Phillips 66 [PSX] Filings

10-Q 1 psx-20240930.htm 10-Q psx-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended			September 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from


Commission file number:			001-35349

Phillips 66

(Exact name of registrant as specified in its charter)


Delaware						45-3779385
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2331 CityWest Blvd., Houston, Texas 77042

(Address of principal executive offices) (Zip Code)

832-765-3010

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

PSX

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 412,989,227 shares of common stock, $0.01 par value, outstanding as of September 30, 2024.

Table of Contents

PHILLIPS 66

TABLE OF CONTENTS


			Page
Part I – Financial Information

Item 1. Financial Statements
Consolidated Statement of Income			1
Consolidated Statement of Comprehensive Income			2
Consolidated Balance Sheet			3
Consolidated Statement of Cash Flows			4
Consolidated Statement of Changes in Equity			5
Notes to Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35

Item 3. Quantitative and Qualitative Disclosures About Market Risk			69

Item 4. Controls and Procedures			69

Part II – Other Information

Item 1. Legal Proceedings			70

Item 1A. Risk Factors			72

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			72

Item 5. Other Information			72

Item 6. Exhibits			73

Signatures			74

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


Consolidated Statement of Income			Phillips 66


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2024		2023		2024	2023
Revenues and Other Income
Sales and other operating revenues	$	35,528	39,643		109,468	109,129
Equity in earnings of affiliates	549		562		1,564	1,736
Net gain on dispositions	2		102		239	124
Other income	84		15		239	162
Total Revenues and Other Income	36,163		40,322		111,510	111,151

Costs and Expenses
Purchased crude oil and products	32,194		34,330		99,208	94,242
Operating expenses	1,499		1,633		4,358	4,595
Selling, general and administrative expenses	1,194		669		2,303	1,867
Depreciation and amortization	543		488		1,544	1,459
Impairments	29		3		419	15
Taxes other than income taxes	53		171		267	552
Accretion on discounted liabilities	8		6		27	19
Interest and debt expense	229		221		687	679
Foreign currency transaction (gains) losses	1		(12)		9	15
Total Costs and Expenses	35,750		37,509		108,822	103,443
Income before income taxes	413		2,813		2,688	7,708
Income tax expense	44		670		538	1,754
Net Income	369		2,143		2,150	5,954
Less: net income attributable to noncontrolling interests	23		46		41	199
Net Income Attributable to Phillips 66	$	346	2,097		2,109	5,755

Net Income Attributable to Phillips 66 Per Share of Common Stock (dollars)
Basic	$	0.82	4.72		4.97	12.65
Diluted	0.82		4.69		4.94	12.59



Weighted-Average Common Shares Outstanding (thousands)
Basic	417,305		444,283		423,024	454,440
Diluted	418,803		447,258		425,555	457,205
See Notes to Consolidated Financial Statements.

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Consolidated Statement of Comprehensive Income			Phillips 66


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2024		2023		2024	2023

Net Income	$	369	2,143		2,150	5,954
Other comprehensive income (loss)
Defined benefit plans


Amortization of net actuarial loss and settlements	2		2		9	17


Plans sponsored by equity affiliates	—		—		1	3
Income taxes on defined benefit plans	—		(1)		(2)	(5)
Defined benefit plans, net of income taxes	2		1		8	15
Foreign currency translation adjustments	168		(112)		133	62
Income taxes on foreign currency translation adjustments	(2)		(2)		—	(2)
Foreign currency translation adjustments, net of income taxes	166		(114)		133	60




Other Comprehensive Income (Loss), Net of Income Taxes	168		(113)		141	75
Comprehensive Income	537		2,030		2,291	6,029
Less: comprehensive income attributable to noncontrolling interests	23		46		41	199
Comprehensive Income Attributable to Phillips 66	$	514	1,984		2,250	5,830

See Notes to Consolidated Financial Statements.

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Consolidated Balance Sheet			Phillips 66


	Millions of Dollars
	September 30 2024		December 31 2023
Assets
Cash and cash equivalents	$	1,637	3,323
Accounts and notes receivable (net of allowances of $77 million in 2024 and $71 million in 2023)	8,739		10,483
Accounts and notes receivable—related parties	1,701		1,247
Inventories	6,037		3,750
Prepaid expenses and other current assets	1,193		1,138
Total Current Assets	19,307		19,941
Investments and long-term receivables	15,222		15,302
Net properties, plants and equipment	35,597		35,712
Goodwill	1,574		1,550
Intangibles	1,157		920
Other assets	2,223		2,076
Total Assets	$	75,080	75,501

Liabilities
Accounts payable	$	10,216	10,332
Accounts payable—related parties	690		569
Short-term debt	1,522		1,482
Accrued income and other taxes	1,206		1,200
Employee benefit obligations	676		863
Other accruals	1,612		1,410
Total Current Liabilities	15,922		15,856
Long-term debt	18,476		17,877
Asset retirement obligations and accrued environmental costs	1,102		864
Deferred income taxes	7,257		7,424
Employee benefit obligations	662		630
Other liabilities and deferred credits	1,877		1,200
Total Liabilities	45,296		43,851

Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value) Issued (2024—656,887,405 shares; 2023—654,842,101 shares)
Par value	7		7
Capital in excess of par	19,759		19,650
Treasury stock (at cost: 2024—243,898,178 shares; 2023—224,377,439 shares)	(22,140)		(19,342)
Retained earnings	31,237		30,550
Accumulated other comprehensive loss	(141)		(282)
Total Stockholders’ Equity	28,722		30,583
Noncontrolling interests	1,062		1,067
Total Equity	29,784		31,650
Total Liabilities and Equity	$	75,080	75,501

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Cash Flows			Phillips 66


	Millions of Dollars
	Nine Months Ended September 30
	2024		2023
Cash Flows From Operating Activities
Net income	$	2,150	5,954
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	1,544		1,459
Impairments	419		15
Accretion on discounted liabilities	27		19
Deferred income taxes	(87)		673
Undistributed equity earnings	(519)		(767)
Loss (gain) on early redemption of debt	(3)		53
Net gain on dispositions	(239)		(124)

Unrealized investment loss	2		34

Other	611		(455)
Working capital adjustments
Accounts and notes receivable	1,362		(1,025)
Inventories	(2,301)		(2,262)
Prepaid expenses and other current assets	(58)		162
Accounts payable	102		1,344
Taxes and other accruals	(17)		(241)


Net Cash Provided by Operating Activities	2,993		4,839

Cash Flows From Investing Activities
Capital expenditures and investments	(1,353)		(1,521)
Acquisitions, net of cash acquired	(567)		(263)
Purchases of government obligations	(1,100)		—
Return of investments in equity affiliates	122		159
Proceeds from asset dispositions	906		370



Other	(126)		73


Net Cash Used in Investing Activities	(2,118)		(1,182)

Cash Flows From Financing Activities
Issuance of debt	5,137		5,725
Repayment of debt	(3,428)		(3,625)
Issuance of common stock	82		103
Repurchase of common stock	(2,804)		(2,861)
Dividends paid on common stock	(1,410)		(1,425)
Distributions to noncontrolling interests	(46)		(140)

Repurchase of noncontrolling interests	—		(3,957)
Other	(112)		(87)


Net Cash Used in Financing Activities	(2,581)		(6,267)

Effect of Exchange Rate Changes on Cash and Cash Equivalents	20		16

Net Change in Cash and Cash Equivalents	(1,686)		(2,594)
Cash and cash equivalents at beginning of period	3,323		6,133
Cash and Cash Equivalents at End of Period	$	1,637	3,539

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Changes in Equity			Phillips 66


	Millions of Dollars
	Three Months Ended September 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

June 30, 2024	$	7	19,717	(21,332)	31,372	(309)	1,052	30,507
Net income	—		—	—	346	—	23	369
Other comprehensive income	—		—	—	—	168	—	168
Dividends paid on common stock ($1.15 per share)	—		—	—	(477)	—	—	(477)
Repurchase of common stock	—		—	(808)	—	—	—	(808)
Distributions to noncontrolling interests	—		—	—	—	—	(13)	(13)



Benefit plan activity	—		42	—	(4)	—	—	38
September 30, 2024	$	7	19,759	(22,140)	31,237	(141)	1,062	29,784



June 30, 2023	$	7	19,463	(17,422)	28,122	(272)	1,162	31,060
Net income	—		—	—	2,097	—	46	2,143
Other comprehensive loss	—		—	—	—	(113)	—	(113)
Dividends paid on common stock ($1.05 per share)	—		—	—	(465)	—	—	(465)
Repurchase of common stock	—		—	(733)	—	—	—	(733)

Distributions to noncontrolling interests	—		—	—	—	—	(15)	(15)
Acquisition of noncontrolling interest in DCP Midstream, LP	—		17	—	—	—	(25)	(8)
Benefit plan activity	—		123	—	(3)	—	—	120
September 30, 2023	$	7	19,603	(18,155)	29,751	(385)	1,168	31,989


	Shares
	Three Months Ended September 30
	Common Stock Issued	Treasury Stock

June 30, 2024	656,534,809	237,965,626
Repurchase of common stock	—	5,932,552
Shares issued—share-based compensation	352,596	—

September 30, 2024	656,887,405	243,898,178

June 30, 2023	653,361,255	208,073,327
Repurchase of common stock	—	6,523,145
Shares issued—share-based compensation	1,190,792	—

September 30, 2023	654,552,047	214,596,472










See Notes to Consolidated Financial Statements.

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	Millions of Dollars
	Nine Months Ended September 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	—		—	—	2,109	—	41	2,150
Other comprehensive income	—		—	—	—	141	—	141
Dividends paid on common stock ($3.35 per share)	—		—	—	(1,410)	—	—	(1,410)
Repurchase of common stock	—		—	(2,798)	—	—	—	(2,798)
Distributions to noncontrolling interests	—		—	—	—	—	(46)	(46)
Benefit plan activity	—		109	—	(12)	—	—	97
September 30, 2024	$	7	19,759	(22,140)	31,237	(141)	1,062	29,784

December 31, 2022	$	7	19,791	(15,276)	25,432	(460)	4,612	34,106
Net income	—		—	—	5,755	—	199	5,954
Other comprehensive income	—		—	—	—	75	—	75
Dividends paid on common stock ($3.15 per share)	—		—	—	(1,425)	—	—	(1,425)
Repurchase of common stock	—		—	(2,879)	—	—	—	(2,879)
Distributions to noncontrolling interests	—		—	—	—	—	(140)	(140)
Acquisition of noncontrolling interest in DCP Midstream, LP	—		(361)	—	—	—	(3,504)	(3,865)
Benefit plan activity	—		173	—	(11)	—	1	163
September 30, 2023	$	7	19,603	(18,155)	29,751	(385)	1,168	31,989


	Shares
	Nine Months Ended September 30
	Common Stock Issued	Treasury Stock

December 31, 2023	654,842,101	224,377,439
Repurchase of common stock	—	19,520,739
Shares issued—share-based compensation	2,045,304	—
September 30, 2024	656,887,405	243,898,178

December 31, 2022	652,373,645	186,529,667
Repurchase of common stock	—	28,066,805
Shares issued—share-based compensation	2,178,402	—
September 30, 2023	654,552,047	214,596,472
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 nine months ended September 30, 2024, are not necessarily indicative of the results expected for the full year.

Certain prior period financial information has been reclassified and recast for comparability. See Note 19—Cash Flow Information and Note 21—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 23—DCP Midstream Class A Segment, for additional information regarding the DCP LP Merger.

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Note 3—Restructuring

Los Angeles Refinery

On September 20, 2024, we approved a plan to cease operations at our Los Angeles Refinery in the fourth quarter of 2025, and are evaluating potential future uses of the property. As a result of this decision, the following impacts were recorded in our Refining segment:

•We assessed the Los Angeles Refinery asset group for impairment and concluded that the carrying value of the asset group was recoverable. However, the estimated useful lives of the Los Angeles Refinery assets were shortened to reflect the plan to cease the use of the assets in the fourth quarter of 2025. As such, depreciation of the $1,538 million carrying value of the Los Angeles Refinery assets will be accelerated through December 2025 to reduce the carrying value of the net properties, plants and equipment (PP&E) and intangible assets to the estimated salvage value of $241 million. Total depreciation related to the Los Angeles Refinery assets for the three months ended September 30, 2024 was $50 million, including $25 million of accelerated depreciation. This accelerated depreciation is included within the “Depreciation and amortization” line item on our consolidated statement of income for the three and nine months ended September 30, 2024.

•We increased our asset retirement obligations (AROs) by $205 million as of September 30, 2024, with a corresponding increase to the carrying amount of the related long-lived assets. The increase was primarily driven by a change in the estimated timing of spending for asbestos abatement and decommissioning of assets at the Los Angeles Refinery. Depreciation of the related capitalized asset retirement costs also will be recorded through December 2025, and the amount for the three and nine months ended September 30, 2024, is reflected in the accelerated depreciation discussed above.

•We recorded $41 million of severance costs, which are included in the “Operating expenses” line item on our consolidated statement of income for the three and nine months ended September 30, 2024.

Business Transformation

In April 2022, we began a multi-year business transformation focused on enterprise-wide opportunities to improve our cost structure. For the three and nine months ended September 30, 2023, we recorded restructuring costs totaling $51 million and $127 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 nine months ended September 30, 2023, we recorded restructuring costs of $4 million and $38 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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Note 4—Business Combinations

On July 1, 2024, we acquired Pinnacle Midland Parent LLC to expand our natural gas gathering and processing operations in the Permian Basin for total cash consideration of $567 million. For this acquisition, we provisionally recorded $325 million of PP&E, including finance lease right of use assets; $256 million of amortizable intangible assets, primarily customer relationships; $21 million of goodwill; $16 million of net working capital deficit; $13 million of AROs; and $6 million of finance lease liabilities. The fair values of the assets acquired and liabilities assumed are preliminary and subject to change until we finalize the accounting for this acquisition.

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 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.

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Note 5—Sales and Other Operating Revenues

Disaggregated Revenues

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


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2024		2023		2024	2023
Product Line and Services
Refined petroleum products and renewable fuels	$	25,629	29,974		79,439	81,209
Crude oil resales	5,780		5,391		17,263	14,606
Natural gas liquids (NGL) and natural gas	3,478		3,886		10,395	11,564
Services and other*	641		392		2,371	1,750
Consolidated sales and other operating revenues	$	35,528	39,643		109,468	109,129

Geographic Location**
United States	$	27,976	32,468		86,817	87,523
United Kingdom	2,883		3,708		9,980	10,889
Germany	1,344		1,477		4,017	4,155
Other countries	3,325		1,990		8,654	6,562
Consolidated sales and other operating revenues	$	35,528	39,643		109,468	109,129
* Includes derivatives-related activities. See Note 15—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 September 30, 2024 and December 31, 2023, receivables from contracts with customers were $8,542 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 September 30, 2024 and December 31, 2023, our asset balances related to such payments were $608 million and $537 million, respectively.

Our contract liabilities represent advances from our customers prior to product or service delivery. At September 30, 2024 and December 31, 2023, contract liabilities were $183 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 September 30, 2024, the remaining performance obligations related to these minimum volume commitment contracts amounted to $341 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 three years as of September 30, 2024.

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Note 6—Credit Losses

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

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

At September 30, 2024 and December 31, 2023, we reported $10,440 million and $11,730 million of accounts and notes receivable, respectively, net of allowances of $77 million and $71 million, respectively. Based on an aging analysis at September 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 13—Guarantees and Note 14—Contingencies and Commitments, for more information regarding these off-balance sheet exposures.

Note 7—Inventories

Inventories consisted of the following:


	Millions of Dollars
	September 30 2024		December 31 2023

Crude oil and products*	$	5,598	3,330
Materials and supplies	439		420
	$	6,037	3,750
* Includes feedstocks other than crude oil.

Inventories valued on the last-in, first-out (LIFO) basis totaled $5,491 million and $3,050 million at September 30, 2024 and December 31, 2023, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $4.5 billion and $5.3 billion at September 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 nine months ended September 30, 2024 and 2023.

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Note 8—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 September 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 September 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 September 30, 2024.

At September 30, 2024, the aggregate book value of our investments in Dakota Access and ETCO was $882 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 variable interest entity (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 September 30, 2024, our maximum exposure to loss was $239 million, which represented the book value of our investment in OnCue of $178 million and guaranteed debt obligations of $61 million.

Investment Dispositions

On August 1, 2024, we sold our ownership interests in certain gathering and processing assets in Louisiana and Alabama for $173 million and recognized a before-tax gain of $18 million, which is included in the “Net gain on dispositions” line item on our consolidated statement of income for the three and nine months ended September 30, 2024, and is reported in the Midstream segment.

On June 14, 2024, we sold our 25% ownership interest in Rockies Express Pipeline LLC for $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 nine months ended September 30, 2024, and is reported in the Midstream segment.

Pending Investment Dispositions

On October 28, 2024, we entered into an agreement to sell our equity interests in certain pipeline and terminaling assets in North Dakota for total cash proceeds of approximately $140 million, which approximates the net book value of the assets being sold. The transaction is expected to close in the fourth quarter of 2024, subject to completion of customary closing conditions and satisfaction of certain due diligence requirements.

On October 14, 2024, we entered into a definitive agreement to sell our 49% non-operated equity interest in Coop Mineraloel AG (Coop) for cash proceeds of 1.06 billion Swiss francs (approximately $1.24 billion), consisting of a sales price of approximately 1.0 billion Swiss francs (approximately $1.17 billion) and an assumed dividend of 60 million Swiss francs (approximately $70 million) for 2024 to be paid at or prior to closing. The sales price is subject to adjustment based on the amount of the dividend. The transaction is subject to approval by the Swiss Competition Commission and is expected to close in the first quarter of 2025. The net book value of our investment in Coop at September 30, 2024, was $152 million.

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Note 9—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
	September 30, 2024				December 31, 2023
	Gross PP&E		Accum. D&A	Net PP&E	Gross PP&E	Accum. D&A	Net PP&E

Midstream	$	25,951	4,576	21,375	26,124	4,382	21,742
Chemicals	—		—	—	—	—	—
Refining	22,220		11,649	10,571	23,110	12,150	10,960
Marketing and Specialties	2,085		1,258	827	1,997	1,166	831
Renewable Fuels	3,699		1,647	2,052	2,311	953	1,358
Corporate and Other	1,671		899	772	1,650	829	821
	$	55,626	20,029	35,597	55,192	19,480	35,712

On August 30, 2024, we sold our ownership interest in certain Midstream gathering and processing assets in Texas for $41 million and recognized a before-tax loss of $9 million, which is included in the “Net gain on dispositions” line item on our consolidated statement of income for the three and nine months ended September 30, 2024.

In the first quarter of 2024, 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 the conversion of the Rodeo facility and the change in composition of our operating segments recast in the second quarter of 2024. See Note 21—Segment Disclosures and Related Information, for information regarding changes to our operating segments.

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Note 10—Impairments


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2024		2023		2024	2023

Midstream	$	28	—		312	—
Refining	—		3		105	8
Marketing & Specialties	1		—		1	—

Corporate and Other	—		—		1	7
Total impairments	$	29	3		419	15

For the three and nine months ended September 30, 2024, we recorded before-tax impairments totaling $29 million and $419 million, respectively. The before-tax impairments for the three and nine months ended September 30, 2024, included $28 million recorded in our Midstream segment related to certain crude gathering assets in Texas. Before-tax impairments for the nine months ended September 30, 2024, also included $224 million recorded in our Midstream segment related to certain gathering and processing assets in Texas and $163 million 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 11—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 September 30					Nine Months Ended September 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	$	346	346	2,097	2,097		2,109	2,109	5,755	5,755
Income allocated to participating securities	(3)		(3)	(2)	—		(8)	(5)	(8)	—

Net income available to common stockholders	$	343	343	2,095	2,097		2,101	2,104	5,747	5,755

Weighted-average common shares outstanding (thousands):	415,841		417,305	442,599	444,283		421,420	423,024	452,666	454,440
Effect of share-based compensation	1,464		1,498	1,684	2,975		1,604	2,531	1,774	2,765
Weighted-average common shares outstanding—EPS	417,305		418,803	444,283	447,258		423,024	425,555	454,440	457,205

Earnings Per Share of Common Stock (dollars)	$	0.82	0.82	4.72	4.69		4.97	4.94	12.65	12.59

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Note 12—Debt

Senior Notes and Term Loan Issuances and Repayments

Issuances

On September 9, 2024, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $1.8 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 (Additional 2031 Notes).

•$600 million aggregate principal amount of 4.950% Senior Notes due 2035 (2035 Notes).

•$600 million aggregate principal amount of 5.500% Senior Notes due 2055 (2055 Notes).

Interest on the Additional 2031 Notes is payable semi-annually on June 15 and December 15 of each year, commencing on December 15, 2024. Interest on the 2035 Notes and 2055 Notes is payable semi-annually on March 15 and September 15, commencing on March 15, 2025.

On February 28, 2024, Phillips 66 Company 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 and commenced on June 15, 2024. Interest on the Additional 2033 Notes is payable semi-annually on June 30 and December 30 of each year and commenced 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 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.

•$500 million aggregate principal amount of 5.300% Senior Notes due June 2033.

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.

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Discharge of Senior Notes

On September 20, 2024, we extinguished (i) the remaining $441 million outstanding principal amount of Phillips 66 Company’s 3.605% senior notes due February 2025 (2025 P66 Co Notes), and (ii) the remaining $650 million outstanding principal amount of Phillips 66’s 3.850% senior notes due April 2025 (the 2025 PSX Notes, and together with the 2025 P66 Co Notes, the Discharged Notes), whereby we irrevocably transferred a total of $1,100 million in government obligations to the trustee of the 2025 P66 Co Notes and the 2025 PSX Notes. The cash paid to purchase the government obligations is included within investing cash flows on our consolidated statement of cash flows. These government obligations will yield sufficient principal and interest over their remaining term to permit the trustee to satisfy the remaining principal and interest due on the Discharged Notes. Phillips 66 and Phillips 66 Company are no longer the primary obligors under the Discharged Notes. The transfer of the government obligations to the trustee was accounted for as a transfer of financial assets. If the trustee is unable to apply the government obligations to fund the remaining principal and interest payments on the Discharged Notes, then the Company’s obligations under the Indenture with respect to the Discharged Notes will be revived and reinstated. We deem the likelihood of such event to be remote with no impact to the legal isolation of the assets. Accordingly, the senior notes and the government obligations were derecognized on our balance sheet at September 30, 2024. For the three and nine months ended September 30, 2024, we recognized an immaterial gain on the extinguishment of this debt.

Related Party Advance Term Loan Agreements

At September 30, 2024 and December 31, 2023, borrowings outstanding under our Advance Term Loan agreements with WRB Refining LP (WRB) totaled $290 million. Borrowings under these agreements are due between 2035 and 2038 and bear interest at a floating rate based on adjusted term Secured Overnight Financing Rate (SOFR) plus an applicable margin, payable on the last day of each month.

Credit Facilities and Commercial Paper

Phillips 66 and Phillips 66 Company

On September 30, 2024, Phillips 66 Company entered into a 364-day, $500 million accounts receivable securitization facility (the Receivables Securitization Facility). Under the Receivables Securitization Facility, Phillips 66 Company sells or contributes on an ongoing basis, certain of its receivables, together with related security and interests in the proceeds thereof, to its wholly-owned subsidiary, Phillips 66 Receivables LLC, a consolidated and bankruptcy-remote special purpose entity created for the sole purpose of transacting under the Receivables Securitization Facility. Under the Receivables Securitization Facility, Phillips 66 Receivables LLC may borrow and incur indebtedness from, and/or sell certain receivables to the Purchaser/Lenders in an amount not to exceed $500 million in the aggregate, and will secure its obligations with a pledge of undivided interests in such receivables, together with related security and interests in the proceeds thereof, to PNC Bank, National Association, as Administrative Agent, for the benefit of the secured parties thereunder. Accounts outstanding under the Receivables Securitization Facility accrue interest at an adjusted SOFR.

Phillips 66 Receivables LLC’s sole activity consists of purchasing receivables from Phillips 66 Company, providing those receivables as collateral for Phillips 66 Receivables LLC’s borrowings or on-selling certain of its receivables under the Receivables Securitization Facility. Phillips 66 Receivables LLC is a separate legal entity with its own separate creditors, who will be entitled, upon its liquidation, to be satisfied out of Phillips 66 Receivables LLC’s assets prior to assets or value in Phillips 66 Receivables LLC becoming available to Phillips 66 Receivables LLC’s equity holders, and the assets of Phillips 66 Receivables LLC, including any funds of Phillips 66 Receivables LLC that may be commingled with funds of any of its affiliates for purposes of cash management and related efficiencies, are not available to pay creditors of Phillips 66 Company, Phillips 66 or any affiliate thereof. Collections on receivables in excess of amounts owed by Phillips 66 Receivables LLC under the Receivables Securitization Facility are available to Phillips 66 Receivables LLC for payment to Phillips 66 Company, for sales of its receivables to Phillips 66 Receivables LLC under the Securitization Facility, and otherwise for distribution to Phillips 66 Company, in each case, subject to the terms set forth in the Receivables Securitization Facility. The amount available for borrowing or sale of receivables may be limited by the availability of eligible receivables and other customary factors and conditions, as well as the covenants set forth in the Receivables Securitization Facility.

At September 30, 2024, we had unused capacity of $500 million under the Receivables Securitization Facility.

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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 September 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 September 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 September 30, 2024, $200 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 13—Guarantees

At September 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 September 30, 2024. We also have residual value guarantees associated with railcar, airplane and truck leases with maximum potential future exposures totaling $173 million. These leases have remaining terms of one to ten years.

Guarantees of Joint Venture Obligations

In March 2019, Phillips 66 Partners and its co-venturers in Dakota Access provided a CECU in conjunction with a senior unsecured notes offering. See Note 8—Investments, Loans and Long-Term Receivables, for additional information regarding Dakota Access and the CECU.

At September 30, 2024, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to five years. The maximum potential future exposures under these guarantees were approximately $150 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 September 30, 2024 and December 31, 2023, the carrying amount of recorded indemnifications was $143 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 September 30, 2024 and December 31, 2023, environmental accruals for known contamination of $98 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 14—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 14—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 of loss 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.

Other than with respect to the legal matters described herein, 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 September 30, 2024, our total environmental accruals were $439 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.

Propel Fuels Litigation

In late 2017, as part of Phillips 66 Company’s evaluation of various opportunities in the renewable fuels business, Phillips 66 Company engaged with Propel Fuels, Inc. (Propel Fuels), a California company that distributes E85 and other alternative fuels through fueling kiosks. Ultimately, the parties were not able to reach an agreement and negotiations were terminated in August 2018. On February 17, 2022, Propel Fuels filed a lawsuit in the Superior Court of California, County of Alameda (the Court), alleging that Phillips 66 Company misappropriated trade secrets related to Propel Fuels’ renewable fuels business during and after due diligence. On October 16, 2024, a jury returned a verdict against Phillips 66 Company for $604.9 million in compensatory damages and issued a willfulness finding. In 2025, the Court is expected to rule on motions anticipated to be filed by Propel Fuels seeking exemplary damages and attorneys’ fees. Phillips 66 Company expects that Propel Fuels will ask the Court to grant treble damages. Also in 2025, the Court is expected to rule on Phillips 66 Company’s motions for a judgment in its favor as a matter of law, or in the alternative to reduce the jury’s verdict or to grant a new trial. Phillips 66 Company denies any wrongdoing and intends to vigorously defend its position. As a result of the jury verdict, the Company has recorded an accrual of $604.9 million which is included in the “Selling, general and administrative expenses” line on our consolidated statement of income for the three and nine months ended September 30, 2024, and is reported in the M&S segment. In addition, the accrued amount is reflected as “Other liabilities and deferred credits” on our consolidated balance sheet as of September 30, 2024. However, it is reasonably possible that the estimate of the loss could change based on the progression of the case, including the appeals process. Because of the uncertainties associated with ongoing litigation, we are unable to estimate the range of reasonably possible loss that may be attributable to exemplary damages, if any, in excess of the amount accrued. If information were to become available that would allow us to reasonably estimate a range of potential exposure in an amount higher or lower than the amount already accrued, we would adjust our accrued liabilities accordingly. While Phillips 66 Company believes the jury verdict is not legally or factually supported and intends to pursue post-judgment remedies and file an appeal, there can be no assurances that such defense efforts will be successful. To the extent Phillips 66 Company is required to pay exemplary damages, it may have a material adverse effect on our financial position and results of operations.

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 September 30, 2024, we had performance obligations secured by letters of credit and bank guarantees of $848 million related to various purchase and other commitments incident to the ordinary conduct of business.

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Note 15—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 16—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.

Table of Contents

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
	September 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	$	3,580	(3,410)	(6)	164		2,148	(2,005)	—	143
Other assets	41		(38)	—	3		19	(2)	—	17
Liabilities
Other accruals	2,136		(2,300)	96	(68)		1,034	(1,127)	18	(75)
Other liabilities and deferred credits	59		(64)	10	5		—	(14)	—	(14)
Total	$	5,816	(5,812)	100	104		3,201	(3,148)	18	71

At September 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 September 30		Nine Months Ended September 30
	2024	2023		2024	2023

Sales and other operating revenues