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

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

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

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

EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT

Phillips 66 is a diversified energy company with Midstream, Chemicals, Refining, and Marketing and Specialties (M&S) operating segments. At March 31, 2023, we had total assets of $77 billion. Our common stock trades on the New York Stock Exchange under the symbol PSX.

Executive Overview

In the first quarter of 2023, we reported earnings of $2 billion and generated cash from operating activities of $1.2 billion. In addition, we had net borrowings of $1.3 billion. We used available cash to repurchase $800 million of common stock, pay dividends on our common stock of $486 million, and fund capital expenditures and investments of $378 million. We ended the first quarter of 2023 with $7 billion of cash and cash equivalents.

Business Transformation

We continue to progress our multi-year business transformation focused on enterprise-wide opportunities to improve our cost structure. In 2022, we started implementing initiatives designed to achieve a targeted sustainable run-rate cost reduction of at least $800 million and lower sustaining capital of at least $200 million per year by the end of 2023.

Midstream NGL Merger Transactions

As part of executing our NGL growth strategy to build a wellhead-to-market value chain, on August 17, 2022, we announced a realignment of our economic and governance interests in DCP Midstream, LP (DCP LP) and Gray Oak Pipeline, LLC (Gray Oak Pipeline) resulting from the merger of DCP Midstream, LLC (DCP Midstream) and Gray Oak Holdings LLC (Gray Oak Holdings). In connection with the merger, we were delegated DCP Midstream’s governance rights over DCP LP and its general partner entities, referred to as DCP Midstream Class A Segment, and acquired an economic interest in DCP LP of 43.3%. As a result of the governance rights granted to us, we began consolidating the financial results of DCP Midstream Class A Segment, DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills) from the merger date forward.

To further advance our NGL growth strategy on January 5, 2023, we entered into a definitive agreement with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries will merge with and into DCP LP, with DCP LP surviving as a Delaware limited partnership. Under the terms of the agreement, at the effective time of the merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP Midstream and DCP Midstream GP, LP) issued and outstanding as of immediately prior to the effective time will be converted into the right to receive $41.75 per common unit in cash, without interest. The merger will increase our economic interest in DCP LP from 43.3% to 86.8%. The transaction is expected to close in the second quarter of 2023, subject to customary closing conditions.

Since August 17, 2022, we also have been taking steps to integrate the operations of DCP Midstream Class A Segment to enable the capture of commercial and operational synergies. On April 1, 2023, we achieved a significant integration milestone with the transition of DCP Midstream’s employees to Phillips 66.

See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger, in the Notes to Consolidated Financial Statements, for additional information on the merger of DCP Midstream and Gray Oak Holdings and Note 21—DCP Midstream Class A Segment, in the Notes to Consolidated Financial Statements, for additional information on the common unit acquisition.

Business Environment

The Midstream segment includes our Transportation and NGL businesses. Our Transportation business contains fee-based operations not directly exposed to commodity price risk. Our NGL business, including DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022, forward, contains both fee-based operations and operations directly impacted by natural gas liquids (NGL), natural gas and condensate prices. During the first quarter of 2023, NGL and natural gas prices decreased, compared with the first quarter of 2022, due to warmer than usual weather, which negatively impacted heating demand.

The Chemicals segment consists of our 50% equity investment in Chevron Phillips Chemical Company LLC (CPChem). The chemicals and plastics industry is mainly a commodity-based industry where the margins for key products are based on supply and demand, as well as cost factors. During the first quarter of 2023, the benchmark high-density polyethylene chain margin decreased, compared with the first quarter of 2022, mainly due to excess polyethylene capacity and weaker demand.

Our Refining segment results are driven by several factors, including market crack spreads, refinery throughput, feedstock costs, product yields, turnaround activity, and other operating costs. The price of U.S. benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of $76.11 per barrel during the first quarter of 2023, compared with an average of $94.49 per barrel in the first quarter of 2022. Market crack spreads are used as indicators of refining margins and measure the difference between market prices for refined petroleum products and crude oil. Worldwide market crack spreads increased to an average of $30.59 per barrel during the first quarter of 2023, compared with an average of $21.93 per barrel in the first quarter of 2022. The increases in market crack spreads were primarily driven by improved demand for refined petroleum products, low refined product inventories and reduced crude oil prices.

Results for our M&S segment depend largely on marketing fuel and lubricant margins and sales volumes of our refined petroleum products. While marketing fuel and lubricant margins are primarily driven by market factors, largely determined by the relationship between supply and demand, marketing fuel margins, in particular, are influenced by trends in spot prices, and where applicable, retail prices for refined petroleum products in the regions and countries where we operate.

RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three months ended March 31, 2023, is based on a comparison with the corresponding period of 2022.

Basis of Presentation

Effective August 18, 2022, forward, in connection with the merger of DCP Midstream and Gray Oak Holdings we began consolidating the results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills. As a result of this transaction, we began presenting the results of DCP Midstream Class A Segment within the results of our NGL and Other business. Prior periods also have been updated to reflect the results of our equity investment in DCP Midstream prior to August 18, 2022, within the results of our NGL and Other business. See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger, Note 4—Business Combinations, and Note 15—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on the merger of DCP Midstream and Gray Oak Holdings.

Effective October 1, 2022, we changed the organizational structure of the internal financial information reviewed by our President and Chief Executive Officer, and determined this resulted in a change in the composition of our operating segments. As part of the realignment, we moved the results and net assets of our Merey Sweeny vacuum distillation and delayed coker units at our Sweeny Refinery and the isomerization unit at our Lake Charles Refinery from our Midstream segment to our Refining segment. Additionally, commissions charged to the Refining segment by the M&S segment related to sales of specialty products were eliminated and the costs of the sales organization were reclassified from the M&S segment to the Refining segment. Further, we are no longer presenting disaggregated business line results for our Chemicals and M&S segments to align with changes in our internal financial reporting. The segment realignment and business line reporting changes are presented for the three months ended March 31, 2023, with the prior periods recast for comparability.

Consolidated Results

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

			Millions of Dollars
			Three Months Ended March 31
			2023						2022
Midstream			$	702					212
Chemicals			198						396
Refining			1,608						173
Marketing and Specialties			426						296
Corporate and Other			(283)						(249)
Income before income taxes			2,651						828
Income tax expense			574						171
Net income			2,077						657
Less: net income attributable to noncontrolling interests			116						75
Net income attributable to Phillips 66			$	1,961					582

Our net income attributable to Phillips 66 in the first quarter of 2023 was $2 billion, compared with $582 million in the first quarter of 2022. The increase in net income attributable to Phillips 66 was primarily due to improved realized refining margins, partially offset by higher income tax expense.

See the “Segment Results” section for additional information on our segment performance and Note 20—Income Taxes, in the Notes to Consolidated Financial Statements, for additional information on income taxes.

Statement of Income Analysis

Sales and other operating revenues for the first quarter of 2023 decreased 5%, and purchased crude oil and products decreased 12%. These decreases were mainly due to lower prices for refined petroleum products, crude oil and NGL.

Equity in earnings of affiliates decreased 11% in the first quarter of 2023. The decrease was primarily due to lower equity earnings from CPChem due to lower margins, as well as DCP Midstream, DCP Sand Hills, DCP Southern Hills and Gray Oak Pipeline due to the merger of DCP Midstream and Gray Oak Holdings in August 2022. Decreases in equity earnings from the above entities were partially offset by higher equity earnings from WRB Refining LP (WRB) due to improved realized refining margins. See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger and the Chemicals segment analysis in the “Segment Results” section for additional information regarding CPChem.

Net gain on dispositions increased $33 million in the first quarter of 2023. The increase was primarily due to a before-tax gain of $36 million recognized in the first quarter of 2023 associated with the sale of the Belle Chasse Terminal.

We had other income of $48 million in the first quarter of 2023, compared with other loss of $143 million in the first quarter of 2022. The improvement was primarily driven by an unrealized loss on our investment in NOVONIX of $12 million in the first quarter of 2023, compared with an unrealized loss of $158 million in the first quarter of 2022, as well as higher interest income. See Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information regarding our investment in NOVONIX.

Operating expenses increased 18% first quarter of 2023. The increase was primarily due to consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022, as well as higher turnaround and other maintenance expenses, partially offset by lower operating costs due to the sale of the Belle Chasse Terminal and lower employee-related costs.

Selling, general and administrative expenses increased 40% in the first quarter of 2023. The increase was primarily due to consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022, as well as restructuring costs associated with our business transformation.

Depreciation and amortization increased 41% in the first quarter of 2023. The increase was primarily due to additional depreciation and amortization related to assets acquired as a result of consolidating DCP Midstream Class A Segment, DCP Southern Hills and DCP Sand Hills starting in August 2022.

Taxes other than income taxes increased 39% in the first quarter of 2023. The increase was primarily due to consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022 and higher crude oil and refined petroleum product excise taxes.

Interest and debt expense increased 42% in the first quarter of 2023. The increase was primarily driven by higher average debt principal balances as a result of consolidating DCP Midstream Class A Segment, DCP Southern Hills and DCP Sand Hills starting in August 2022.

We had income tax expense of $574 million in the first quarter of 2023, compared with an income tax expense of $171 million in the first quarter of 2022. The fluctuation in income taxes between periods is primarily due to improved results. See Note 20—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our effective income tax rates.

Net income attributable to noncontrolling interests increased 55% in the first quarter of 2023. The increase was primarily driven by consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022. This merger resulted in us reflecting additional noncontrolling interests on our consolidated income statement for the interests in DCP LP owned by public common and preferred unitholders and the interest in DCP Midstream Class A Segment held by Enbridge Inc. The increase from the merger above was partially offset by a decrease due to the merger between us and Phillips 66 Partners that occurred in the first quarter of 2022. Upon closing of this merger transaction, Phillips 66 Partners became a wholly owned subsidiary of Phillips 66. See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger and Note 22—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on these merger transactions.

Segment Results

Midstream

			Three Months Ended March 31
			2023						2022
			Millions of Dollars
Income (Loss) Before Income Taxes
Transportation			$	306					278
NGL and Other			408						92
NOVONIX			(12)						(158)
Total Midstream			$	702					212

			Thousands of Barrels Daily
Transportation Volumes
Pipelines*			3,039						3,099
Terminals			3,203						2,900
Operating Statistics
NGL fractionated**			660						452
NGL production***			421						400

** Pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment, excluding NGL pipelines.*

*** Includes 100% of DCP Midstream Class A Segment’s volumes from August 18, 2022, forward.*

**** Includes 100% of DCP Midstream Class A Segment’s volumes.*

			Dollars Per Gallon
Market Indicator
Weighted-Average NGL Price*			$	0.74					1.10
** Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component mix.*

The Midstream segment provides crude oil and refined petroleum product transportation, terminaling and processing services; NGL production, transportation, storage, fractionation, processing and marketing services; natural gas gathering, compressing, treating, processing, storage, transportation and marketing services; and condensate recovery. These activities are mainly in the United States. This segment also includes our investment in NOVONIX.

In connection with the merger of DCP Midstream and Gray Oak Holdings, the results of our Transportation business reflect a decrease in our indirect economic interest in Gray Oak Pipeline to 6.5% from August 18, 2022, forward. Prior to August 18, 2022, the Transportation results presented in the table above reflect Gray Oak Holdings’ 65% economic interest in Gray Oak Pipeline. In addition, the results of our NGL and Other business include the consolidated results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022, forward. Prior to August 18, 2022, our investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills were accounted for using the equity method. As a result of the merger and consolidation, equity earnings from our investment in DCP Midstream prior to the merger have been included with the results of our NGL and Other business.

Results from our Midstream segment increased $490 million in the first quarter of 2023.

Results from our Transportation business increased $28 million in the first quarter of 2023. The increase was primarily due to a gain of $36 million from the sale of the Belle Chasse Terminal. Excluding the gain on sale, results were down slightly as lower equity earnings driven by a decrease in our indirect economic interest in Gray Oak Pipeline in connection with the merger of DCP Midstream and Gray Oak Holdings were mostly offset by the impact of higher volumes and lower operating costs.

Results from our NGL and Other business increased $316 million in the first quarter of 2023. The increase was primarily due to the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022 forward, improved hedging results for DCP Midstream’s Class A Segment, as well as higher Sweeny Hub and trading results.

The fair value of our investment in NOVONIX decreased by $12 million in the first quarter of 2023, compared with a decrease of $158 million in the first quarter of 2022.

In the Notes to Consolidated Financial Statements, see Note 8—Investments, Loans and Long-Term Receivables, for additional information on our investment in NOVONIX.

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

Chemicals

			Three Months Ended March 31
			2023						2022
			Millions of Dollars
Income Before Income Taxes			$	198					396

			Millions of Pounds
CPChem Externally Marketed Sales Volumes*			5,706						6,239
** Represents 100% of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates.*

Olefins and Polyolefins Capacity Utilization (percent)			94		%				99

The Chemicals segment consists of our 50% interest in CPChem, which we account for under the equity method. CPChem uses NGL and other feedstocks to produce petrochemicals. These products are then marketed and sold or used as feedstocks to produce plastics and other chemicals. CPChem produces and markets ethylene and other olefin products. Ethylene produced is primarily consumed within CPChem for the production of polyethylene, normal alpha olefins and polyethylene pipe. CPChem manufactures and markets aromatics and styrenics products, such as benzene, cyclohexane, styrene and polystyrene, as well as manufactures and/or markets a variety of specialty chemical products. Unless otherwise noted, amounts referenced below reflect our net 50% interest in CPChem.

Results from the Chemicals segment decreased $198 million in the first quarter of 2023. The decrease was primarily due to lower margins driven by a decline in sales prices due to higher market supply.

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

Refining

			Three Months Ended March 31
			2023						2022
			Millions of Dollars
Income (Loss) Before Income Taxes
Atlantic Basin/Europe			$	142					152
Gulf Coast			705						41
Central Corridor			739						(135)
West Coast			22						115
Worldwide			$	1,608					173

			Dollars Per Barrel
Income (Loss) Before Income Taxes
Atlantic Basin/Europe			$	3.60					3.17
Gulf Coast			13.73						0.79
Central Corridor			28.42						(5.70)
West Coast			0.77						3.98
Worldwide			11.07						1.13
Realized Refining Margins*
Atlantic Basin/Europe			$	16.13					11.71
Gulf Coast			21.28						8.59
Central Corridor			26.86						7.89
West Coast			16.53						17.74
Worldwide			20.72						10.83

** See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable measure under generally accepted accounting principles in the United States (GAAP), income (loss) before income taxes per barrel.*

			Thousands of Barrels Daily
			Three Months Ended March 31
Operating Statistics			2023						2022
Refining operations*
Atlantic Basin/Europe
Crude oil capacity			537						537
Crude oil processed			443						503
Capacity utilization (percent)			82		%				94
Refinery production			438						538
Gulf Coast
Crude oil capacity			529						529
Crude oil processed			519						497
Capacity utilization (percent)			98		%				94
Refinery production			580						590
Central Corridor
Crude oil capacity			531						531
Crude oil processed			475						453
Capacity utilization (percent)			89		%				85
Refinery production			494						474
West Coast
Crude oil capacity			319						364
Crude oil processed			281						294
Capacity utilization (percent)			88		%				81
Refinery production			314						321
Worldwide
Crude oil capacity			1,916						1,961
Crude oil processed			1,718						1,747
Capacity utilization (percent)			90		%				89
Refinery production			1,826						1,923
** Includes our share of equity affiliates.*

The Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, at 12 refineries in the United States and Europe.

Results from our Refining segment increased $1,435 million in the first quarter of 2023, primarily due to higher realized refining margins driven by improved clean product differentials and market crack spreads, partially offset by lower volumes.

Our worldwide refining crude oil capacity utilization rate was 90% in the first quarter of 2023, compared with 89% in the first quarter of 2022. See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.

Marketing and Specialties

			Three Months Ended March 31
			2023						2022
			Millions of Dollars
Income Before Income Taxes			$	426					296

			Dollars Per Barrel
Income Before Income Taxes
U.S.			$	1.79					1.13
International			4.93						0.92
Realized Marketing Fuel Margins*
U.S.			$	2.30					1.59
International			6.45						2.30

** See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel.*

			Dollars Per Gallon
U.S. Average Wholesale Prices*
Gasoline			$	2.81					3.05
Distillates			3.23						3.25
** On third-party branded petroleum product sales, excluding excise taxes.*

			Thousands of Barrels Daily
Marketing Refined Petroleum Product Sales
Gasoline			1,111						1,129
Distillates			848						1,011
Other			19						17
			1,978						2,157

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

Before-tax income from the M&S segment increased $130 million in the first quarter of 2023, primarily driven by higher realized marketing fuel margins, partially offset by lower results from trading activities.

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

Corporate and Other

			Millions of Dollars
			Three Months Ended March 31
			2023						2022
Loss Before Income Taxes
Net interest expense			$	(124)					(132)
Corporate overhead and other			(159)						(117)
Total Corporate and Other			$	(283)					(249)

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

Net interest expense decreased $8 million, in the first quarter of 2023. The decrease was primarily driven by increased interest income, partially offset by higher interest expense as a result of consolidating DCP Midstream Class A Segment.

Corporate overhead and other costs increased $42 million in the first quarter of 2023. The increase was primarily due to restructuring costs associated with our business transformation, mainly related to consulting fees. See Note 23—Restructuring, in the Notes to Consolidated Financial Statements, for additional information regarding restructuring costs.

CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators

			Millions of Dollars, Except as Indicated
			March 31 2023						December 31 2022
Cash and cash equivalents			$	6,965					6,133
Short-term debt			825						529
Total debt			18,485						17,190
Total equity			34,916						34,106
Percent of total debt to capital*			35%						34
Percent of floating-rate debt to total debt			3%						—
** Capital includes total debt and total equity.*

To meet our short- and long-term liquidity requirements, we use a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. During the first three months of 2023, we generated $1.2 billion of cash from operations and had net borrowings of $1.3 billion. We used available cash primarily to repurchase $800 million of our common stock, pay dividends on our common stock of $486 million, and fund capital expenditures and investments of $378 million. During the first three months of 2023, cash and cash equivalents increased $832 million to $7 billion.

Significant Sources of Capital

Operating Activities

During the first three months of 2023, cash generated by operating activities was $1.2 billion, compared with $1.1 billion for the first three months of 2022. The increase was primarily due to improved earnings, partially offset by unfavorable working capital impacts and decreased distributions from equity affiliates.

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

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

Equity Affiliate Operating Distributions

Our operating cash flows are also impacted by distribution decisions made by our equity affiliates, including CPChem. During the first three months of 2023, cash from operations included aggregate distributions of $369 million from our equity affiliates. During the same period of 2022, cash from operations included aggregate distributions of $585 million, including $299 million from CPChem. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured.

Senior Note 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, commencing on December 1, 2023. Interest on the 2033 Notes is payable semi-annually on June 30 and December 30 of each year, commencing on December 30, 2023.

The Notes are required to be redeemed at a price equal to 101% of the principal amount, plus accrued and unpaid interest, at the earliest occurrence of any of the following events: the DCP LP public common unit acquisition is not completed on or prior to December 31, 2023; the agreement to acquire the DCP LP public common units is terminated; or we notify the trustee of the notes in writing that the DCP LP public common unit acquisition will not be consummated on or prior to December 31, 2023. See Note 21—DCP Midstream Class A Segment, for additional information regarding the definitive agreement we executed on January 5, 2023, to acquire an incremental interest in DCP LP.

Term Loan Agreement

On March 27, 2023 (the Closing Date), 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 (the date of such borrowing, the Funding Date) during a 90-day period commencing on the Closing Date, contingent upon us completing the DCP LP public common unit acquisition, and matures on the third anniversary of the Funding Date. 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 will bear interest at either: (a) Adjusted Term 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. As of March 31, 2023, no borrowings are outstanding under the Term Loan Agreement. See Note 21—DCP Midstream Class A Segment, for additional information regarding the definitive agreement we executed on January 5, 2023, to acquire an incremental interest in DCP LP.

Credit Facilities and Commercial Paper

Phillips 66 and Phillips 66 Company

On June 23, 2022, we entered into a $5 billion revolving credit facility with Phillips 66 Company as the borrower and Phillips 66 as the guarantor. At both March 31, 2023, and December 31, 2022, no amount had been drawn under the $5 billion revolving credit facility or $5 billion uncommitted commercial paper program.

DCP Midstream Class A Segment

At March 31, 2023, DCP LP had $225 million of borrowings outstanding under its $1.4 billion credit facility and $2 million of letters of credit had been issued that supported the credit facility. At December 31, 2022, DCP LP had no borrowings outstanding under its $1.4 billion credit facility, and $10 million in letters of credit had been issued that are supported by the credit facility.

As of March 31, 2023, and December 31, 2022, $350 million and $40 million of borrowings, respectively, were outstanding under DCP LP’s accounts receivable securitization facility, which are secured by its accounts receivable at DCP Receivables LLC.

Total Committed Capacity Available

At March 31, 2023, and December 31, 2022, we had approximately $6.2 billion and $6.7 billion, respectively, of total committed capacity available under the credit facilities described above.

Off-Balance Sheet Arrangements

Lease Residual Value Guarantees

Under the operating lease agreement for our headquarters facility in Houston, Texas, we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at March 31, 2023. We also have residual value guarantees associated with railcar, truck and airplane leases with maximum potential future exposures totaling $164 million. These leases have remaining terms of five to ten years.

Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)

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 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 lower court’s decision to order the EIS and vacate the easement. Therefore, the requirement to prepare the EIS stands. 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 of 2022, and release is expected in the second quarter of 2023.

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 March 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 March 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, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we could be required to support our 25% share of the ongoing expenses, including scheduled interest payments on the notes of approximately $20 million annually, in addition to the potential obligations under the CECU at March 31, 2023.

See Note 12—Guarantees, in the Notes to Consolidated Financial Statements, for additional information on our guarantees.

Capital Requirements

Capital Expenditures and Investments

For information about our capital expenditures and investments, see the “Capital Spending” section below.

Debt Financing

Our debt balance at March 31, 2023, and December 31, 2022, was $18.5 billion and $17.2 billion, respectively. Our total debt-to-capital ratio was 35% and 34% at March 31, 2023, and December 31, 2022, respectively.

On March 15, 2023, DCP LP repaid its 3.875% senior unsecured notes due March 2023 with an aggregate principal amount of $500 million using borrowings under its revolving credit and accounts receivable securitization facilities.

On April 19, 2023, DCP LP announced its intent to redeem its 5.850% junior subordinated notes due May 2043 with an aggregate principal amount outstanding of $550 million on or about May 21, 2023. DCP LP expects to use borrowings under its revolving credit and accounts receivable securitization facilities.

DCP LP Public Common Unit Acquisition

On January 5, 2023, we entered into a definitive agreement with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries will merge with and into DCP LP, with DCP LP surviving as a Delaware limited partnership. Under the terms of the agreement, at the effective time of the merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP Midstream and DCP Midstream GP, LP) issued and outstanding as of immediately prior to the effective time will be converted into the right to receive $41.75 per common unit in cash, without interest. The merger will increase our economic interest in DCP LP from 43.3% to 86.8%. The transaction is expected to close in the second quarter of 2023, subject to customary closing conditions.

If the merger is successfully completed, we will pay approximately $3.8 billion in cash consideration, which we expect to fund through a combination of cash generated from operating activities, proceeds from the offering of the Notes and borrowings under the Term Loan Agreement.

The transaction was unanimously approved by the board of the general partner of DCP LP, based on the unanimous approval and recommendation of its special committee comprised entirely of independent directors after evaluation of the transaction by the special committee in consultation with independent financial and legal advisors. Concurrently with the execution of the agreement, affiliates of Phillips 66, which together own greater than a majority of the outstanding DCP LP common units, delivered their consent to approve the transaction. As a result, DCP LP has not solicited and is not soliciting approval of the transaction by any other holders of DCP LP common units.

See Note 3—DCP Midstream, LLC and Gray Oak Holdings LLC Merger and Note 21—DCP Midstream Class A Segment, in the Notes to the Consolidated Financial Statements, for additional information on the merger of DCP Midstream and Gray Oak Holdings.

DCP LP Cash Distributions to Unitholders

DCP LP’s partnership agreement requires that, within 45 days after the end of each quarter, DCP LP distributes all available cash. During the first quarter of 2023, DCP LP made cash distributions of $51 million to common unitholders other than Phillips 66, $3 million to Series B preferred unitholders and $2 million to Series C preferred unitholders. See Note 21—DCP Midstream Class A Segment, in the Notes to the Consolidated Financial Statements, for additional information.

On April 19, 2023, the board of directors of DCP Midstream GP, LLC, declared a quarterly distribution on DCP LP’s common units of $0.43 per common unit and a quarterly distribution on DCP LP’s Series B and Series C Preferred Units of $0.4922 and $0.4969 per unit, respectively. The distribution on the common units will be paid on May 15, 2023, to unitholders of record on May 1, 2023. The Series B distribution will be paid on June 15, 2023, to unitholders of record on June 1, 2023. The Series C distribution will be paid on July 17, 2023, to unitholders of record on July 3, 2023.

Pending Acquisition

On April 10, 2023, we entered into an agreement to acquire certain marketing assets on the U.S. West Coast for cash consideration of approximately $260 million plus an adjustment for net working capital that will be determined at closing. The transaction is expected to close in the second or early third quarter of 2023, subject to regulatory approval and completion of other customary closing conditions.

Dividends

On February 8, 2023, our Board of Directors declared a quarterly cash dividend of $1.05 per common share, representing an 8% increase from the prior quarter. The dividend was paid on March 1, 2023, to holders of record at the close of business on February 21, 2023.

Share Repurchases

Since July 2012, our board of directors has authorized an aggregate of $20 billion of repurchases of our outstanding common stock. The authorizations do not have expiration dates. Future share repurchases are expected to be funded primarily through available cash. We are not obligated to repurchase any shares of common stock pursuant to these authorizations and may commence, suspend or terminate repurchases at any time. For the three months ended March 31, 2023, we repurchased 7.9 million shares at an aggregate cost of approximately $807 million. Since the inception of our share repurchase program in 2012, we have repurchased 183.8 million shares at an aggregate cost of $14.8 billion. Shares of stock repurchased are held as treasury shares.

Capital Spending

			Millions of Dollars
			Three Months Ended March 31
			2023						2022
Capital Expenditures and Investments
Midstream*			$	124					163
Chemicals			—						—
Refining			227						172
Marketing and Specialties			11						11
Corporate and Other			16						24
Total Capital Expenditures and Investments			$	378					370
Selected Equity Affiliates**
CPChem			142						113
WRB			45						42
			$	187					155
** Includes 100% of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills capital expenditures and investments from August 18, 2022, forward, net of acquired cash.*
*** Our share of joint ventures’ capital spending.*

Midstream

During the first three months of 2023, capital spending in our Midstream segment, including DCP LP, was primarily driven by expansion of gathering systems in the DJ Basin and Permian Basin, other return projects, as well as reliability and maintenance projects.

Chemicals

During the first three months of 2023, on a 100% basis, CPChem’s capital expenditures and investments were $283 million. The capital spending was primarily for the development of petrochemical projects on the U.S. Gulf Coast and in the Middle East, as well as sustaining, debottlenecking and optimization projects on existing assets. CPChem’s capital program was self-funded, and we expect CPChem to continue self-funding its capital program for the remainder of 2023.

Refining

Capital spending for the Refining segment during the first three months of 2023 was primarily for refinery upgrade projects to enhance the yield of high-value products, produce renewable diesel, improve operating integrity of key processing units, and safety-related projects.

Major capital activities included:

• Installation of facilities to improve product value at the Lake Charles refinery.

• Engineering of facilities, procurement of long-lead items and construction to produce biofuels at the San Francisco refinery.

• Installation of facilities to improve product value at the jointly owned Borger refinery.

Marketing and Specialties

Capital spending for the M&S segment during the first three months of 2023 was primarily for the continued development and enhancement of retail sites in Europe.

Corporate and Other

Capital spending for Corporate and Other during the first three months of 2023 was primarily for information technology.

Contingencies

A number of lawsuits involving a variety of claims that arose in the ordinary course of business have been filed against us or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal, or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is uncertain.

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

Legal and Tax Matters

Our legal and tax matters are handled by our legal and tax organizations. These organizations apply their knowledge, experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. We employ a litigation management process to manage and monitor the legal proceedings. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. In the case of income tax-related contingencies, we monitor tax legislation and court decisions, the status of tax audits and the statute of limitations within which a taxing authority can assert a liability.

Environmental

Like other companies in our industry, we are subject to numerous international, federal, state and local environmental laws and regulations. For a discussion of the most significant international and federal environmental laws and regulations to which we are subject, see the “Environmental” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report on Form 10-K.

We are required to purchase RINs in the open market to satisfy the portion of our obligation under the Renewable Fuel Standard (RFS) that is not fulfilled by blending renewable fuels into the motor fuels we produce. For the three months ended March 31, 2023 and 2022, we incurred expenses of $238 million and $152 million, respectively, associated with our obligation to purchase RINs in the open market to comply with the RFS for our wholly owned refineries. These expenses are included in the “Purchased crude oil and products” line item on our consolidated statement of income. Our jointly owned refineries also incurred expenses associated with the purchase of RINs in the open market, of which our share was $114 million and $85 million for the three months ended March 31, 2023 and 2022, respectively. These expenses are included in the “Equity in earnings of affiliates” line item on our consolidated statement of income. The amount of these expenses and fluctuations between periods is primarily driven by the market price of RINs, refinery production, blending activities and renewable volume obligation requirements.

We occasionally receive requests for information or notices of potential liability from the EPA and state environmental agencies alleging that we are a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or an equivalent state statute. On occasion, we also have been made a party to cost recovery litigation by those agencies or by private parties. These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically are not owned by us, but allegedly contain wastes attributable to our past operations. At March 31, 2023 and December 31, 2022, we had been notified of potential liability under CERCLA and comparable state laws at 22 sites within the United States.

Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses, environmental costs and liabilities are inherent concerns in certain of our operations and products, and there can be no assurance that those costs and liabilities will not be material. However, we currently do not expect any material adverse effect on our results of operations or financial position as a result of compliance with current environmental laws and regulations.

Climate Change

There has been a broad range of proposed or promulgated state, national and international laws focusing on GHG emissions reduction, including various regulations proposed or issued by the EPA. These proposed or promulgated laws apply or could apply in states and/or countries where we have interests or may have interests in the future. Laws regulating GHG emissions continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws potentially could have a material impact on our results of operations and financial condition as a result of increasing costs of compliance, lengthening project implementation and agency reviews, or reducing demand for certain hydrocarbon products. We continue to monitor legislative and regulatory actions and legal proceedings globally relating to GHG emissions for potential impacts on our operations.

For examples of legislation and regulation or precursors for possible regulation that do or could affect our operations, see the “Climate Change” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Annual Report on Form 10-K.

We consider and take into account anticipated future GHG emissions in designing and developing major facilities and projects, and implement energy efficiency initiatives to reduce GHG emissions. Data on our GHG emissions, legal requirements regulating such emissions, and the possible physical effects of climate change on our coastal assets are incorporated into our planning, investment, and risk management decision-making. We are working to continuously improve operational and energy efficiency through resource and energy conservation throughout our operations.

In February 2022, we announced our intention to reduce our Scope 1 and Scope 2 GHG emissions intensity related to our operations by 50% of 2019 levels by the year 2050. This new target builds upon our previously announced 2030 GHG emissions intensity targets to reduce Scope 1 and Scope 2 emissions from our operations by 30% and Scope 3 emissions from our energy products by 15% compared to 2019 levels.

GUARANTOR FINANCIAL INFORMATION

We have various cross guarantees between Phillips 66 and its wholly owned subsidiary Phillips 66 Company (together, the Obligor Group) with respect to publicly held debt securities. Phillips 66 conducts substantially all of its operations through subsidiaries, including Phillips 66 Company, and those subsidiaries generate substantially all of its operating income and cash flow. Phillips 66 has fully and unconditionally guaranteed the payment obligations of Phillips 66 Company with respect to its publicly held debt securities. In addition, Phillips 66 Company has fully and unconditionally guaranteed the payment obligations of Phillips 66 with respect to its publicly held debt securities. All guarantees are full and unconditional. At March 31, 2023, $13.3 billion of senior unsecured notes outstanding has been guaranteed by the Obligor Group.

See the “Significant Sources of Capital” section for additional information regarding the Exchange Offers by Phillips 66 Company for existing senior notes of Phillips 66 Partners that settled in May 2022.

Summarized financial information of the Obligor Group is presented on a combined basis. Intercompany transactions among the members of the Obligor Group have been eliminated. The financial information of non-guarantor subsidiaries has been excluded from the summarized financial information. Significant intercompany transactions and receivable/payable balances between the Obligor Group and non-guarantor subsidiaries are presented separately in the summarized financial information.

The summarized results of operations for the three months ended March 31, 2023, and the summarized financial position at March 31, 2023, and December 31, 2022, for the Obligor Group on a combined basis were:

Summarized Combined Statement of Income			Millions of Dollars
			Three Months Ended March 31, 2023
Sales and other operating revenues			$	24,824
Revenues and other income—non-guarantor subsidiaries			1,403
Purchased crude oil and products—third parties			14,695
Purchased crude oil and products—related parties			3,671
Purchased crude oil and products—non-guarantor subsidiaries			4,778
Income before income taxes			1,505
Net income			1,191

Summarized Combined Balance Sheet			Millions of Dollars
			March 31 2023						December 31 2022
Accounts and notes receivable—third parties			$	4,270					5,485
Accounts and notes receivable—related parties			1,094						1,376
Due from non-guarantor subsidiaries, current			936						741
Total current assets			15,952						15,566
Investments and long-term receivables			10,840						10,433
Net properties, plants and equipment			11,675						11,652
Goodwill			1,047						1,047
Due from non-guarantor subsidiaries, noncurrent			2,092						2,163
Other assets associated with non-guarantor subsidiaries			1,970						2,144
Total noncurrent assets			29,354						29,209
Total assets			45,306						44,775
Due to non-guarantor subsidiaries, current			$	2,284					2,297
Total current liabilities			11,001						11,148
Long-term debt			12,494						12,060
Due to non-guarantor subsidiaries, noncurrent			7,318						7,088
Total noncurrent liabilities			25,994						25,223
Total liabilities			36,995						36,371
Total equity			8,311						8,404
Total liabilities and equity			45,306						44,775

NON-GAAP RECONCILIATIONS

Refining

Our realized refining margins measure the difference between (a) sales and other operating revenues derived from the sale of petroleum products manufactured at our refineries and (b) costs of feedstocks, primarily crude oil, used to produce the petroleum products. The realized refining margins are adjusted to include our proportional share of our joint venture refineries’ realized margins, as well as to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized refining margins are converted to a per-barrel basis by dividing them by total refinery processed inputs (primarily crude oil) measured on a barrel basis, including our share of inputs processed by our joint venture refineries. Our realized refining margin per barrel is intended to be comparable with industry refining margins, which are known as “crack spreads.” As discussed in “Executive Overview and Business Environment—Business Environment,” industry crack spreads measure the difference between market prices for refined petroleum products and crude oil. We believe realized refining margin per barrel calculated on a similar basis as industry crack spreads provides a useful measure of how well we performed relative to benchmark industry refining margins.

The GAAP performance measure most directly comparable to realized refining margin per barrel is the Refining segment’s “income (loss) before income taxes per barrel.” Realized refining margin per barrel excludes items that are typically included in a manufacturer’s gross margin, such as depreciation and operating expenses, and other items used to determine income (loss) before income taxes, such as general and administrative expenses. It also includes our proportional share of joint venture refineries’ realized refining margins and excludes special items. Because realized refining margin per barrel is calculated in this manner, and because realized refining margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of income (loss) before income taxes to realized refining margins:

			Millions of Dollars, Except as Indicated
Realized Refining Margins			Atlantic Basin/ Europe			Gulf Coast			Central Corridor			West Coast			Worldwide
Three Months Ended March 31, 2023
Income before income taxes			$	142		705			739			22			1,608
Plus:
Taxes other than income taxes			22			33			25			33			113
Depreciation, amortization and impairments			50			60			38			54			202
Selling, general and administrative expenses			10			4			21			10			45
Operating expenses			365			286			166			350			1,167
Equity in (earnings) losses of affiliates			2			(1)			(200)			—			(199)
Other segment (income) expense, net			20			5			(1)			1			25
Proportional share of refining gross margins contributed by equity affiliates			26			—			402			—			428
Realized refining margins			$	637		1,092			1,190			470			3,389
Total processed inputs (thousands of barrels)			39,472			51,349			26,004			28,416			145,241
Adjusted total processed inputs (thousands of barrels)*			39,472			51,349			44,315			28,416			163,552
Income before income taxes per barrel (dollars per barrel)**			$	3.60		13.73			28.42			0.77			11.07
Realized refining margins (dollars per barrel)***			16.13			21.28			26.86			16.53			20.72
Three Months Ended March 31, 2022
Income (loss) before income taxes			$	152		41			(135)			115			173
Plus:
Taxes other than income taxes			19			27			18			24			88
Depreciation, amortization and impairments			52			56			35			60			203
Selling, general and administrative expenses			6			4			13			7			30
Operating expenses			296			317			184			306			1,103
Equity in losses of affiliates			3			2			16			—			21
Other segment (income) expense, net			12			—			(4)			1			9
Proportional share of refining gross margins contributed by equity affiliates			23			—			205			—			228
Realized refining margins			$	563		447			332			513			1,855
Total processed inputs (thousands of barrels)			48,015			52,151			23,691			28,877			152,734
Adjusted total processed inputs (thousands of barrels)*			48,015			52,151			42,267			28,877			171,310
Income (loss) before income taxes per barrel (dollars per barrel)**			$	3.17		0.79			(5.70)			3.98			1.13
Realized refining margins (dollars per barrel)***			11.71			8.59			7.89			17.74			10.83
** Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.*
*** Income (loss) before income taxes divided by total processed inputs.*
**** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.*

Marketing

Our realized marketing fuel margins measure the difference between (a) sales and other operating revenues derived from the sale of fuels in our M&S segment and (b) costs of those fuels. The realized marketing fuel margins are adjusted to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized marketing fuel margins are converted to a per-barrel basis by dividing them by sales volumes measured on a barrel basis. We believe realized marketing fuel margin per barrel demonstrates the value uplift our marketing operations provide by optimizing the placement and ultimate sale of our refineries’ fuel production.

Within the M&S segment, the GAAP performance measure most directly comparable to realized marketing fuel margin per barrel is the marketing business’ “income before income taxes per barrel.” Realized marketing fuel margin per barrel excludes items that are typically included in gross margin, such as depreciation and operating expenses, and other items used to determine income before income taxes, such as general and administrative expenses. Because realized marketing fuel margin per barrel excludes these items, and because realized marketing fuel margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of income before income taxes to realized marketing fuel margins:

			Millions of Dollars, Except as Indicated
			Three Months Ended March 31, 2023									Three Months Ended March 31, 2022
			U.S.			International						U.S.			International
Realized Marketing Fuel Margins
Income before income taxes			$	273		125						191			23
Plus:
Depreciation and amortization			3			18						3			18
Selling, general and administrative expenses			181			62						182			63
Equity in earnings of affiliates			(3)			(22)						(7)			(26)
Other operating revenues*			(108)			(13)						(107)			(12)
Other expense, net			5			6						6			4
Marketing margins			351			176						268			70
Less: margin for nonfuel related sales			—			12						—			13
Realized marketing fuel margins			$	351		164						268			57
Total fuel sales volumes (thousands of barrels)			152,662			25,380						169,196			24,926
Income before income taxes per barrel (dollars per barrel)			$	1.79		4.93						1.13			0.92
Realized marketing fuel margins (dollars per barrel)**			2.30			6.45						1.59			2.30
** Includes other nonfuel revenues.*
*** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.*

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can normally identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions that convey the prospective nature of events or outcomes, but the absence of such words does not mean a statement is not forward-looking.

We based the forward-looking statements on our current expectations, estimates and projections about us, our operations, our joint ventures and entities in which we have equity interests, as well as the industries in which we and they operate. We caution you not to place undue reliance on these forward-looking statements as they are not guarantees of future performance and involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in any forward-looking statements. Such differences could result from a variety of factors, including:

• Fluctuations in NGL, crude oil, refined petroleum product and natural gas prices and refining, marketing and petrochemical margins.

• Changes in governmental policies relating to NGL, crude oil, natural gas or refined petroleum products pricing, regulation or taxation, including exports.

• Capacity constraints in, or other limitations on, the pipelines, storage and fractionation facilities to which we deliver natural gas or NGL and the availability of alternative markets and arrangements for our natural gas and NGL.

• Actions taken by OPEC and non-OPEC oil producing countries impacting supply and demand and correspondingly, commodity prices.

• The ability to achieve the expected benefits of the integration of DCP LP and any other benefits that may result from the buy-in of DCP’s publicly-held common units, if consummated.

• Unexpected changes in costs or technical requirements for constructing, modifying or operating our facilities or transporting our products.

• Unexpected technological or commercial difficulties in manufacturing, refining or transporting our products, including chemical products.

• Lack of, or disruptions in, adequate and reliable transportation for our NGL, crude oil, natural gas and refined petroleum products.

• The level and success of drilling and quality of production volumes around our midstream assets.

• The inability to timely obtain or maintain permits, including those necessary for capital projects.

• The inability to comply with government regulations or make capital expenditures required to maintain compliance.

• Changes to worldwide government policies relating to renewable fuels, climate change and greenhouse gas emissions that adversely affect programs like the renewable fuel standards program, low carbon fuel standards and tax credits for biofuels.

• Domestic and international economic and political developments including armed hostilities, such as the Russia-Ukraine war, instability in the financial services and banking sector, excess inflation, expropriation of assets and changes in fiscal policy.

• The impact on commercial activity and demand for refined petroleum products from any widespread public health crisis, as well as the extent and duration of recovery of economies and demand for our products following any such crisis.

• Failure to complete definitive agreements and feasibility studies for, and to complete construction of, announced and future capital projects on time and within budget.

• Potential disruption or interruption of our operations or damage to our facilities due to accidents, weather and climate events, civil unrest, insurrections, political events, terrorism or cyberattacks.

• The inability to meet our sustainability goals, including reducing our GHG emissions intensity, developing and protecting new technologies, and commercializing lower-carbon opportunities.

• Failure of new products and services to achieve market acceptance.

• International monetary conditions and exchange controls.

• Substantial investments required, or reduced demand for products, as a result of existing or future environmental rules and regulations, including GHG emissions reductions and reduced consumer demand for refined petroleum products.

• Liability resulting from litigation or for remedial actions, including removal and reclamation obligations under environmental regulations.

• Changes in tax, environmental and other laws and regulations (including alternative energy mandates) applicable to our business.

• Political and societal concerns about climate change that could result in changes to our business or operations or increase expenditures, including litigation-related expenses.

• Changes in estimates or projections used to assess fair value of intangible assets, goodwill and property and equipment and/or strategic decisions or other developments with respect to our asset portfolio that cause impairment charges.

• Limited access to capital or significantly higher cost of capital related to changes to our credit profile or illiquidity or uncertainty in the domestic or international financial markets.

• The creditworthiness of our customers and the counterparties to our transactions, including the impact of bankruptcies.

• The operation, financing and distribution decisions of our joint ventures that we do not control.

• The factors generally described in Item 1A.—Risk Factors in our 2022 Annual Report on Form 10-K.