filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, “the company,” “we,” “our,” “us” and “Phillips 66” are used in this report to refer to the businesses of Phillips 66 and its consolidated subsidiaries.
Management’s Discussion and Analysis is the company’s analysis of its financial performance, financial condition, and significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the company’s plans, strategies, objectives, expectations and intentions that are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions often identify forward-looking statements, but the absence of these words does not mean a statement is not forward-looking. The forward-looking statements made in this Quarterly Report on Form 10-Q are based on events or circumstances as of the date on which the statements are made. The company does not undertake to update, revise or correct any of the forward-looking information included in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events unless required to do so pursuant to applicable law. 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 term “earnings” as used in Management’s Discussion and Analysis refers to net income 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 September 30, 2023, we had total assets of $77.8 billion. Our common stock trades on the New York Stock Exchange under the symbol PSX.
Executive Overview
In the third quarter of 2023, we reported earnings of $2.1 billion and generated cash from operating activities of $2.7 billion. We used available cash to fund capital expenditures and investments of $855 million, repurchase $752 million of common stock, and pay dividends on our common stock of $465 million. We ended the third quarter of 2023 with $3.5 billion of cash and cash equivalents.
Strategic Priorities Update
In November 2022, we announced financial and operational targets in furtherance of achieving the company’s strategic priorities. On October 27, 2023, we announced updates to certain targets underpinning our strategic priorities that are intended to enhance long-term shareholder value:
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We increased our target for returns to shareholders through share repurchases and dividends from July 2022 through year-end 2024 to a range of $13 billion to $15 billion from a range of $10 billion to $12 billion. We plan to return at least 50% of net cash provided by operating activities to shareholders through share repurchases and dividends. In support of the increased target, our board of directors recently approved a $5 billion increase to our share repurchase authorization. The amount and timing of future dividend payments and the level and timing of future share repurchases will depend on various factors including our share price, results of operations, financial condition and cash required for future business plans.
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We plan to monetize certain assets that are no longer considered to be a long-term strategic fit. We expect to generate proceeds of over $3 billion from the disposition of these non-core assets, which we plan to use to further advance our strategic priorities, including returns to shareholders through share repurchases and dividends.
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We continue to progress our multi-year business transformation aimed at sustainably reducing our cost structure, and we are on track to exceed our targeted run-rate cost reduction of $800 million per year and sustaining capital reduction of $200 million per year by the end of 2023. As such, we are now targeting a run-rate cost reduction of $1.1 billion per year and a sustaining capital reduction of $300 million per year by the end of 2024.
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We intend to enhance our commercial supply and trading capabilities to further increase integrated value.
DCP Midstream, LLC and Gray Oak Holdings LLC Merger (DCP Midstream Merger)
As part of executing our natural gas liquids (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 DCP Midstream 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 indirect economic interest in DCP LP of 43.3%.
Starting on August 18, 2022, our financial results reflect the consolidation of DCP Midstream Class A Segment, as well as DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills). Since the DCP Midstream Merger, we have taken steps to integrate the operations and personnel of DCP Midstream Class A Segment to enable the capture of commercial and operational synergies.
DCP Midstream, LP Merger (DCP LP Merger)
To further advance our NGL growth strategy 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, without interest. The DCP LP Merger increased our aggregate direct and indirect economic interest in DCP LP from 43.3% to 86.8%.
See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding these mergers.
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 NGL, natural gas and condensate prices. During the third quarter of 2023, NGL and natural gas prices decreased, compared with the third quarter of 2022, due to higher inventories from increased supply from production and slower demand growth for NGLs.
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 third quarter of 2023, the benchmark high-density polyethylene chain margin increased, compared with the third quarter of 2022, mainly due to lower feedstock prices during the quarter.
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 $82.49 per barrel during the third quarter of 2023, compared with an average of $91.76 per barrel in the third 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 averaged $36.06 per barrel during the third quarter of 2023, compared with an average of $36.29 per barrel in the third quarter of 2022. In the third quarter of 2023, compared with the third quarter of 2022, gasoline prices increased mainly due to lower inventories resulting from refinery maintenance, while diesel prices declined due to increased supply.
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 and nine months ended September 30, 2023, is based on a comparison with the corresponding periods of 2022.
Basis of Presentation
Effective August 18, 2022, forward, in connection with the DCP Midstream Merger 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 DCP Midstream, LP Mergers, Note 4—Business Combinations, and Note 15—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding the DCP Midstream Merger.
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 and nine months ended September 30, 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 September 30 | Nine Months Ended September 30 | |||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Midstream | $ | 712 | 3,608 | 2,018 | 4,078 | |||||||||||||||
| Chemicals | 104 | 135 | 494 | 804 | ||||||||||||||||
| Refining | 1,710 | 2,907 | 4,452 | 6,176 | ||||||||||||||||
| Marketing and Specialties | 633 | 828 | 1,703 | 1,863 | ||||||||||||||||
| Corporate and Other | (346) | (320) | (959) | (829) | ||||||||||||||||
| Income before income taxes | 2,813 | 7,158 | 7,708 | 12,092 | ||||||||||||||||
| Income tax expense | 670 | 1,618 | 1,754 | 2,713 | ||||||||||||||||
| Net income | 2,143 | 5,540 | 5,954 | 9,379 | ||||||||||||||||
| Less: net income attributable to noncontrolling interests | 46 | 149 | 199 | 239 | ||||||||||||||||
| Net income attributable to Phillips 66 | $ | 2,097 | 5,391 | 5,755 | 9,140 |
Our net income attributable to Phillips 66 in the third quarter and nine-month period of 2023 was $2.1 billion and $5.8 billion, respectively, compared with $5.4 billion and $9.1 billion in the third quarter and nine-month period of 2022, respectively.
The decreases in the third quarter and nine-month period of 2023 were primarily due to the recognition of an aggregate before-tax gain of $3 billion recognized by the Midstream segment in 2022 in connection with the DCP Midstream Merger and a decline in realized refining margins, partially offset by lower income tax expense. In addition, the decrease in the nine-month period 2023 was also partially offset by lower unrealized losses related to our investment in NOVONIX Limited (NOVONIX).
See the “Segment Results” section for additional information about our segment performance and Note 20—Income Taxes, in the Notes to Consolidated Financial Statements, for additional information regarding income taxes. See also Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding these merger transactions.
Statement of Income Analysis
Sales and other operating revenues for the third quarter and nine-month period of 2023 decreased 12% and 16%, respectively, and purchased crude oil and products decreased 11% and 18%, respectively. These decreases were mainly due to lower prices for refined petroleum products, crude oil and NGL.
Equity in earnings of affiliates decreased 28% and 27% in the third quarter and nine-month period of 2023, respectively. The decrease in both periods reflects lower equity earnings from DCP Midstream, DCP Sand Hills, DCP Southern Hills and Gray Oak Pipeline due to the DCP Midstream Merger in August 2022, as well as lower equity earnings from CPChem primarily due to a decline in margins. The third quarter of 2023 also reflects lower equity earnings from WRB Refining LP (WRB), primarily due to lower margins, partially offset by improved operating costs. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, and the Chemicals segment analysis in the “Segment Results” section for additional information.
Net gain on dispositions increased $101 million and $122 million for the third quarter and nine-month period of 2023, respectively, primarily due to a before-tax gain recognized in the Midstream segment in the third quarter of 2023 associated with the sale of our 25% ownership interest in the South Texas Gateway Terminal.
Other income decreased $3,011 million and $2,536 million in the third quarter and nine-month period of 2023, respectively. The decrease in both periods of 2023 was primarily due to an aggregate before-tax gain of $3,013 million recognized in the third quarter of 2022 in our Midstream segment in connection with the DCP Midstream Merger. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding the merger.
Selling, general and administrative expenses increased 21% in the nine-month period 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. See Note 23—Restructuring, in the Notes to Consolidated Financial Statements, for additional information regarding restructuring costs.
Depreciation and amortization increased 13% and 29% in the third quarter and nine-month period of 2023, respectively. The increases were 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 29% and 38% in the third quarter and nine-month period of 2023, respectively. The increases were 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 40% and 59% in the third quarter and nine-month period of 2023, respectively. 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.
Income tax expense decreased 59% and 35% in the third quarter and nine-month period of 2023, respectively, primarily due to lower 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 decreased 69% and 17% in the third quarter and nine-month period of 2023, respectively. The decreases in both periods reflect the impacts of the DCP LP Merger in June 2023, and the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills and the derecognition of a noncontrolling interest related to Gray Oak Holdings as a result of the DCP Midstream Merger in August 2022. The decrease in the nine-month period was also due to the merger between us and Phillips 66 Partners LP (Phillips 66 Partners) that occurred in the first quarter of 2022. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 21—DCP Midstream Class A Segment, and Note 22—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding these merger transactions.
Segment Results
Midstream
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Millions of Dollars | ||||||||||||||||||||
| Income (Loss) Before Income Taxes | ||||||||||||||||||||
| Transportation | $ | 386 | 411 | 976 | 939 | |||||||||||||||
| NGL and Other | 335 | 3,230 | 1,078 | 3,570 | ||||||||||||||||
| NOVONIX | (9) | (33) | (36) | (431) | ||||||||||||||||
| Total Midstream | $ | 712 | 3,608 | 2,018 | 4,078 |
| Thousands of Barrels Daily | ||||||||||||||||||||
| Transportation Volumes | ||||||||||||||||||||
| Pipelines* | 3,039 | 3,084 | 3,111 | 3,083 | ||||||||||||||||
| Terminals | 3,167 | 3,066 | 3,173 | 2,962 | ||||||||||||||||
| Operating Statistics | ||||||||||||||||||||
| NGL fractionated** | 703 | 508 | 700 | 477 | ||||||||||||||||
| NGL production*** | 432 | 434 | 432 | 424 |
** 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* | $ | 0.67 | 0.98 | 0.67 | 1.08 | |||||||||||||||
| ** 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 DCP Midstream Merger, 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 DCP Midstream Merger and consolidation, equity earnings from our investment in DCP Midstream prior to the DCP Midstream Merger have been included with the results of our NGL and Other business.
In the Notes to Consolidated Financial Statements, see Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP Midstream Merger.
Results from our Midstream segment decreased $2,896 million and $2,060 million in the third quarter and nine-month period of 2023, respectively.
Results from our Transportation business decreased $25 million in the third quarter of 2023 and increased $37 million in the nine-month period of 2023.
The decrease in the third quarter of 2023 was primarily due to a before-tax gain of $182 million related to the transfer of an indirect economic interest in Gray Oak Pipeline as part of the DCP Midstream Merger in August 2022, partially offset by a $101 million before-tax gain on the sale of our 25% ownership interest in the South Texas Gateway Terminal in August 2023, lower operating costs and higher pipeline tariffs. The increase for the nine-month period of 2023 was primarily due to the South Texas Gateway Terminal before-tax gain recognized in August 2023 and lower operating costs, partially offset by the DCP Midstream Merger before-tax gain recognized in August 2022.
Results from our NGL and Other business decreased $2,895 million and $2,492 million in the third quarter and nine-month period of 2023, respectively. The decrease in both periods was primarily due to an aggregate before-tax gain of $2,831 million recognized in the third quarter of 2022 from remeasuring our 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.
The fair value of our investment in NOVONIX declined by $9 million in the third quarter of 2023, compared with a decline of $33 million in the third quarter of 2022. The fair value of our investment in NOVONIX declined by $36 million in the nine-month period of 2023, compared with a decline of $431 million in the nine-month period 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 September 30 | Nine Months Ended September 30 | |||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Millions of Dollars | ||||||||||||||||||||
| Income Before Income Taxes | $ | 104 | 135 | 494 | 804 |
| Millions of Pounds | ||||||||||||||||||||
| CPChem Externally Marketed Sales Volumes* | 6,241 | 5,969 | 17,839 | 18,265 | ||||||||||||||||
| ** 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) | 99 | % | 90 | 97 | 95 | |||||||||||||||
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 $31 million and $310 million in the third quarter and nine-month period of 2023, respectively. The decrease in the third quarter and nine-month period of 2023 was primarily due to lower margins, partially offset by decreased utility costs and higher sales volumes. The decrease in the nine-month period of 2023 also reflected lower equity earnings from CPChem’s equity affiliates.
See the “Executive Overview and Business Environment” section for information on market factors impacting CPChem’s results.
Refining
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Millions of Dollars | ||||||||||||||||||||
| Income Before Income Taxes | ||||||||||||||||||||
| Atlantic Basin/Europe | $ | 444 | 530 | 735 | 1,784 | |||||||||||||||
| Gulf Coast | 342 | 770 | 1,290 | 1,717 | ||||||||||||||||
| Central Corridor | 361 | 1,343 | 1,730 | 1,699 | ||||||||||||||||
| West Coast | 563 | 264 | 697 | 976 | ||||||||||||||||
| Worldwide | $ | 1,710 | 2,907 | 4,452 | 6,176 |
| Dollars Per Barrel | ||||||||||||||||||||
| Income Before Income Taxes | ||||||||||||||||||||
| Atlantic Basin/Europe | $ | 9.50 | 10.72 | 5.61 | 12.11 | |||||||||||||||
| Gulf Coast | 6.44 | 15.27 | 8.34 | 11.07 | ||||||||||||||||
| Central Corridor | 14.89 | 53.36 | 22.29 | 23.76 | ||||||||||||||||
| West Coast | 17.48 | 9.14 | 7.59 | 11.09 | ||||||||||||||||
| Worldwide | 10.94 | 18.89 | 9.78 | 13.37 | ||||||||||||||||
| Realized Refining Margins* | ||||||||||||||||||||
| Atlantic Basin/Europe | $ | 16.85 | 19.22 | 14.61 | 20.55 | |||||||||||||||
| Gulf Coast | 13.58 | 22.30 | 15.57 | 18.84 | ||||||||||||||||
| Central Corridor | 18.05 | 38.76 | 22.43 | 24.92 | ||||||||||||||||
| West Coast | 32.23 | 28.64 | 21.94 | 26.68 | ||||||||||||||||
| Worldwide | 18.96 | 26.87 | 18.30 | 22.17 |
** 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 before income taxes per barrel.*
| Thousands of Barrels Daily | ||||||||||||||||||||
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||
| Operating Statistics | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
| Refining operations* | ||||||||||||||||||||
| Atlantic Basin/Europe | ||||||||||||||||||||
| Crude oil capacity | 537 | 537 | 537 | 537 | ||||||||||||||||
| Crude oil processed | 492 | 525 | 467 | 518 | ||||||||||||||||
| Capacity utilization (percent) | 92 | % | 98 | 87 | 96 | |||||||||||||||
| Refinery production | 511 | 539 | 482 | 543 | ||||||||||||||||
| Gulf Coast | ||||||||||||||||||||
| Crude oil capacity | 529 | 529 | 529 | 529 | ||||||||||||||||
| Crude oil processed | 519 | 481 | 512 | 493 | ||||||||||||||||
| Capacity utilization (percent) | 98 | % | 91 | 97 | 93 | |||||||||||||||
| Refinery production | 587 | 557 | 576 | 578 | ||||||||||||||||
| Central Corridor | ||||||||||||||||||||
| Crude oil capacity | 531 | 531 | 531 | 531 | ||||||||||||||||
| Crude oil processed | 492 | 492 | 488 | 460 | ||||||||||||||||
| Capacity utilization (percent) | 93 | % | 93 | 92 | 87 | |||||||||||||||
| Refinery production | 514 | 512 | 509 | 477 | ||||||||||||||||
| West Coast | ||||||||||||||||||||
| Crude oil capacity | 319 | 364 | 319 | 364 | ||||||||||||||||
| Crude oil processed | 323 | 290 | 306 | 297 | ||||||||||||||||
| Capacity utilization (percent) | 101 | % | 80 | 96 | 81 | |||||||||||||||
| Refinery production | 348 | 312 | 335 | 321 | ||||||||||||||||
| Worldwide | ||||||||||||||||||||
| Crude oil capacity | 1,916 | 1,961 | 1,916 | 1,961 | ||||||||||||||||
| Crude oil processed | 1,826 | 1,788 | 1,773 | 1,768 | ||||||||||||||||
| Capacity utilization (percent) | 95 | % | 91 | 93 | 90 | |||||||||||||||
| Refinery production | 1,960 | 1,920 | 1,902 | 1,919 | ||||||||||||||||
| ** 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 decreased $1,197 million and $1,724 million in the third quarter and nine-month period of 2023, respectively. The decrease in both periods was primarily due to lower realized margins, partially offset by higher volumes and decreased utility costs. The decrease in realized margins in the third quarter of 2023 was primarily driven by unfavorable inventory hedging impacts, lower clean product differentials and a decline in market crack spreads. The decrease in realized margins in the nine-month period of 2023 was primarily driven by a decline in market crack spreads.
Our worldwide refining crude oil capacity utilization rate was 95% and 93% in the third quarter and nine-month period of 2023, respectively, compared with 91% and 90% in the third quarter and nine-month period of 2022, respectively. See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.
Marketing and Specialties
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Millions of Dollars | ||||||||||||||||||||
| Income Before Income Taxes | $ | 633 | 828 | 1,703 | 1,863 |
| Dollars Per Barrel | ||||||||||||||||||||
| Income Before Income Taxes | ||||||||||||||||||||
| U.S. | $ | 2.60 | 2.16 | 2.30 | 2.05 | |||||||||||||||
| International | 4.14 | 12.60 | 4.91 | 7.06 | ||||||||||||||||
| Realized Marketing Fuel Margins* | ||||||||||||||||||||
| U.S. | $ | 3.03 | 2.49 | 2.76 | 2.44 | |||||||||||||||
| International | 5.27 | 12.40 | 6.34 | 7.74 |
** 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 | $ | 3.25 | 3.37 | 3.02 | 3.44 | |||||||||||||||
| Distillates | 3.48 | 3.96 | 3.24 | 3.88 | ||||||||||||||||
| ** On third-party branded petroleum product sales, excluding excise taxes.* |
| Thousands of Barrels Daily | ||||||||||||||||||||
| Marketing Refined Petroleum Product Sales | ||||||||||||||||||||
| Gasoline | 1,224 | 1,190 | 1,187 | 1,165 | ||||||||||||||||
| Distillates | 984 | 935 | 936 | 968 | ||||||||||||||||
| Other | 18 | 16 | 19 | 17 | ||||||||||||||||
| 2,226 | 2,141 | 2,142 | 2,150 |
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 decreased $195 million and $160 million in the third quarter and nine-month period of 2023, respectively. The decrease in both periods was primarily driven by lower realized international marketing fuel margins and decreased equity earnings from affiliates, partially offset by higher U.S. realized marketing fuel margins. The decrease in the nine-month period of 2023 also reflected 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 September 30 | Nine Months Ended September 30 | |||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Loss Before Income Taxes | ||||||||||||||||||||
| Net interest expense | $ | (163) | (136) | (469) | (395) | |||||||||||||||
| Corporate overhead and other | (183) | (184) | (490) | (434) | ||||||||||||||||
| Total Corporate and Other | $ | (346) | (320) | (959) | (829) |
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 increased $27 million and $74 million, in the third quarter and nine-month period of 2023, respectively. The increases in both periods were primarily driven by higher interest expense as a result of consolidating DCP Midstream Class A Segment, partially offset by increased interest income. Additionally, the increase in net interest expense for the nine-month period of 2023 included a $53 million before-tax loss on the early redemption of DCP LP’s 5.850% junior subordinated notes. See Note 11—Debt, in the Notes to Consolidated Financial Statements, for additional information regarding DCP LP’s redemption of its junior subordinated notes.
Corporate overhead and other costs increased $56 million in the nine-month period of 2023 primarily due to higher costs related to our business transformation. 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 | |||||||||||
| September 30 2023 | December 31 2022 | ||||||||||
| Cash and cash equivalents | $ | 3,539 | 6,133 | ||||||||
| Short-term debt | 913 | 529 | |||||||||
| Total debt | 19,444 | 17,190 | |||||||||
| Total equity | 31,989 | 34,106 | |||||||||
| Percent of total debt to capital* | 38% | 34 | |||||||||
| Percent of floating-rate debt to total debt | 10% | — | |||||||||
| ** 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 nine months of 2023, we generated $4.8 billion of cash from operations and had net borrowings of $2.1 billion. We used available cash primarily to repurchase $4 billion of noncontrolling interests in DCP LP, repurchase $2.9 billion of our common stock, fund capital expenditures and investments of $1.8 billion, and pay dividends on our common stock of $1.4 billion. During the first nine months of 2023, cash and cash equivalents decreased to $3.5 billion.
Significant Sources of Capital
Operating Activities
During the first nine months of 2023, cash generated by operating activities was $4.8 billion, compared with $6.1 billion for the first nine months of 2022. The decrease was primarily due to lower earnings, decreased distributions from equity affiliates and higher contributions to our pension plans.
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 nine months of 2023, cash from operations included aggregate distributions of $969 million from our equity affiliates. During the same period of 2022, cash from operations included aggregate distributions of $1.4 billion. The decrease in equity distributions was primarily due to lower distributions 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.
Related Party Advance Term Loan Agreements
At September 30, 2023, and December 31, 2022, borrowings outstanding under Advance Term Loan agreements with WRB totaled $290 million and $25 million, respectively. Borrowings under these agreements are due between 2035 and 2038 and bear interest at a floating rate based on Adjusted Term SOFR plus an applicable margin, payable on the last day of each month.
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) 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. At September 30, 2023, $1.25 billion was borrowed under the Term Loan Agreement, which matures in June 2026. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding the DCP LP Merger.
Credit Facilities and Commercial Paper
Phillips 66 and Phillips 66 Company
We have a $5 billion revolving credit facility with Phillips 66 Company as the borrower and Phillips 66 as the guarantor and a $5 billion commercial paper program with Phillips 66 as the borrower that is supported by the revolving credit facility. At both September 30, 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 September 30, 2023, DCP LP had $110 million of borrowings outstanding under its $1.4 billion credit facility and $2 million of letters of credit had been issued that are supported by 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.
At September 30, 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 September 30, 2023, and December 31, 2022, we had approximately $6.3 billion and $6.7 billion, respectively, of total committed capacity available under the credit facilities described above.
Dispositions
On August 1, 2023, we sold our 25% ownership interest in the South Texas Gateway Terminal for approximately $275 million.
On February 28, 2023, we closed on the sale of the Belle Chasse Terminal for approximately $76 million.
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 September 30, 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 one 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 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 option would decommission the current pipeline and require construction of a new line 39 miles upstream from the current location. Although the USACE has not indicated when it will issue its final decision, no decision is expected until 2024.
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 September 30, 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 September 30, 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 September 30, 2023.
See Note 12—Guarantees, in the Notes to Consolidated Financial Statements, for additional information regarding 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 September 30, 2023, and December 31, 2022, was $19.4 billion and $17.2 billion, respectively. Our total debt-to-capital ratio was 38% and 34% at September 30, 2023, and December 31, 2022, respectively.
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 using borrowings under its revolving credit and accounts receivable securitization facilities.
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.
In April 2022, upon maturity, Phillips 66 repaid its 4.300% senior notes with an aggregate principal amount of $1.0 billion and Phillips 66 Partners repaid its $450 million term loan.
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. 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, without interest. The DCP LP Merger increased our aggregate direct and indirect economic interest in DCP LP from 43.3% to 86.8%.
We paid approximately $3.8 billion in cash consideration, funded through a combination of cash generated from operating activities and proceeds from the offering of the Notes and borrowings under the Term Loan Agreement.
See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 11—Debt and Note 21—DCP Midstream Class A Segment, in the Notes to the Consolidated Financial Statements, for additional information.
DCP LP Preferred Units
On June 15, 2023, DCP LP redeemed its Series B preferred units with an aggregate liquidation preference of approximately $161 million. DCP LP funded this redemption with borrowings under its credit facilities.
On October 16, 2023, DCP LP redeemed its Series C preferred units with an aggregate liquidation preference of approximately $110 million. DCP LP funded this redemption using cash on hand and borrowings under its accounts receivable securitization facility.
DCP LP Cash Distributions to Unitholders
DCP LP’s partnership agreement requires it to distribute all available cash within 45 days after the end of each quarter. During the nine months ended September 30, 2023, DCP LP made cash distributions of $113 million to common unitholders other than Phillips 66 and its subsidiaries and $12 million to preferred unitholders.
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 was paid on May 15, 2023, to unitholders of record on May 1, 2023. The Series B distribution was paid on June 15, 2023, to unitholders of record on June 1, 2023. The Series C distribution was paid on July 17, 2023, to unitholders of record on July 3, 2023.
On July 14, 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 C preferred units of $0.4969 per unit. The distribution on the common units was paid on August 11, 2023, to unitholders of record on July 31, 2023. The Series C distribution was paid on October 16, 2023, to preferred unitholders of record on October 2, 2023.
On October 20, 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. The distribution will be paid on November 10, 2023, to unitholders of record on October 31, 2023.
See Note 21—DCP Midstream Class A Segment, in the Notes to the Consolidated Financial Statements, for additional information regarding the DCP LP public common unit acquisition and the redemptions of DCP LP’s Series B and Series C preferred units.
Dividends
On July 12, 2023, our board of directors declared a quarterly cash dividend of $1.05 per common share. This dividend was paid on September 1, 2023, to shareholders of record as of the close of business on August 18, 2023.
On October 6, 2023, our board of directors declared a quarterly cash dividend of $1.05 per common share. This dividend is payable on December 1, 2023, to shareholders of record as of the close of business on November 17, 2023.
Share Repurchases
On October 25, 2023, our board of directors approved a $5 billion increase to our share repurchase authorization. Since July 2012, our board of directors has authorized an aggregate of $25 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 nine months ended September 30, 2023, we repurchased 28.1 million shares at an aggregate cost of approximately $2.9 billion. Since July 2012, we have repurchased 204 million shares at an aggregate cost of $16.9 billion. Shares of stock repurchased are held as treasury shares.
Employee Benefit Plan Contributions
During the nine months ended September 30, 2023, we contributed $401 million to our U.S. pension and other postretirement benefit plans and $15 million to our international pension plans. We currently expect to make additional contributions of approximately $10 million to our U.S. pension and other postretirement benefit plans and approximately $5 million to our international pension plans during the remainder of 2023.
Rodeo Renewed Project
We expect the total capital project cost for the ongoing conversion of the San Francisco refinery in Rodeo, California into a renewable fuels facility to be approximately $1.25 billion. Our projected capital spend on the Rodeo Renewed project in 2023 is expected to be approximately $200 million higher than initially budgeted. See the “Capital Spending” section below for further discussion regarding the increase in our 2023 capital budget.
Marketing and Specialties Acquisition
On August 1, 2023, we acquired a marketing business on the U.S. West Coast for total consideration of $269 million. This acquisition supports the placement of renewable diesel that will be produced by the Rodeo renewable fuels facility.
Capital Spending
| Millions of Dollars | |||||||||||
| Nine Months Ended September 30 | |||||||||||
| 2023 | 2022 | ||||||||||
| Capital Expenditures and Investments | |||||||||||
| Midstream* | $ | 460 | 729 | ||||||||
| Chemicals | — | — | |||||||||
| Refining | 938 | 604 | |||||||||
| Marketing and Specialties | 323 | 60 | |||||||||
| Corporate and Other | 63 | 88 | |||||||||
| Total Capital Expenditures and Investments | $ | 1,784 | 1,481 | ||||||||
| Selected Equity Affiliates** | |||||||||||
| CPChem | 773 | 432 | |||||||||
| WRB | 128 | 125 | |||||||||
| $ | 901 | 557 | |||||||||
| ** 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 nine 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, along with other return projects, well connections, reliability and maintenance projects.
Chemicals
During the first nine months of 2023, on a 100% basis, CPChem’s capital expenditures and investments were $1,545 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 nine 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:
-
Engineering of facilities, procurement of long-lead items and construction to produce renewable fuels at the San Francisco refinery.
-
Installation of facilities to improve product value at the Lake Charles refinery.
-
Installation of facilities to improve utilization and product value at the jointly owned Borger refinery.
Marketing and Specialties
Capital spending for the M&S segment during the first nine months of 2023 was primarily for the acquisition of a marketing business on the U.S. West Coast and continued development and enhancement of retail sites in Europe.
Corporate and Other
Capital spending for Corporate and Other during the first nine months of 2023 was primarily for information technology.
2023 Budget Update
In October 2023, our Board of Directors authorized an increase of approximately $520 million to the 2023 planned capital budget previously reported in our 2022 Annual Report on Form 10-K. The increased capital budget relates to our Refining and M&S segments and reflects additional capital for our Rodeo Renewed project and the acquisition of a marketing business on the U.S. West Coast. See Note 4—Business Combinations, in the Notes to the Consolidated Financial Statements, for additional information on the marketing business acquisition.
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 nine months ended September 30, 2023 and 2022, we incurred expenses of $242 million and $403 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 $326 million and $296 million for the nine months ended September 30, 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 Environmental Protection Agency (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 September 30, 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. The 2050 target builds upon our 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 September 30, 2023, $13.3 billion of senior unsecured notes outstanding has been guaranteed by the Obligor Group.
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 nine months ended September 30, 2023, and the summarized financial position at September 30, 2023, and December 31, 2022, for the Obligor Group on a combined basis were:
| Summarized Combined Statement of Income | Millions of Dollars | ||||
| Nine Months Ended September 30, 2023 | |||||
| Sales and other operating revenues | $ | 82,199 | |||
| Revenues and other income—non-guarantor subsidiaries | 4,082 | ||||
| Purchased crude oil and products—third parties | 47,110 | ||||
| Purchased crude oil and products—related parties | 12,582 | ||||
| Purchased crude oil and products—non-guarantor subsidiaries | 17,150 | ||||
| Income before income taxes | 4,529 | ||||
| Net income | 3,509 | ||||
| Summarized Combined Balance Sheet | Millions of Dollars | |||||||||||||
| September 30 2023 | December 31 2022 | |||||||||||||
| Accounts and notes receivable—third parties | $ | 6,419 | 5,485 | |||||||||||
| Accounts and notes receivable—related parties | 1,325 | 1,376 | ||||||||||||
| Due from non-guarantor subsidiaries, current | 954 | 741 | ||||||||||||
| Total current assets | 15,696 | 15,566 | ||||||||||||
| Investments and long-term receivables | 11,273 | 10,433 | ||||||||||||
| Net properties, plants and equipment | 12,041 | 11,652 | ||||||||||||
| Goodwill | 1,047 | 1,047 | ||||||||||||
| Due from non-guarantor subsidiaries, noncurrent | 2,791 | 2,163 | ||||||||||||
| Other assets associated with non-guarantor subsidiaries | 1,759 | 2,144 | ||||||||||||
| Total noncurrent assets | 30,677 | 29,209 | ||||||||||||
| Total assets | 46,373 | 44,775 | ||||||||||||
| Due to non-guarantor subsidiaries, current | $ | 3,159 | 2,297 | |||||||||||
| Total current liabilities | 13,503 | 11,148 | ||||||||||||
| Long-term debt | 13,737 | 12,060 | ||||||||||||
| Due to non-guarantor subsidiaries, noncurrent | 10,000 | 7,088 | ||||||||||||
| Total noncurrent liabilities | 29,517 | 25,223 | ||||||||||||
| Total liabilities | 43,020 | 36,371 | ||||||||||||
| Total equity | 3,353 | 8,404 | ||||||||||||
| Total liabilities and equity | 46,373 | 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 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 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 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 September 30, 2023 | |||||||||||||||||
| Income before income taxes | $ | 444 | 342 | 361 | 563 | 1,710 | |||||||||||
| Plus: | |||||||||||||||||
| Taxes other than income taxes | 12 | 28 | 23 | 30 | 93 | ||||||||||||
| Depreciation, amortization and impairments | 53 | 61 | 42 | 55 | 211 | ||||||||||||
| Selling, general and administrative expenses | 9 | 5 | 17 | 8 | 39 | ||||||||||||
| Operating expenses | 252 | 286 | 223 | 381 | 1,142 | ||||||||||||
| Equity in (earnings) losses of affiliates | 2 | (1) | (209) | — | (208) | ||||||||||||
| Other segment (income) expense, net | (7) | — | (4) | 1 | (10) | ||||||||||||
| Proportional share of refining gross margins contributed by equity affiliates | 22 | — | 394 | — | 416 | ||||||||||||
| Realized refining margins | $ | 787 | 721 | 847 | 1,038 | 3,393 | |||||||||||
| Total processed inputs (thousands of barrels) | 46,731 | 53,120 | 24,242 | 32,207 | 156,300 | ||||||||||||
| Adjusted total processed inputs (thousands of barrels)* | 46,731 | 53,120 | 46,871 | 32,207 | 178,929 | ||||||||||||
| Income before income taxes per barrel (dollars per barrel)** | $ | 9.50 | 6.44 | 14.89 | 17.48 | 10.94 | |||||||||||
| Realized refining margins (dollars per barrel)*** | 16.85 | 13.58 | 18.05 | 32.23 | 18.96 | ||||||||||||
| Three Months Ended September 30, 2022 | |||||||||||||||||
| Income before income taxes | $ | 530 | 770 | 1,343 | 264 | 2,907 | |||||||||||
| Plus: | |||||||||||||||||
| Taxes other than income taxes | 14 | 19 | 16 | 31 | 80 | ||||||||||||
| Depreciation, amortization and impairments | 50 | 59 | 36 | 76 | 221 | ||||||||||||
| Selling, general and administrative expenses | 18 | 4 | 14 | 7 | 43 | ||||||||||||
| Operating expenses | 311 | 273 | 179 | 451 | 1,214 | ||||||||||||
| Equity in (earnings) losses of affiliates | 2 | 1 | (294) | — | (291) | ||||||||||||
| Other segment (income) expense, net | 2 | — | 4 | (1) | 5 | ||||||||||||
| Proportional share of refining gross margins contributed by equity affiliates | 22 | — | 517 | — | 539 | ||||||||||||
| Realized refining margins | $ | 949 | 1,126 | 1,815 | 828 | 4,718 | |||||||||||
| Total processed inputs (thousands of barrels) | 49,420 | 50,435 | 25,167 | 28,897 | 153,919 | ||||||||||||
| Adjusted total processed inputs (thousands of barrels)* | 49,420 | 50,435 | 46,857 | 28,897 | 175,609 | ||||||||||||
| Income before income taxes per barrel (dollars per barrel)** | $ | 10.72 | 15.27 | 53.36 | 9.14 | 18.89 | |||||||||||
| Realized refining margins (dollars per barrel)*** | 19.22 | 22.30 | 38.76 | 28.64 | 26.87 | ||||||||||||
| ** Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.* | |||||||||||||||||
| *** Income 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.* |
| Millions of Dollars, Except as Indicated | |||||||||||||||||
| Realized Refining Margins | Atlantic Basin/ Europe | Gulf Coast | Central Corridor | West Coast | Worldwide | ||||||||||||
| Nine Months Ended September 30, 2023 | |||||||||||||||||
| Income before income taxes | $ | 735 | 1,290 | 1,730 | 697 | 4,452 | |||||||||||
| Plus: | |||||||||||||||||
| Taxes other than income taxes | 51 | 86 | 74 | 94 | 305 | ||||||||||||
| Depreciation, amortization and impairments | 156 | 184 | 118 | 164 | 622 | ||||||||||||
| Selling, general and administrative expenses | 27 | 13 | 55 | 26 | 121 | ||||||||||||
| Operating expenses | 852 | 821 | 546 | 1,031 | 3,250 | ||||||||||||
| Equity in (earnings) losses of affiliates | 6 | (2) | (528) | — | (524) | ||||||||||||
| Other segment (income) expense, net | 17 | 17 | (8) | 4 | 30 | ||||||||||||
| Proportional share of refining gross margins contributed by equity affiliates | 70 | — | 1,109 | — | 1,179 | ||||||||||||
| Realized refining margins | $ | 1,914 | 2,409 | 3,096 | 2,016 | 9,435 | |||||||||||
| Total processed inputs (thousands of barrels) | 130,984 | 154,735 | 77,616 | 91,869 | 455,204 | ||||||||||||
| Adjusted total processed inputs (thousands of barrels)* | 130,984 | 154,735 | 138,027 | 91,869 | 515,615 | ||||||||||||
| Income before income taxes per barrel (dollars per barrel)** | $ | 5.61 | 8.34 | 22.29 | 7.59 | 9.78 | |||||||||||
| Realized refining margins (dollars per barrel)*** | 14.61 | 15.57 | 22.43 | 21.94 | 18.30 | ||||||||||||
| Nine Months Ended September 30, 2022 | |||||||||||||||||
| Income before income taxes | $ | 1,784 | 1,717 | 1,699 | 976 | 6,176 | |||||||||||
| Plus: | |||||||||||||||||
| Taxes other than income taxes | 47 | 68 | 52 | 74 | 241 | ||||||||||||
| Depreciation, amortization and impairments | 153 | 182 | 107 | 199 | 641 | ||||||||||||
| Selling, general and administrative expenses | 31 | 13 | 40 | 22 | 106 | ||||||||||||
| Operating expenses | 903 | 910 | 627 | 1,063 | 3,503 | ||||||||||||
| Equity in (earnings) losses of affiliates | 7 | 6 | (506) | — | (493) | ||||||||||||
| Other segment (income) expense, net | 22 | 1 | 2 | — | 25 | ||||||||||||
| Proportional share of refining gross margins contributed by equity affiliates | 71 | — | 1,191 | — | 1,262 | ||||||||||||
| Special items: | |||||||||||||||||
| Regulatory compliance costs | 9 | 26 | 22 | 13 | 70 | ||||||||||||
| Realized refining margins | $ | 3,027 | 2,923 | 3,234 | 2,347 | 11,531 | |||||||||||
| Total processed inputs (thousands of barrels) | 147,289 | 155,109 | 71,493 | 87,973 | 461,864 | ||||||||||||
| Adjusted total processed inputs (thousands of barrels)* | 147,289 | 155,109 | 129,753 | 87,973 | 520,124 | ||||||||||||
| Income before income taxes per barrel (dollars per barrel)** | $ | 12.11 | 11.07 | 23.76 | 11.09 | 13.37 | |||||||||||
| Realized refining margins (dollars per barrel)*** | 20.55 | 18.84 | 24.92 | 26.68 | 22.17 | ||||||||||||
| ** Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.* | |||||||||||||||||
| *** Income 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 September 30, 2023 | Three Months Ended September 30, 2022 | ||||||||||||||||
| U.S. | International | U.S. | International | ||||||||||||||
| Realized Marketing Fuel Margins | |||||||||||||||||
| Income before income taxes | $ | 466 | 105 | 368 | 334 | ||||||||||||
| Plus: | |||||||||||||||||
| Depreciation and amortization | 5 | 18 | 4 | 17 | |||||||||||||
| Selling, general and administrative expenses | 217 | 65 | 218 | 59 | |||||||||||||
| Equity in earnings of affiliates | (19) | (32) | (30) | (31) | |||||||||||||
| Other operating revenues* | (134) | (8) | (141) | (35) | |||||||||||||
| Other (income) expense, net | 8 | (2) | 6 | (3) | |||||||||||||
| Marketing margins | 543 | 146 | 425 | 341 | |||||||||||||
| Less: margin for nonfuel related sales | — | 13 | — | 12 | |||||||||||||
| Realized marketing fuel margins | $ | 543 | 133 | 425 | 329 | ||||||||||||
| Total fuel sales volumes (thousands of barrels) | 179,432 | 25,352 | 170,473 | 26,501 | |||||||||||||
| Income before income taxes per barrel (dollars per barrel) | $ | 2.60 | 4.14 | 2.16 | 12.60 | ||||||||||||
| Realized marketing fuel margins (dollars per barrel)** | 3.03 | 5.27 | 2.49 | 12.40 | |||||||||||||
| ** 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.* | |||||||||||||||||
| Millions of Dollars, Except as Indicated | |||||||||||||||||
| Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | ||||||||||||||||
| U.S. | International | U.S. | International | ||||||||||||||
| Realized Marketing Fuel Margins | |||||||||||||||||
| Income before income taxes | $ | 1,171 | 375 | 1,048 | 542 | ||||||||||||
| Plus: | |||||||||||||||||
| Depreciation and amortization | 11 | 57 | 10 | 54 | |||||||||||||
| Selling, general and administrative expenses | 602 | 190 | 610 | 184 | |||||||||||||
| Equity in earnings of affiliates | (34) | (84) | (53) | (89) | |||||||||||||
| Other operating revenues* | (364) | (23) | (387) | (56) | |||||||||||||
| Other (income) expense, net | 17 | 9 | 18 | (2) | |||||||||||||
| Marketing margins | 1,403 | 524 | 1,246 | 633 | |||||||||||||
| Less: margin for nonfuel related sales | — | 41 | — | 39 | |||||||||||||
| Realized marketing fuel margins | $ | 1,403 | 483 | 1,246 | 594 | ||||||||||||
| Total fuel sales volumes (thousands of barrels) | 508,443 | 76,301 | 510,568 | 76,756 | |||||||||||||
| Income before income taxes per barrel (dollars per barrel) | $ | 2.30 | 4.91 | 2.05 | 7.06 | ||||||||||||
| Realized marketing fuel margins (dollars per barrel)** | 2.76 | 6.34 | 2.44 | 7.74 | |||||||||||||
| ** 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 these 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 forecasted in any forward-looking statement. Factors that could cause actual results to differ materially from those in our forward-looking statements include:
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Fluctuations in NGL, crude oil, refined petroleum product and natural gas prices and refining, marketing and petrochemical margins.
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Changes in governmental policies relating to NGL, crude oil, natural gas or refined petroleum products pricing, regulation or taxation, including exports.
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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.
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Actions taken by OPEC and non-OPEC oil producing countries impacting supply and demand and correspondingly, commodity prices.
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Our ability to achieve the expected benefits of the DCP LP integration, including the realization of expected synergies.
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Unexpected changes in costs or technical requirements for constructing, modifying or operating our facilities or transporting our products.
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Unexpected technological or commercial difficulties in manufacturing, refining or transporting our products, including chemical products.
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Lack of, or disruptions in, adequate and reliable transportation for our NGL, crude oil, natural gas and refined petroleum products.
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The level and success of drilling and quality of production volumes around our midstream assets.
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Our ability to timely obtain or maintain permits, including those necessary for capital projects.
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Our ability to comply with government regulations or make capital expenditures required to maintain compliance.
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Our ability to realize sustained savings and cost reductions from the company’s business transformation initiatives.
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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.
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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, rising interest rates, expropriation of assets and changes in fiscal policy.
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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.
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Failure to complete definitive agreements and feasibility studies for, and to complete construction of, announced and future capital projects on time and within budget.
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Our ability to successfully complete, or any material delay in the completion of, asset dispositions or acquisitions that we pursue.
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Potential disruption or interruption of our operations or those of our joint ventures due to litigation or other governmental or regulatory action.
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Damage to our facilities due to accidents, weather and climate events, civil unrest, insurrections, political events, terrorism or cyberattacks.
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Our ability to meet our sustainability goals, including reducing our GHG emissions intensity, developing and protecting new technologies, and commercializing lower-carbon opportunities.
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Failure of new products and services to achieve market acceptance.
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International monetary conditions and exchange controls.
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Substantial investments required, or reduced demand for products, as a result of existing or future environmental rules and regulations, including GHG emissions reductions and reduced consumer demand for refined petroleum products.
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Liability resulting from litigation or for remedial actions, including removal and reclamation obligations under environmental regulations.
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Changes in tax, environmental and other laws and regulations (including alternative energy mandates) applicable to our business.
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Political and societal concerns about climate change that could result in changes to our business or operations or increase expenditures, including litigation-related expenses.
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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.
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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.
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The creditworthiness of our customers and the counterparties to our transactions, including the impact of bankruptcies.
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The operation, financing and distribution decisions of our joint ventures that we do not control.
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The factors generally described in Item 1A.—Risk Factors in our 2022 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.
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