Item 1. FINANCIAL STATEMENTS

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Item 1. FINANCIAL STATEMENTS


Consolidated Statement of Income			Phillips 66


	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2024		2023		2024	2023
Revenues and Other Income
Sales and other operating revenues	$	38,129	35,090		73,940	69,486
Equity in earnings of affiliates	487		563		1,015	1,174
Net gain (loss) on dispositions	237		(12)		237	22
Other income	58		99		155	147
Total Revenues and Other Income	38,911		35,740		75,347	70,829

Costs and Expenses
Purchased crude oil and products	34,628		30,571		67,014	59,912
Operating expenses	1,407		1,384		2,859	2,962
Selling, general and administrative expenses	552		593		1,109	1,198
Depreciation and amortization	497		495		1,001	971
Impairments	225		4		390	12
Taxes other than income taxes	49		174		214	381
Accretion on discounted liabilities	10		7		19	13
Interest and debt expense	231		266		458	458
Foreign currency transaction losses	1		2		8	27
Total Costs and Expenses	37,600		33,496		73,072	65,934
Income before income taxes	1,311		2,244		2,275	4,895
Income tax expense	291		510		494	1,084
Net Income	1,020		1,734		1,781	3,811
Less: net income attributable to noncontrolling interests	5		37		18	153
Net Income Attributable to Phillips 66	$	1,015	1,697		1,763	3,658

Net Income Attributable to Phillips 66 Per Share of Common Stock (dollars)
Basic	$	2.39	3.73		4.13	7.95
Diluted	2.38		3.72		4.10	7.92



Weighted-Average Common Shares Outstanding (thousands)
Basic	422,869		454,450		425,914	459,602
Diluted	425,734		456,168		428,993	461,906
See Notes to Consolidated Financial Statements.

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Consolidated Statement of Comprehensive Income			Phillips 66


	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2024		2023		2024	2023

Net Income	$	1,020	1,734		1,781	3,811
Other comprehensive income (loss)
Defined benefit plans


Amortization of net actuarial loss and settlements	5		5		7	15


Plans sponsored by equity affiliates	—		—		1	3
Income taxes on defined benefit plans	(1)		(1)		(2)	(4)
Defined benefit plans, net of income taxes	4		4		6	14
Foreign currency translation adjustments	(1)		98		(35)	174
Income taxes on foreign currency translation adjustments	—		(1)		2	—
Foreign currency translation adjustments, net of income taxes	(1)		97		(33)	174




Other Comprehensive Income (Loss), Net of Income Taxes	3		101		(27)	188
Comprehensive Income	1,023		1,835		1,754	3,999
Less: comprehensive income attributable to noncontrolling interests	5		37		18	153
Comprehensive Income Attributable to Phillips 66	$	1,018	1,798		1,736	3,846

See Notes to Consolidated Financial Statements.

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Consolidated Balance Sheet			Phillips 66


	Millions of Dollars
	June 30 2024		December 31 2023
Assets
Cash and cash equivalents	$	2,444	3,323
Accounts and notes receivable (net of allowances of $73 million in 2024 and $71 million in 2023)	9,017		10,483
Accounts and notes receivable—related parties	1,870		1,247
Inventories	6,522		3,750
Prepaid expenses and other current assets	1,063		1,138
Total Current Assets	20,916		19,941
Investments and long-term receivables	15,191		15,302
Net properties, plants and equipment	35,229		35,712
Goodwill	1,553		1,550
Intangibles	901		920
Other assets	2,155		2,076
Total Assets	$	75,945	75,501

Liabilities
Accounts payable	$	11,486	10,332
Accounts payable—related parties	836		569
Short-term debt	2,780		1,482
Accrued income and other taxes	1,368		1,200
Employee benefit obligations	551		863
Other accruals	1,250		1,410
Total Current Liabilities	18,271		15,856
Long-term debt	17,180		17,877
Asset retirement obligations and accrued environmental costs	939		864
Deferred income taxes	7,224		7,424
Employee benefit obligations	626		630
Other liabilities and deferred credits	1,198		1,200
Total Liabilities	45,438		43,851

Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2024—656,534,809 shares; 2023—654,842,101 shares)
Par value	7		7
Capital in excess of par	19,717		19,650
Treasury stock (at cost: 2024—237,965,626 shares; 2023—224,377,439 shares)	(21,332)		(19,342)
Retained earnings	31,372		30,550
Accumulated other comprehensive loss	(309)		(282)
Total Stockholders’ Equity	29,455		30,583
Noncontrolling interests	1,052		1,067
Total Equity	30,507		31,650
Total Liabilities and Equity	$	75,945	75,501

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Cash Flows			Phillips 66


	Millions of Dollars
	Six Months Ended June 30
	2024		2023
Cash Flows From Operating Activities
Net income	$	1,781	3,811
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	1,001		971
Impairments	390		12
Accretion on discounted liabilities	19		13
Deferred income taxes	(200)		265
Undistributed equity earnings	(359)		(566)
Loss on early redemption of debt	2		53
Net gain on dispositions	(237)		(22)

Unrealized investment loss	1		26

Other	(6)		(101)
Working capital adjustments
Accounts and notes receivable	935		1,548
Inventories	(2,800)		(2,939)
Prepaid expenses and other current assets	73		372
Accounts payable	1,558		(923)
Taxes and other accruals	(297)		(366)


Net Cash Provided by Operating Activities	1,861		2,154

Cash Flows From Investing Activities
Capital expenditures and investments	(995)		(929)
Return of investments in equity affiliates	67		119
Proceeds from asset dispositions	687		90

Collection of advances/loans—related parties	2		—

Other	(99)		23


Net Cash Used in Investing Activities	(338)		(697)

Cash Flows From Financing Activities
Issuance of debt	3,619		5,047
Repayment of debt	(3,020)		(2,459)
Issuance of common stock	64		12
Repurchase of common stock	(2,004)		(2,109)
Dividends paid on common stock	(933)		(960)
Distributions to noncontrolling interests	(33)		(125)

Repurchase of noncontrolling interests	—		(3,957)
Other	(82)		(59)


Net Cash Used in Financing Activities	(2,389)		(4,610)

Effect of Exchange Rate Changes on Cash and Cash Equivalents	(13)		49

Net Change in Cash and Cash Equivalents	(879)		(3,104)
Cash and cash equivalents at beginning of period	3,323		6,133
Cash and Cash Equivalents at End of Period	$	2,444	3,029

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Changes in Equity			Phillips 66


	Millions of Dollars
	Three Months Ended June 30
	Attributable to Phillips 66
	Common Stock
	Par Value		Capital in Excess of Par	Treasury Stock	Retained Earnings	Accum. Other Comprehensive Loss	Noncontrolling Interests	Total

March 31, 2024	$	7	19,674	(20,489)	30,846	(312)	1,067	30,793
Net income	—		—	—	1,015	—	5	1,020
Other comprehensive income	—		—	—	—	3	—	3
Dividends paid on common stock ($1.15 per share)	—		—	—	(485)	—	—	(485)
Repurchase of common stock	—		—	(843)	—	—	—	(843)
Distributions to noncontrolling interests	—		—	—	—	—	(20)	(20)



Benefit plan activity	—		43	—	(4)	—	—	39
June 30, 2024	$	7	19,717	(21,332)	31,372	(309)	1,052	30,507



March 31, 2023	$	7	19,795	(16,083)	26,903	(373)	4,667	34,916
Net income	—		—	—	1,697	—	37	1,734
Other comprehensive income	—		—	—	—	101	—	101
Dividends paid on common stock ($1.05 per share)	—		—	—	(474)	—	—	(474)
Repurchase of common stock	—		—	(1,339)	—	—	—	(1,339)

Distributions to noncontrolling interests	—		—	—	—	—	(67)	(67)
Acquisition of noncontrolling interest in DCP LP	—		(378)	—	—	—	(3,479)	(3,857)
Benefit plan activity	—		46	—	(4)	—	4	46
June 30, 2023	$	7	19,463	(17,422)	28,122	(272)	1,162	31,060


	Shares
	Three Months Ended June 30
	Common Stock Issued	Treasury Stock

March 31, 2024	656,284,691	232,332,556
Repurchase of common stock	—	5,633,070
Shares issued—share-based compensation	250,118	—

June 30, 2024	656,534,809	237,965,626

March 31, 2023	653,266,184	194,403,868
Repurchase of common stock	—	13,669,459
Shares issued—share-based compensation	95,071	—

June 30, 2023	653,361,255	208,073,327










See Notes to Consolidated Financial Statements.

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	Millions of Dollars
	Six Months Ended June 30
	Attributable to Phillips 66
	Common Stock
	Par Value		Capital in Excess of Par	Treasury Stock	Retained Earnings	Accum. Other Comprehensive Loss	Noncontrolling Interests	Total

December 31, 2023	$	7	19,650	(19,342)	30,550	(282)	1,067	31,650
Net income	—		—	—	1,763	—	18	1,781
Other comprehensive loss	—		—	—	—	(27)	—	(27)
Dividends paid on common stock ($2.20 per share)	—		—	—	(933)	—	—	(933)
Repurchase of common stock	—		—	(1,990)	—	—	—	(1,990)
Distributions to noncontrolling interests	—		—	—	—	—	(33)	(33)
Benefit plan activity	—		67	—	(8)	—	—	59
June 30, 2024	$	7	19,717	(21,332)	31,372	(309)	1,052	30,507

December 31, 2022	$	7	19,791	(15,276)	25,432	(460)	4,612	34,106
Net income	—		—	—	3,658	—	153	3,811
Other comprehensive income	—		—	—	—	188	—	188
Dividends paid on common stock ($2.10 per share)	—		—	—	(960)	—	—	(960)
Repurchase of common stock	—		—	(2,146)	—	—	—	(2,146)
Distributions to noncontrolling interests	—		—	—	—	—	(125)	(125)
Acquisition of noncontrolling interest in Phillips 66 Partners LP	—		(378)	—	—	—	(3,479)	(3,857)
Benefit plan activity	—		50	—	(8)	—	1	43
June 30, 2023	$	7	19,463	(17,422)	28,122	(272)	1,162	31,060


	Shares
	Six Months Ended June 30
	Common Stock Issued	Treasury Stock

December 31, 2023	654,842,101	224,377,439
Repurchase of common stock	—	13,588,187
Shares issued—share-based compensation	1,692,708	—
June 30, 2024	656,534,809	237,965,626

December 31, 2022	652,373,645	186,529,667
Repurchase of common stock	—	21,543,660
Shares issued—share-based compensation	987,610	—
June 30, 2023	653,361,255	208,073,327
See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements			Phillips 66

Note 1—Interim Financial Information

The unaudited interim financial information presented in the financial statements included in this report is prepared in accordance with generally accepted accounting principles in the United States (GAAP) and includes all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of the consolidated financial position of Phillips 66 and its results of operations and cash flows for the periods presented. Unless otherwise specified, all such adjustments are of a normal and recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2023 Annual Report on Form 10-K. The results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of the results expected for the full year.

Certain prior period segment financial information has been recast for comparability. See Note 19—Segment Disclosures and Related Information, for additional information.

Note 2—DCP Midstream, LP Merger (DCP LP Merger)

On June 15, 2023, we completed the acquisition of all publicly held common units of DCP Midstream, LP (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, LLC and its subsidiaries) issued and outstanding as of immediately prior to the effective time was converted into the right to receive $41.75 per common unit in cash. We accounted for the DCP LP Merger as an equity transaction. The DCP LP Merger increased our aggregate direct and indirect economic interest in DCP LP from 43.3% to 86.8% and our aggregate direct and indirect economic interests in DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills) increased from 62.2% to 91.2%.

See Note 21—DCP Midstream Class A Segment, for additional information regarding the DCP LP Merger.

Note 3—Business Combinations

On August 1, 2023, our Marketing and Specialties (M&S) segment acquired a marketing business on the U.S. West Coast for total consideration of $272 million. These operations were acquired to support the placement of renewable diesel produced by the Rodeo Renewable Energy Complex (RREC). We finalized the valuation of the assets acquired and the liabilities assumed during the three months ended June 30, 2024, prior to the end of the one-year measurement period on July 31, 2024. For this acquisition, we recorded $146 million of amortizable intangible assets, primarily customer relationships; $82 million of properties, plants and equipment (PP&E), including finance lease right of use assets; $40 million of net working capital; $67 million of goodwill; and $63 million of finance lease liabilities. We did not record any material adjustments to our purchase price allocation during the six months ended June 30, 2024.

Pending Acquisition

On May 17, 2024, we entered into an agreement to acquire Pinnacle Midland Parent LLC to expand our natural gas gathering and processing operations in the Permian Basin. The transaction closed on July 1, 2024, for total cash consideration of $566 million.

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Note 4—Sales and Other Operating Revenues

Disaggregated Revenues

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


	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2024		2023		2024	2023
Product Line and Services
Refined petroleum products and renewable fuels	$	28,071	26,517		53,810	51,235
Crude oil resales	5,905		4,650		11,483	9,215
Natural gas liquids (NGL) and natural gas	3,583		3,257		6,917	7,678
Services and other*****	570		666		1,730	1,358
Consolidated sales and other operating revenues	$	38,129	35,090		73,940	69,486

Geographic Location**
United States	$	30,464	27,990		58,841	55,055
United Kingdom	3,207		3,251		7,097	7,181
Germany	1,370		1,372		2,673	2,678
Other countries	3,088		2,477		5,329	4,572
Consolidated sales and other operating revenues	$	38,129	35,090		73,940	69,486
** Includes derivatives-related activities. See Note 14—Derivatives and Financial Instruments, for additional information.*
*** Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.*

Contract-Related Assets and Liabilities

At June 30, 2024 and December 31, 2023, receivables from contracts with customers were $8,919 million and $9,638 million, respectively. Significant noncustomer balances, such as buy/sell receivables and excise tax receivables, were excluded from these amounts.

Our contract-related assets include payments we make to our marketing customers related to incentive programs. An incentive payment is initially recognized as an asset and subsequently amortized as a reduction to revenue over the contract term, which generally ranges from 5 to 15 years. At June 30, 2024 and December 31, 2023, our asset balances related to such payments were $563 million and $537 million, respectively.

Our contract liabilities represent advances from our customers prior to product or service delivery. At June 30, 2024 and December 31, 2023, contract liabilities were $162 million and $187 million, respectively.

Remaining Performance Obligations

Most of our contracts with customers are spot contracts or term contracts with only variable consideration. We do not disclose remaining performance obligations for these contracts as the expected duration is one year or less or because the variable consideration has been allocated entirely to an unsatisfied performance obligation. We also have certain contracts in our Midstream segment that include minimum volume commitments with fixed pricing. At June 30, 2024, the remaining performance obligations related to these minimum volume commitment contracts amounted to $394 million. This amount excludes variable consideration and estimates of variable rate escalation clauses in our contracts with customers, and is expected to be recognized through 2031 with a weighted average remaining life of two years as of June 30, 2024.

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Note 5—Credit Losses

We are exposed to credit losses primarily through our sales of refined petroleum products, renewable fuels, renewable feedstocks, crude oil, and NGL and natural gas. We assess each counterparty’s ability to pay for the products we sell by conducting a credit review. The credit review considers our expected billing exposure and timing for payment and the counterparty’s established credit rating or our assessment of the counterparty’s creditworthiness based on our analysis of their financial statements when a credit rating is not available. We also consider contract terms and conditions, country and political risk, and business strategy in our evaluation. A credit limit is established for each counterparty based on the outcome of this review. We may require collateralized asset support or a prepayment to mitigate credit risk.

We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. Our activities include timely account reconciliations, dispute resolution and payment confirmations. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables. In addition, when events and circumstances arise that may affect certain counterparties’ abilities to fulfill their obligations, we enhance our credit monitoring, and we may seek collateral to support some transactions or require prepayments from higher-risk counterparties.

At June 30, 2024 and December 31, 2023, we reported $10,887 million and $11,730 million of accounts and notes receivable, respectively, net of allowances of $73 million and $71 million, respectively. Based on an aging analysis at June 30, 2024, more than 95% of our accounts receivable were outstanding less than 60 days.

We are also exposed to credit losses from off-balance sheet exposures, such as guarantees of joint venture debt and standby letters of credit. See Note 12—Guarantees and Note 13—Contingencies and Commitments, for more information regarding these off-balance sheet exposures.

Note 6—Inventories

Inventories consisted of the following:


	Millions of Dollars
	June 30 2024		December 31 2023

Crude oil and products*****	$	6,096	3,330
Materials and supplies	426		420
	$	6,522	3,750
** Includes feedstocks other than crude oil.*

Inventories valued on the last-in, first-out (LIFO) basis totaled $5,929 million and $3,050 million at June 30, 2024 and December 31, 2023, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $5.9 billion and $5.3 billion at June 30, 2024 and December 31, 2023, respectively.

Certain planned reductions in inventory that are not expected to be replaced by the end of the year cause liquidations of LIFO inventory values. LIFO liquidations did not have a material impact on net income for the three and six months ended June 30, 2024 and 2023.

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Note 7—Investments, Loans and Long-Term Receivables

Equity Investments

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 alternative would require decommissioning of the current pipeline and construction of a new line 39 miles upstream from the current location.

The public comment period concluded on December 13, 2023. The USACE plans to review the comments and issue its final EIS in early 2025. The Record of Decision will follow within 30 to 60 days after the issuance of the final EIS. The final EIS must be completed before the USACE can reauthorize the easement for the pipeline. If reauthorization occurs, new litigation challenging the reauthorization may be filed.

Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access. On April 1, 2024, Dakota Access’ wholly owned subsidiary repaid $1 billion aggregate principal amount of its outstanding senior notes upon maturity. We funded our 25% share of the repayment, or $250 million, with a capital contribution of $171 million in March 2024 and $79 million of distributions we elected not to receive from Dakota Access in the first quarter of 2024. At June 30, 2024, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $850 million.

In addition, Phillips 66 Partners LP (Phillips 66 Partners), a wholly owned subsidiary of Phillips 66, and its co-venturers in Dakota Access also provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the above-mentioned ongoing litigation. At June 30, 2024, our 25% share of the maximum potential equity contributions under the CECU was approximately $215 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 $10 million annually, in addition to the potential obligations under the CECU at June 30, 2024.

At June 30, 2024, the aggregate book value of our investments in Dakota Access and ETCO was $885 million.

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OnCue Holdings, LLC (OnCue)

We hold a 50% interest in OnCue, a joint venture that owns and operates retail convenience stores. We fully guaranteed various debt agreements of OnCue and our co-venturer did not participate in the guarantees. This entity is considered a VIE because our debt guarantees resulted in OnCue not being exposed to all potential losses. We have determined we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact economic performance. At June 30, 2024, our maximum exposure to loss was $234 million, which represented the book value of our investment in OnCue of $172 million and guaranteed debt obligations of $62 million.

Midstream Investment Dispositions

On June 14, 2024, we sold our 25% ownership interest in Rockies Express Pipeline LLC for approximately $685 million and recognized a before-tax gain of $238 million, which is included in the “Net gain on dispositions” line item on our consolidated statement of income for the three and six months ended June 30, 2024, and is reported in the Midstream segment.

Pending Disposition

On June 21, 2024, we entered into an agreement to sell our ownership interests in certain gathering and processing assets in Louisiana and Alabama for approximately $170 million, which approximates the net book value of the assets being sold. The transaction is expected to close in the third quarter of 2024, subject to completion of customary closing conditions and satisfaction of certain due diligence requirements.

Note 8—Properties, Plants and Equipment

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


	Millions of Dollars
	June 30, 2024				December 31, 2023
	Gross PP&E		Accum. D&A	Net PP&E	Gross PP&E	Accum. D&A	Net PP&E

Midstream	$	26,277	5,085	21,192	26,124	4,382	21,742
Chemicals	—		—	—	—	—	—
Refining	21,750		11,374	10,376	23,110	12,150	10,960
Marketing and Specialties	2,013		1,199	814	1,997	1,166	831
Renewable Fuels	3,686		1,624	2,062	2,311	953	1,358
Corporate and Other	1,659		874	785	1,650	829	821
	$	55,385	20,156	35,229	55,192	19,480	35,712

We transferred $1 billion in gross PP&E and $656 million of accumulated depreciation and amortization from our Refining segment to our Renewable Fuels segment in connection with a change in composition of our operating segments. See Note 19—Segment Disclosures and Related Information, for information regarding changes to our operating segments.

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Note 9—Impairments


	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2024		2023		2024	2023
Midstream	225		—		284	—
Refining	—		4		105	5


Corporate and Other	—		—		1	7
Total impairments	$	225	4		390	12

For the three and six months ended June 30, 2024, we recorded before-tax impairments totaling $225 million and $390 million, respectively, which included before-tax impairments of $224 million reported in our Midstream segment related to certain gathering and processing assets in Texas. The six-month period of 2024 also included $163 million of before-tax impairments recorded in the first quarter of 2024 related to certain crude oil processing and logistics assets in California, of which $104 million was reported in our Refining segment and $59 million was reported in our Midstream segment.

Note 10—Earnings Per Share

The numerator of basic earnings per share (EPS) is net income attributable to Phillips 66, adjusted for noncancelable dividends paid on unvested share-based employee awards during the vesting period (participating securities). The denominator of basic EPS is the sum of the daily weighted-average number of common shares outstanding during the periods presented and fully vested stock and unit awards that have not yet been issued as common stock. The numerator of diluted EPS is also based on net income attributable to Phillips 66, which is reduced by dividend equivalents paid on participating securities for which the dividends are more dilutive than the participation of the awards in the earnings of the periods presented. To the extent unvested stock, unit or option awards and vested unexercised stock options are dilutive, they are included with the weighted-average common shares outstanding in the denominator. Treasury stock is excluded from the denominator in both basic and diluted EPS.


	Three Months Ended June 30					Six Months Ended June 30
	2024			2023			2024		2023
	Basic		Diluted	Basic	Diluted		Basic	Diluted	Basic	Diluted
Amounts Attributed to Phillips 66 Common Stockholders (millions):
Net Income Attributable to Phillips 66	$	1,015	1,015	1,697	1,697		1,763	1,763	3,658	3,658
Income allocated to participating securities	(3)		(1)	(3)	(1)		(5)	(2)	(6)	—

Net income available to common stockholders	$	1,012	1,014	1,694	1,696		1,758	1,761	3,652	3,658

Weighted-average common shares outstanding (thousands):	421,313		422,869	452,752	454,450		424,239	425,914	457,783	459,602
Effect of share-based compensation	1,556		2,865	1,698	1,718		1,675	3,079	1,819	2,304
Weighted-average common shares outstanding—EPS	422,869		425,734	454,450	456,168		425,914	428,993	459,602	461,906

Earnings Per Share of Common Stock (dollars)	$	2.39	2.38	3.73	3.72		4.13	4.10	7.95	7.92

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Note 11—Debt

Senior Notes and Term Loan Issuances and Repayments

Issuances

On February 28, 2024, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $1.5 billion aggregate principal amount of senior unsecured notes that are fully and unconditionally guaranteed by Phillips 66. The senior unsecured notes issuance consisted of:

$600 million aggregate principal amount of 5.250% Senior Notes due 2031 (2031 Notes).
$400 million aggregate principal amount of 5.300% Senior Notes due 2033 (Additional 2033 Notes).
$500 million aggregate principal amount of 5.650% Senior Notes due 2054 (2054 Notes).

Interest on the 2031 Notes and 2054 Notes is payable semi-annually on June 15 and December 15 of each year, commencing on June 15, 2024. Interest on the Additional 2033 Notes is payable semi-annually on June 30 and December 30 of each year, commencing on June 30, 2024.

On June 20, 2023, Phillips 66 Company borrowed $1.25 billion under its delayed draw term loan that matures in June 2026.

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 that are fully and unconditionally guaranteed by Phillips 66. The senior unsecured notes issuance consisted 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).

Repayments

On March 29, 2024, DCP LP early redeemed $300 million of its 5.375% Senior Notes due July 2025 at par with an aggregate principal amount of $825 million.

On March 4, 2024, Phillips 66 Company repaid $700 million of the $1.25 billion borrowed under its delayed draw term loan that matures in June 2026.

On February 15, 2024, upon maturity, Phillips 66 repaid its 0.900% senior notes due February 2024 with an aggregate principal amount of $800 million.

On May 19, 2023, DCP LP redeemed its 5.850% junior subordinated notes due May 2043 with an aggregate principal amount outstanding of $550 million. On the date of redemption, our carrying value of DCP LP’s junior subordinated notes was $497 million, which resulted in a $53 million loss before income taxes. DCP LP’s junior subordinated notes were adjusted to fair value on August 17, 2022, in connection with the consolidation of DCP LP.

On March 15, 2023, DCP LP repaid its 3.875% senior unsecured notes due March 2023 with an aggregate principal amount of $500 million.

Related Party Advance Term Loan Agreements

On May 31, 2023, we borrowed $75 million from WRB Refining LP (WRB) through an Advance Term Loan Agreement. The debt matures on May 31, 2038. Borrowings bear interest at a floating rate of 1.042% plus the adjusted term Secured Overnight Financing Rate (SOFR), payable on the last day of each month.

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Credit Facilities and Commercial Paper

Phillips 66 and Phillips 66 Company

On June 25, 2024, we entered into a $400 million uncommitted credit facility (the Uncommitted Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor. The Uncommitted Facility contains covenants and events of default customary for unsecured uncommitted facilities. The Uncommitted Facility has no commitment fees or compensating balance requirements. Outstanding borrowings under the Uncommitted Facility bear interest at a rate of either (a) the adjusted term SOFR, (b) the adjusted daily simple SOFR or (c) the reference rate, in each case plus the applicable margin. Each borrowing matures six months from the date of such borrowing. We may at any time prepay outstanding borrowings, in whole or in part, without premium or penalty. At June 30, 2024, $400 million was outstanding under the Uncommitted Facility.

On February 28, 2024, we entered into a new $5 billion revolving credit agreement (the Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor and a scheduled maturity date of February 28, 2029. The Facility replaced our previous $5 billion revolving credit facility dated as of June 23, 2022, with Phillips 66 Company as the borrower and Phillips 66 as the guarantor, and the previous revolving credit facility was terminated. The Facility contains customary covenants similar to the previous revolving credit facility, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. The Facility 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 Facility, in whole or in part, without premium or penalty. We have the option to increase the overall capacity to $6 billion, subject to certain conditions. We also have the option to extend the scheduled maturity of the Facility for up to two additional one-year terms, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. Outstanding borrowings under the Facility bear interest at either: (a) the adjusted term SOFR (as described in the Facility) in effect from time to time plus the applicable margin; or (b) the reference rate (as described in the Facility) plus the applicable margin. The pricing levels for the commitment fee and interest-rate margins are determined based on the ratings in effect for our senior unsecured long-term debt from time to time. At June 30, 2024 and December 31, 2023, no amount had been drawn under the Facility or the previous revolving credit facility, respectively.

Phillips 66 also has a $5 billion uncommitted commercial paper program for short-term working capital needs that is supported by the Facility. Commercial paper maturities are contractually limited to less than one year. At June 30, 2024, $899 million of commercial paper had been issued under this program. At December 31, 2023, no borrowings were outstanding under this program.

DCP Midstream Class A Segment

On March 15, 2024, DCP LP terminated its $1.4 billion credit facility and its accounts receivable securitization facility that previously provided for up to $350 million of borrowing capacity. At December 31, 2023, DCP LP had $25 million in borrowings outstanding under its $1.4 billion credit facility and $350 million of borrowings outstanding under its accounts receivable securitization facility, which were repaid during the three months ended March 31, 2024.

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Note 12—Guarantees

At June 30, 2024, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability either because the guarantees were issued prior to December 31, 2002, or because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantees and expect future performance to be either immaterial or have only a remote chance of occurrence.

Lease Residual Value Guarantees

Under the operating lease agreement for our headquarters facility in Houston, Texas, we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at June 30, 2024. We also have residual value guarantees associated with railcar, airplane and truck leases with maximum potential future exposures totaling $172 million. These leases have remaining terms of one to ten years.

Guarantees of Joint Venture Obligations

In March 2019, Phillips 66 Partners and its co-venturers in Dakota Access provided a CECU in conjunction with a senior unsecured notes offering. See Note 7—Investments, Loans and Long-Term Receivables, for additional information regarding Dakota Access and the CECU.

At June 30, 2024, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to one year. The maximum potential future exposures under these guarantees were approximately $177 million. Payment would be required if a joint venture defaults on its obligations.

Indemnifications

Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to indemnifications. Agreements associated with these sales include indemnifications for taxes, litigation, environmental liabilities, permits and licenses, employee claims, and real estate tenant defaults. The provisions of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, which generally have indefinite terms and potentially unlimited exposure. At June 30, 2024 and December 31, 2023, the carrying amount of recorded indemnifications was $151 million and $159 million, respectively.

We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have information to support the reversal. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments. At June 30, 2024 and December 31, 2023, environmental accruals for known contamination of $105 million and $114 million, respectively, were included in the carrying amount of the recorded indemnifications noted above. These environmental accruals were primarily included in the “Asset retirement obligations and accrued environmental costs” line item on our consolidated balance sheet. For additional information about environmental liabilities, see Note 13—Contingencies and Commitments.

Indemnification and Release Agreement

In 2012, in connection with our separation from ConocoPhillips, we entered into an Indemnification and Release Agreement. This agreement governs the treatment between ConocoPhillips and us of matters relating to indemnification, insurance, litigation responsibility and management, and litigation document sharing and cooperation arising in connection with the separation. Generally, the agreement provides for cross indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of ConocoPhillips’ business with ConocoPhillips. The agreement also establishes procedures for handling claims subject to indemnification and related matters.

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Note 13—Contingencies and Commitments

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

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

Environmental

We are subject to international, federal, state and local environmental laws and regulations. When we prepare our consolidated financial statements, we record accruals for environmental liabilities based on management’s best estimates, using information available at the time. We measure estimates and base contingent liabilities on currently available facts, existing technology and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring contingent environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the Environmental Protection Agency (EPA) or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.

Although liability for environmental remediation costs is generally joint and several for federal sites and frequently so for state sites, we are usually only one of many companies alleged to have liability at a particular site. Due to such joint and several liabilities, we could be responsible for all cleanup costs related to any site at which we have been designated as a potentially responsible party. We have been successful to date in sharing cleanup costs with other financially sound companies. Many of the sites for which we are potentially responsible are still under investigation by the EPA or the state agencies concerned. Prior to actual cleanup, those potentially responsible normally assess the site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or may attain a settlement of liability. Where it appears that other potentially responsible parties may be financially unable to bear their proportional share, we consider this inability in estimating our potential liability, and we adjust our accruals accordingly. As a result of various acquisitions in the past, we assumed certain environmental obligations. Some of these environmental obligations are mitigated by indemnifications made by others for our benefit, although some of the indemnifications are subject to dollar and time limits.

We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those pertaining to sites acquired in a business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated. At June 30, 2024, our total environmental accruals were $448 million, compared with $446 million at December 31, 2023. We expect to incur a substantial amount of these expenditures within the next 30 years. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

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Legal Proceedings

Our legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required.

Other Contingencies

We have contingent liabilities resulting from throughput agreements with pipeline and processing companies not associated with financing arrangements. Under these agreements, we may be required to provide any such company with additional funds through advances and penalties for fees related to throughput capacity not utilized.

At June 30, 2024, we had performance obligations secured by letters of credit and bank guarantees of $1.1 billion related to various purchase and other commitments incident to the ordinary conduct of business.

Note 14—Derivatives and Financial Instruments

Derivative Instruments

We use financial and commodity-based derivative contracts to manage exposures to fluctuations in commodity prices, interest rates and foreign currency exchange rates, or to capture market opportunities. Because we do not apply hedge accounting for commodity derivative contracts, all realized and unrealized gains and losses from commodity derivative contracts are recognized in our consolidated statement of income. Gains and losses from derivative contracts held for trading not directly related to our physical business are reported net in the “Other income” line item on our consolidated statement of income. Cash flows from all our derivative activity for the periods presented appear in the operating section on our consolidated statement of cash flows.

Purchase and sales contracts with firm minimum notional volumes for commodities that are readily convertible to cash are recorded on our consolidated balance sheet as derivatives unless the contracts are eligible for, and we elect, the normal purchases and normal sales exception, whereby the contracts are recorded on an accrual basis. We generally apply the normal purchases and normal sales exception to eligible crude oil, refined petroleum product, NGL, natural gas, renewable feedstock, and power commodity contracts to purchase or sell quantities we expect to use or sell in the normal course of business. All other derivative instruments are recorded at fair value on our consolidated balance sheet. For further information regarding the fair value of derivatives, see Note 15—Fair Value Measurements.

Commodity Derivative Contracts—We sell into or receive supply from the worldwide crude oil, refined petroleum product, NGL, natural gas, renewable feedstock, and electric power markets, exposing our revenues, purchases, cost of operating activities and cash flows to fluctuations in the prices for these commodities. Generally, our policy is to remain exposed to the market prices of commodities; however, we use futures, forwards, swaps and options in various markets to balance physical systems, meet customer needs, manage price exposures on specific transactions, and do a limited amount of trading not directly related to our physical business, all of which may reduce our exposure to fluctuations in market prices. We also use the market knowledge gained from these activities to capture market opportunities such as moving physical commodities to more profitable locations, storing commodities to capture seasonal or time premiums, and blending commodities to capture quality upgrades.

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The following table presents the consolidated balance sheet line items that include the fair values of commodity derivative assets and liabilities. The balances in the following table are presented on a gross basis, before the effects of counterparty and collateral netting. However, we have elected to present our commodity derivative assets and liabilities with the same counterparty on a net basis on our consolidated balance sheet when the legal right of offset exists.


	Millions of Dollars
	June 30, 2024						December 31, 2023
	Commodity Derivatives			Effect of Collateral Netting	Net Carrying Value Presented on the Balance Sheet			Commodity Derivatives		Effect of Collateral Netting	Net Carrying Value Presented on the Balance Sheet
	Assets		Liabilities		Assets	Liabilities

Assets
Prepaid expenses and other current assets	$	70	—	—	70			2,148	(2,005)	—	143
Other assets	19		(8)	—	11			19	(2)	—	17
Liabilities
Other accruals	3,172		(3,356)	109	(75)			1,034	(1,127)	18	(75)
Other liabilities and deferred credits	22		(23)	3	2			—	(14)	—	(14)
Total	$	3,283	(3,387)	112	8			3,201	(3,148)	18	71

At June 30, 2024 and December 31, 2023, there was no material cash collateral received or paid that was not offset on our consolidated balance sheet.

The realized and unrealized gains (losses) incurred from commodity derivatives, and the line items where they appear on our consolidated statement of income, were:


	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2024		2023		2024	2023

Sales and other operating revenues	$	29	210		(173)	260
Other income	30		24		68	10
Purchased crude oil and products	38		(34)		(218)	103
Net gain (loss) from commodity derivative activity	$	97	200		(323)	373

The following table summarizes our material net exposures resulting from outstanding commodity derivative contracts. These financial and physical derivative contracts are primarily used to manage price exposure on our underlying operations. The underlying exposures may be from nonderivative positions such as inventory volumes. Financial derivative contracts may also offset physical derivative contracts, such as forward purchase and sales contracts. The percentage of our derivative contract volumes expiring within the next 12 months was more than 90% at June 30, 2024 and December 31, 2023.

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	Open Position Long / (Short)
	June 30 2024	December 31 2023
Commodity
Crude oil, refined petroleum products, NGL and renewable feedstocks (millions of barrels)	(51)	(22)
Natural gas (billions of cubic feet)	(6)	(25)

Credit Risk from Derivative and Financial Instruments

Financial instruments potentially exposed to concentrations of credit risk consist primarily of trade receivables and derivative contracts.

Our trade receivables result primarily from the sale of products from, or related to, our refinery operations and reflect a broad national and international customer base, which limits our exposure to concentrations of credit risk. The majority of these receivables have payment terms of 30 days or less. We continually monitor this exposure and the creditworthiness of the counterparties and recognize bad debt expense based on a probability assessment of credit loss. Generally, we do not require collateral to limit the exposure to loss; however, we will sometimes use letters of credit, prepayments or master netting arrangements to mitigate credit risk with counterparties that both buy from and sell to us, as these agreements permit the amounts owed by us to others to be offset against amounts owed to us.

The credit risk from our derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant nonperformance. We also use futures, swaps and option contracts that have a negligible credit risk because these trades are cleared with an exchange clearinghouse and subject to mandatory margin requirements, typically on a daily basis, until settled.

Certain of our derivative instruments contain provisions that require us to post collateral if the derivative exposure exceeds a threshold amount. We have contracts with fixed threshold amounts and other contracts with variable threshold amounts that are contingent on our credit ratings. The variable threshold amounts typically decline for lower credit ratings, while both the variable and fixed threshold amounts typically revert to zero if our credit ratings fall below investment grade. Cash is the primary collateral in all contracts; however, many contracts also permit us to post letters of credit as collateral.

The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at June 30, 2024 and December 31, 2023.

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Note 15—Fair Value Measurements

Recurring Fair Value Measurements

We carry certain assets and liabilities at fair value, which we measure at the reporting date using the price that would be received to sell an asset or paid to transfer a liability (i.e., an exit price), and disclose the quality of these fair values based on the valuation inputs used in these measurements under the following hierarchy:

Level 1: Fair value measured with unadjusted quoted prices from an active market for identical assets or liabilities.
Level 2: Fair value measured either with: (1) adjusted quoted prices from an active market for similar assets or liabilities; or (2) other valuation inputs that are directly or indirectly observable.
Level 3: Fair value measured with unobservable inputs that are significant to the measurement.

We classify the fair value of an asset or liability based on the significance of its observable or unobservable inputs to the measurement. However, the fair value of an asset or liability initially reported as Level 3 will be subsequently reported as Level 2 if the unobservable inputs become inconsequential to its measurement or corroborating market data becomes available. Conversely, an asset or liability initially reported as Level 2 will be subsequently reported as Level 3 if corroborating market data becomes unavailable.

We used the following methods and assumptions to estimate the fair value of financial instruments:

Cash and cash equivalents—The carrying amount reported on our consolidated balance sheet approximates fair value.
Accounts and notes receivable—The carrying amount reported on our consolidated balance sheet approximates fair value.
Derivative instruments—The fair value of our exchange-traded contracts is based on quoted market prices obtained from the New York Mercantile Exchange, the Intercontinental Exchange or other exchanges, and is reported as Level 1 in the fair value hierarchy. When exchange-cleared contracts lack sufficient liquidity, or are valued using either adjusted exchange-provided prices or nonexchange quotes, we classify those contracts as Level 2 or Level 3 based on the degree to which inputs are observable.

Physical commodity forward purchase and sales contracts and over-the-counter (OTC) financial swaps are generally valued using forward quotes provided by brokers and price index developers, such as Platts and Oil Price Information Service. We corroborate these quotes with market data and classify the resulting fair values as Level 2. When forward market prices are not available, we estimate fair value using the forward price of a similar commodity, adjusted for the difference in quality or location. In certain less liquid markets or for longer-term contracts, forward prices are not as readily available. In these circumstances, physical commodity purchase and sales contracts and OTC swaps are valued using internally developed methodologies that consider historical relationships among various commodities that result in management’s best estimate of fair value. We classify these contracts as Level 3. Physical and OTC commodity options are valued using industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and contractual prices for the underlying instruments, as well as other relevant economic measures. The degree to which these inputs are observable in the forward markets determines whether the options are classified as Level 2 or 3. We use a midmarket pricing convention (the midpoint between bid and ask prices). When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.

When applicable, we determine the fair value of interest rate swaps based on observable market valuations for interest rate swaps that have notional amounts, terms and pay and reset frequencies similar to ours.

Rabbi trust assets—These deferred compensation investments are measured at fair value using unadjusted quoted prices available from national securities exchanges and are therefore categorized as Level 1 in the fair value hierarchy.
Investment in NOVONIX Limited (NOVONIX)—Our investment in NOVONIX is measured at fair value using unadjusted quoted prices available from the Australian Securities Exchange and is therefore categorized as Level 1 in the fair value hierarchy.

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Other investments—Includes other marketable securities with observable market prices.

*•*Debt—The carrying amount of our floating-rate debt approximates fair value. The fair value of our fixed-rate debt is estimated primarily based on observable market prices.

The following tables display the fair value hierarchy for our financial assets and liabilities either accounted for or disclosed at fair value on a recurring basis. These values are determined by treating each contract as the fundamental unit of account; therefore, derivative assets and liabilities with the same counterparty are shown on a gross basis in the hierarchy sections of these tables, before the effects of counterparty and collateral netting. The following tables also reflect the effect of netting derivative assets and liabilities with the same counterparty for which we have the legal right of offset and collateral netting.

The carrying values and fair values by hierarchy of our financial assets and liabilities, either carried or disclosed at fair value, including any effects of counterparty and collateral netting, were:


	Millions of Dollars
	June 30, 2024
	Fair Value Hierarchy				Total Fair Value of Gross Assets & Liabilities	Effect of Counterparty Netting	Effect of Collateral Netting	Difference in Carrying Value and Fair Value	Net Carrying Value Presented on the Balance Sheet
	Level 1		Level 2	Level 3
Commodity Derivative Assets
Exchange-cleared instruments	$	3,210	—	—	3,210	(3,199)	—	—	11

Physical forward contracts	—		71	2	73	(3)	—	—	70

Rabbi trust assets	154		—	—	154	N/A	N/A	—	154
Investment in NOVONIX	37		—	—	37	N/A	N/A	—	37

	$	3,401	71	2	3,474	(3,202)	—	—	272

Commodity Derivative Liabilities
Exchange-cleared instruments	$	3,311	—	—	3,311	(3,199)	(112)	—	—

Physical forward contracts	—		75	1	76	(3)	—	—	73

Floating-rate debt	—		1,240	—	1,240	N/A	N/A	—	1,240
Fixed-rate debt, excluding finance leases and software obligations	—		17,497	—	17,497	N/A	N/A	918	18,415
	$	3,311	18,812	1	22,124	(3,202)	(112)	918	19,728


	Millions of Dollars
	December 31, 2023
	Fair Value Hierarchy				Total Fair Value of Gross Assets & Liabilities	Effect of Counterparty Netting	Effect of Collateral Netting	Difference in Carrying Value and Fair Value	Net Carrying Value Presented on the Balance Sheet
	Level 1		Level 2	Level 3
Commodity Derivative Assets
Exchange-cleared instruments	$	3,075	54	—	3,129	(3,039)	—	—	90
OTC instruments	—		1	—	1	—	—	—	1
Physical forward contracts	—		70	1	71	(2)	—	—	69

Rabbi trust assets	155		—	—	155	N/A	N/A	—	155
Investment in NOVONIX	39		—	—	39	N/A	N/A	—	39

	$	3,269	125	1	3,395	(3,041)	—	—	354

Commodity Derivative Liabilities
Exchange-cleared instruments	$	3,057	41	—	3,098	(3,039)	(18)	—	41

Physical forward contracts	—		50	—	50	(2)	—	—	48

Floating-rate debt	—		1,915	—	1,915	N/A	N/A	—	1,915
Fixed-rate debt, excluding finance leases and software obligations	—		16,718	—	16,718	N/A	N/A	408	17,126
	$	3,057	18,724	—	21,781	(3,041)	(18)	408	19,130

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The rabbi trust assets and investment in NOVONIX are recorded in the “Investments and long-term receivables” line item, and floating-rate and fixed-rate debt are recorded in the “Short-term debt” and “Long-term debt” line items on our consolidated balance sheet. See Note 14—Derivatives and Financial Instruments, for information regarding where the assets and liabilities related to our commodity derivatives are recorded on our consolidated balance sheet.

Nonrecurring Fair Value Measurements

Equity Investments and PP&E

In the second quarter of 2024, we remeasured the carrying value of the net PP&E and equity method investment in a Texas gathering and processing asset group to fair value. Fair value was determined using a market approach. This valuation resulted in a Level 3 nonrecurring fair value measurement.

Note 16—Pension and Postretirement Plans

The components of net periodic benefit cost for the three and six months ended June 30, 2024 and 2023, were as follows:


	Millions of Dollars
	Pension Benefits					Other Benefits
	2024			2023		2024	2023
	U.S.		Int’l.	U.S.	Int’l.
Components of Net Periodic Benefit Cost
Three Months Ended June 30
Service cost	$	29	4	27	3	—	1
Interest cost	29		8	30	8	2	2
Expected return on plan assets	(39)		(11)	(32)	(11)	—	—

Amortization of net actuarial loss (gain)	3		—	3	(1)	(1)	(1)
Settlements	3		—	4	—	—	—
Net periodic benefit (credit) cost*	$	25	1	32	(1)	1	2

Six Months Ended June 30
Service cost	$	58	7	54	6	1	2
Interest cost	57		16	59	16	4	4
Expected return on plan assets	(77)		(22)	(63)	(21)	—	—

Amortization of net actuarial loss (gain)	6		—	6	(2)	(2)	(3)
Settlements	4		—	14	—	—	—
Net periodic benefit (credit) cost*	$	48	1	70	(1)	3	3
** Included in the “Operating expenses” and “Selling, general and administrative expenses” line items on our consolidated statement of income.*

During the six months ended June 30, 2024, we contributed $18 million to our U.S. pension and other postretirement benefit plans and $2 million to our international pension plans. We currently expect to make additional contributions of approximately $17 million to our U.S. pension and other postretirement benefit plans and approximately $3 million to our international pension plans during the remainder of 2024. Cash contributions are included in the “Other” line item of the “Cash Flows From Operating Activities” section of our consolidated statement of cash flows.

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Note 17—Accumulated Other Comprehensive Loss

Changes in the balances of each component of accumulated other comprehensive loss were as follows:


	Millions of Dollars
	Defined Benefit Plans		Foreign Currency Translation	Hedging	Accumulated Other Comprehensive Loss

December 31, 2023	$	(120)	(157)	(5)	(282)
Other comprehensive income (loss) before reclassifications	1		(33)	—	(32)
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss and settlements	5		—	—	5
Foreign currency translation	—		—	—	—
Hedging	—		—	—	—
Net current period other comprehensive income (loss)	6		(33)	—	(27)
June 30, 2024	$	(114)	(190)	(5)	(309)

December 31, 2022	$	(122)	(336)	(2)	(460)
Other comprehensive income before reclassifications	2		174	—	176
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss and settlements	12		—	—	12
Foreign currency translation	—		—	—	—
Hedging	—		—	—	—
Net current period other comprehensive income	14		174	—	188

June 30, 2023	$	(108)	(162)	(2)	(272)
** Included in the computation of net periodic benefit cost. See Note 16—Pension and Postretirement Plans, for additional information.*

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Note 18—Related Party Transactions

Significant transactions with related parties were:


	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2024		2023		2024	2023

Operating revenues and other income (a)	$	1,188	1,059		2,321	2,363
Purchases (b)	5,188		3,957		10,419	7,656
Operating expenses and selling, general and administrative expenses (c)	77		76		146	148

(a)We sold NGL, other petrochemical feedstocks and solvents to Chevron Phillips Chemical Company LLC (CPChem), gas oil and hydrogen feedstocks to Excel Paralubes LLC (Excel), and refined petroleum products to several of our equity affiliates in the M&S segment, including OnCue and CF United LLC (CF United). We also sold certain feedstocks and intermediate products to WRB and acted as an agent for WRB in supplying crude oil and other feedstocks for a fee. In addition, we charged several of our equity affiliates, including CPChem, for the use of common facilities, such as steam generators, waste and water treaters and warehouse facilities.

(b)We purchased crude oil, refined petroleum products, NGL and solvents from WRB. We also purchased natural gas and NGL from CPChem, as well as other feedstocks from various equity affiliates, for use in our refinery and fractionation processes. In addition, we purchased base oils and fuel products from Excel for use in our specialty and refining businesses. We paid NGL fractionation fees to CPChem. We also paid fees to various pipeline equity affiliates for transporting crude oil, refined petroleum products and NGL.

(c)We paid consignment fees to CF United, and utility and processing fees to various equity affiliates.

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Note 19—Segment Disclosures and Related Information

Effective April 1, 2024, we changed the internal financial information reviewed by our chief executive officer to evaluate performance and allocate resources to our operating segments. This included changes in the composition of our operating segments, as well as measurement changes for certain activities between our operating segments. The primary effects are summarized below:

Establishment of a Renewable Fuels operating segment, which includes renewable fuels activities and assets historically reported in our Refining, M&S and Midstream segments.
Change in method of allocating results for certain Gulf Coast distillate export activities from our M&S segment to our Refining segment.
Reclassification of certain crude oil and international clean products trading activities between our M&S segment and our Refining segment.
Change in reporting of our 16% investment in NOVONIX from our Midstream segment to Corporate and Other.

The segment realignment is presented for the three- and six-month periods ended June 30, 2024, with prior periods recast for comparability.

Our operating segments are:

1)**Midstream—**Provides crude oil and refined petroleum product transportation, terminaling and processing services, as well as natural gas and NGL transportation, storage, fractionation, gathering, processing and marketing services, mainly in the United States.

2)**Chemicals—**Consists of our 50% equity investment in CPChem, which manufactures and markets petrochemicals and plastics on a worldwide basis.

3)**Refining—**Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels. This segment includes 11 refineries in the United States and Europe.

4)**Marketing and Specialties—**Purchases for resale and markets refined products, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of base oils and lubricants.

5)Renewable Fuels—Processes renewable feedstocks into renewable products at the RREC. In addition, this segment also includes the global activities to procure renewable feedstocks, manage certain regulatory credits, and market renewable fuels.

Corporate and Other includes general corporate overhead, interest income, interest expense, our investment in research of new technologies, business transformation restructuring costs, our 16% investment in NOVONIX, and various other corporate activities. Corporate assets include all cash, cash equivalents and income tax-related assets. See Note 22—Restructuring for additional information regarding restructuring costs.

Intersegment sales are at prices that we believe approximate market.

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Analysis of Results by Operating Segment


	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2024		2023		2024	2023
Sales and Other Operating Revenues*
Midstream
Total sales	$	4,346	4,124		9,187	9,416
Intersegment eliminations	(720)		(676)		(1,437)	(1,371)
Total Midstream	3,626		3,448		7,750	8,045
Chemicals	—		—		—	—
Refining
Total sales	23,099		22,016		45,008	43,565
Intersegment eliminations	(13,899)		(13,969)		(26,583)	(27,609)
Total Refining	9,200		8,047		18,425	15,956
Marketing and Specialties
Total sales	25,525		23,847		48,127	46,177
Intersegment eliminations	(580)		(623)		(1,098)	(1,294)
Total Marketing and Specialties	24,945		23,224		47,029	44,883
Renewable Fuels
Total sales	1,501		1,235		2,644	2,289
Intersegment eliminations	(1,151)		(873)		(1,926)	(1,705)
Total Renewable Fuels	350		362		718	584
Corporate and Other	8		9		18	18
Consolidated sales and other operating revenues	$	38,129	35,090		73,940	69,486
** See Note 4—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues.*


Income (Loss) Before Income Taxes
Midstream	$	767	620		1,321	1,336
Chemicals	222		192		427	390
Refining	302		1,175		518	2,769
Marketing and Specialties	415		533		781	896
Renewable Fuels	(55)		68		(110)	142
Corporate and Other	(340)		(344)		(662)	(638)
Consolidated income before income taxes	$	1,311	2,244		2,275	4,895

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	Millions of Dollars
	June 30 2024		December 31 2023
Total Assets
Midstream	$	28,205	29,052
Chemicals	7,667		7,357
Refining	22,021		21,013
Marketing and Specialties	10,672		10,834
Renewable Fuels	3,245		2,012
Corporate and Other	4,135		5,233
Consolidated total assets	$	75,945	75,501

Note 20—Income Taxes

Our effective income tax rates for the three and six months ended June 30, 2024, were 22% and 22%, respectively, compared to 23% and 22% for the corresponding periods of 2023, respectively. The decrease in our effective rate for the three months ended June 30, 2024, was primarily attributable to tax benefits from share-based compensation plans, partially offset by an increase in our foreign tax rate.

The effective tax rates for the three and six months ended June 30, 2024, varied from the U.S. federal statutory income tax rate primarily due to state income taxes and the impact of foreign operations, partially offset by the impact of non-taxable earnings and tax benefits from share-based compensation plans.

Note 21—DCP Midstream Class A Segment

DCP Midstream Class A Segment is comprised of the businesses, activities, assets and liabilities of DCP LP, its subsidiaries and its general partner entities. DCP LP is a master limited partnership whose operations currently include producing and fractionating NGL, gathering, compressing, treating and processing natural gas; recovering condensate; and transporting, trading, marketing and storing natural gas and NGL. DCP Midstream Class A Segment is a consolidated VIE as we are the primary beneficiary.

The most significant assets of DCP Midstream Class A Segment that are available to settle only its obligations, along with its most significant liabilities for which its creditors do not have recourse to Phillips 66’s general credit, were:


	Millions of Dollars
	June 30 2024		December 31 2023
Accounts receivable	$	507	601
Net properties, plants and equipment	8,967		9,319
Investments and long-term receivables	1,849		1,901
Accounts payable	756		815
Short-term debt	8		357
Long-term debt	3,435		3,759

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DCP LP Merger

On June 15, 2023, we completed the DCP LP Merger pursuant to the terms of the DCP LP Merger Agreement, which increased our aggregate direct and indirect economic interest in DCP LP from 43.3% to 86.8%. 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, LLC and its subsidiaries) issued and outstanding as of immediately prior to the effective time was converted into the right to receive $41.75 per common unit in cash. We paid $3,796 million in cash consideration to common unitholders, funded with a combination of available cash and debt proceeds. The DCP LP Merger was accounted for as an equity transaction.

Preferred Units

On June 15, 2023, DCP LP redeemed its Series B preferred units at the aggregated liquidation preference of $161 million, which approximated the book value of the preferred units.

Distributions

During the three and six months ended June 30, 2024, DCP LP made cash distributions of $12 million and $24 million, respectively, to a common unit holder other than Phillips 66 and its subsidiaries. During the three and six months ended June 30, 2023, DCP LP made cash distributions of $51 million and $102 million, respectively, to common unit holders other than Phillips 66 and its subsidiaries.

Note 22—Restructuring

In April 2022, we began a multi-year business transformation focused on enterprise-wide opportunities to improve our cost structure. For the three and six months ended June 30, 2023, we recorded restructuring costs totaling $41 million and $76 million, respectively, primarily related to consulting fees. These costs were primarily recorded in the “Selling, general and administrative expenses” line item on our consolidated statement of income and were reported in our Corporate segment. In addition, in the three and six months ended June 30, 2023, we recorded restructuring costs of $22 million and $34 million, respectively, associated with the integration of DCP Midstream Class A Segment primarily related to severance and contract exit costs. These costs were primarily recorded in the “Selling, general and administrative expenses” line item on our consolidated statement of income and were reported in our Midstream segment.

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