pricing forecasts by comparing to independent analysts’ estimates
- With the assistance of our Internal fair value specialists, we evaluated the reasonableness of the discount rate and terminal value multiple by:
–Evaluating the appropriateness of the mathematical model used to develop the discount rate
–Evaluating the guideline public companies selected by management and used in the selection of the discount rate considering the comparability of operations to those of the Partnership
–Developing a range of independent estimates of the discount rate by independently obtaining information to estimate components of the discount rate, including the cost of debt capital, the cost of equity capital, and debt-to-equity ratio
–Evaluating the terminal value multiple in comparison to recent valuation metrics for companies of similar operations
/s/ Deloitte & Touche LLP
Denver, Colorado
February 21, 2024
We have served as the Partnership’s auditor since 2004.
Report of Independent Registered Public Accounting Firm
To the Board of Directors of DCP Midstream GP, LLC and the Unitholders of DCP Midstream, LP
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of DCP Midstream, LP and subsidiaries (the "Partnership") as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and in accordance with auditing standards generally accepted in the United States of America, the consolidated financial statements as of and for the year ended December 31, 2023, of the Partnership (not presented herein) and our report dated February 21, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Partnership's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting (not presented herein). Our responsibility is to express an opinion on the Partnership's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Denver, Colorado
February 21, 2024
| Consolidated Statement of Income | Phillips 66 |
| Millions of Dollars | |||||||||||||||||
| Years Ended December 31 | 2023 | 2022 | 2021 | ||||||||||||||
| Revenues and Other Income | |||||||||||||||||
| Sales and other operating revenues | $ | 147,399 | 169,990 | 111,476 | |||||||||||||
| Equity in earnings of affiliates | 2,017 | 2,968 | 2,904 | ||||||||||||||
| Net gain on dispositions | 115 | 7 | 18 | ||||||||||||||
| Other income | 359 | 2,737 | 454 | ||||||||||||||
| Total Revenues and Other Income | 149,890 | 175,702 | 114,852 | ||||||||||||||
| Costs and Expenses | |||||||||||||||||
| Purchased crude oil and products | 128,086 | 149,932 | 102,102 | ||||||||||||||
| Operating expenses | 6,154 | 6,111 | 5,147 | ||||||||||||||
| Selling, general and administrative expenses | 2,525 | 2,168 | 1,744 | ||||||||||||||
| Depreciation and amortization | 1,977 | 1,629 | 1,605 | ||||||||||||||
| Impairments | 24 | 60 | 1,498 | ||||||||||||||
| Taxes other than income taxes | 707 | 530 | 410 | ||||||||||||||
| Accretion on discounted liabilities | 29 | 23 | 24 | ||||||||||||||
| Interest and debt expense | 897 | 619 | 581 | ||||||||||||||
| Foreign currency transaction (gains) losses | 22 | (9) | 1 | ||||||||||||||
| Total Costs and Expenses | 140,421 | 161,063 | 113,112 | ||||||||||||||
| Income before income taxes | 9,469 | 14,639 | 1,740 | ||||||||||||||
| Income tax expense | 2,230 | 3,248 | 146 | ||||||||||||||
| Net Income | 7,239 | 11,391 | 1,594 | ||||||||||||||
| Less: net income attributable to noncontrolling interests | 224 | 367 | 277 | ||||||||||||||
| Net Income Attributable to Phillips 66 | $ | 7,015 | 11,024 | 1,317 | |||||||||||||
| Net Income Attributable to Phillips 66 Per Share of Common Stock (dollars) | |||||||||||||||||
| Basic | $ | 15.56 | 23.36 | 2.97 | |||||||||||||
| Diluted | 15.48 | 23.27 | 2.97 | ||||||||||||||
| Weighted-Average Common Shares Outstanding (thousands) | |||||||||||||||||
| Basic | 450,136 | 471,497 | 440,028 | ||||||||||||||
| Diluted | 453,210 | 473,731 | 440,364 | ||||||||||||||
| See Notes to Consolidated Financial Statements. |
| Consolidated Statement of Comprehensive Income | Phillips 66 | ||||||||||||||||
| Millions of Dollars | |||||||||||||||||
| Years Ended December 31 | 2023 | 2022 | 2021 | ||||||||||||||
| Net Income | $ | 7,239 | 11,391 | 1,594 | |||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||
| Defined benefit plans | |||||||||||||||||
| Net actuarial gain (loss) arising during the period | (11) | 191 | 320 | ||||||||||||||
| Amortization of net actuarial loss, prior service credit and settlements | 19 | 90 | 122 | ||||||||||||||
| Plans sponsored by equity affiliates | (8) | 80 | 96 | ||||||||||||||
| Income taxes on defined benefit plans | 2 | (85) | (127) | ||||||||||||||
| Defined benefit plans, net of income taxes | 2 | 276 | 411 | ||||||||||||||
| Foreign currency translation adjustments | 182 | (295) | (74) | ||||||||||||||
| Income taxes on foreign currency translation adjustments | (3) | 4 | 4 | ||||||||||||||
| Foreign currency translation adjustments, net of income taxes | 179 | (291) | (70) | ||||||||||||||
| Cash flow hedges | (3) | — | 3 | ||||||||||||||
| Income taxes on hedging activities | — | — | — | ||||||||||||||
| Hedging activities, net of income taxes | (3) | — | 3 | ||||||||||||||
| Other Comprehensive Income (Loss), Net of Income Taxes | 178 | (15) | 344 | ||||||||||||||
| Comprehensive Income | 7,417 | 11,376 | 1,938 | ||||||||||||||
| Less: comprehensive income attributable to noncontrolling interests | 224 | 367 | 277 | ||||||||||||||
| Comprehensive Income Attributable to Phillips 66 | $ | 7,193 | 11,009 | 1,661 | |||||||||||||
| See Notes to Consolidated Financial Statements. |
| Consolidated Balance Sheet | Phillips 66 | ||||||||||
| Millions of Dollars | |||||||||||
| At December 31 | 2023 | 2022 | |||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 3,323 | 6,133 | ||||||||
| Accounts and notes receivable (net of allowances of $71 million in 2023 and $67 million in 2022) | 10,483 | 9,497 | |||||||||
| Accounts and notes receivable—related parties | 1,247 | 1,488 | |||||||||
| Inventories | 3,750 | 3,276 | |||||||||
| Prepaid expenses and other current assets | 1,138 | 1,528 | |||||||||
| Total Current Assets | 19,941 | 21,922 | |||||||||
| Investments and long-term receivables | 15,302 | 14,950 | |||||||||
| Net properties, plants and equipment | 35,712 | 35,163 | |||||||||
| Goodwill | 1,550 | 1,486 | |||||||||
| Intangibles | 920 | 831 | |||||||||
| Other assets | 2,076 | 2,090 | |||||||||
| Total Assets | $ | 75,501 | 76,442 | ||||||||
| Liabilities | |||||||||||
| Accounts payable | $ | 10,332 | 10,748 | ||||||||
| Accounts payable—related parties | 569 | 575 | |||||||||
| Short-term debt | 1,482 | 529 | |||||||||
| Accrued income and other taxes | 1,200 | 1,397 | |||||||||
| Employee benefit obligations | 863 | 764 | |||||||||
| Other accruals | 1,410 | 1,876 | |||||||||
| Total Current Liabilities | 15,856 | 15,889 | |||||||||
| Long-term debt | 17,877 | 16,661 | |||||||||
| Asset retirement obligations and accrued environmental costs | 864 | 879 | |||||||||
| Deferred income taxes | 7,424 | 6,671 | |||||||||
| Employee benefit obligations | 630 | 937 | |||||||||
| Other liabilities and deferred credits | 1,200 | 1,299 | |||||||||
| Total Liabilities | 43,851 | 42,336 | |||||||||
| Equity | |||||||||||
| Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2023—654,842,101 shares; 2022—652,373,645 shares) | |||||||||||
| Par value | 7 | 7 | |||||||||
| Capital in excess of par | 19,650 | 19,791 | |||||||||
| Treasury stock (at cost: 2023—224,377,439 shares; 2022—186,529,667 shares) | (19,342) | (15,276) | |||||||||
| Retained earnings | 30,550 | 25,432 | |||||||||
| Accumulated other comprehensive loss | (282) | (460) | |||||||||
| Total Stockholders’ Equity | 30,583 | 29,494 | |||||||||
| Noncontrolling interests | 1,067 | 4,612 | |||||||||
| Total Equity | 31,650 | 34,106 | |||||||||
| Total Liabilities and Equity | $ | 75,501 | 76,442 | ||||||||
| See Notes to Consolidated Financial Statements. |
| Consolidated Statement of Cash Flows | Phillips 66 | ||||||||||||||||
| Millions of Dollars | |||||||||||||||||
| Years Ended December 31 | 2023 | 2022 | 2021 | ||||||||||||||
| Cash Flows From Operating Activities | |||||||||||||||||
| Net income | $ | 7,239 | 11,391 | 1,594 | |||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||||||||
| Depreciation and amortization | 1,977 | 1,629 | 1,605 | ||||||||||||||
| Impairments | 24 | 60 | 1,498 | ||||||||||||||
| Accretion on discounted liabilities | 29 | 23 | 24 | ||||||||||||||
| Deferred income taxes | 840 | 1,320 | (272) | ||||||||||||||
| Undistributed equity earnings | (822) | (1,308) | (128) | ||||||||||||||
| Loss on early redemption of debt | 53 | — | — | ||||||||||||||
| Net gain on dispositions | (115) | (7) | (7) | ||||||||||||||
| Gain related to merger of businesses | — | (3,013) | — | ||||||||||||||
| Unrealized investment (gain) loss | 38 | 433 | (365) | ||||||||||||||
| Other | (419) | 217 | (51) | ||||||||||||||
| Working capital adjustments | |||||||||||||||||
| Accounts and notes receivable | (696) | (2,073) | (922) | ||||||||||||||
| Inventories | (245) | 74 | 511 | ||||||||||||||
| Prepaid expenses and other current assets | 269 | (249) | (339) | ||||||||||||||
| Accounts payable | (480) | 1,736 | 2,925 | ||||||||||||||
| Taxes and other accruals | (663) | 580 | (56) | ||||||||||||||
| Net Cash Provided by Operating Activities | 7,029 | 10,813 | 6,017 | ||||||||||||||
| Cash Flows From Investing Activities | |||||||||||||||||
| Capital expenditures and investments | (2,418) | (2,194) | (1,860) | ||||||||||||||
| Return of investments in equity affiliates | 201 | 125 | 267 | ||||||||||||||
| Proceeds from asset dispositions | 392 | 4 | 27 | ||||||||||||||
| Advances/loans—related parties | — | (75) | (310) | ||||||||||||||
| Collection of advances/loans—related parties | 3 | 662 | 2 | ||||||||||||||
| Other | 32 | (10) | 2 | ||||||||||||||
| Net Cash Used in Investing Activities | (1,790) | (1,488) | (1,872) | ||||||||||||||
| Cash Flows From Financing Activities | |||||||||||||||||
| Issuance of debt | 6,260 | 453 | 1,443 | ||||||||||||||
| Repayment of debt | (4,252) | (2,883) | (2,954) | ||||||||||||||
| Issuance of common stock | 123 | 103 | 26 | ||||||||||||||
| Repurchase of common stock | (4,014) | (1,513) | — | ||||||||||||||
| Dividends paid on common stock | (1,882) | (1,793) | (1,585) | ||||||||||||||
| Distributions to noncontrolling interests | (163) | (185) | (324) | ||||||||||||||
| Repurchase of noncontrolling interests | (4,067) | (500) | (24) | ||||||||||||||
| Other | (97) | (70) | (52) | ||||||||||||||
| Net Cash Used in Financing Activities | (8,092) | (6,388) | (3,470) | ||||||||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | 43 | 49 | (42) | ||||||||||||||
| Net Change in Cash and Cash Equivalents | (2,810) | 2,986 | 633 | ||||||||||||||
| Cash and cash equivalents at beginning of year | 6,133 | 3,147 | 2,514 | ||||||||||||||
| Cash and Cash Equivalents at End of Year | $ | 3,323 | 6,133 | 3,147 | |||||||||||||
| See Notes to Consolidated Financial Statements. |
| Consolidated Statement of Changes in Equity | Phillips 66 | ||||||||||||||||||||||
| Millions of Dollars | |||||||||||||||||||||||
| 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 | $ | 6 | 20,383 | (17,116) | 16,500 | (789) | 2,539 | 21,523 | |||||||||||||||
| Net income | — | — | — | 1,317 | — | 277 | 1,594 | ||||||||||||||||
| Other comprehensive income | — | — | — | — | 344 | — | 344 | ||||||||||||||||
| Dividends paid on common stock | — | — | — | (1,585) | — | — | (1,585) | ||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | (324) | (324) | ||||||||||||||||
| Repurchase of noncontrolling interests | — | — | — | (2) | — | (21) | (23) | ||||||||||||||||
| Benefit plan activity | 1 | 121 | — | (14) | — | — | 108 | ||||||||||||||||
| December 31, 2021 | 7 | 20,504 | (17,116) | 16,216 | (445) | 2,471 | 21,637 | ||||||||||||||||
| Net income | — | — | — | 11,024 | — | 367 | 11,391 | ||||||||||||||||
| Other comprehensive loss | — | — | — | — | (15) | — | (15) | ||||||||||||||||
| Dividends paid on common stock | — | — | — | (1,793) | — | — | (1,793) | ||||||||||||||||
| Repurchase of common stock | — | — | (1,540) | — | — | — | (1,540) | ||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | (185) | (185) | ||||||||||||||||
| Acquisition of noncontrolling interest in Phillips 66 Partners LP | — | (901) | 3,380 | — | — | (2,163) | 316 | ||||||||||||||||
| Merger of DCP Midstream, LLC and Gray Oak Holdings LLC | — | — | — | — | — | 4,622 | 4,622 | ||||||||||||||||
| Acquisition of noncontrolling interest in DCP Midstream, LP | — | — | — | — | — | (500) | (500) | ||||||||||||||||
| Benefit plan activity | — | 188 | — | (15) | — | — | 173 | ||||||||||||||||
| December 31, 2022 | 7 | 19,791 | (15,276) | 25,432 | (460) | 4,612 | 34,106 | ||||||||||||||||
| Net income | — | — | — | 7,015 | — | 224 | 7,239 | ||||||||||||||||
| Other comprehensive income | — | — | — | — | 178 | — | 178 | ||||||||||||||||
| Dividends paid on common stock | — | — | — | (1,882) | — | — | (1,882) | ||||||||||||||||
| Repurchase of common stock | — | — | (4,066) | — | — | — | (4,066) | ||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | (163) | (163) | ||||||||||||||||
| Acquisition of noncontrolling interest in DCP Midstream, LP | — | (361) | — | — | — | (3,613) | (3,974) | ||||||||||||||||
| Benefit plan activity and other | — | 220 | — | (15) | — | 7 | 212 | ||||||||||||||||
| December 31, 2023 | $ | 7 | 19,650 | (19,342) | 30,550 | (282) | 1,067 | 31,650 |
| Shares | ||||||||||||||
| Common Stock Issued | Treasury Stock | |||||||||||||
| December 31, 2020 | 648,643,223 | 211,771,827 | ||||||||||||
| Shares issued—share-based compensation | 1,383,095 | — | ||||||||||||
| December 31, 2021 | 650,026,318 | 211,771,827 | ||||||||||||
| Repurchase of common stock | — | 16,583,076 | ||||||||||||
| Shares issued—share-based compensation | 2,347,327 | — | ||||||||||||
| Shares issued—acquisition of noncontrolling interest in Phillips 66 Partners LP | — | (41,825,236) | ||||||||||||
| December 31, 2022 | 652,373,645 | 186,529,667 | ||||||||||||
| Repurchase of common stock | — | 37,847,772 | ||||||||||||
| Shares issued—share-based compensation | 2,468,456 | — | ||||||||||||
| December 31, 2023 | 654,842,101 | 224,377,439 | ||||||||||||
| Dollars | ||||||||||||||
| Years Ended December 31 | Dividends Paid Per Share of Common Stock | |||||||||||||
| 2021 | $ | 3.62 | ||||||||||||
| 2022 | 3.83 | |||||||||||||
| 2023 | $ | 4.20 | ||||||||||||
| See Notes to Consolidated Financial Statements. | ||||||||||||||
| Notes to Consolidated Financial Statements | Phillips 66 |
Note 1—Summary of Significant Accounting Policies
Consolidation Principles and Investments
Our consolidated financial statements include the accounts of majority-owned, controlled subsidiaries and variable interest entities (VIEs) where we are the primary beneficiary. Undivided interests in pipelines, natural gas plants and terminals are consolidated on a proportionate basis. See Note 29—DCP Midstream Class A Segment for further discussion about a significant VIE that we began consolidating in August 2022, and Note 30—Phillips 66 Partners LP, for further discussion regarding our merger with Phillips 66 Partners LP (Phillips 66 Partners).
The equity method is used to account for investments in affiliates in which we have the ability to exert significant influence over the affiliates’ operating and financial policies, including VIEs, of which we are not the primary beneficiary. Other securities and investments are generally carried at fair value, or cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. See Note 8—Investments, Loans and Long-Term Receivables, for further discussion on our significant unconsolidated VIEs.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
Foreign Currency
Adjustments resulting from the process of translating financial statements with foreign functional currencies into U.S. dollars are included in accumulated other comprehensive income (loss) in stockholders’ equity. Foreign currency transaction gains and losses result from remeasuring monetary assets and liabilities denominated in a foreign currency into the functional currency of our subsidiary holding the asset or liability. We include these transaction gains and losses in current earnings (loss). Most of our foreign operations use their local currency as the functional currency.
Cash Equivalents
Cash equivalents are highly liquid, short-term investments that are readily convertible to known amounts of cash and will mature within 90 days or less from the date of acquisition. We carry these investments at cost plus accrued interest.
Inventories
We have several valuation methods for our various types of inventories and consistently use the following methods for each type of inventory. Crude oil and petroleum products inventories are valued at the lower of cost or market in the aggregate, primarily on the last-in, first-out (LIFO) basis. Any necessary lower-of-cost-or-market write-downs at year end are recorded as permanent adjustments to the LIFO cost basis. LIFO is used to better match current inventory costs with current revenues and to meet tax-conformity requirements. Costs include both direct and indirect expenditures incurred in bringing an item or product to its existing condition and location. Materials and supplies inventories are valued using the weighted-average-cost method.
Fair Value Measurements
We categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability that are used to measure fair value to the extent that relevant observable inputs are not available, and that reflect the assumptions we believe market participants would use when pricing an asset or liability for which there is little, if any, market activity at the measurement date.
Derivative Instruments
Derivative instruments, except those designated as normal purchases and normal sales, are recorded on the balance sheet at fair value. We have master netting agreements with most of our exchange-cleared instrument counterparties and certain of our counterparties to other commodity instrument contracts (e.g., physical commodity forward contracts). We have elected to net derivative assets and liabilities with the same counterparty on the balance sheet if the legal right of offset exists and certain other criteria are met. When applicable, we also net collateral payables and receivables against derivative assets and derivative liabilities, respectively.
Recognition and classification of the gain or loss that results from recording and adjusting a derivative to fair value depends on the purpose for issuing or holding the derivative. All realized and unrealized gains and losses from derivative instruments for which we do not apply hedge accounting are immediately recognized in our consolidated statement of income. Unrealized gains or losses from derivative instruments that qualify for and are designated as cash flow hedges are recognized in other comprehensive income (loss) and appear on the balance sheet in accumulated other comprehensive income (loss) until the hedged transactions are recognized in earnings. However, to the extent the change in the fair value of a derivative instrument exceeds the change in the anticipated cash flows of the hedged transaction, the excess gain or loss is recognized immediately in earnings.
Loans and Long-Term Receivables
We enter into agreements with other parties to pursue business opportunities, which may require us to provide loans or advances to certain affiliated and nonaffiliated companies. Loans are recorded when cash is transferred or seller financing is provided to the affiliated or nonaffiliated company pursuant to a loan agreement. The loan balance will increase as interest is earned on the outstanding loan balance and will decrease as interest and principal payments are received. Interest is earned at the loan agreement’s stated interest rate. Loans and long-term receivables are evaluated for impairment based on an expected credit loss assessment.
Impairment of Investments in Nonconsolidated Entities
Investments in nonconsolidated entities accounted for under the equity method are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value has occurred. When indicators exist, the fair value is estimated and compared to the investment carrying value. If any impairment is judgmentally determined to be other than temporary, the carrying value of the investment is written down to fair value. The fair value of the impaired investment is determined based on quoted market prices, if available, or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies.
Depreciation and Amortization
Depreciation and amortization of properties, plants and equipment (PP&E) are determined by either the individual-unit-straight-line method or the group-straight-line method (for those individual units that are highly integrated with other units).
Capitalized Interest
A portion of interest from external borrowings is capitalized on major projects with an expected construction period of one year or longer. Capitalized interest is added to the cost of the related asset, and is amortized over the useful life of the related asset.
Impairment of Properties, Plants and Equipment
PP&E used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in the future cash flows expected to be generated by an asset group. If indicators of potential impairment exist, an undiscounted cash flow test is performed. If the sum of the undiscounted expected future before-tax cash flows of an asset group is less than the carrying value of the asset group, including applicable liabilities, the carrying value of the PP&E included in the asset group is written down to estimated fair value and the write down is reported in the “Impairments” line item on our consolidated statement of income in the period in which the impairment determination is made. Individual assets are grouped for impairment testing purposes at the lowest level for which identifiable cash flows are available. Because there is usually a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined using one or more of the following methods: the present values of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants; a market multiple of earnings for similar assets; historical market transactions for similar assets, adjusted using principal market participant assumptions when necessary; or replacement cost adjusted for physical deterioration and economic obsolescence. Long-lived assets held for sale are accounted for at the lower of amortized cost or fair value, less cost to sell, with fair value determined using a binding negotiated price, if available, estimated replacement cost, or present value of expected future cash flows as previously described.
The expected future cash flows used for impairment reviews and related fair value calculations are based on estimated future volumes, prices, costs, margins and capital project decisions, considering all available evidence at the date of review.
Property Dispositions
When complete units of depreciable property are sold, the asset cost and related accumulated depreciation are eliminated, with any gain or loss reflected in the “Net gain on dispositions” line item on our consolidated statement of income. When less than complete units of depreciable property are disposed of or retired, the difference between asset cost and salvage value is charged or credited to accumulated depreciation.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination. Goodwill is not amortized, but is assessed for impairment annually and when events or changes in circumstance indicate that the fair value of a reporting unit with goodwill is below its carrying value. The impairment assessment requires allocating goodwill and other assets and liabilities to reporting units. The fair value of each reporting unit is determined and compared to the book value of the reporting unit. If the fair value of the reporting unit is less than the book value, an impairment is recognized for the amount by which the book value exceeds the reporting unit’s fair value. A goodwill impairment cannot exceed the total amount of goodwill allocated to that reporting unit. For purposes of assessing goodwill for impairment, we have two reporting units with goodwill balances at our 2023 testing date: Transportation and Marketing and Specialties (M&S).
Intangible Assets Other Than Goodwill
Intangible assets with finite useful lives are amortized using the straight-line method over their useful lives. Intangible assets with indefinite useful lives are not amortized, but are tested at least annually for impairment. Each reporting period, we evaluate intangible assets with indefinite useful lives to determine whether events and circumstances continue to support this classification. Indefinite-lived intangible assets are considered impaired if their fair value is lower than their net book value. The fair value of intangible assets is determined based on quoted market prices in active markets, if available. If quoted market prices are not available, the fair value of intangible assets is determined based upon the present values of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants, or upon estimated replacement cost, if expected future cash flows from the intangible asset are not determinable.
Asset Retirement Obligations
When we have a legal obligation to incur costs to retire an asset, we record a liability in the period in which the obligation was incurred provided that a reasonable estimate of fair value can be made. If a reasonable estimate of fair value cannot be made at the time the obligation arises, we record the liability when sufficient information is available to estimate its fair value. When a liability is initially recorded, we capitalize the costs by increasing the carrying amount of the related PP&E. Over time, the liability is increased for changes in present value, and the capitalized costs in PP&E are depreciated over the useful life of the related assets. If our estimate of the liability changes after initial recognition, we record an adjustment to the liability and PP&E.
Our practice is to keep our refining and other processing assets in good operating condition through routine repair and maintenance of component parts in the ordinary course of business and by continuing to make improvements based on technological advances. As a result, we believe that generally these assets have no expected retirement dates for purposes of estimating asset retirement obligations since the dates or ranges of dates upon which we would retire these assets cannot be reasonably estimated at this time. We will recognize liabilities for these obligations in the period when sufficient information becomes available to estimate a date or range of potential retirement dates.
Environmental Costs
Environmental expenditures are expensed or capitalized, depending upon their future economic benefit. Expenditures relating to an existing condition caused by past operations, and those having no future economic benefit, are expensed. When environmental assessments or cleanups are probable and the costs can be reasonably estimated, environmental expenditures are accrued on an undiscounted basis (unless acquired in a business combination). Recoveries of environmental remediation costs from other parties, such as state reimbursement funds, are recorded as a reduction to environmental expenditures.
Guarantees
The fair value of a guarantee is determined and recorded as a liability at the time the guarantee is given. The initial liability is subsequently reduced as we are released from exposure under the guarantee. We amortize the guarantee liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of guarantee. We amortize the guarantee liability to the related statement of income line item based on the nature of the guarantee. In cases where the guarantee term is indefinite, we reverse the liability when we have information to support the reversal. When the performance on the guarantee becomes probable and the liability can be reasonably estimated, we accrue a separate liability for the excess amount above the guarantee’s book value based on the facts and circumstances at that time. We reverse the fair value liability only when there is no further exposure under the guarantee.
Treasury Stock
We record treasury stock purchases at cost, which includes related transaction costs. Amounts are recorded as reductions of stockholders’ equity on the consolidated balance sheet. Common stock reissued from treasury stock is valued based on the average cost of historical repurchases.
Revenue Recognition
Our revenues are primarily associated with sales of refined petroleum products, crude oil, natural gas liquids (NGL) and natural gas. Each gallon, or other unit of measure of product, is separately identifiable and represents a distinct performance obligation to which a transaction price is allocated. The transaction prices of our contracts with customers are either fixed or variable, with variable pricing based upon various market indices. For our contracts that include variable consideration, we utilize the variable consideration allocation exception, whereby the variable consideration is only allocated to the performance obligations that are satisfied during the period. The related revenue is recognized at a point in time when control passes to the customer, which is when title and the risk of ownership passes to the customer and physical delivery of goods occurs, either immediately or within a fixed delivery schedule that is reasonable and customary in the industry. The payment terms with our customers vary based on the product or service provided, but usually are 30 days or less.
Revenues associated with pipeline transportation services are recognized at a point in time when the volumes are delivered based on contractual rates. Revenues associated with terminaling and storage services are recognized over time as the services are performed based on throughput volume or capacity utilization at contractual rates.
Revenues associated with transactions commonly called buy/sell contracts, in which the purchase and sale of inventory with the same counterparty are entered into in contemplation of one another, are combined and reported in the “Purchased crude oil and products” line item on our consolidated statement of income (i.e., these transactions are recorded net).
Taxes Collected from Customers and Remitted to Governmental Authorities
Excise taxes on sales of refined petroleum products charged to our customers are presented net of taxes on sales of refined petroleum products payable to governmental authorities in the “Taxes other than income taxes” line item on our consolidated statement of income. Other sales and value-added taxes are recorded net in the “Taxes other than income taxes” line item on our consolidated statement of income.
Shipping and Handling Costs
We have elected to account for shipping and handling costs as fulfillment activities and include these activities in the “Purchased crude oil and products” line item on our consolidated statement of income. Freight costs billed to customers are recorded in “Sales and other operating revenues.”
Maintenance and Repairs
Costs of maintenance and repairs, which are not significant improvements, are expensed when incurred. Major refinery maintenance turnarounds are expensed as incurred.
Share-Based Compensation
We recognize share-based compensation expense over the shorter of: (1) the service period (i.e., the stated period of time required to earn the award); or (2) the period beginning at the start of the service period and ending when an employee first becomes eligible for retirement, but not less than ten months for shared-based payment awards granted in 2023 and not less than six months for share-based payment awards granted prior to 2023 as those are the minimum periods of time required for awards not to be subject to forfeiture. Our equity-classified programs generally provide accelerated vesting (i.e., a waiver of the remaining period of service required to earn an award) for awards held by employees at the time they become eligible for retirement (at age 55 with 5 years of service). We have elected to recognize expense on a straight-line basis over the service period for the entire award, irrespective of whether the award was granted with ratable or cliff vesting, and have elected to recognize forfeitures of awards when they occur.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date. Income tax effects are released from accumulated other comprehensive loss to retained earnings, when applicable, on an individual item basis as those items are reclassified into income. Interest related to unrecognized income tax benefits is reflected in the “Interest and debt expense” line item, and penalties in the “Operating expenses” or “Selling, general and administrative expenses” line items on our consolidated statement of income.
Note 2—Changes in Accounting Principles
Effective January 1, 2023, we adopted ASU 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” This ASU requires the buyer in a supplier finance program to disclose qualitative and quantitative information about the program. At the time of adoption, this ASU did not have a material impact on our consolidated financial statements.
Effective January 1, 2022, we early adopted ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This pronouncement requires application of ASC 606 “Revenue from Contracts with Customers” (“Topic 606”) to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. The adoption of this pronouncement did not have a material impact on our consolidated financial statements.
Effective October 1, 2021, we adopted ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” These pronouncements provide temporary optional expedients and exceptions to the current guidance on contracts, hedge relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. Amendments in ASU 2021-01 further clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. These pronouncements were effective upon issuance and applicable to contract modifications through December 31, 2022. On December 21, 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” The ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. This pronouncement was also effective upon issuance. The adoption of these pronouncements did not impact our consolidated financial statements.
Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers
DCP Midstream, LLC and Gray Oak Holdings LLC Merger (DCP Midstream Merger)
On August 17, 2022, we and our co-venturer, Enbridge Inc. (Enbridge), agreed to merge DCP Midstream, LLC (DCP Midstream) and Gray Oak Holdings LLC (Gray Oak Holdings), with DCP Midstream as the surviving entity.
Prior to the DCP Midstream Merger, we and Enbridge each held a 50% interest and jointly governed DCP Midstream, whose primary assets are its general partner and limited partner interests in DCP Midstream, LP (DCP LP), and we each held indirect economic interests in DCP LP of 28.26%. DCP LP is a VIE because its limited partners do not have the ability to remove its general partner with a simple majority vote, nor do its limited partners have substantive participating rights in the significant decisions made in the ordinary course of business. DCP Midstream ultimately consolidates DCP LP because one of its wholly owned subsidiaries is the primary beneficiary of DCP LP.
We and Enbridge also held 65% and 35% interests, respectively, in Gray Oak Holdings, whose primary asset was a 65% noncontrolling interest in Gray Oak Pipeline, LLC (Gray Oak Pipeline). Our and Enbridge’s indirect economic interests in Gray Oak Pipeline were 42.25% and 22.75%, respectively. We had voting control over and consolidated Gray Oak Holdings and reported Gray Oak Holdings’ 65% interest in Gray Oak Pipeline as an equity investment and Enbridge’s interest in Gray Oak Holdings as a noncontrolling interest.
In connection with the DCP Midstream Merger, we and Enbridge entered into a Third Amended and Restated Limited Liability Company Agreement of DCP Midstream (Amended and Restated LLC Agreement), which realigned the members’ economic interests and governance responsibilities. Under the Amended and Restated LLC Agreement, two classes of membership interests in DCP Midstream were created, Class A and Class B, that are intended to track the assets, liabilities, revenues and expenses of the following operating segments of DCP Midstream:
-
Class A Segment comprised of the businesses, activities, assets and liabilities of DCP LP and its subsidiaries and its general partner entities (DCP Midstream Class A Segment).
-
Class B Segment comprised of the business, activities, assets and liabilities of Gray Oak Pipeline (DCP Midstream Class B Segment).
We hold a 76.64% Class A membership interest, which represents an indirect economic interest in DCP LP of 43.3%, and a 10% Class B membership interest, which represents an indirect economic interest in Gray Oak Pipeline of 6.5%. Enbridge holds the remaining Class A and Class B membership interests. We have been designated as the managing member of DCP Midstream Class A Segment and are responsible for conducting, directing and managing all activities associated with this segment, except as limited in certain instances. Enbridge has been designated as the managing member of DCP Midstream Class B Segment. Earnings and distributions from each segment are allocated to the members based on their membership interest in each membership class, except as otherwise provided.
DCP Midstream Class A Segment and DCP Midstream Class B Segment were determined to be silos under the variable interest consolidation model. As a result, DCP Midstream was also determined to be a VIE. We determined that we are the primary beneficiary of DCP Midstream Class A Segment because of the governance rights granted to us under the Amended and Restated LLC Agreement as managing member of the segment.
We hold a 33.33% direct ownership interest in DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills). DCP LP holds the remaining 66.67% ownership interest in these entities. As a result of the governance rights granted to us over DCP Midstream Class A Segment and the governance rights we hold through our direct ownership interests, we obtained controlling financial interests in these entities in connection with the DCP Midstream Merger. As a result of the DCP Midstream Merger, our aggregate direct and indirect economic interests in DCP Sand Hills and DCP Southern Hills increased from 52.2% to 62.2%.
Starting on August 18, 2022, we began consolidating the financial results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills and reporting the direct and indirect economic interests held by others in these entities as noncontrolling interests on our financial statements.
We account for our remaining indirect economic interest in Gray Oak Pipeline, now held through DCP Midstream Class B Segment, using the equity method of accounting. As a result of the DCP Midstream Merger, we derecognized Enbridge’s noncontrolling interest in Gray Oak Holdings.
We accounted for our consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills as a business combination using the acquisition method of accounting. See Note 4—Business Combinations, for additional information regarding our accounting for this transaction. See Note 29—DCP Midstream Class A Segment, for additional information regarding our variable interest in DCP Midstream Class A Segment.
DCP Midstream, LP Merger (DCP LP Merger)
On June 15, 2023, we completed the acquisition of all publicly held common units of DCP LP pursuant to the terms of the Agreement and Plan of Merger, dated as of January 5, 2023 (DCP LP Merger Agreement). The DCP LP Merger Agreement was entered into with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries merged with and into DCP LP, with DCP LP surviving as a Delaware limited partnership. Under the terms of the DCP LP Merger Agreement, at the effective time of the DCP LP Merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP Midstream and its subsidiaries) issued and outstanding as of immediately prior to the effective time was converted into the right to receive $41.75 per common unit in cash. We accounted for the DCP LP Merger as an equity transaction. The DCP LP Merger increased our aggregate direct and indirect economic interest in DCP LP from 43.3% to 86.8% and our aggregate direct and indirect economic interests in DCP Sand Hills and DCP Southern Hills increased from 62.2% to 91.2%.
See Note 29—DCP Midstream Class A Segment, for additional information regarding the equity transaction.
Note 4—Business Combinations
Marketing and Specialties Acquisition
On August 1, 2023, our M&S segment acquired a marketing business on the U.S. West Coast for total consideration of $269 million. These operations were acquired to support the placement of renewable diesel that will be produced by our Rodeo renewable fuels facility. At December 31, 2023, we provisionally recorded $146 million of amortizable intangible assets, primarily customer relationships; $82 million of PP&E, including finance lease right of use assets; $40 million of net working capital; $64 million of goodwill; and $63 million of finance lease liabilities for this acquisition. The fair values of the assets acquired and liabilities assumed are preliminary and subject to change until we finalize our accounting for this acquisition.
DCP Midstream Merger
On August 17, 2022, we realigned our economic interest in, and governance rights over, DCP Midstream and Gray Oak Holdings through the DCP Midstream Merger, with DCP Midstream as the surviving entity. As part of the DCP Midstream Merger, we transferred a 35.75% indirect economic interest in Gray Oak Pipeline and contributed $404 million of cash to DCP Midstream, which was then paid to Enbridge, in return for a 15.05% incremental indirect economic ownership interest in DCP LP. As noted above, the additional governance rights we were granted as part of this transaction resulted in us consolidating DCP Midstream Class A Segment, as well as DCP Sand Hills and DCP Southern Hills. Given the nature of this transaction, we have accounted for the consolidation of these entities using the acquisition method of accounting.
The components of the fair value of the DCP Midstream Merger consideration are:
| Millions of Dollars | |||||
| Cash contributed | $ | 404 | |||
| Fair value of transferred equity interest | 634 | ||||
| Fair value of previously held equity interests | 3,853 | ||||
| Total merger consideration | $ | 4,891 |
The aggregate purchase consideration noted above was allocated to the assets acquired and liabilities assumed of the entities consolidated based upon their estimated fair values as of the DCP Midstream Merger on August 17, 2022. We finalized the valuation of the assets acquired and liabilities assumed during the three months ended September 30, 2023, prior to the end of the one-year measurement period on August 16, 2023.
The following table shows the purchase price allocation as of the date of the DCP Midstream Merger, and cumulative adjustments we made during the measurement period:
| Millions of Dollars | |||||||||||
| Fair value of assets acquired: | As Originally Reported | Adjustments | As Adjusted | ||||||||
| Cash and cash equivalents | $ | 98 | — | 98 | |||||||
| Accounts and notes receivable | 1,003 | — | 1,003 | ||||||||
| Inventories | 74 | 238 | 312 | ||||||||
| Prepaid expenses and other current assets | 439 | 13 | 452 | ||||||||
| Investments and long-term receivables | 2,192 | (125) | 2,067 | ||||||||
| Properties, plants and equipment | 12,837 | 193 | 13,030 | ||||||||
| Intangibles | 36 | (36) | — | ||||||||
| Other assets | 343 | (158) | 185 | ||||||||
| Total assets acquired | 17,022 | 125 | 17,147 | ||||||||
| Fair value of liabilities assumed: | |||||||||||
| Accounts payable | 912 | 3 | 915 | ||||||||
| Short-term debt | 625 | (2) | 623 | ||||||||
| Accrued income and other taxes | 107 | 13 | 120 | ||||||||
| Employee benefit obligation—current | 50 | 22 | 72 | ||||||||
| Other accruals | 497 | (6) | 491 | ||||||||
| Long-term debt | 4,541 | 40 | 4,581 | ||||||||
| Asset retirement obligations and accrued environmental costs | 168 | 16 | 184 | ||||||||
| Deferred income taxes | 40 | 14 | 54 | ||||||||
| Employee benefit obligations | 54 | — | 54 | ||||||||
| Other liabilities and deferred credits | 227 | 36 | 263 | ||||||||
| Total liabilities assumed | 7,221 | 136 | 7,357 | ||||||||
| Fair value of net assets | 9,801 | (11) | 9,790 | ||||||||
| Less: Fair value of noncontrolling interests | 4,910 | (11) | 4,899 | ||||||||
| Total merger consideration | $ | 4,891 | — | 4,891 |
The adjustments reflected in the table above include reclassification adjustments we made to the purchase price allocation to conform with our historical presentation and adjustments we made to the estimated fair value of certain assets acquired and liabilities assumed during the measurement period. The adjustments to our purchase price allocation recorded during the measurement period were not material. See Note 18—Fair Value Measurements, for additional information on the determination of the fair value of the DCP Midstream Merger.
In connection with the DCP Midstream Merger, we recognized before-tax gains totaling $2,831 million from remeasuring our previously held equity investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills to their fair values and a before tax gain of $182 million related to the transfer of a 35.75% indirect economic interest in Gray Oak Pipeline to our co-venturer. These before-tax gains are included in the “Other income” line item in our consolidated statement of income for the year ended December 31, 2022, and are reported in the Midstream segment. See Note 18—Fair Value Measurements, for additional information on the determination of the fair value of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills.
The following “Sales and other operating revenues” and “Net Income Attributable to Phillips 66” of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills were included in our consolidated statement of income from August 18, 2022, forward, for the year ended December 31, 2022.
| Millions of Dollars | |||||
| Sales and other operating revenues | $ | 4,531 | |||
| Net Income Attributable to Phillips 66 | 216 |
Unaudited Pro Forma Financial Information
The following unaudited pro forma financial information presents consolidated results for the years ending December 31, 2022, and 2021, as if the DCP Midstream Merger occurred on January 1, 2021. The unaudited pro forma information includes adjustments based on available information, and we believe the estimates and assumptions used are reasonable, and that the significant effects of the transactions are properly reflected in the unaudited pro forma information. An aggregate before-tax gain of $2,831 million was included in the pro forma financial information for the year ended December 31, 2021, which is related to the remeasurement of the previously held equity investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills to their fair values in connection with the DCP Midstream Merger. Adjustments related to the economic interest change in our equity investment in Gray Oak Pipeline were excluded from the pro forma financial information.
The unaudited pro forma financial information presented is for comparative purposes only and does not give effect to any potential synergies that could be achieved and is not necessarily indicative of the results of future operations.
| Year Ended December 31 | ||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||
| Sales and other operating revenues (millions) | $ | 177,127 | 119,027 | |||||||||||||||||||||||
| Net Income Attributable to Phillips 66 (millions) | 8,847 | 3,360 | ||||||||||||||||||||||||
| Net Income Attributable to Phillips 66 per share—basic (dollars) | 18.74 | 7.61 | ||||||||||||||||||||||||
| Net Income Attributable to Phillips 66 per share—diluted (dollars) | 18.68 | 7.60 |
Note 5—Sales and Other Operating Revenues
Disaggregated Revenues
The following tables present our disaggregated sales and other operating revenues:
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Product Line and Services | |||||||||||||||||
| Refined petroleum products | $ | 108,644 | 131,798 | 89,020 | |||||||||||||
| Crude oil resales | 20,824 | 20,574 | 12,801 | ||||||||||||||
| NGL and natural gas | 14,467 | 16,174 | 9,074 | ||||||||||||||
| Services and other* | 3,464 | 1,444 | 581 | ||||||||||||||
| Consolidated sales and other operating revenues | $ | 147,399 | 169,990 | 111,476 | |||||||||||||
| Geographic Location** | |||||||||||||||||
| United States | $ | 118,786 | 136,995 | 87,973 | |||||||||||||
| United Kingdom | 14,642 | 16,741 | 11,132 | ||||||||||||||
| Germany | 5,547 | 6,392 | 4,290 | ||||||||||||||
| Other countries | 8,424 | 9,862 | 8,081 | ||||||||||||||
| Consolidated sales and other operating revenues | $ | 147,399 | 169,990 | 111,476 |
** Includes derivatives-related activities. See Note 17—Derivatives and Financial Instruments, for additional information.*
*** Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.*
Contract-Related Assets and Liabilities
At December 31, 2023 and 2022, receivables from contracts with customers were $9,638 million and $8,749 million, respectively. Significant noncustomer balances, such as buy/sell receivables and excise tax receivables, were excluded from these amounts.
Our contract-related assets also include payments we make to our marketing customers related to incentive programs. An incentive payment is initially recognized as an asset and subsequently amortized as a reduction to revenue over the contract term, which generally ranges from 5 to 15 years. At December 31, 2023 and 2022, our asset balances related to such payments were $537 million and $505 million, respectively.
Our contract liabilities primarily represent advances from our customers prior to product or service delivery. At December 31, 2023 and 2022, contract liabilities were $187 million and $156 million, respectively.
Remaining Performance Obligations
Most of our contracts with customers are spot contracts or term contracts with only variable consideration. We do not disclose remaining performance obligations for these contracts as the expected duration is one year or less or because the variable consideration has been allocated entirely to an unsatisfied performance obligation. We also have certain contracts in our Midstream segment that include minimum volume commitments with fixed pricing. At December 31, 2023, the remaining performance obligations related to these minimum volume commitment contracts amounted to $365 million. This amount excludes variable consideration and estimates of variable rate escalation clauses in our contracts with customers, and is expected to be recognized through 2031 with a weighted average remaining life of two years as of December 31, 2023.
Note 6—Credit Losses
We are exposed to credit losses primarily through our sales of refined petroleum products, crude oil, NGL and natural gas. 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. In addition, when events and circumstances arise that may affect certain counterparties’ abilities to fulfill their obligations, we enhance our credit monitoring, and we may seek collateral to support some transactions or require prepayments from higher-risk counterparties.
At December 31, 2023 and 2022, we reported $11,730 million and $10,985 million of accounts and notes receivable, net of allowances of $71 million and $67 million, respectively. Based on an aging analysis at December 31, 2023, 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 15—Guarantees, and Note 16—Contingencies and Commitments, for more information on these off-balance sheet exposures.
Note 7—Inventories
Inventories at December 31 consisted of the following:
| Millions of Dollars | |||||||||||
| 2023 | 2022 | ||||||||||
| Crude oil and petroleum products | $ | 3,330 | 2,914 | ||||||||
| Materials and supplies | 420 | 362 | |||||||||
| $ | 3,750 | 3,276 |
Inventories valued on the LIFO basis totaled $3,050 million and $2,635 million at December 31, 2023 and 2022, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $5.3 billion and $6.3 billion at December 31, 2023 and 2022, respectively.
During each of the three years ended December 31, 2023, certain volume reductions in inventory caused liquidations of LIFO inventory values. For the years ended December 31, 2023 and 2022, LIFO inventory liquidations increased net income by $94 million and $75 million, respectively. For the year ended December 31, 2021, LIFO inventory liquidations decreased net income by $101 million.
Note 8—Investments, Loans and Long-Term Receivables
Components of investments and long-term receivables at December 31 were:
| Millions of Dollars | |||||||||||
| 2023 | 2022 | ||||||||||
| Equity investments | $ | 14,728 | 14,414 | ||||||||
| Other investments | 195 | 207 | |||||||||
| Loans and long-term receivables | 379 | 329 | |||||||||
| $ | 15,302 | 14,950 |
Equity Investments
Significant affiliated companies accounted for under the equity method, including nonconsolidated VIEs, at December 31, 2023 and 2022, included:
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Chevron Phillips Chemical Company LLC (CPChem)—50 percent-owned joint venture that manufactures and markets petrochemicals and plastics. We have multiple long-term supply and purchase agreements in place with CPChem with extension options. These agreements cover sales and purchases of refined petroleum products, solvents, fuel gas, natural gas, NGL, and other petrochemical feedstocks. All products are purchased and sold under specified pricing formulas based on various published pricing indices. At December 31, 2023 and 2022, the book value of our investment in CPChem was $7,341 million and $6,785 million, respectively.
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WRB Refining LP (WRB)—50 percent-owned joint venture that owns the Wood River and Borger refineries located in Roxana, Illinois, and Borger, Texas, respectively, for which we are the operator and managing partner. We have a basis difference for our investment in WRB because the carrying value of our investment is lower than our share of WRB’s recorded net assets. This basis difference was primarily the result of our contribution of these refineries to WRB. On the contribution closing date, a basis difference was created because the fair value of the contributed assets recorded by WRB exceeded our historical book value. The contribution-related basis difference is primarily being amortized and recognized as a benefit to equity earnings over a period of 26 years, which was the estimated remaining useful life of the refineries’ PP&E at the contribution closing date. At December 31, 2023, the aggregate remaining basis difference for this investment was $1,400 million. Equity earnings for the years ended December 31, 2023, 2022 and 2021, were increased by $198 million, $184 million and $186 million, respectively, due to the amortization of our aggregate basis difference. At December 31, 2023 and 2022, the book value of our investment in WRB was $2,736 million and $2,411 million, respectively.
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Gulf Coast Express LLC (Gulf Coast Express)—DCP LP 25 percent-owned joint venture that owns an intrastate pipeline that transports natural gas from the Waha area in West Texas to Agua Dulce, in Nueces County, Texas. The pipeline is operated by a co-venturer. This investment was acquired as part of our consolidation of DCP Midstream Class A Segment starting on August 18, 2022, and was recorded at fair value. We have a basis difference for our investment in Gulf Coast Express because the carrying value of our investment is higher than our share of Gulf Coast Express net assets. The basis difference is the result of recognizing the investment at fair value. The basis difference is being amortized and recognized as a decrease to equity earnings over a period of 20 years, which was the estimated remaining useful life of the joint venture’s PP&E at the acquisition date. At December 31, 2023, the aggregate remaining basis difference for this investment was $415 million. Equity earnings for each of the years ended December 31, 2023 and 2022, were decreased by $22 million and $7 million, respectively, due to the amortization of our basis difference. At December 31, 2023 and 2022, the book value of our investment in Gulf Coast Express was $800 million and $844 million, respectively. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 4—Business Combinations and Note 18—Fair Value Measurements, for additional information on the DCP Midstream Merger and our accounting for this transaction as a business combination.
- Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)—Two 25 percent-owned joint ventures. Dakota Access owns a pipeline system that transports crude oil from the Bakken/Three Forks production area in North Dakota to Patoka, Illinois, and ETCO owns a connecting crude oil pipeline system that extends from Patoka to Nederland, Texas. These two pipeline systems collectively form the Bakken Pipeline system, which is operated by a co-venturer.
In 2020, the trial court presiding over litigation brought by the Standing Rock Sioux Tribe (the Tribe) ordered the U.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) addressing an easement under Lake Oahe in North Dakota. The trial court later vacated the easement. Although the easement is vacated, the USACE has no plans to stop pipeline operations while it proceeds with the EIS, and the Tribe’s request for a shutdown was denied in May 2021. In June 2021, the trial court dismissed the litigation entirely. Once the EIS is completed, new litigation or challenges may be filed.
In February 2022, the U.S. Supreme Court (the Court) denied Dakota Access’ writ of certiorari requesting the Court to review the trial court’s decision to order the EIS and vacate the easement. Therefore, the requirement to prepare the EIS stood. Also in February 2022, the Tribe withdrew as a cooperating agency, causing the USACE to halt the EIS process while the USACE engaged with the Tribe on their reasons for withdrawing.
The draft EIS process resumed in August 2022, and in September 2023 the USACE published its draft EIS for public comment. The USACE identified five potential outcomes, but did not indicate which one it preferred. The options comprise two “no action” alternatives where the USACE would deny an easement to Dakota Access and require it to shut down the pipeline and either remove the pipe from under Lake Oahe, or allow the pipeline to be abandoned-in-place under the lake. The USACE also identified three “action” alternatives; two of them contemplate that the USACE would reissue the easement to Dakota Access under essentially the same terms as 2017 with either the same or a larger volume of oil allowed through the pipeline, while the third alternative would require decommissioning the current pipeline and construction of a new line 39 miles upstream from the current location. The USACE has not indicated when it will issue its final decision.
Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access in March 2019. On April 1, 2022, Dakota Access’ wholly owned subsidiary repaid $650 million aggregate principal amount of its outstanding senior notes upon maturity. We funded our 25% share, or $163 million, with a capital contribution of $89 million in March 2022 and $74 million of distributions we elected not to receive from Dakota Access in the first quarter of 2022. At December 31, 2023, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $1.85 billion.
In conjunction with the notes offering, Phillips 66 Partners, now a wholly owned subsidiary of Phillips 66, and its co-venturers in Dakota Access also provided a Contingent Equity Contribution Undertaking (CECU). Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the above-mentioned ongoing litigation. At December 31, 2023, our 25% share of the maximum potential equity contributions under the CECU was approximately $467 million.
If the pipeline is required to cease operations, it may have a material adverse effect on our results of operations and cash flows. Should operations cease and Dakota Access and ETCO not have sufficient funds to pay its expenses, we also could be required to support our 25% share of the ongoing expenses, including scheduled interest payments on the notes of approximately $20 million annually, in addition to the potential obligations under the CECU at December 31, 2023.
At December 31, 2023 and 2022, the aggregate book value of our investments in Dakota Access and ETCO was $640 million and $675 million, respectively.
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Front Range Pipeline LLC (Front Range)—DCP LP 33 percent-owned joint venture that owns an NGL pipeline that originates in the DJ Basin and extends to Skellytown, Texas. The pipeline is operated by a co-venturer. This investment was acquired as part of our consolidation of DCP Midstream Class A Segment starting on August 18, 2022, and was recorded at fair value. We have a basis difference for our investment in Front Range because the carrying value of our investment is higher than our share of Front Range net assets. The basis difference is the result of recognizing the investment at fair value. The basis difference is being amortized and recognized as a decrease to equity earnings over a period of 20 years, which was the estimated remaining useful life of the joint venture’s PP&E at the acquisition date. At December 31, 2023, the aggregate remaining basis difference for this investment was $292 million. Equity earnings for each of the years ended December 31, 2023 and 2022, were decreased by $16 million and $5 million, respectively, due to the amortization of our basis difference. At December 31, 2023 and 2022, the book value of our investment in Front Range was $477 million and $499 million, respectively. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 4—Business Combinations and Note 18—Fair Value Measurements, for additional information on the DCP Midstream Merger and our accounting for this transaction as a business combination.
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Rockies Express Pipeline LLC (REX)—25 percent-owned joint venture that owns a natural gas pipeline system that extends from Wyoming and Colorado to Ohio with a bidirectional section that extends from Ohio to Illinois. The REX Pipeline system is operated by our co-venturer. We have a basis difference for our investment in REX because the carrying value of our investment is lower than our share of REX’s recorded net assets. This basis difference was created by historical impairment charges we recorded for this investment and is being amortized and recognized as a benefit to equity earnings over a period of 25 years, which was the estimated remaining useful life of REX’s PP&E when the impairment charges were recorded. At December 31, 2023, the remaining basis difference for this investment was $261 million. Equity earnings for each of the years ended December 31, 2023, 2022 and 2021, were increased by $19 million due to the amortization of our basis difference. At December 31, 2023 and 2022, the book value of our investment in REX was $451 million and $483 million, respectively.
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CF United LLC (CF United)—A retail marketing joint venture with operations primarily on the U.S. West Coast. We own a 50% voting interest and a 48% economic interest in this joint venture. At December 31, 2023, CF United was considered a VIE because our co-venturer had an option to require us to purchase its interest based on a fixed multiple. The put option became effective July 1, 2023, and was scheduled to expire on March 31, 2024. The put option was 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 determined that we were not the primary beneficiary of CF United because we and our co-venturer jointly directed the activities that most significantly impacted economic performance.
At December 31, 2023, our maximum exposure to loss was comprised of our $291 million investment in CF United. At December 31, 2022, the book value of our investment in CF United was $296 million.
Effective January 1, 2024, in connection with an acquisition by CF United of another joint venture in which we have an ownership interest, the governing agreement for the CF United joint venture was amended and restated. The amended and restated agreement included removal of the put option that required us to purchase our co-venturer’s interest based on a fixed multiple. Accordingly, CF United ceased to be a VIE effective January 1, 2024.
- OnCue Holdings, LLC (OnCue)—50 percent-owned joint venture that owns and operates retail convenience stores. We fully guaranteed various debt agreements of OnCue, and our co-venturer did not participate in the guarantees. This entity is considered a VIE because our debt guarantees resulted in OnCue not being exposed to all potential losses. We have determined we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact economic performance. At December 31, 2023, our maximum exposure to loss was $231 million, which represented the book value of our investment in OnCue of $166 million and guaranteed debt obligations of $65 million. At December 31, 2022, the book value of our investment in OnCue was $138 million.
- DCP Midstream, DCP Sand Hills, DCP Southern Hills, and Gray Oak Pipeline—Prior to the DCP Midstream Merger on August 17, 2022, we held:
◦A 50% interest in DCP Midstream a joint venture that owns and operates NGL and gas pipelines, gas plants, gathering systems, storage facilities and fractionation plants, through its subsidiary DCP LP.
◦A 33.33% direct ownership interest in DCP Sand Hills a joint venture that owns a NGL pipeline system that extends from the Permian Basin and Eagle Ford to facilities on the Texas Gulf Coast and to the Mont Belvieu, Texas, market hub.
◦A 33.33% direct ownership interest in DCP Southern Hills a joint venture that owns a NGL pipeline system that extends from the Midcontinent region to the Mont Belvieu, Texas, market hub.
◦A 65% interest in Gray Oak Pipeline, which was held through a consolidated holding company, Gray Oak Holdings. Our indirect interest in Gray Oak Pipeline was 42.25%, after considering a co-venturer’s 35% interest in Gray Oak Holdings. Gray Oak Pipeline is a crude oil pipeline that extends from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, Texas, and the Sweeny area, including our Sweeny Refinery.
As a result of the DCP Midstream Merger, effective August 18, 2022, we began consolidating the financial results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills and our indirect economic interest in Gray Oak Pipeline was reduced to 6.5%. After the DCP Midstream Merger, our indirect economic interest in Gray Oak Pipeline is held through our economic interest in DCP Midstream Class B Segment. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, and Note 4—Business Combinations, for additional information regarding the DCP Midstream Merger and associated accounting treatment.
At December 31, 2023 and December 31, 2022, the book value of our investment in DCP Midstream Class B Segment was $75 million and $79 million, respectively.
- Liberty Pipeline LLC (Liberty)—In the first quarter of 2021, Phillips 66 Partners’ decided to exit the Liberty Pipeline project, which resulted in a $198 million before-tax impairment. The impairment is included in the “Impairments” line item on our consolidated statement of income for the year ended December 31, 2021. In April 2021, Phillips 66 Partners transferred its ownership interest in Liberty to its co-venturer for cash and certain pipeline assets with a value that approximated its book value of $46 million at March 31, 2021. See Note 11—Impairments, and Note 18—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.
Midstream Investment Disposition
On August 1, 2023, we sold our 25% ownership interest in the South Texas Gateway Terminal for approximately $275 million and recognized a before-tax gain of $101 million. The before-tax gain is included in the “Net gain on dispositions” line item on our consolidated statement of income for the year ended December 31, 2023, and is reported in the Midstream segment.
Other Investments
In September 2021, we acquired 78 million ordinary shares, representing a 16% ownership interest, in NOVONIX Limited (NOVONIX), for $150 million. NOVONIX is a Brisbane, Australia-based company that develops technology and supplies materials for lithium-ion batteries and its shares are traded on the Australian Securities Exchange. Since we do not have significant influence over the operating and financial policies of NOVONIX and the shares we own have a readily determinable fair value, our investment is recorded at fair value at the end of each reporting period. The fair value of our investment is recorded in the “Investments and long-term receivables” line item on our consolidated balance sheet. The change in the fair value of our investment due to fluctuations in NOVONIX’s stock price, or unrealized investment gain (losses), is recorded in the “Other income” line item of our consolidated statement of income, while changes due to foreign currency fluctuations are recorded in the “Foreign currency transaction (gains) losses” line item on our consolidated statement of income. At December 31, 2023 and 2022, the fair value of our investment in NOVONIX was $39 million and $78 million, respectively. The fair value of our investment in NOVONIX declined by $39 million and $442 million during the years ended December 31, 2023 and 2022, respectively, and increased by $370 million during the year ended December 31, 2021. The declines in fair value in 2023 and 2022 were primarily related to unrealized investment losses, while the increase in 2021 was primarily related to unrealized investment gains. See Note 18—Fair Value Measurements, for additional information regarding the recurring fair value measurement of our investment in NOVONIX.
Related Party Loans
We and our co-venturer have provided member loans to WRB. At December 31, 2023 and 2022, no member loans were outstanding.
Equity Affiliate Distributions
Total distributions received from affiliates were $1,396 million, $1,832 million, and $3,043 million for the years ended December 31, 2023, 2022 and 2021, respectively. In addition, at December 31, 2023, retained earnings included approximately $3.3 billion related to the undistributed earnings of affiliated companies.
Summarized Equity Affiliate Financial Information
Summarized 100% financial information for all affiliated companies accounted for under the equity method, on a combined basis, was:
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Revenues | $ | 42,078 | 60,981 | 49,339 | |||||||||||||
| Income before income taxes | 5,350 | 7,616 | 6,346 | ||||||||||||||
| Net income | 5,160 | 7,414 | 6,125 | ||||||||||||||
| Current assets | 6,759 | 7,511 | 7,866 | ||||||||||||||
| Noncurrent assets | 46,241 | 46,527 | 56,040 | ||||||||||||||
| Current liabilities | 5,750 | 5,592 | 7,952 | ||||||||||||||
| Noncurrent liabilities | 10,980 | 11,412 | 16,906 | ||||||||||||||
| Noncontrolling interests | 2 | 2 | 3,003 |
Note 9—Properties, Plants and Equipment
Our investment in PP&E is recorded at cost. Investments in refining and processing facilities are generally depreciated on a straight-line basis over a 25-year life, pipeline assets over a 45-year life and terminal assets over a 35-year life. The company’s investment in PP&E, with the associated accumulated depreciation and amortization (Accum. D&A), at December 31 was:
| Millions of Dollars | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Gross PP&E | Accum. D&A | Net PP&E | Gross PP&E | Accum. D&A | Net PP&E | ||||||||||||||||||||||||||||||
| Midstream | $ | 26,124 | 4,382 | 21,742 | 25,422 | 3,524 | 21,898 | ||||||||||||||||||||||||||||
| Chemicals | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Refining | 25,421 | 13,103 | 12,318 | 24,200 | 12,523 | 11,677 | |||||||||||||||||||||||||||||
| Marketing and Specialties | 1,997 | 1,166 | 831 | 1,800 | 1,058 | 742 | |||||||||||||||||||||||||||||
| Corporate and Other | 1,650 | 829 | 821 | 1,568 | 722 | 846 | |||||||||||||||||||||||||||||
| $ | 55,192 | 19,480 | 35,712 | 52,990 | 17,827 | 35,163 |
See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 4—Business Combinations and Note 18—Fair Value Measurements, for additional information on the DCP Midstream Merger, accounting treatment and the associated fair value measurements. See Note 11—Impairments, for information regarding PP&E impairments associated with our Alliance Refinery asset group. See Note 28—Segment Disclosures and Related Information, for information regarding the change in the composition of our operating segments.
Note 10—Goodwill and Intangibles
The carrying amount of goodwill by segment at December 31 was:
| Millions of Dollars | |||||||||||||||||||||||
| Midstream | Marketing and Specialties | Total | |||||||||||||||||||||
| Balance at December 31, 2021 | $ | 626 | 858 | 1,484 | |||||||||||||||||||
| Goodwill assigned to acquisitions | — | 2 | 2 | ||||||||||||||||||||
| Balance at December 31, 2022 | 626 | 860 | 1,486 | ||||||||||||||||||||
| Goodwill assigned to acquisitions | — | 64 | 64 | ||||||||||||||||||||
| Balance at December 31, 2023 | $ | 626 | 924 | 1,550 |
In August 2023, we acquired a marketing business on the U.S. West Coast, in our M&S segment and recognized goodwill of $64 million associated with this acquisition. Refer to Note 4—Business Combinations for additional information.
Intangible Assets
The gross carrying value of indefinite-lived intangible assets at December 31 consisted of the following:
| Millions of Dollars | |||||||||||
| 2023 | 2022 | ||||||||||
| Trade names and trademarks | $ | 504 | 503 | ||||||||
| Refinery air and operating permits | 196 | 200 | |||||||||
| $ | 700 | 703 |
The net book value of our amortized intangible assets was $220 million and $128 million at December 31, 2023 and 2022, respectively. For the years ended December 31, 2023, 2022 and 2021, amortization expense was $33 million, $27 million and $26 million, respectively, and is expected to be less than $35 million per year in future years.
In August 2023, we acquired a marketing business on the U.S. West Coast, in our M&S segment and recorded additions of $146 million in amortized intangible assets. Acquisitions of amortized intangible assets were not material in 2022.
Note 11—Impairments
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Midstream | $ | 3 | 1 | 209 | |||||||||||||
| Refining | 10 | 13 | 1,288 | ||||||||||||||
| Marketing and Specialties | 3 | — | 1 | ||||||||||||||
| Corporate and Other | 8 | 46 | — | ||||||||||||||
| Total impairments | $ | 24 | 60 | 1,498 |
Equity Investments
Liberty
In the first quarter of 2021, Phillips 66 Partners decided to exit the Liberty Pipeline project in our Midstream segment, 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.
PP&E and Intangible Assets
Alliance Refinery
In the third quarter of 2021, we identified impairment indicators related to our Alliance Refinery as a result of damages sustained from Hurricane Ida and our reassessment of the role this refinery would play in our refining portfolio. Accordingly, we assessed the refinery asset group for impairment by performing an analysis that considered several usage scenarios, including selling or converting the asset group to an alternative use. Based on our analysis, we concluded that the carrying value of the asset group was not recoverable. As a result, we recorded a $1,298 million before-tax impairment to reduce the carrying value of net PP&E in this asset group to its fair value of approximately $200 million. $1,288 million of the impairment charge was recorded in our Refining segment and $10 million was recorded in our Midstream segment. In the fourth quarter of 2021, we shut down our Alliance Refinery.
These impairment charges are included within the “Impairments” line item on our consolidated income statement. See Note 18—Fair Value Measurements, for additional information on the determination of fair value use to record these impairments.
Note 12—Asset Retirement Obligations and Accrued Environmental Costs
Asset retirement obligations and accrued environmental costs at December 31 were:
| Millions of Dollars | |||||||||||
| 2023 | 2022 | ||||||||||
| Asset retirement obligations | $ | 537 | 565 | ||||||||
| Accrued environmental costs | 446 | 434 | |||||||||
| Total asset retirement obligations and accrued environmental costs | 983 | 999 | |||||||||
| Asset retirement obligations and accrued environmental costs due within one year* | (119) | (120) | |||||||||
| Long-term asset retirement obligations and accrued environmental costs | $ | 864 | 879 |
** Classified as a current liability on the consolidated balance sheet, under the caption “Other accruals.”*
Asset Retirement Obligations
We have asset retirement obligations that we are required to perform under law or contract once an asset is permanently taken out of service. Our recognized asset retirement obligations primarily involve asbestos abatement at our refineries; decommissioning, removal or dismantlement of certain assets at refineries that have or will be shut down; decommissioning, removal or dismantlement of certain midstream pipelines and processing facilities; and dismantlement or removal of assets at certain leased international marketing sites. Most of our asset retirement obligations are not expected to be paid until many years in the future and are expected to be funded from general company resources at the time of removal.
During the years ended December 31, 2023 and 2022, our overall asset retirement obligation changed as follows:
| Millions of Dollars | |||||||||||
| 2023 | 2022 | ||||||||||
| Balance at January 1 | $ | 565 | 395 | ||||||||
| Accretion of discount | 25 | 15 | |||||||||
| New obligations | — | 7 | |||||||||
| Acquisition of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills | — | 168 | |||||||||
| Changes in estimates of existing obligations | 23 | 17 | |||||||||
| Spending on existing obligations | (58) | (32) | |||||||||
| Asset dispositions | (23) | — | |||||||||
| Foreign currency translation | 5 | (5) | |||||||||
| Balance at December 31 | $ | 537 | 565 |
Accrued Environmental Costs
Of our total accrued environmental costs at December 31, 2023, $279 million was primarily related to cleanup at domestic refineries and underground storage tanks at U.S. service stations; $117 million was associated with nonoperator sites; and $50 million was related to sites at which we have been named a potentially responsible party under federal or state laws. A large portion of our expected environmental expenditures have been discounted as these obligations were acquired in various business combinations. Expected expenditures for acquired environmental obligations were discounted using a weighted-average discount rate of approximately 5%. At December 31, 2023, the accrued balance for acquired environmental liabilities was $243 million. The expected future undiscounted payments related to the portion of the accrued environmental costs that have been discounted are: $24 million in 2024, $18 million in 2025, $20 million in 2026, $17 million in 2027, $16 million in 2028, and $200 million in the aggregate for all years after 2028.
Note 13—Earnings Per Share
The numerator of basic earnings per share (EPS) is net income 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 attributable to Phillips 66, which is reduced by dividend equivalents paid on participating securities for which the dividends are more dilutive than the participation of the awards in the earnings 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.
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||||
| Amounts Attributed to Phillips 66 Common Stockholders (millions): | ||||||||||||||||||||||||||
| Net Income Attributable to Phillips 66 | $ | 7,015 | 7,015 | 11,024 | 11,024 | 1,317 | 1,317 | |||||||||||||||||||
| Income allocated to participating securities | (11) | — | (10) | — | (9) | (9) | ||||||||||||||||||||
| Premium paid for the repurchase of noncontrolling interests | — | — | — | — | (2) | (2) | ||||||||||||||||||||
| Net income available to common stockholders | $ | 7,004 | 7,015 | 11,014 | 11,024 | 1,306 | 1,306 | |||||||||||||||||||
| Weighted-average common shares outstanding (thousands): | 448,381 | 450,136 | 469,436 | 471,497 | 437,886 | 440,028 | ||||||||||||||||||||
| Effect of share-based compensation | 1,755 | 3,074 | 2,061 | 2,234 | 2,142 | 336 | ||||||||||||||||||||
| Weighted-average common shares outstanding—EPS | 450,136 | 453,210 | 471,497 | 473,731 | 440,028 | 440,364 | ||||||||||||||||||||
| Earnings Per Share of Common Stock (dollars) | $ | 15.56 | 15.48 | 23.36 | 23.27 | 2.97 | 2.97 |
Note 14—Debt
Short-term and long-term debt at December 31 was:
| Millions of Dollars | |||||||||||||||||
| December 31, 2023 | |||||||||||||||||
| Phillips 66 | Phillips 66 Company | Phillips 66 Partners | DCP LP | Total | |||||||||||||
| 0.900% Senior Notes due February 2024 | $ | 800 | — | — | — | 800 | |||||||||||
| 2.450% Senior Notes due December 2024 | — | 277 | 23 | — | 300 | ||||||||||||
| 3.605% Senior Notes due February 2025 | — | 441 | 59 | — | 500 | ||||||||||||
| 3.850% Senior Notes due April 2025 | 650 | — | — | — | 650 | ||||||||||||
| 5.375% Senior Notes due July 2025 | — | — | — | 825 | 825 | ||||||||||||
| 1.300% Senior Notes due February 2026 | 500 | — | — | — | 500 | ||||||||||||
| 3.550% Senior Notes due October 2026 | — | 458 | 34 | — | 492 | ||||||||||||
| 5.625% Senior Notes due July 2027 | — | — | — | 500 | 500 | ||||||||||||
| 4.950% Senior Notes due December 2027 | — | 750 | — | — | 750 | ||||||||||||
| 3.750% Senior Notes due March 2028 | — | 427 | 73 | — | 500 | ||||||||||||
| 3.900% Senior Notes due March 2028 | 800 | — | — | — | 800 | ||||||||||||
| 5.125% Senior Notes due May 2029 | — | — | — | 600 | 600 | ||||||||||||
| 3.150% Senior Notes due December 2029 | — | 570 | 30 | — | 600 | ||||||||||||
| 8.125% Senior Notes due August 2030 | — | — | — | 300 | 300 | ||||||||||||
| 2.150% Senior Notes due December 2030 | 850 | — | — | — | 850 | ||||||||||||
| 3.250% Senior Notes due February 2032 | — | — | — | 400 | 400 | ||||||||||||
| 5.300% Senior Notes due June 2033 | — | 500 | — | — | 500 | ||||||||||||
| 4.650% Senior Notes due November 2034 | 1,000 | — | — | — | 1,000 | ||||||||||||
| 6.450% Senior Notes due November 2036 | — | — | — | 300 | 300 | ||||||||||||
| 6.750% Senior Notes due September 2037 | — | — | — | 450 | 450 | ||||||||||||
| 5.875% Senior Notes due May 2042 | 1,500 | — | — | — | 1,500 | ||||||||||||
| 5.600% Senior Notes due April 2044 | — | — | — | 400 | 400 | ||||||||||||
| 4.875% Senior Notes due November 2044 | 1,700 | — | — | — | 1,700 | ||||||||||||
| 4.680% Senior Notes due February 2045 | — | 442 | 8 | — | 450 | ||||||||||||
| 4.900% Senior Notes due October 2046 | — | 605 | 20 | — | 625 | ||||||||||||
| 3.300% Senior Notes due March 2052 | 1,000 | — | — | — | 1,000 | ||||||||||||
| Securitization facility due August 2024 | — | — | — | 350 | 350 | ||||||||||||
| Floating Rate Term Loan due June 2026 at 6.456% at year-end 2023 | — | 1,250 | — | — | 1,250 | ||||||||||||
| Floating Rate Advance Term Loan due 2035 at 6.096% at year end 2023—related party | 25 | — | — | — | 25 | ||||||||||||
| Floating Rate Advance Term Loan due 2038 at 6.490% at year-end 2023—related party | 265 | — | — | — | 265 | ||||||||||||
| Revolving credit facility due 2027 at 6.512% at year-end 2023 | — | — | — | 25 | 25 | ||||||||||||
| Other | 1 | — | — | — | 1 | ||||||||||||
| Debt at face value | 9,091 | 5,720 | 247 | 4,150 | 19,208 | ||||||||||||
| Finance leases | 305 | ||||||||||||||||
| Software obligations | 13 | ||||||||||||||||
| Net unamortized discounts, debt issuance costs and acquisition fair value adjustments | (167) | ||||||||||||||||
| Total debt | 19,359 | ||||||||||||||||
| Short-term debt | (1,482) | ||||||||||||||||
| Long-term debt | $ | 17,877 |
| Millions of Dollars | |||||||||||||||||
| December 31, 2022 | |||||||||||||||||
| Phillips 66 | Phillips 66 Company | Phillips 66 Partners | DCP LP | Total | |||||||||||||
| 3.875% Senior Notes due March 2023 | $ | — | — | — | 500 | 500 | |||||||||||
| 0.900% Senior Notes due February 2024 | 800 | — | — | — | 800 | ||||||||||||
| 2.450% Senior Notes due December 2024 | — | 277 | 23 | — | 300 | ||||||||||||
| 3.605% Senior Notes due February 2025 | — | 441 | 59 | — | 500 | ||||||||||||
| 3.850% Senior Notes due April 2025 | 650 | — | — | — | 650 | ||||||||||||
| 5.375% Senior Notes due July 2025 | — | — | — | 825 | 825 | ||||||||||||
| 1.300% Senior Notes due February 2026 | 500 | — | — | — | 500 | ||||||||||||
| 3.550% Senior Notes due October 2026 | — | 458 | 34 | — | 492 | ||||||||||||
| 5.625% Senior Notes due July 2027 | — | — | — | 500 | 500 | ||||||||||||
| 3.750% Senior Notes due March 2028 | — | 427 | 73 | — | 500 | ||||||||||||
| 3.900% Senior Notes due March 2028 | 800 | — | — | — | 800 | ||||||||||||
| 5.125% Senior Notes due May 2029 | — | — | — | 600 | 600 | ||||||||||||
| 3.150% Senior Notes due December 2029 | — | 570 | 30 | — | 600 | ||||||||||||
| 8.125% Senior Notes due August 2030 | — | — | — | 300 | 300 | ||||||||||||
| 2.150% Senior Notes due December 2030 | 850 | — | — | — | 850 | ||||||||||||
| 3.250% Senior Notes due February 2032 | — | — | — | 400 | 400 | ||||||||||||
| 4.650% Senior Notes due November 2034 | 1,000 | — | — | — | 1,000 | ||||||||||||
| 6.450% Senior Notes due November 2036 | — | — | — | 300 | 300 | ||||||||||||
| 6.750% Senior Notes due September 2037 | — | — | — | 450 | 450 | ||||||||||||
| 5.875% Senior Notes due May 2042 | 1,500 | — | — | — | 1,500 | ||||||||||||
| 5.850% Junior Subordinated Notes due May 2043 | — | — | — | 550 | 550 | ||||||||||||
| 5.600% Senior Notes due April 2044 | — | — | — | 400 | 400 | ||||||||||||
| 4.875% Senior Notes due November 2044 | 1,700 | — | — | — | 1,700 | ||||||||||||
| 4.680% Senior Notes due February 2045 | — | 442 | 8 | — | 450 | ||||||||||||
| 4.900% Senior Notes due October 2046 | — | 605 | 20 | — | 625 | ||||||||||||
| 3.300% Senior Notes due March 2052 | 1,000 | — | — | — | 1,000 | ||||||||||||
| Securitization facility due August 2024 | — | — | — | 40 | 40 | ||||||||||||
| Floating Rate Advance Term Loan due December 2034 at 4.720% at year-end 2022—related party | 25 | — | — | — | 25 | ||||||||||||
| Other | 1 | — | — | — | 1 | ||||||||||||
| Debt at face value | 8,826 | 3,220 | 247 | 4,865 | 17,158 | ||||||||||||
| Finance leases | 257 | ||||||||||||||||
| Software obligations | 20 | ||||||||||||||||
| Net unamortized discounts, debt issuance costs and acquisition fair value adjustments | (245) | ||||||||||||||||
| Total debt | 17,190 | ||||||||||||||||
| Short-term debt | (529) | ||||||||||||||||
| Long-term debt | $ | 16,661 |
Maturities of borrowings outstanding at December 31, 2023, inclusive of net unamortized discounts and debt issuance costs, for each of the years from 2024 through 2028 are $1,482 million, $1,999 million, $2,253 million, $1,276 million and $1,313 million, respectively.
2023 Activities
Debt Repayments
On May 19, 2023, DCP LP redeemed its 5.850% junior subordinated notes due May 2043 with an aggregate principal amount outstanding of $550 million. On the date of redemption, our carrying value of DCP LP’s junior subordinated notes was $497 million, which resulted in a $53 million before-tax loss. DCP LP’s junior subordinated notes were adjusted to fair value on August 17, 2022, in connection with the consolidation of DCP LP. See Note 18—Fair Value Measurements, for additional information regarding the fair value of DCP LP’s junior subordinated notes.
On March 15, 2023, DCP LP repaid its 3.875% senior unsecured notes due March 2023 with an aggregate principal amount of $500 million.
Debt Issuances
On March 29, 2023, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $1.25 billion aggregate principal amount of senior unsecured notes consisting of:
-
$750 million aggregate principal amount of 4.950% Senior Notes due December 2027 (2027 Notes).
-
$500 million aggregate principal amount of 5.300% Senior Notes due June 2033 (2033 Notes).
The 2027 Notes and 2033 Notes (collectively, the Notes) are fully and unconditionally guaranteed by Phillips 66. Interest on the 2027 Notes is payable semi-annually on June 1 and December 1 of each year and commenced on December 1, 2023. Interest on the 2033 Notes is payable semi-annually on June 30 and December 30 of each year and commenced on December 30, 2023.
Term Loan Agreement
On March 27, 2023, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, entered into a $1.5 billion delayed draw term loan agreement guaranteed by Phillips 66 (the Term Loan Agreement). The Term Loan Agreement provides for a single borrowing during a 90-day period commencing on the closing date, which borrowing was contingent upon the completion of the DCP LP Merger. The Term Loan Agreement contains customary covenants similar to those contained in our revolving credit agreement, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. The Term Loan Agreement has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts after grace periods; and violation of covenants. We may at any time prepay outstanding borrowings under the Term Loan Agreement, in whole or in part, without premium or penalty. Outstanding borrowings under the Term Loan Agreement bear interest at either: (a) the adjusted term Secured Overnight Financing Rate (SOFR) in effect from time to time plus the applicable margin; or (b) the reference rate plus the applicable margin, as defined in the Term Loan Agreement. At December 31, 2023, $1.25 billion was borrowed under the Term Loan Agreement, which matures in June 2026.
Related Party Advance Term Loan Agreements
Borrowings under related party Advance Term Loan agreements with WRB increased from $25 million at December 31, 2022, to $290 million at December 31, 2023. Borrowings under these agreements are due in 2035 and 2038 and bear interest at a floating rate based on an adjusted term SOFR plus an applicable margin, payable on the last day of each month.
See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP LP Merger.
2022 Activities
Debt Repayments
In December 2022, Phillips 66 repaid its 3.700% senior notes due April 2023 with an aggregate principal amount of $500 million.
In April 2022, upon maturity, Phillips 66 repaid its 4.300% senior notes with an aggregate principal amount of $1 billion and Phillips 66 Partners repaid its $450 million term loan.
DCP Midstream Class A Segment
As a result of the DCP Midstream Merger, we recorded the fair value of DCP Midstream Class A Segment’s debt to our consolidated balance sheet as of August 17, 2022. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 4—Business Combinations, and Note 18—Fair Value Measurements, for additional information regarding the DCP Midstream Merger and the associated fair value measurements. All of DCP Midstream Class A Segment’s debt is held by DCP LP. Interest on all of DCP LP’s senior notes and junior subordinated notes is paid on a semi-annual basis.
Debt Exchange
On May 5, 2022, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, completed offers to exchange (the Exchange Offers) all validly tendered notes of seven different series of notes issued by Phillips 66 Partners (collectively, the Old Notes), with an aggregate principal amount of approximately $3.5 billion, for notes issued by Phillips 66 Company (collectively, the New Notes). The New Notes are fully and unconditionally guaranteed by Phillips 66 and rank equally with Phillips 66 Company’s other unsecured and unsubordinated indebtedness, and the guarantees rank equally with Phillips 66’s other unsecured and unsubordinated indebtedness.
Old Notes with an aggregate principal amount of approximately $3.2 billion were tendered in the Exchange Offers. The New Notes have the same interest rates, interest payment dates and maturity dates as the Old Notes. Holders that validly tendered before the end of the early participation period on April 19, 2022 (the Early Participation Date), received New Notes with an aggregate principal amount equivalent to the Old Notes, while holders that validly tendered after the Early Participation Date, but before the Expiration Date, received New Notes with an aggregate principal amount 3% less than the Old Notes. Substantially all of the Old Notes exchanged were tendered during the Early Participation Period.
Subsequent Repayment
On February 15, 2024, upon maturity, Phillips 66 repaid its 0.900% senior notes due February 2024 with an aggregate principal amount of $800 million.
Credit Facilities and Commercial Paper
Phillips 66 and Phillips 66 Company
On June 23, 2022, we entered into a $5 billion revolving credit facility (the Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor and a scheduled maturity date of June 22, 2027. The Facility replaced our previous $5 billion revolving credit facility with Phillips 66 as the borrower and Phillips 66 Company as the guarantor. The Facility contains usual and customary covenants that are similar to the previous revolving credit facility, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. We have the option to increase the overall capacity to $6 billion, subject to certain conditions. We also have the option to extend the scheduled maturity of the Facility for up to two additional one-year terms, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. Outstanding borrowings under the Facility bear interest at either (a) the adjusted term SOFR (as described in the Facility) in effect from time to time plus the applicable margin; or (b) the reference rate (as described in the Facility) plus the applicable margin. The Facility also provides for customary fees, including commitment fees. The pricing levels for the commitment fees and interest-rate margins are determined based on the ratings in effect for our senior unsecured long-term debt from time to time. We may at any time prepay outstanding borrowings, in whole or in part, without premium or penalty. At December 31, 2023 and 2022, no amount had been drawn under the Facility.
Phillips 66 also has a $5 billion uncommitted commercial paper program for short-term working capital needs that is supported by the Facility. Commercial paper maturities are contractually limited to 365 days. At December 31, 2023 and 2022, no borrowings were outstanding under the program.
Phillips 66 Partners
In connection with entering into the Facility, we terminated Phillips 66 Partners’ $750 million revolving credit facility.
DCP Midstream Class A Segment
DCP LP has a credit facility under its amended credit agreement (the Credit Agreement), with a borrowing capacity of up to $1.4 billion that matures on March 18, 2027. The Credit Agreement grants DCP LP the option to increase the revolving loan commitment by an aggregate principal amount of up to $500 million and to extend the term for up to two additional one-year periods, subject to requisite lender approval. Indebtedness under the Credit Agreement bears interest at either: (a) an adjusted SOFR (as described in the Credit Agreement) plus the applicable margin; or (b) the base rate (as described in the Credit Agreement) plus the applicable margin. The Credit Agreement also provides for customary fees, including commitment fees. The cost of borrowing under the Credit Agreement is determined by a ratings-based pricing grid based on DCP LP’s credit rating. At December 31, 2023, DCP LP had $25 million in borrowings outstanding under the Credit Agreement. At December 31, 2022, DCP LP had no borrowings outstanding under the Credit Agreement. At December 31, 2023, and December 31, 2022, respectively, $2 million and $10 million in letters of credit had been issued that are supported by the Credit Agreement.
DCP LP has an accounts receivable securitization facility (the Securitization Facility) that provides for up to $350 million of borrowing capacity through August 2024 at an adjusted SOFR and includes an uncommitted option to increase the total commitments under the Securitization Facility by up to an additional $400 million. Under the Securitization Facility, certain of DCP LP’s wholly owned subsidiaries sell or contribute receivables to another of DCP LP’s consolidated subsidiaries, DCP Receivables LLC, a bankruptcy-remote special purpose entity created for the sole purpose of the Securitization Facility. At December 31, 2023, and December 31, 2022, respectively, $350 million and $40 million of borrowings were outstanding under the Securitization Facility, which are secured by accounts receivable at DCP Receivables LLC.
After our consolidation of DCP Midstream Class A Segment on August 17, 2022, DCP LP repaid $470 million of borrowing under its accounts receivable securitization and revolving credit facilities that were outstanding on the acquisition date.
Total Committed Capacity Available
At December 31, 2023, and 2022, we had approximately $6.4 billion and $6.7 billion, respectively, of total committed capacity available under the credit facilities described above.
Note 15—Guarantees
At December 31, 2023, 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 December 31, 2023. We also have residual value guarantees associated with railcar, airplane and truck leases with maximum potential future exposures totaling $168 million. These leases have remaining terms of one to ten years.
Guarantees of Joint Venture 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 8—Investments, Loans and Long-Term Receivables, for additional information regarding Dakota Access and the CECU.
At December 31, 2023, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to two years. The maximum potential future exposures under these guarantees were approximately $214 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 indemnifications. Agreements associated with these sales include indemnifications for taxes, litigation, environmental liabilities, permits and licenses, employee claims, and real estate tenant defaults. The provisions of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, which generally have indefinite terms and potentially unlimited exposure. At December 31, 2023 and 2022, the carrying amount of recorded indemnifications was $159 million and $137 million, respectively.
We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have information to support the reversal. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments. At December 31, 2023 and 2022, environmental accruals for known contamination of $114 million and $108 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 12—Asset Retirement Obligations and Accrued Environmental Costs and Note 16—Contingencies and Commitments.
Indemnification and Release Agreement
In 2012, in connection with our separation from ConocoPhillips, we entered into an Indemnification and Release Agreement. This agreement governs the treatment between ConocoPhillips and us of matters relating to indemnification, insurance, litigation responsibility and management, and litigation document sharing and cooperation arising in connection with the separation. Generally, the agreement provides for cross indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of ConocoPhillips’ business with ConocoPhillips. The agreement also establishes procedures for handling claims subject to indemnification and related matters.
Note 16—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. See Note 23—Income Taxes, for additional information about income-tax-related contingencies.
Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.
Environmental
We are subject to international, federal, state and local environmental laws and regulations. When we prepare our consolidated financial statements, we record accruals for environmental liabilities based on management’s best estimates, using information available at the time. We measure estimates and base contingent liabilities on currently available facts, existing technology and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring contingent environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the Environmental Protection Agency (EPA) or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.
Although liability for environmental remediation costs is generally joint and several for federal sites and frequently so for state sites, we are usually only one of many companies alleged to have liability at a particular site. Due to such joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been designated as a potentially responsible party. We have been successful to date in sharing cleanup costs with other financially sound companies. Many of the sites for which we are potentially responsible are still under investigation by the EPA or the state agencies concerned. Prior to actual cleanup, those potentially responsible normally assess the site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or may attain a settlement of liability. Where it appears that other potentially responsible parties may be financially unable to bear their proportional share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly. As a result of various acquisitions in the past, we assumed certain environmental obligations. Some of these environmental obligations are mitigated by indemnifications made by others for our benefit, although some of the indemnifications are subject to dollar and time limits.
We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those pertaining to sites acquired in a business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings. See Note 12—Asset Retirement Obligations and Accrued Environmental Costs, for a summary of our accrued environmental liabilities.
Legal Proceedings
Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required.
Other Contingencies
We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized.
At December 31, 2023, we had performance obligations secured by letters of credit and bank guarantees of $1,124 million related to various purchase and other commitments incident to the ordinary conduct of business.
Long-Term Throughput Agreements and Take-or-Pay Agreements
We have certain throughput agreements and take-or-pay agreements in support of third-party financing arrangements. The agreements typically provide for crude oil transportation to be used in the ordinary course of our business. At December 31, 2023, the estimated aggregate future payments under these agreements were $319 million per year for each year from 2024 through 2028 and $692 million in aggregate for all years after 2028. For the years ended December 31, 2023, 2022 and 2021, total payments under these agreements were $319 million, $323 million and $327 million, respectively.
Note 17—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 income. 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 income. 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, renewable feedstock, 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 18—Fair Value Measurements.
Commodity Derivative Contracts—We sell into or receive supply from the worldwide crude oil, refined petroleum product, NGL, natural gas, renewable feedstock, 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.
DCP Midstream Class A Segment
Through DCP LP’s operations, DCP Midstream Class A Segment is exposed to a variety of risks including but not limited to changes in the prices of commodities that DCP LP buys or sells. The information below includes DCP LP’s financial instruments from the effective date of the DCP Midstream Merger. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP Midstream Merger and the associated accounting treatment.
The following table indicates the consolidated balance sheet line items that include the fair values of commodity derivative assets and liabilities. The balances in the following table are presented on a gross basis, before the effects of counterparty and collateral netting. However, we have elected to present our commodity derivative assets and liabilities with the same counterparty on a net basis on our consolidated balance sheet when the legal right of offset exists.
| Millions of Dollars | ||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||
| 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 | $ | 2,148 | (2,005) | — | 143 | 1,331 | (1,110) | — | 221 | |||||||||||||||||||||||
| Other assets | 19 | (2) | — | 17 | 46 | (1) | — | 45 | ||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Other accruals | 1,034 | (1,127) | 18 | (75) | 471 | (750) | 90 | (189) | ||||||||||||||||||||||||
| Other liabilities and deferred credits | — | (14) | — | (14) | 12 | (35) | — | (23) | ||||||||||||||||||||||||
| Total | $ | 3,201 | (3,148) | 18 | 71 | 1,860 | (1,896) | 90 | 54 |
At December 31, 2023, there was $7 million of net collateral received that was not offset on our consolidated balance sheet. At December 31, 2022, there was $93 million of collateral 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 income, were:
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Sales and other operating revenues | $ | 137 | (128) | (468) | |||||||||||||
| Other income | 99 | 79 | 34 | ||||||||||||||
| Purchased crude oil and products | (269) | (348) | (313) | ||||||||||||||
| Net gain (loss) from commodity derivative activity | $ | (33) | (397) | (747) |
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 90% at December 31, 2023 and 2022.
| Open Position Long / (Short) | |||||||||||
| 2023 | 2022 | ||||||||||
| Commodity | |||||||||||
| Crude oil, refined petroleum products, NGL and renewable feedstocks (millions of barrels) | (22) | (25) | |||||||||
| Natural gas (billions of cubic feet) | (25) | (77) |
Credit Risk from Derivative and Financial Instruments
Financial instruments potentially exposed to concentrations of credit risk consist primarily of trade receivables and derivative contracts.
Our trade receivables result primarily from the sale of products from, or related to, our refinery operations and reflect a broad national and international customer base, which limits our exposure to concentrations of credit risk. The majority of these receivables have payment terms of 30 days or less. We continually monitor this exposure and the creditworthiness of the counterparties and recognize bad debt expense based on a probability assessment of credit loss. Generally, we do not require collateral to limit the exposure to loss; however, we will sometimes use letters of credit, prepayments or master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us to others to be offset against amounts owed to us.
The credit risk from our derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because these trades are cleared with an exchange clearinghouse and subject to mandatory margin requirements, typically on a daily basis, until settled.
Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit ratings. The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if our credit ratings fall below investment grade. Cash is the primary collateral in all contracts; however, many contracts also permit us to post letters of credit as collateral.
The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at December 31, 2023 and 2022.
Note 18—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:
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Level 1: Fair value measured with unadjusted quoted prices from an active market for identical assets or liabilities.
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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.
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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:
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Cash and cash equivalents—The carrying amount reported on our consolidated balance sheet approximates fair value.
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Accounts and notes receivable—The carrying amount reported on our consolidated balance sheet approximates fair value.
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Derivative instruments—The fair value of our exchange-traded contracts is based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange or other exchanges, and is reported 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 or Level 3 based on the degree to which inputs are observable.
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.
When applicable, we determine the fair value of 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.
*•*Investment in NOVONIX—Our investment in NOVONIX is measured at fair value using unadjusted quoted prices available from the Australian Securities Exchange and is therefore categorized as Level 1 in the fair value hierarchy.
*•*Other investments—Includes other marketable securities with observable market prices.
*•*Debt—The carrying amount of our floating-rate debt approximates fair value. The fair value of our fixed-rate debt is estimated primarily based on observable market prices.
The following tables display the fair value hierarchy for our financial assets and liabilities either accounted for or disclosed at fair value on a recurring basis. These values are determined by treating each contract as the fundamental unit of account; therefore, derivative assets and liabilities with the same counterparty are shown on a gross basis in the hierarchy sections of these tables, before the effects of counterparty and collateral netting. The following tables also reflect the effect of netting derivative assets and liabilities with the same counterparty for which we have the legal right of offset and collateral netting.
The carrying values and fair values by hierarchy of our financial assets and liabilities, either carried or disclosed at fair value, including any effects of counterparty and collateral netting, were:
| Millions of Dollars | |||||||||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| 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 | $ | 3,075 | 54 | — | 3,129 | (3,039) | — | — | 90 | ||||||||||||||||||||||||||
| OTC instruments | — | 1 | — | 1 | — | — | — | 1 | |||||||||||||||||||||||||||
| Physical forward contracts | — | 70 | 1 | 71 | (2) | — | — | 69 | |||||||||||||||||||||||||||
| Rabbi trust assets | 155 | — | — | 155 | N/A | N/A | — | 155 | |||||||||||||||||||||||||||
| Investment in NOVONIX | 39 | — | — | 39 | N/A | N/A | — | 39 | |||||||||||||||||||||||||||
| $ | 3,269 | 125 | 1 | 3,395 | (3,041) | — | — | 354 | |||||||||||||||||||||||||||
| Commodity Derivative Liabilities | |||||||||||||||||||||||||||||||||||
| Exchange-cleared instruments | $ | 3,057 | 41 | — | 3,098 | (3,039) | (18) | — | 41 | ||||||||||||||||||||||||||
| Physical forward contracts | — | 50 | — | 50 | (2) | — | — | 48 | |||||||||||||||||||||||||||
| Floating-rate debt | — | 1,915 | — | 1,915 | N/A | N/A | — | 1,915 | |||||||||||||||||||||||||||
| Fixed-rate debt, excluding finance leases and software obligations | — | 16,718 | — | 16,718 | N/A | N/A | 408 | 17,126 | |||||||||||||||||||||||||||
| $ | 3,057 | 18,724 | — | 21,781 | (3,041) | (18) | 408 | 19,130 |
| Millions of Dollars | |||||||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| 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 | $ | 1,615 | 130 | 3 | 1,748 | (1,582) | — | — | 166 | ||||||||||||||||||||||||||
| OTC instruments | — | 7 | 16 | 23 | — | — | — | 23 | |||||||||||||||||||||||||||
| Physical forward contracts | — | 86 | 3 | 89 | (12) | — | — | 77 | |||||||||||||||||||||||||||
| Rabbi trust assets | 126 | — | — | 126 | N/A | N/A | — | 126 | |||||||||||||||||||||||||||
| Investment in NOVONIX | 78 | — | — | 78 | N/A | N/A | — | 78 | |||||||||||||||||||||||||||
| Other investments | 42 | 1 | — | 43 | N/A | N/A | — | 43 | |||||||||||||||||||||||||||
| $ | 1,861 | 224 | 22 | 2,107 | (1,594) | — | — | 513 | |||||||||||||||||||||||||||
| Commodity Derivative Liabilities | |||||||||||||||||||||||||||||||||||
| Exchange-cleared instruments | $ | 1,676 | 164 | 5 | 1,845 | (1,582) | (90) | — | 173 | ||||||||||||||||||||||||||
| OTC instruments | — | 9 | — | 9 | — | — | — | 9 | |||||||||||||||||||||||||||
| Physical forward contracts | — | 42 | — | 42 | (12) | — | — | 30 | |||||||||||||||||||||||||||
| Floating-rate debt | — | 65 | — | 65 | N/A | N/A | — | 65 | |||||||||||||||||||||||||||
| Fixed-rate debt, excluding finance leases and software obligations | — | 15,871 | — | 15,871 | N/A | N/A | 977 | 16,848 | |||||||||||||||||||||||||||
| $ | 1,676 | 16,151 | 5 | 17,832 | (1,594) | (90) | 977 | 17,125 |
The rabbi trust assets and investment in NOVONIX 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 17—Derivatives and Financial Instruments, for information regarding where the assets and liabilities related to our commodity derivatives are recorded on our consolidated balance sheet.
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 Phillips 66 Partners’ share of the joint venture’s pipeline assets and net working capital at March 31, 2021. See Note 8—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.
PP&E and Intangible Assets
Alliance Refinery
In the third quarter of 2021, we remeasured the carrying value of the net PP&E of our Alliance Refinery asset group to fair value. The fair value of PP&E was determined using a combination of the income, cost and sales comparison approaches. The income approach used a discounted cash flow model that required various observable and non-observable inputs, such as commodity prices, margins, operating rates, sales volumes, operating expenses, capital expenditures, terminal-year values and a risk-adjusted discount rate. The cost approach used assumptions for the current replacement costs of similar plant and equipment assets adjusted for estimated physical deterioration, functional obsolescence and economic obsolescence. The sales comparison approach used the value of similar properties recently sold or currently offered for sale. This valuation resulted in a Level 3 nonrecurring fair value measurement.
DCP Midstream Merger
On August 17, 2022, we and Enbridge agreed to merge DCP Midstream and Gray Oak Holdings with DCP Midstream as the surviving entity. As a result, we began consolidating the financial results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills, and accordingly, accounted for the business combination using the acquisition method of accounting, which required DCP Midstream Class A Segment’s, DCP Sand Hills’ and DCP Southern Hills’, assets and liabilities to be recorded at fair value as of the acquisition date on our consolidated balance sheet. See Note 4—Business Combinations, for additional information on the DCP Midstream Merger.
Equity Method Investments
The fair value of the investments we acquired that are accounted for under the equity method was $2,034 million. The fair value of these assets was determined using the income approach. The income approach used discounted cash flow models that require various observable and non-observable inputs, such as margins, tariffs and rates, utilization, volumes, product costs, operating expenses, capital expenditures, terminal-year values and risk-adjusted discount rates. These valuations resulted in Level 3 nonrecurring fair value measurements.
PP&E
The fair value of PP&E was $13,030 million. The fair value of these assets was determined primarily using the cost approach. The cost approach used assumptions for the current replacement costs of similar plant and equipment assets adjusted for estimated physical deterioration, functional obsolescence and economic obsolescence. The fair value of properties was determined using a sales comparison approach. These valuations resulted in Level 3 nonrecurring fair value measurements.
Debt
The fair value of DCP LP’s senior and junior subordinated notes was measured using a market approach, based on the average of quotes for the acquired debt from major financial institutions. These valuations resulted in Level 2 nonrecurring fair value measurements.
Noncontrolling Interests
As a result of our consolidation of DCP Midstream Class A Segment, the noncontrolling interests held in DCP Midstream Class A Segment were recorded at their fair values on the DCP Midstream Merger date. These noncontrolling interests on the DCP Midstream Merger date primarily included Enbridge’s indirect economic interest in DCP LP, the public holders of DCP LP’s common units and the public holders of DCP LP’s preferred units. The fair value of the noncontrolling interests in DCP LP’s common units was based on their unit market price as of the date of the DCP Midstream Merger, August 17, 2022. The fair value of the noncontrolling interests in DCP LP’s publicly traded preferred units was based on their respective market price as of the date of the DCP Midstream Merger, August 17, 2022. These valuations resulted in Level 1 nonrecurring fair value measurements. The fair value of the noncontrolling interests in DCP LP’s other preferred units was based on an income approach that used projected distributions that were discounted using an average implied yield of DCP LP’s publicly traded preferred units and expected redemption dates. This valuation resulted in a Level 2 nonrecurring fair value measurement.
Gains Related to DCP Midstream Merger
In connection with the DCP Midstream Merger, we recognized before-tax gains totaling $2,831 million from remeasuring our previously held equity investments to their fair values and a before-tax gain of $182 million related to the transfer of a 35.75% indirect economic interest in Gray Oak Pipeline to our co-venturer. The fair values of our previously held equity interest in DCP Midstream and the equity interest in Gray Oak Pipeline we transferred were primarily based on DCP LP’s publicly traded common unit market price on the effective date of the merger, August 17, 2022, the cash consideration contributed and obligations that were deemed to be effectively settled. This valuation resulted in Level 1 nonrecurring fair value measurements. The fair values of our previously held equity interests in DCP Sand Hills and DCP Southern Hills were determined using the income approach. The income approach used discounted cash flow models that require various observable and non-observable inputs, such as tariffs, volumes, operating expenses, capital expenditures, terminal-year values and risk-adjusted discount rates. These valuations resulted in Level 3 nonrecurring fair value measurements.
Note 19—Equity
Preferred Stock
Phillips 66 has 500 million shares of preferred stock authorized, with a par value of $0.01 per share, none of which have been issued.
Treasury Stock
On October 25, 2023, our Board of Directors approved a $5 billion increase to our share repurchase authorization. Since the inception of our share repurchase program in 2012, our Board of Directors has authorized an aggregate of $25 billion of repurchases of our outstanding common stock, and we have repurchased 213.8 million shares at an aggregate cost of $18 billion. In 2023, we repurchased 37.8 million shares at an aggregate cost of $4 billion. Our share repurchase authorizations do not expire. Any future share repurchases will be made at the discretion of management and will depend on various factors including our share price, results of operations, financial condition and cash required for future business plans. Shares of stock repurchased are held as treasury shares.
Our Board of Directors separately authorized two transactions in 2014 and 2018, which resulted in the repurchase of 52.4 million shares of Phillips 66 common stock with an aggregate value of $4.6 billion.
In March 2022, in connection with the Phillips 66 Partners merger, we issued 41.8 million shares of common stock from our treasury stock with an aggregate cost of $3.4 billion. See Note 30—Phillips 66 Partners LP, for information on the merger with Phillips 66 Partners.
Common Stock Dividends
On February 7, 2024, our Board of Directors declared a quarterly cash dividend of $1.05 per common share, payable March 1, 2024, to holders of record at the close of business on February 20, 2024.
Noncontrolling Interests
At December 31, 2023, our noncontrolling interests primarily represented Enbridge’s indirect economic interest in DCP LP. On June 15, 2023, as part of the DCP LP Merger, we acquired all publicly held common units of DCP LP and eliminated the public common unit noncontrolling interest in our consolidated financial statements from the DCP LP Merger date, forward. During 2023, DCP LP also redeemed its Series B and Series C preferred units. See Note 29—DCP Midstream Class A Segment, for further information on the DCP LP Merger and preferred unit redemptions.
At December 31, 2022, our noncontrolling interests primarily represented Enbridge’s indirect economic interest in DCP LP, the public holders of DCP LP’s common units and the holders of DCP LP’s Series B and Series C preferred units. In December 2022, DCP LP redeemed its Series A preferred units. In March 2022, we completed a merger between us and Phillips 66 Partners, which resulted in the acquisition of all limited partnership interests in Phillips 66 Partners not already owned by us. See Note 29—DCP Midstream Class A Segment, for further information on the preferred unit redemption. See Note 30—Phillips 66 Partners LP, for further information on the merger with Phillips 66 Partners.
Note 20—Leases
We lease marine vessels, pipelines, storage tanks, railcars, service station sites, office buildings, corporate aircraft, land and other facilities and equipment. In determining whether an agreement contains a lease, we consider our ability to control the asset and whether third-party participation or vendor substitution rights limit our control. Certain leases include escalation clauses for adjusting rental payments to reflect changes in price indices, as well as renewal options and/or options to purchase the leased property. Renewal options have been included only when reasonably certain of exercise. There are no significant restrictions imposed on us in our lease agreements with regards to dividend payments, asset dispositions or borrowing ability. Certain leases have residual value guarantees, which may require additional payments at the end of the lease term if future fair values decline below contractual lease balances.
We discount lease obligations using our incremental borrowing rate. We separate costs for lease and service components for contracts involving marine vessels and consignment service stations. For these contracts, we allocate the consideration payable between the lease and service components using the relative standalone prices of each component. For contracts involving all other asset types, we account for the lease and service components on a combined basis. For short-term leases, which are leases that, at the commencement date, have a lease term of 12 months or less and do not include an option to purchase the underlying asset that is reasonably certain to be exercised, we do not recognize the right-of-use (ROU) asset and corresponding lease liability on our consolidated balance sheet.
The following table indicates the consolidated balance sheet line items that include the ROU assets and lease liabilities for our finance and operating leases at December 31:
| Millions of Dollars | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Finance Leases | Operating Leases | Finance Leases | Operating Leases | ||||||||||||||||||||
| Right-of-Use Assets | |||||||||||||||||||||||
| Net properties, plants and equipment | $ | 298 | — | 259 | — | ||||||||||||||||||
| Other assets | — | 1,116 | — | 995 | |||||||||||||||||||
| Total right-of-use assets | $ | 298 | 1,116 | 259 | 995 | ||||||||||||||||||
| Lease Liabilities | |||||||||||||||||||||||
| Short-term debt | $ | 25 | — | 23 | — | ||||||||||||||||||
| Other accruals | — | 362 | — | 282 | |||||||||||||||||||
| Long-term debt | 280 | — | 234 | — | |||||||||||||||||||
| Other liabilities and deferred credits | — | 790 | — | 745 | |||||||||||||||||||
| Total lease liabilities | $ | 305 | 1,152 | 257 | 1,027 |
Future minimum lease payments at December 31, 2023, for finance and operating lease liabilities were:
| Millions of Dollars | |||||||||||||||||||||||
| Finance Leases | Operating Leases | ||||||||||||||||||||||
| 2024 | $ | 39 | 406 | ||||||||||||||||||||
| 2025 | 32 | 295 | |||||||||||||||||||||
| 2026 | 34 | 206 | |||||||||||||||||||||
| 2027 | 28 | 127 | |||||||||||||||||||||
| 2028 | 29 | 75 | |||||||||||||||||||||
| Remaining years | 250 | 180 | |||||||||||||||||||||
| Future minimum lease payments | 412 | 1,289 | |||||||||||||||||||||
| Amount representing interest or discounts | (107) | (137) | |||||||||||||||||||||
| Total lease liabilities | $ | 305 | 1,152 |
Our finance lease liabilities relate primarily to service station consignment agreements with a marketing joint venture and a crude oil terminal in the United Kingdom. The lease liability for the terminal finance lease is subject to foreign currency translation adjustments each reporting period.
Components of net lease cost for the years ended December 31, 2023, 2022 and 2021, were:
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Finance lease cost | |||||||||||||||||
| Amortization of right-of-use assets | $ | 30 | 24 | 23 | |||||||||||||
| Interest on lease liabilities | 9 | 9 | 9 | ||||||||||||||
| Total finance lease cost | 39 | 33 | 32 | ||||||||||||||
| Operating lease cost | 390 | 387 | 461 | ||||||||||||||
| Short-term lease cost | 76 | 63 | 104 | ||||||||||||||
| Variable lease cost | 55 | 19 | 3 | ||||||||||||||
| Sublease income | (12) | (13) | (15) | ||||||||||||||
| Total net lease cost | $ | 548 | 489 | 585 |
Cash paid for amounts included in the measurement of our lease liabilities for the years ended December 31, 2023, 2022 and 2021, was:
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Operating cash outflows—finance leases | $ | 15 | 11 | 9 | |||||||||||||
| Operating cash outflows—operating leases | 390 | 392 | 438 | ||||||||||||||
| Financing cash outflows—finance leases | 19 | 32 | 21 |
During the years ended December 31, 2023, 2022 and 2021, we recorded noncash ROU assets and corresponding operating lease liabilities totaling $398 million, $269 million and $260 million, respectively, related to new and modified lease agreements.
At December 31, 2023 and 2022, the weighted-average remaining lease terms and discount rates for our lease liabilities were:
| 2023 | 2022 | ||||||||||
| Weighted-average remaining lease term—finance leases (years) | 13.4 | 12.5 | |||||||||
| Weighted-average remaining lease term—operating leases (years) | 4.9 | 5.8 | |||||||||
| Weighted-average discount rate—finance leases | 3.9 | % | 3.3 | ||||||||
| Weighted-average discount rate—operating leases | 4.5 | % | 3.8 |
Note 21—Pension and Postretirement Plans
The following table provides a reconciliation of the projected benefit obligations and plan assets for our pension plans and accumulated benefit obligations for our other postretirement benefit plans:
| Millions of Dollars | |||||||||||||||||||||||||||||||||||
| Pension Benefits | Other Benefits | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| U.S. | Int’l. | U.S. | Int’l. | ||||||||||||||||||||||||||||||||
| Change in Benefit Obligations | |||||||||||||||||||||||||||||||||||
| Benefit obligations at January 1 | $ | 2,209 | 675 | 3,033 | 1,409 | 156 | 197 | ||||||||||||||||||||||||||||
| Service cost | 108 | 13 | 123 | 28 | 3 | 4 | |||||||||||||||||||||||||||||
| Interest cost | 118 | 31 | 100 | 21 | 8 | 5 | |||||||||||||||||||||||||||||
| Plan participant contributions | — | 2 | — | 2 | 7 | 6 | |||||||||||||||||||||||||||||
| Actuarial loss (gain) | 58 | 30 | (528) | (502) | 2 | (37) | |||||||||||||||||||||||||||||
| Benefits paid | (233) | (33) | (519) | (44) | (26) | (19) | |||||||||||||||||||||||||||||
| Settlements | — | — | — | (101) | — | — | |||||||||||||||||||||||||||||
| Foreign currency exchange rate change | — | 34 | — | (138) | — | — | |||||||||||||||||||||||||||||
| Benefit obligations at December 31 | $ | 2,260 | 752 | 2,209 | 675 | 150 | 156 | ||||||||||||||||||||||||||||
| Change in Fair Value of Plan Assets | |||||||||||||||||||||||||||||||||||
| Fair value of plan assets at January 1 | $ | 1,778 | 707 | 2,547 | 1,280 | — | — | ||||||||||||||||||||||||||||
| Actual return on plan assets | 203 | 44 | (375) | (329) | — | — | |||||||||||||||||||||||||||||
| Company contributions | 391 | 20 | 125 | 23 | 19 | 13 | |||||||||||||||||||||||||||||
| Plan participant contributions | — | 2 | — | 2 | 7 | 6 | |||||||||||||||||||||||||||||
| Benefits paid | (233) | (33) | (519) | (44) | (26) | (19) | |||||||||||||||||||||||||||||
| Settlements | — | — | — | (101) | — | — | |||||||||||||||||||||||||||||
| Foreign currency exchange rate change | — | 38 | — | (124) | — | — | |||||||||||||||||||||||||||||
| Fair value of plan assets at December 31 | $ | 2,139 | 778 | 1,778 | 707 | — | — | ||||||||||||||||||||||||||||
| Funded Status at December 31 | $ | (121) | 26 | (431) | 32 | (150) | (156) |
Amounts recognized in the consolidated balance sheet for our pension and other postretirement benefit plans at December 31 include:
| Millions of Dollars | |||||||||||||||||||||||||||||||||||
| Pension Benefits | Other Benefits | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| U.S. | Int’l. | U.S. | Int’l. | ||||||||||||||||||||||||||||||||
| Amounts Recognized in the Consolidated Balance Sheet | |||||||||||||||||||||||||||||||||||
| Noncurrent assets | $ | — | 157 | — | 140 | — | — | ||||||||||||||||||||||||||||
| Current liabilities | (55) | — | (50) | — | (20) | (15) | |||||||||||||||||||||||||||||
| Noncurrent liabilities | (66) | (131) | (381) | (108) | (130) | (141) | |||||||||||||||||||||||||||||
| Total recognized | $ | (121) | 26 | (431) | 32 | (150) | (156) |
Included in accumulated other comprehensive loss at December 31 were the following before-tax amounts that had not been recognized in net periodic benefit cost:
| Millions of Dollars | |||||||||||||||||||||||||||||||||||
| Pension Benefits | Other Benefits | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| U.S. | Int’l. | U.S. | Int’l. | ||||||||||||||||||||||||||||||||
| Unrecognized net actuarial loss (gain) | $ | 111 | 2 | 159 | (27) | (51) | (59) | ||||||||||||||||||||||||||||
| Unrecognized prior service credit | — | — | — | — | — | — |
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
| Millions of Dollars | |||||||||||||||||||||||||||||||||||
| Pension Benefits | Other Benefits | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| U.S. | Int’l. | U.S. | Int’l. | ||||||||||||||||||||||||||||||||
| Sources of Change in Other Comprehensive Income | |||||||||||||||||||||||||||||||||||
| Net actuarial gain (loss) arising during the period | $ | 20 | (26) | 18 | 136 | (2) | 37 | ||||||||||||||||||||||||||||
| Amortization of net actuarial loss (gain) and settlements | 28 | (3) | 74 | 21 | (6) | (2) | |||||||||||||||||||||||||||||
| Amortization of prior service credit | — | — | — | (1) | — | (2) | |||||||||||||||||||||||||||||
| Total recognized in other comprehensive income | $ | 48 | (29) | 92 | 156 | (8) | 33 |
The accumulated benefit obligations for all U.S. and international pension plans were $2,101 million and $661 million, respectively, at December 31, 2023, and $2,055 million and $593 million, respectively, at December 31, 2022.
Information for U.S. and international pension plans with an accumulated benefit obligation in excess of plan assets at December 31 was:
| Millions of Dollars | |||||||||||||||||||||||
| Pension Benefits | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| U.S. | Int’l. | U.S. | Int’l. | ||||||||||||||||||||
| Accumulated benefit obligations | $ | 101 | 136 | 2,055 | 114 | ||||||||||||||||||
| Fair value of plan assets | — | 13 | 1,778 | 13 |
Information for U.S. and international pension plans with a projected benefit obligation in excess of plan assets at December 31 was:
| Millions of Dollars | |||||||||||||||||||||||
| Pension Benefits | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| U.S. | Int’l. | U.S. | Int’l. | ||||||||||||||||||||
| Projected benefit obligations | $ | 2,260 | 144 | 2,209 | 121 | ||||||||||||||||||
| Fair value of plan assets | 2,139 | 13 | 1,778 | 13 |
Components of net periodic benefit cost for all defined benefit plans are presented in the table below:
| Millions of Dollars | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pension Benefits | Other Benefits | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. | Int’l. | U.S. | Int’l. | U.S. | Int’l. | ||||||||||||||||||||||||||||||||||||||||||||||||
| Components of Net Periodic Benefit Cost | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Service cost | $ | 108 | 13 | 123 | 28 | 146 | 36 | 3 | 4 | 5 | |||||||||||||||||||||||||||||||||||||||||||
| Interest cost | 118 | 31 | 100 | 21 | 81 | 19 | 8 | 5 | 5 | ||||||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | (126) | (43) | (135) | (56) | (160) | (59) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service credit | — | — | — | (1) | — | (1) | — | (2) | (2) | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization of net actuarial loss (gain) | 11 | (3) | 21 | 12 | 46 | 25 | (6) | (2) | (1) | ||||||||||||||||||||||||||||||||||||||||||||
| Settlements | 17 | — | 53 | 9 | 55 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost (credit)* | $ | 128 | (2) | 162 | 13 | 168 | 20 | 5 | 5 | 7 |
** Included in the “Operating expenses” and “Selling, general and administrative expenses” line items on our consolidated statement of income.*
In determining net periodic benefit cost, we amortize prior service costs on a straight-line basis over the average remaining service period of employees expected to receive benefits under the plan. For net actuarial gains and losses, we amortize 10% of the unamortized balance each year. The amount subject to amortization is determined on a plan-by-plan basis.
The following weighted-average assumptions were used to determine benefit obligations and net periodic benefit costs for years ended December 31:
| Pension Benefits | Other Benefits | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||
| U.S. | Int’l. | U.S. | Int’l. | ||||||||||||||||||||||||||||||||
| Assumptions Used to Determine Benefit Obligations: | |||||||||||||||||||||||||||||||||||
| Discount rate | 5.35 | % | 4.36 | 5.70 | 4.64 | 5.45 | 5.70 | ||||||||||||||||||||||||||||
| Rate of compensation increase | 4.30 | 3.34 | 4.30 | 3.32 | — | — | |||||||||||||||||||||||||||||
| Interest crediting rate on cash balance plan | 3.98 | — | 3.88 | — | — | — | |||||||||||||||||||||||||||||
| Assumptions Used to Determine Net Periodic Benefit Cost: | |||||||||||||||||||||||||||||||||||
| Discount rate | 5.70 | % | 4.64 | 3.94 | 1.65 | 5.70 | 2.90 | ||||||||||||||||||||||||||||
| Expected return on plan assets | 7.50 | 5.91 | 6.50 | 4.90 | — | — | |||||||||||||||||||||||||||||
| Rate of compensation increase | 4.30 | 3.32 | 4.30 | 3.05 | — | — | |||||||||||||||||||||||||||||
| Interest crediting rate on cash balance plan | 3.88 | — | 2.59 | — | — | — |
For both U.S. and international pension plans, the overall expected long-term rate of return is developed from the expected future return of each asset class, weighted by the expected allocation of pension assets to that asset class. We rely on a variety of independent market forecasts in developing the expected rate of return for each class of assets.
For the year ended December 31, 2023, actuarial losses resulted in increases in our U.S. and international pension benefit obligations of $58 million and $30 million, respectively. For the year ended December 31, 2022, actuarial gains resulted in decreases in our U.S. and international pension benefit obligations of $528 million and $502 million, respectively. The primary driver for the actuarial losses in 2023 was decreases in the discount rates. The primary driver for the actuarial gains in 2022 was increases in the discount rates.
For the year ended December 31, 2023, the weighted-average actual return on plan assets was 10%, which resulted in an increase in our U.S. and international plan assets of $203 million and $44 million, respectively. For the year ended December 31, 2022, the weighted-average actual return on plan assets was negative 20%, which resulted in a decrease in our U.S. and international plan assets of $375 million and $329 million, respectively. The primary driver of the return on plan assets in 2023 and 2022 was fluctuations in the equity and fixed income markets.
Our other postretirement benefit plans for health insurance are contributory. Effective December 31, 2012, we terminated the subsidy for retiree medical plans. Since January 1, 2013, eligible employees have been able to utilize notional amounts credited to an account during their period of service with the company to pay all, or a portion, of their cost to participate in postretirement health insurance. In general, employees hired after December 31, 2012, will not receive credits to an account, but will have unsubsidized access to health insurance through the plan. The cost of health insurance will be adjusted annually by the company’s actuary to reflect actual experience and expected health care cost trends. The measurement of the accumulated benefit obligation assumes a health care cost trend rate of 7% in 2024 that declines to 5% by 2031.
Plan Assets
The investment strategy for managing pension plan assets is to seek a reasonable rate of return relative to an appropriate level of risk and provide adequate liquidity for benefit payments and portfolio management. We follow a policy of diversifying pension plan assets across asset classes, investment managers, and individual holdings. As a result, our plan assets have no significant concentrations of credit risk. Asset classes that are considered appropriate include equities, fixed income, cash, real estate and infrastructure investments and insurance contracts. Plan fiduciaries may consider and add other asset classes to the investment program from time to time. The target allocations for plan assets are approximately 47% equity securities, 37% debt securities, 8% real estate investments and 8% in all other types of investments as of December 31, 2023. Generally, the investments in the plans are publicly traded, therefore minimizing the liquidity risk in the portfolio.
The following is a description of the valuation methodologies used for the pension plan assets.
-
Fair values of equity securities and government debt securities are based on quoted market prices.
-
Fair values of corporate debt securities are estimated using recently executed transactions and market price quotations. If there have been no market transactions in a particular fixed income security, its fair value is calculated by pricing models that benchmark the security against other securities with actual market prices.
-
Fair values of cash and cash equivalents approximate their carrying amounts.
-
Fair values of insurance contracts are valued at the present value of the future benefit payments owed by the insurance company to the plans’ participants.
-
Fair values of investments in common/collective trusts (CCT) and real estate and infrastructure investments, which include a CCT, limited partnerships, and other real estate funds, are valued at the net asset value (NAV) as a practical expedient. The NAV is based on the underlying net assets owned by the fund and the relative interest of each participating investor in the fair value of the underlying assets. These investments valued at NAV are not classified within the fair value hierarchy, but are presented in the fair value table to permit reconciliation of total plan assets to the amounts presented in the fair value table.
The fair values of our pension plan assets at December 31, by asset class, were:
| Millions of Dollars | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. | International | ||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | $ | 295 | — | — | 295 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Government debt securities | 388 | — | — | 388 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | — | 101 | — | 101 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 31 | — | — | 31 | 4 | — | — | 4 | |||||||||||||||||||||||||||||||||||||||
| Insurance contracts | — | — | — | — | — | — | 13 | 13 | |||||||||||||||||||||||||||||||||||||||
| Total assets in the fair value hierarchy | 714 | 101 | — | 815 | 4 | — | 13 | 17 | |||||||||||||||||||||||||||||||||||||||
| Common/collective trusts measured at NAV | 1,013 | 636 | |||||||||||||||||||||||||||||||||||||||||||||
| Real estate and infrastructure investments measured at NAV | 311 | 125 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 714 | 101 | — | 2,139 | 4 | — | 13 | 778 |
| Millions of Dollars | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. | International | ||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | $ | 239 | — | — | 239 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Government debt securities | 268 | — | — | 268 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | — | 89 | — | 89 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 19 | — | — | 19 | 64 | — | — | 64 | |||||||||||||||||||||||||||||||||||||||
| Insurance contracts | — | — | — | — | — | — | 13 | 13 | |||||||||||||||||||||||||||||||||||||||
| Total assets in the fair value hierarchy | 526 | 89 | — | 615 | 64 | — | 13 | 77 | |||||||||||||||||||||||||||||||||||||||
| Common/collective trusts measured at NAV | 841 | 567 | |||||||||||||||||||||||||||||||||||||||||||||
| Real estate and infrastructure investments measured at NAV | 322 | 63 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 526 | 89 | — | 1,778 | 64 | — | 13 | 707 |
Our funding policy for U.S. plans is to contribute at least the minimum required by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986, as amended. Contributions to international plans are subject to local laws and tax regulations. Actual contribution amounts are dependent upon plan asset returns, changes in pension obligations, regulatory environments, and other economic factors. In 2024, we expect to contribute approximately $75 million to our U.S. pension plans and other postretirement benefit plans and $5 million to our international pension plans.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid to plan participants in the years indicated:
| Millions of Dollars | |||||||||||||||||
| Pension Benefits | Other Benefits | ||||||||||||||||
| U.S. | Int’l. | ||||||||||||||||
| 2024 | $ | 251 | 24 | 18 | |||||||||||||
| 2025 | 207 | 27 | 17 | ||||||||||||||
| 2026 | 213 | 28 | 17 | ||||||||||||||
| 2027 | 217 | 30 | 16 | ||||||||||||||
| 2028 | 216 | 34 | 16 | ||||||||||||||
| 2029-2033 | 1,096 | 184 | 74 |
Defined Contribution Plans
Most U.S. employees are eligible to participate in the Phillips 66 Savings Plan (Savings Plan). Employees can contribute up to 75% of their eligible pay, subject to certain statutory limits, in the Savings Plan to a choice of investment funds. For the years ended December 31, 2023 and 2022, Phillips 66 provided a company match of participant contributions up to 8% of eligible pay, with an additional Success Share contribution ranging from 0% to 4% of eligible pay based on management discretion. For the year ended December 31, 2021, Phillips 66 provided a company match of participant contributions up to 6% of eligible pay, with an additional Success Share contribution ranging from 0% to 6% of eligible pay based on management discretion.
For the years ended December 31, 2023, 2022 and 2021, we recorded expense of $196 million, $210 million and $142 million, respectively, related to our contributions to the Savings Plan.
Note 22—Share-Based Compensation Plans
Share-based payment awards, including stock options, stock appreciation rights, stock awards (including restricted stock and RSU awards), cash awards, and performance awards, are granted to our employees, nonemployee directors and other plan participants by the Human Resources and Compensation Committee (HRCC) of our Board of Directors under the applicable Omnibus Stock and Performance Incentive Plan of Phillips 66. Prior to May 11, 2022, share-based payment awards were granted under the 2013 Omnibus Stock and Performance Incentive Plan of Phillips 66 (the 2013 P66 Omnibus Plan). On May 11, 2022, Phillips 66’s shareholders approved the 2022 Omnibus Stock and Performance Incentive Plan of Phillips 66 (the 2022 P66 Omnibus Plan), which replaced the 2013 P66 Omnibus Plan. No future awards will be made under the 2013 P66 Omnibus Plan. As of December 31, 2023, approximately 13 million shares of Phillips 66’s common stock remained available to be issued to settle share-based payment awards under the 2022 P66 Omnibus Plan.
Total share-based compensation expense recognized in income and the associated income tax benefit for the years ended December 31 were:
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Restricted stock units | $ | 130 | 101 | 100 | |||||||||||||
| Performance share units | 139 | 68 | 23 | ||||||||||||||
| Stock options | 19 | 17 | 19 | ||||||||||||||
| Other | 9 | 24 | 2 | ||||||||||||||
| Total share-based compensation expense | $ | 297 | 210 | 144 | |||||||||||||
| Income tax benefit | $ | (87) | (55) | (33) |
Restricted Stock Units
Generally, RSUs are granted annually under the provisions of the applicable Phillips 66 incentive plan, and vest either ratably over three years following the grant date or cliff vest at the end of three years for awards granted in 2023. For awards granted prior to 2023, RSUs cliff vest at the end of three years. The grant date fair value is equal to the average of the high and low market price of our stock on the grant date. The recipients receive a quarterly dividend equivalent cash payment until the RSU is settled by issuing one share of our common stock for each RSU at the end of the service period. RSUs granted to retirement-eligible employees are not subject to forfeiture ten months after the grant date for RSUs granted in 2023 and six months after the grant date for RSUs granted prior to 2023. Special RSUs are granted to attract or retain key personnel and the terms and conditions may vary by award.
The following table summarizes our RSU activity from January 1, 2023, to December 31, 2023:
| Millions of Dollars | |||||||||||||||||
| Stock Units | Weighted-Average Grant-Date Fair Value | Total Fair Value | |||||||||||||||
| Outstanding at January 1, 2023 | 3,266,475 | $ | 82.76 | ||||||||||||||
| Granted | 1,583,095 | 100.39 | |||||||||||||||
| Forfeited | (92,090) | 93.04 | |||||||||||||||
| Issued | (1,225,397) | 84.48 | $ | 126 | |||||||||||||
| Outstanding at December 31, 2023 | 3,532,083 | $ | 89.80 | ||||||||||||||
| Not Vested at December 31, 2023 | 2,491,170 | $ | 90.40 |
At December 31, 2023, the remaining unrecognized compensation cost from unvested RSU awards was $92 million, which will be recognized over a weighted-average period of 18 months, the longest period being 35 months.
During 2022 and 2021, we granted RSUs with a weighted-average grant-date fair value of $88.16 and $75.91, respectively. During 2022 and 2021, we issued shares with an aggregate fair value of $102 million and $61 million, respectively, to settle RSUs.
Performance Share Units
Under the applicable Phillips 66 incentive plan, senior management is annually awarded restricted performance share units (PSUs) with three-year performance periods. These awards vest when the HRCC approves the three-year performance results, which represents the grant date. Retirement-eligible employees may retain a prorated share of the award if they retire prior to the grant date. PSUs are classified as liability awards and compensation expense is recognized over the three-year performance periods.
PSUs granted under the applicable Phillips 66 incentive plan are settled by cash payments equal to the fair value of the awards, which is based on the market prices of our stock near the end of the performance periods. The HRCC must approve the three-year performance results prior to payout. Dividend equivalents are not paid on these awards.
PSUs granted under prior incentive compensation plans were classified as equity awards. These equity awards are settled upon an employee’s retirement by issuing one share of our common stock for each PSU held. Dividend equivalents are paid on these awards.
The following table summarizes our PSU activity from January 1, 2023, to December 31, 2023:
| Millions of Dollars | |||||||||||||||||
| Performance Share Units | Weighted-Average Grant-Date Fair Value | Total Fair Value | |||||||||||||||
| Outstanding at January 1, 2023 | 703,169 | $ | 38.54 | ||||||||||||||
| Granted | 347,668 | 102.66 | |||||||||||||||
| Forfeited | (243) | 63.64 | |||||||||||||||
| Issued | (168,665) | 41.56 | $ | 13 | |||||||||||||
| Cash settled | (347,668) | 102.66 | 36 | ||||||||||||||
| Outstanding at December 31, 2023 | 534,261 | $ | 37.57 | ||||||||||||||
| Not Vested at December 31, 2023 | — | $ | — |
At December 31, 2023, there was no remaining unrecognized compensation cost from unvested PSU awards.
During 2022 and 2021, we granted PSUs with a weighted-average grant-date fair value of $71.82 and $68.18, respectively. During 2022 and 2021, we issued shares with an aggregate fair value of $9 million and $12 million, respectively, to settle PSUs. During 2022 and 2021, we cash settled PSUs with an aggregate fair value of $18 million and $27 million, respectively.
Stock Options
Stock options granted under the provisions of the applicable Phillips 66 incentive plan and earlier plans permit purchases of our common stock at exercise prices equivalent to the average of the high and low market price of our stock on the date the options were granted. The options have terms of 10 years and vest ratably over three years following the grant date, with one-third of the options becoming exercisable each year on the grant date anniversary. Options granted to retirement-eligible employees are not subject to forfeiture ten months after the grant date for options granted in 2023 and six months after the grant date for options granted prior to 2023.
The following table summarizes our stock option activity from January 1, 2023, to December 31, 2023:
| Millions of Dollars | |||||||||||||||||||||||
| Options | Weighted-Average Exercise Price | Weighted-Average Grant-Date Fair Value | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding at January 1, 2023 | 5,842,915 | $ | 84.97 | ||||||||||||||||||||
| Granted | 792,000 | 100.32 | $ | 27.45 | |||||||||||||||||||
| Forfeited | (33,372) | 97.41 | |||||||||||||||||||||
| Exercised | (1,483,629) | 82.84 | $ | 52 | |||||||||||||||||||
| Outstanding at December 31, 2023 | 5,117,914 | $ | 87.89 | ||||||||||||||||||||
| Vested at December 31, 2023 | 4,604,847 | $ | 87.35 | $ | 212 | ||||||||||||||||||
| Exercisable at December 31, 2023 | 3,198,901 | $ | 86.59 | $ | 149 |
The weighted-average remaining contractual terms of vested options and exercisable options at December 31, 2023, were 6.37 years and 5.6 years, respectively. During 2023, we received $123 million in cash and realized an income tax benefit of $12 million from the exercise of options. At December 31, 2023, the remaining unrecognized compensation expense from unvested options was $6 million, which will be recognized over a weighted-average period of 21 months, the longest period being 30 months.
During 2022 and 2021, we granted options with a weighted-average grant-date fair value of $17.02 and $12.06, respectively. During 2022 and 2021, employees exercised options with an aggregate intrinsic value of $42 million and $24 million, respectively.
The following table provides the significant assumptions used to calculate the grant-date fair values of options granted over the years shown below, as calculated using the Black-Scholes-Merton option-pricing model:
| 2023 | 2022 | 2021 | |||||||||||||||
| Risk-free interest rate | 3.84 | % | 1.97 | 0.93 | |||||||||||||
| Dividend yield | 3.80 | % | 5.10 | 5.30 | |||||||||||||
| Volatility factor | 35.19 | % | 33.67 | 32.11 | |||||||||||||
| Expected life (years) | 6.78 | 6.61 | 6.76 |
We calculate the volatility factor using historical Phillips 66 end-of-week closing stock prices. We periodically calculate the average period of time elapsed between grant dates and exercise dates of past grants to estimate the expected life of new option grants.
Other
As a result of the DCP Midstream Merger, we began consolidating DCP Midstream Class A Segment starting on August 18, 2022. DCP Midstream Class A Segment had a Long-Term Incentive Plan under which phantom units, performance units and distribution equivalent rights were awarded to key employees. On June 15, 2023, DCP Midstream Class A Segment’s share-based payment awards were converted to Phillips 66 share-based payment awards and are included in the share-based payment award tables above. Share-based compensation expense recognized for DCP Midstream Class A Segment’s share-based payment awards totaled $23 million for the period from August 18, 2022, through December 31, 2022, and $6 million for the period from January 1, 2023, through June 14, 2023.
See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers and Note 4—Business Combinations for additional information regarding the merger and associated accounting treatment.
Note 23—Income Taxes
Components of income tax expense (benefit) were:
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Income Tax Expense (Benefit) | |||||||||||||||||
| Federal | |||||||||||||||||
| Current | $ | 661 | 1,263 | 363 | |||||||||||||
| Deferred | 830 | 1,171 | (85) | ||||||||||||||
| Foreign | |||||||||||||||||
| Current | 394 | 492 | 50 | ||||||||||||||
| Deferred | (23) | (109) | (39) | ||||||||||||||
| State and local | |||||||||||||||||
| Current | 335 | 173 | 5 | ||||||||||||||
| Deferred | 33 | 258 | (148) | ||||||||||||||
| $ | 2,230 | 3,248 | 146 |
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (IRA) that includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on adjusted financial statement income as defined in the IRA, which was effective after December 31, 2022. We do not owe corporate alternative minimum tax in 2023 as the regular U.S. tax liability exceeds the corporate alternative minimum tax. The IRA also included provisions that allow a company to purchase transferable tax credits. In 2023, we executed agreements to purchase eligible tax credits for a total of $262 million. In 2023, we paid $196 million to our counterparties and the remainder will be paid in 2024. These tax credits were used to offset estimated tax payments in 2023.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major components of deferred tax liabilities and assets at December 31 were:
| Millions of Dollars | |||||||||||
| 2023 | 2022 | ||||||||||
| Deferred Tax Liabilities | |||||||||||
| Properties, plants and equipment, and intangibles | $ | 3,320 | 3,309 | ||||||||
| Investment in joint ventures | 1,979 | 1,854 | |||||||||
| Investment in subsidiaries | 2,628 | 1,974 | |||||||||
| Other | 268 | 238 | |||||||||
| Total deferred tax liabilities | 8,195 | 7,375 | |||||||||
| Deferred Tax Assets | |||||||||||
| Benefit plan accruals | 362 | 307 | |||||||||
| Loss and credit carryforwards | 151 | 113 | |||||||||
| Asset retirement obligations and accrued environmental costs | 127 | 137 | |||||||||
| Other financial accruals and deferrals | 68 | 51 | |||||||||
| Inventory | 34 | 62 | |||||||||
| Other | 274 | 220 | |||||||||
| Total deferred tax assets | 1,016 | 890 | |||||||||
| Less: valuation allowance | 121 | 97 | |||||||||
| Net deferred tax assets | 895 | 793 | |||||||||
| Net deferred tax liabilities | $ | 7,300 | 6,582 |
At December 31, 2023, the loss and credit carryforward deferred tax assets were primarily related to a foreign tax credit carryforward in the United States of $113 million; a state tax net operating loss carryforward of $30 million; and capital loss and net operating loss carryforwards in the United Kingdom of $8 million. State net operating loss carryforwards begin to expire in 2040. Foreign tax credit carryforwards, which have a full valuation allowance against them, begin to expire in 2029. The other loss and credit carryforwards, all of which relate to foreign operations, and have a full valuation allowance against them, have indefinite lives.
Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During the year ended December 31, 2023, our total valuation allowance balance increased by $24 million. Based on our historical taxable income, expectations for the future and available tax planning strategies, management expects the remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and the tax consequences of future taxable income.
Earnings of our foreign subsidiaries and foreign joint ventures after December 31, 2017, are generally not subject to incremental income taxes in the United States or withholding taxes in foreign countries upon repatriation. As such, we only assert that the earnings of one of our foreign subsidiaries are indefinitely reinvested. At December 31, 2023 and 2022, the unrecorded deferred tax liability related to the undistributed earnings of this foreign subsidiary was not material.
A deferred income tax liability has not been recognized on the excess of the book basis over the tax basis of an investment in a controlled foreign subsidiary that is essentially permanent in duration. Recognition of a deferred tax liability will only be required if it becomes apparent that this subsidiary will be sold or liquidated in the foreseeable future. At December 31, 2023, the temporary difference resulting from the investment book basis exceeding the tax basis was $1,430 million. Determination of the unrecognized deferred income tax liability related to this temporary difference is not practicable given the variables involved in performing such a calculation.
We file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Unrecognized tax benefits reflect the difference between positions taken on income tax returns and the amounts recognized in the financial statements. The following table is a reconciliation of the changes in our unrecognized income tax benefits balance:
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Balance at January 1 | $ | 54 | 54 | 56 | |||||||||||||
| Additions for tax positions of current year | — | 1 | — | ||||||||||||||
| Additions for tax positions of prior years | 66 | 2 | — | ||||||||||||||
| Reductions for tax positions of prior years | (4) | (3) | (2) | ||||||||||||||
| Balance at December 31 | $ | 116 | 54 | 54 |
Included in the balance of unrecognized income tax benefits at December 31, 2023, 2022 and 2021, were $100 million, $37 million and $35 million, respectively, which, if recognized, would affect our effective income tax rate. With respect to various unrecognized income tax benefits and the related accrued liabilities, we expect $28 million to be recognized or paid within the next twelve months.
At December 31, 2023, 2022 and 2021, accrued liabilities for interest and penalties, net of accrued income taxes, totaled $8 million, $7 million and $6 million, respectively. These accruals decreased our results for each of the years ended December 31, 2023, 2022 and 2021 by $1 million, $3 million and $3 million, respectively.
Audits in significant jurisdictions are generally complete as follows: United Kingdom (2021), Germany (2017) and United States (2013). Certain issues remain in dispute for audited years, and unrecognized income tax benefits for years still subject to or currently undergoing an audit are subject to change. As a consequence, the balance in unrecognized income tax benefits can be expected to fluctuate from period to period. Although it is reasonably possible such changes could be significant when compared with our total unrecognized income tax benefits, the amount of change is not estimable.
The amounts of U.S. and foreign income before income taxes, with a reconciliation of income tax at the federal statutory rate to the recorded income tax expense (benefit), were:
| Millions of Dollars | Percentage of Income (Loss) Before Income Taxes | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||||||||||||||
| United States | $ | 7,887 | 12,628 | 1,737 | 83.3 | % | 86.3 | 99.8 | |||||||||||||||||||||||||||
| Foreign | 1,582 | 2,011 | 3 | 16.7 | 13.7 | 0.2 | |||||||||||||||||||||||||||||
| $ | 9,469 | 14,639 | 1,740 | 100.0 | % | 100.0 | 100.0 | ||||||||||||||||||||||||||||
| Federal statutory income tax | $ | 1,989 | 3,074 | 365 | 21.0 | % | 21.0 | 21.0 | |||||||||||||||||||||||||||
| State income tax, net of federal income tax benefit | 290 | 341 | (65) | 3.1 | 2.3 | (3.7) | |||||||||||||||||||||||||||||
| Noncontrolling interests | (51) | (74) | (57) | (0.5) | (0.5) | (3.3) | |||||||||||||||||||||||||||||
| Non-taxable equity earnings | (42) | (33) | (53) | (0.4) | (0.2) | (3.0) | |||||||||||||||||||||||||||||
| Tax law changes | — | (25) | (26) | — | (0.2) | (1.5) | |||||||||||||||||||||||||||||
| Other* | 44 | (35) | (18) | 0.4 | (0.2) | (1.1) | |||||||||||||||||||||||||||||
| $ | 2,230 | 3,248 | 146 | 23.6 | 22.2 | 8.4 |
** Other includes individually immaterial items but is primarily attributable to foreign operations and change in valuation allowance.*
For the year ended December 31, 2021, state income tax, net of federal income tax benefit, includes a $58 million benefit, primarily to reflect the impact of updated apportionment factors.
For the years ended December 31, 2023 and 2022, income tax benefits of $113 million and $323 million, respectively, are reflected in “Capital in Excess of Par” on the consolidated statement of changes in equity. There is no income tax reflected in “Capital in Excess of Par” for the year ended December 31, 2021.
Note 24—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 | 318 | (70) | 2 | 250 | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||
| Defined benefit plans* | |||||||||||||||||||||||
| Amortization of net actuarial loss, prior service credit and settlements | 93 | — | — | 93 | |||||||||||||||||||
| Foreign currency translation | — | — | — | — | |||||||||||||||||||
| Hedging | — | — | 1 | 1 | |||||||||||||||||||
| Net current period other comprehensive income (loss) | 411 | (70) | 3 | 344 | |||||||||||||||||||
| December 31, 2021 | (398) | (45) | (2) | (445) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 204 | (291) | — | (87) | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||
| Defined benefit plans* | |||||||||||||||||||||||
| Amortization of net actuarial loss, prior service credit and settlements | 72 | — | — | 72 | |||||||||||||||||||
| Foreign currency translation | — | — | — | — | |||||||||||||||||||
| Hedging | — | — | — | — | |||||||||||||||||||
| Net current period other comprehensive income (loss) | 276 | (291) | — | (15) | |||||||||||||||||||
| December 31, 2022 | (122) | (336) | (2) | (460) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (12) | 179 | (3) | 164 | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||
| Defined benefit plans* | |||||||||||||||||||||||
| Amortization of net actuarial loss and settlements | 14 | — | — | 14 | |||||||||||||||||||
| Foreign currency translation | — | — | — | — | |||||||||||||||||||
| Hedging | — | — | — | — | |||||||||||||||||||
| Net current period other comprehensive income (loss) | 2 | 179 | (3) | 178 | |||||||||||||||||||
| December 31, 2023 | $ | (120) | (157) | (5) | (282) |
** Included in the computation of net periodic benefit cost. See Note 21—Pension and Postretirement Plans, for additional information.*
Note 25—Cash Flow Information
Supplemental Cash Flow Information
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash Payments (Receipts) | |||||||||||||||||
| Interest | $ | 816 | 572 | 549 | |||||||||||||
| Income taxes* | 1,397 | 2,071 | (1,065) | ||||||||||||||
| ** 2023 includes $196 million of cash paid to counterparties to purchase IRA eligible tax credits. 2021 reflects a net cash refund position. Cash payments for income taxes were $110 million in 2021.* |
Note 26—Other Financial Information
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Interest and Debt Expense | |||||||||||||||||
| Incurred | |||||||||||||||||
| Debt | $ | 842 | 611 | 567 | |||||||||||||
| Other | 86 | 41 | 41 | ||||||||||||||
| 928 | 652 | 608 | |||||||||||||||
| Capitalized | (31) | (33) | (27) | ||||||||||||||
| Expensed | $ | 897 | 619 | 581 | |||||||||||||
| Other Income | |||||||||||||||||
| Interest income | $ | 269 | 82 | 11 | |||||||||||||
| Unrealized investment gain (loss)—NOVONIX | (38) | (433) | 365 | ||||||||||||||
| Gain related to merger of businesses | — | 3,013 | — | ||||||||||||||
| Other, net* | 128 | 75 | 78 | ||||||||||||||
| $ | 359 | 2,737 | 454 | ||||||||||||||
| ** Includes derivatives-related activities. See Note 17—Derivatives and Financial Instruments, for additional information.* | |||||||||||||||||
| Research and Development Expenses | $ | 27 | 42 | 47 | |||||||||||||
| Advertising Expenses | $ | 54 | 56 | 52 | |||||||||||||
| Foreign Currency Transaction (Gains) Losses | |||||||||||||||||
| Midstream | $ | 1 | 9 | (5) | |||||||||||||
| Chemicals | — | — | — | ||||||||||||||
| Refining | 19 | (7) | 4 | ||||||||||||||
| Marketing and Specialties | 4 | (10) | — | ||||||||||||||
| Corporate and Other | (2) | (1) | 2 | ||||||||||||||
| $ | 22 | (9) | 1 |
Note 27—Related Party Transactions
Significant transactions with related parties were:
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Operating revenues and other income (a)(d) | $ | 4,623 | 6,111 | 3,759 | |||||||||||||
| Purchases (b)(d) | 17,208 | 21,244 | 14,645 | ||||||||||||||
| Operating expenses and selling, general and administrative expenses (c) | 295 | 281 | 284 | ||||||||||||||
(a)We sold NGL, other petrochemical feedstocks and solvents to CPChem, NGL and certain feedstocks to DCP Midstream, gas oil and hydrogen feedstocks to Excel Paralubes LLC (Excel Paralubes), and refined petroleum products to several of our equity affiliates in the M&S 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 Paralubes 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.
(d)As a result of the DCP Midstream Merger, we began consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills. As such, transactions with these parties after August 17, 2022, are not presented in the table above.
Note 28—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, gathering, processing and marketing services, mainly in the United States. As a result of the DCP Midstream Merger on August 17, 2022, we began consolidating DCP Midstream Class A Segment, as well as DCP Sand Hills and DCP Southern Hills. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers. This segment also includes our 16% investment in NOVONIX.
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, as well as renewable fuels. This segment includes 12 refineries in the United States and Europe.
4)**Marketing and Specialties—**Purchases for resale and markets refined petroleum products and renewable fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of base oils and lubricants.
Corporate and Other includes general corporate overhead, interest income, interest expense, our investment in research of new technologies and various other corporate activities. Corporate assets include all cash, cash equivalents and income tax-related assets. Corporate and Other also includes restructuring costs related to our business transformation. See Note 31—Restructuring, for additional information regarding restructuring costs.
Intersegment sales are at prices that we believe approximate market.
Analysis of Results by Operating Segment
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Sales and Other Operating Revenues* | |||||||||||||||||
| Midstream | |||||||||||||||||
| Total sales | $ | 18,605 | 19,121 | 11,714 | |||||||||||||
| Intersegment eliminations | (2,825) | (2,932) | (2,901) | ||||||||||||||
| Total Midstream | 15,780 | 16,189 | 8,813 | ||||||||||||||
| Chemicals | — | — | 3 | ||||||||||||||
| Refining | |||||||||||||||||
| Total sales | 96,011 | 112,725 | 75,096 | ||||||||||||||
| Intersegment eliminations | (59,846) | (71,127) | (46,122) | ||||||||||||||
| Total Refining | 36,165 | 41,598 | 28,974 | ||||||||||||||
| Marketing and Specialties | |||||||||||||||||
| Total sales | 98,769 | 115,622 | 75,583 | ||||||||||||||
| Intersegment eliminations | (3,351) | (3,453) | (1,929) | ||||||||||||||
| Total Marketing and Specialties | 95,418 | 112,169 | 73,654 | ||||||||||||||
| Corporate and Other | 36 | 34 | 32 | ||||||||||||||
| Consolidated sales and other operating revenues | $ | 147,399 | 169,990 | 111,476 | |||||||||||||
| ** See Note 5—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues.* | |||||||||||||||||
| Equity in Earnings (Losses) of Affiliates | |||||||||||||||||
| Midstream | $ | 649 | 916 | 877 | |||||||||||||
| Chemicals | 586 | 842 | 1,832 | ||||||||||||||
| Refining | 439 | 747 | (184) | ||||||||||||||
| Marketing and Specialties | 343 | 463 | 379 | ||||||||||||||
| Corporate and Other | — | — | — | ||||||||||||||
| Consolidated equity in earnings of affiliates | $ | 2,017 | 2,968 | 2,904 | |||||||||||||
| Depreciation, Amortization and Impairments* | |||||||||||||||||
| Midstream | $ | 926 | 569 | 634 | |||||||||||||
| Chemicals | — | — | — | ||||||||||||||
| Refining | 849 | 879 | 2,272 | ||||||||||||||
| Marketing and Specialties | 124 | 110 | 114 | ||||||||||||||
| Corporate and Other | 102 | 131 | 83 | ||||||||||||||
| Consolidated depreciation, amortization and impairments | $ | 2,001 | 1,689 | 3,103 | |||||||||||||
| ** See Note 11—Impairments, for further details on impairments by segment.* |
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Interest Income and Expense | |||||||||||||||||
| Interest income | |||||||||||||||||
| Corporate and Other | $ | 269 | 82 | 11 | |||||||||||||
| Interest and debt expense | |||||||||||||||||
| Corporate and Other | $ | 897 | 619 | 581 | |||||||||||||
| Income (Loss) Before Income Taxes | |||||||||||||||||
| Midstream | $ | 2,774 | 4,734 | 1,500 | |||||||||||||
| Chemicals | 600 | 856 | 1,844 | ||||||||||||||
| Refining | 5,266 | 7,816 | (2,353) | ||||||||||||||
| Marketing and Specialties | 2,135 | 2,402 | 1,723 | ||||||||||||||
| Corporate and Other | (1,306) | (1,169) | (974) | ||||||||||||||
| Consolidated income before income taxes | $ | 9,469 | 14,639 | 1,740 | |||||||||||||
| Investments In and Advances To Affiliates | |||||||||||||||||
| Midstream | $ | 3,766 | 4,271 | 3,978 | |||||||||||||
| Chemicals | 7,341 | 6,785 | 6,369 | ||||||||||||||
| Refining | 2,802 | 2,484 | 2,340 | ||||||||||||||
| Marketing and Specialties | 825 | 883 | 750 | ||||||||||||||
| Corporate and Other | 2 | 2 | 2 | ||||||||||||||
| Consolidated investments in and advances to affiliates | $ | 14,736 | 14,425 | 13,439 | |||||||||||||
| Total Assets | |||||||||||||||||
| Midstream | $ | 29,107 | 30,273 | 15,546 | |||||||||||||
| Chemicals | 7,357 | 6,785 | 6,453 | ||||||||||||||
| Refining | 22,432 | 21,581 | 20,338 | ||||||||||||||
| Marketing and Specialties | 11,411 | 9,939 | 8,505 | ||||||||||||||
| Corporate and Other | 5,194 | 7,864 | 4,752 | ||||||||||||||
| Consolidated total assets | $ | 75,501 | 76,442 | 55,594 | |||||||||||||
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Capital Expenditures and Investments | |||||||||||||||||
| Midstream | $ | 625 | 1,043 | 733 | |||||||||||||
| Chemicals | — | — | — | ||||||||||||||
| Refining | 1,339 | 928 | 784 | ||||||||||||||
| Marketing and Specialties | 364 | 89 | 202 | ||||||||||||||
| Corporate and Other | 90 | 134 | 141 | ||||||||||||||
| Consolidated capital expenditures and investments | $ | 2,418 | 2,194 | 1,860 |
Geographic Information
Long-lived assets, defined as net PP&E plus investments and long-term receivables, by geographic location at December 31 were:
| Millions of Dollars | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| United States | $ | 49,124 | 48,286 | 34,882 | |||||||||||||
| United Kingdom | 1,406 | 1,349 | 1,323 | ||||||||||||||
| Germany | 394 | 391 | 605 | ||||||||||||||
| Other countries | 90 | 87 | 96 | ||||||||||||||
| Worldwide consolidated | $ | 51,014 | 50,113 | 36,906 |
Note 29—DCP Midstream Class A Segment
DCP Midstream Class A Segment is a VIE and we are the primary beneficiary. DCP Midstream Class A Segment is comprised of the businesses, activities, assets and liabilities of DCP LP and its subsidiaries and its general partner entities. Refer to Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers and Note 4—Business Combinations, for more details regarding the DCP Midstream Merger and related accounting.
DCP LP is a master limited partnership whose operations currently include producing and fractionating NGL, gathering, compressing, treating and processing natural gas; recovering condensate; and transporting, trading, marketing and storing natural gas and NGL.
As a result of the DCP Midstream Merger, we began consolidating DCP Midstream Class A Segment from the merger date forward, and we reflected the interests held by DCP LP’s public common and preferred unitholders’ and Enbridge’s indirect economic interest in DCP LP at the time of the merger as noncontrolling interests in our consolidated financial statements. On June 15, 2023, as part of the DCP LP Merger, we acquired all publicly held common units of DCP LP and eliminated the public common unit noncontrolling interest in our consolidated financial statements from the DCP LP Merger date, forward. The DCP LP Merger increased our aggregate direct and indirect economic interest in DCP LP from 43.3% to 86.8%. See below and Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information about the DCP Midstream and DCP LP Mergers, as well as information on preferred unit redemptions that also decreased the “Noncontrolling interests” balance on our consolidated balance sheet since December 31, 2022.
The most significant assets of DCP Midstream Class A Segment that are available to settle only its obligations, along with its most significant liabilities for which its creditors do not have recourse to Phillips 66’s general credit, were:
| Millions of Dollars | |||||||||||
| December 31, 2023 | December 31, 2022 | ||||||||||
| Accounts receivable, trade* | $ | 601 | 988 | ||||||||
| Net properties, plants and equipment | 9,319 | 9,297 | |||||||||
| Investments in unconsolidated affiliates** | 1,901 | 2,161 | |||||||||
| Accounts payable | 815 | 1,239 | |||||||||
| Short-term debt | 357 | 504 | |||||||||
| Long-term debt | 3,759 | 4,248 |
** Included in the “Accounts and notes receivable” line item on the Phillips 66 consolidated balance sheet.*
*** Included in the “Investments and long-term receivables” line item on the Phillips 66 consolidated balance sheet.*
DCP LP Merger
On June 15, 2023, we completed the acquisition of approximately 91 million publicly held common units of DCP LP pursuant to the terms of the DCP LP Merger Agreement. The DCP LP Merger Agreement was entered into with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries merged with and into DCP LP, with DCP LP surviving as a Delaware limited partnership. Under the terms of the DCP LP Merger Agreement, at the effective time of the DCP LP Merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP Midstream and its subsidiaries) issued and outstanding as of immediately prior to the effective time was converted into the right to receive $41.75 per common unit in cash. We paid $3,796 million in cash consideration to common unitholders, funded with a combination of available cash and proceeds from the offering of the Notes and borrowings under the Term Loan Agreement. See Note 11—Debt, for additional information.
The DCP LP Merger was accounted for as an equity transaction and resulted in decreases to “Cash and cash equivalents” of $3,814 million, which includes cash consideration paid to common unitholders of $3,796 million plus fees paid of $18 million, “Noncontrolling interests” of $3,343 million, “Capital in excess of par” of $361 million and “Deferred income taxes” of $110 million on our consolidated balance sheet.
Preferred Units
On October 16, 2023, DCP LP redeemed its Series C preferred units at the aggregated liquidation preference of $110 million, which approximated the book value of the preferred units. In June 2023, DCP LP redeemed its Series B preferred units at the aggregated liquidation preference of $161 million, which approximated the book value of the preferred units. In December 2022, DCP LP redeemed its Series A preferred units with an aggregate liquidation preference of $500 million, which approximated the book value of the preferred units.
Trading and Reporting Status
DCP LP’s common units, Series B preferred units and Series C preferred units have been delisted and deregistered from the New York Stock Exchange. In addition, DCP LP has suspended its reporting obligations to the Securities and Exchange Commission under Sections 13 and 15(d) of the Exchange Act.
Distributions
For the years ended December 31, 2023, and 2022, DCP LP made cash distributions of $125 million and $51 million, respectively, to common unitholders other than Phillips 66 and its subsidiaries, and $15 million and $27 million, respectively, to preferred unitholders.
Note 30—Phillips 66 Partners LP
On March 9, 2022, we completed a merger between us and Phillips 66 Partners. The merger resulted in the acquisition of all limited partnership interests in Phillips 66 Partners not already owned by us in exchange for 41.8 million shares of Phillips 66 common stock issued from treasury stock. Phillips 66 Partners common unitholders received 0.50 shares of Phillips 66 common stock for each outstanding Phillips 66 Partners common unit. Phillips 66 Partners’ perpetual convertible preferred units were converted into common units at a premium to the original issuance price prior to being exchanged for Phillips 66 common stock. Upon closing, Phillips 66 Partners became a wholly owned subsidiary of Phillips 66 and its common units are no longer publicly traded.
The merger was accounted for as an equity transaction and resulted in decreases to “Treasury stock” of $3,380 million, “Noncontrolling interests” of $2,163 million, “Capital in excess of par” of $901 million, “Deferred income taxes” of $323 million, and “Cash and cash equivalents” of $2 million, and an increase to “Other accruals” of $5 million on our consolidated balance sheet.
Note 31—Restructuring
In April 2022, we announced that we are progressing a multi-year business transformation focused on enterprise-wide opportunities to improve our cost structure. For the years ended December 31, 2023, and 2022, we recorded restructuring costs totaling $177 million and $160 million, respectively, primarily related to consulting fees and severance costs. Restructuring costs for the year ended December 31, 2022, also included an impairment related to assets held for sale. These costs are primarily recorded in the “Selling, general and administrative expenses” and “Impairments” line items on our consolidated statement of income and are reported in our Corporate segment.
In addition, for the years ended December 31, 2023 and 2022, we recorded restructuring costs of $38 million and $18 million, respectively, associated with the integration of DCP Midstream Class A Segment primarily related to severance and contract exit costs. These costs are primarily recorded in the “Selling, general and administrative expenses” line item on our consolidated statement of income and are reported in our Midstream segment.
Note 32—New Accounting Standards
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) – Improvements to Income Tax Disclosures,” which enhances the transparency, effectiveness, and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are evaluating the provisions of ASU 2023-09 and the impact on our financial statement disclosures.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are evaluating the provisions of ASU 2023-07 and the impact on our segment reporting disclosures.
In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements.” This ASU provides additional requirements for lessees that are a party to a lease between entities under common control in which there are leasehold improvements. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. Effective January 1, 2024, we adopted ASU 2023-01. At the time of adoption, there was no impact on our consolidated financial statements from this ASU.
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