Company Quick10K Filing
Phillips 66 Partners
Price56.73 EPS4
Shares228 P/E15
MCap12,910 P/FCF17
Net Debt2,835 EBIT892
TEV15,745 TEV/EBIT18
TTM 2019-09-30, in MM, except price, ratios
10-K 2020-12-31 Filed 2021-02-24
10-Q 2020-09-30 Filed 2020-10-30
10-Q 2020-06-30 Filed 2020-07-31
10-Q 2020-03-31 Filed 2020-05-01
10-K 2019-12-31 Filed 2020-02-21
10-Q 2019-09-30 Filed 2019-10-25
10-Q 2019-06-30 Filed 2019-07-26
10-Q 2019-03-31 Filed 2019-04-30
10-K 2018-12-31 Filed 2019-02-22
10-Q 2018-09-30 Filed 2018-10-26
10-Q 2018-06-30 Filed 2018-07-27
10-Q 2018-03-31 Filed 2018-04-27
10-K 2017-12-31 Filed 2018-02-23
10-Q 2017-09-30 Filed 2017-10-27
10-Q 2017-06-30 Filed 2017-08-01
10-Q 2017-03-31 Filed 2017-05-05
10-K 2016-12-31 Filed 2017-02-17
10-Q 2016-09-30 Filed 2016-10-28
10-Q 2016-06-30 Filed 2016-07-29
10-Q 2016-03-31 Filed 2016-04-29
10-K 2015-12-31 Filed 2016-02-12
10-Q 2015-09-30 Filed 2015-10-30
10-Q 2015-06-30 Filed 2015-07-31
10-Q 2015-03-31 Filed 2015-05-01
10-K 2014-12-31 Filed 2015-02-13
10-Q 2014-09-30 Filed 2014-10-30
10-Q 2014-06-30 Filed 2014-07-31
10-Q 2014-03-31 Filed 2014-05-01
10-K 2013-12-31 Filed 2014-02-21
10-Q 2013-09-30 Filed 2013-10-31
10-Q 2013-06-30 Filed 2013-08-20
8-K 2020-11-02
8-K 2020-10-30
8-K 2020-10-20
8-K 2020-10-01
8-K 2020-07-31
8-K 2020-07-21
8-K 2020-05-01
8-K 2020-04-21
8-K 2020-03-24
8-K 2020-02-25
8-K 2020-01-31
8-K 2020-01-21
8-K 2019-11-06
8-K 2019-10-25
8-K 2019-10-16
8-K 2019-09-03
8-K 2019-08-01
8-K 2019-08-01
8-K 2019-07-30
8-K 2019-07-26
8-K 2019-07-24
8-K 2019-07-17
8-K 2019-04-30
8-K 2019-04-17
8-K 2019-03-22
8-K 2019-02-08
8-K 2019-01-22
8-K 2018-12-10
8-K 2018-11-27
8-K 2018-10-26
8-K 2018-10-17
8-K 2018-07-27
8-K 2018-07-18
8-K 2018-04-27
8-K 2018-04-18
8-K 2018-02-26
8-K 2018-02-21
8-K 2018-02-02
8-K 2018-01-17

PSXP 10K Annual Report

Part I
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. [Removed and Reserved]
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Note 1 - Business and Basis of Presentation
Note 2 - Summary of Significant Accounting Policies
Note 3 - Operating Revenues
Note 4 - Equity Investments
Note 5 - Net Income per Limited Partner Unit
Note 6 - Major Customer and Concentration of Credit Risk
Note 7 - Properties, Plants and Equipment
Note 8 - Goodwill
Note 9 - Lease Assets and Liabilities
Note 10 - Debt
Note 11 - Contingencies
Note 12 - Asset Retirement Obligations and Accrued Environmental Costs
Note 13 - Equity
Note 14 - Related Party Transactions
Note 15 - Employee Benefit Plans
Note 16 - Unit - Based Compensation
Note 17 - Income Taxes
Note 18 - Cash Flow Information
Note 19 - Other Financial Information
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibit and Financial Statement Schedules
Item 16. Form 10 - K Summary
EX-21 mlp-20201231_10xkxex21.htm
EX-23.1 mlp-20201231_10xkxex231.htm
EX-23.2 mlp-20201231_10xkxex232.htm
EX-23.3 mlp-20201231_10xkxex233.htm
EX-31.1 mlp-20201231_exhibit311.htm
EX-31.2 mlp-20201231_exhibit312.htm
EX-32 mlp-20201231_exhibit32.htm

Phillips 66 Partners Earnings 2020-12-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
0.50.40.30.20.10.02012201420172020
Rev, G Profit, Net Income
1.10.60.1-0.3-0.8-1.32012201420172020
Ops, Inv, Fin

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Index to Financial Statements
2020
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
                      Commission file number:001-36011

Phillips 66 Partners LP
(Exact name of registrant as specified in its charter)
Delaware38-3899432
(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)
Registrant’s telephone number, including area code: (855) 283-9237
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)
Name of each exchange on which registered
Common Units, Representing Limited Partner InterestsPSXPNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
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.YesNo
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).YesNo
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
The aggregate market value of the registrant’s common units held by non-affiliates of the registrant on June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price on that date of $36.04, was $2,104 million. This figure excludes common units beneficially owned by the directors and executive officers of Phillips 66 Partners GP LLC, our General Partner, and Phillips 66 and its subsidiaries.
The registrant had 228,340,146 common units outstanding as of January 29, 2021.
Documents incorporated by reference:
None


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Index to Financial Statements
PHILLIPS 66 PARTNERS LP
TABLE OF CONTENTS
Item Page



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Index to Financial Statements
Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners LP,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries, and references to “Phillips 66” include its consolidated subsidiaries. This Annual Report on Form 10-K contains forward-looking statements including, without limitation, statements relating to our plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions often identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The Partnership does not undertake to update, revise or correct any forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the Partnership’s disclosures under the headings “Risk Factors” and “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.”


PART I

Items 1 and 2. BUSINESS AND PROPERTIES


ORGANIZATIONAL STRUCTURE

Phillips 66 Partners LP, headquartered in Houston, Texas, is a Delaware limited partnership formed in 2013 by Phillips 66 Company and Phillips 66 Partners GP LLC (our General Partner), both wholly owned subsidiaries of Phillips 66. On July 26, 2013, we completed our initial public offering, and our common units trade on the New York Stock Exchange (NYSE) under the symbol PSXP. As of December 31, 2020, Phillips 66, through its wholly owned subsidiary Phillips 66 Project Development Inc. (Phillips 66 PDI), owned 169,760,137 common units, representing a 74% limited partner interest. The public owned 58,580,009 common units, representing a 26% limited partner interest. The public also owned 13,819,791 perpetual convertible preferred units.

We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. We are managed and operated by the executive officers of our General Partner, with oversight provided by its Board of Directors. Neither we nor our subsidiaries have any employees. Our General Partner has the sole responsibility for providing the employees and other personnel necessary to conduct our operations.

We primarily generate revenue by providing fee-based transportation, terminaling, processing, storage and fractionation services to Phillips 66 and other customers. Our equity affiliates primarily generate revenue from transporting and terminaling crude oil, refined petroleum products and natural gas liquids (NGL). Since we do not own any of the crude oil, refined petroleum products and NGL we handle and do not engage in the trading of those commodities, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.

Many of our assets are physically connected to, and integral to the operations of, Phillips 66’s wholly owned Alliance, Bayway, Billings, Ferndale, Lake Charles, Ponca City and Sweeny refineries and its jointly owned Borger and Wood River refineries. We have entered into long-term, fee-based commercial agreements with Phillips 66 to provide transportation, terminaling, storage, stevedoring, fractionation, processing and rail terminal services. Under these agreements, Phillips 66 commits to provide us with minimum transportation, throughput or storage volumes, or minimum monthly service fees. If Phillips 66 does not meet its minimum volume commitments, Phillips 66 pays us deficiency payments based on the calculations described in the agreements. We believe these agreements promote stable and predictable cash flows, and they are the source of a substantial portion of our revenue. We also have several other agreements with Phillips 66, including an amended omnibus agreement and an operational services agreement. See Note 14—Related Party Transactions, in the Notes to Consolidated Financial Statements, for a summary of all related party agreements.

Our operations are all conducted in the United States and comprise one reportable segment. See Item 8. Financial Statements and Supplementary Data, for financial information on our operations and assets.
1

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Index to Financial Statements
2020 DEVELOPMENTS

During the second quarter of 2020, the Gray Oak Pipeline commenced full operations from West Texas and Eagle Ford to Texas Gulf Coast destinations, marking the completion of the project. We have a 42.25% effective ownership in the 900,000 barrels per day (BPD) pipeline.

We own a 25% interest in the South Texas Gateway Terminal, which connects to the Gray Oak Pipeline in Corpus Christi, Texas. The first dock of the marine export terminal began crude oil export operations in July 2020. The second dock commenced crude oil export operations in the fourth quarter of 2020. The completion of the second deepwater dock enables the berthing and loading of two vessels simultaneously with up to 800,000 BPD of throughput capacity. Storage capacity of 7.7 million barrels has been commissioned, and the final construction phase is expected to be completed in the first quarter of 2021. Upon completion, the marine export terminal will have storage capacity of 8.6 million barrels.

In the second quarter of 2020, we completed the expansion of storage capacity at Clemens Caverns, from 9 million barrels to 16.5 million barrels, in connection with the Phillips 66 project to add NGL fractionation capacity at the Sweeny Hub. The caverns expansion is backed by long-term commitments.

We continued construction of the C2G Pipeline, a 16 inch ethane pipeline that will connect our Clemens Caverns storage facility to petrochemical facilities in Gregory, Texas, near Corpus Christi. The project is backed by long-term commitments and is expected to be completed in mid-2021.

In the third quarter of 2020, we completed the Sweeny to Pasadena Pipeline expansion project. The expansion adds 80,000 BPD of pipeline capacity, providing additional product offtake from the Sweeny refinery and adjacent NGL fractionators. In addition, product storage capacity at the Pasadena Terminal was increased by 300,000 barrels. The project is backed by long-term commitments.

The Liberty Pipeline joint venture was formed to transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. In February 2020, we acquired a 50% interest in the joint venture. In March 2020, we deferred the development and construction of the Liberty Pipeline system as a result of the challenging business environment.

We own a 25% interest in the Dakota Access Pipeline. See Note 4—Equity Investments, in the Notes to Consolidated Financial Statements, for information regarding recent developments.
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Index to Financial Statements
SUMMARY OF ASSETS AND OPERATIONS
Pipeline Assets
The following table presents certain information regarding our pipeline assets as of December 31, 2020. Each system listed below has an associated commercial agreement with Phillips 66.
System NameState of
Origination/Terminus
Commodity HandledInterestLength
(Miles)
Gross Capacity (MBD)Associated Phillips 66 Refinery
Billings Crude System
Glacier
MontanaCrude Oil79 %623 124 Billings
Billings Products System
Seminoe
Montana/WyomingRefined Petroleum Products100 342 44 Billings
Borger Crude System
Line O
Oklahoma/TexasCrude Oil100 276 38 Borger
New Mexico Crude
New Mexico/TexasCrude Oil100 129 106 Borger
West Texas Crude
TexasCrude Oil100 699 140 Borger
Borger Products System
ATA Line
Texas/New MexicoRefined Petroleum Products50 293 34 Borger
Borger to Amarillo
TexasRefined Petroleum Products100 93 74 Borger
SAAL
TexasRefined Petroleum Products33 102 32 Borger
SAAL
TexasRefined Petroleum Products54 19 30 Borger
Clifton Ridge Crude System
LouisianaCrude Oil100 10 260 Lake Charles
Cross-Channel Connector Products System
TexasRefined Petroleum Products100 184 Sweeny
Eagle Ford Gathering System
TexasCrude Oil100 28 54 Sweeny
Gold Line Products System
Gold Line Pipeline
Texas/IllinoisRefined Petroleum Products100 686 120 Borger/Ponca City
Paola Products Pipeline
KansasRefined Petroleum Products100 106 120 Borger/Ponca City
Hartford Connector Products System
Hartford, Illinois to Explorer Pipeline
IllinoisRefined Petroleum Products100 430 Wood River
Wood River Refinery to Hartford, Illinois
IllinoisRefined Petroleum Products100 80 Wood River
Lake Charles Products Pipeline
LouisianaRefined Petroleum Products100 240 Lake Charles
Ponca Crude System
CushPo
OklahomaCrude Oil100 62 130 Ponca City
North Texas Crude
TexasCrude Oil100 224 34 Ponca City
Oklahoma Crude
Texas/OklahomaCrude Oil100 217 100 Ponca City
Ponca Products System
Brown Line
Oklahoma/KansasNatural Gas Liquids100 76 26 Ponca City
Cherokee East
Oklahoma/MissouriRefined Petroleum Products100 287 59 Ponca City
Cherokee North
Oklahoma/KansasRefined Petroleum Products100 29 55 Ponca City
Cherokee South
OklahomaRefined Petroleum Products100 98 47 Ponca City
Medford
OklahomaNatural Gas Liquids100 42 25 Ponca City
River Parish NGL System
LouisianaNatural Gas Liquids100 499 104 Alliance
Standish Pipeline
Oklahoma/KansasRefined Petroleum Products100 92 77 Ponca City
Sweeny to Pasadena Products System
TexasRefined Petroleum Products100 120 335 Sweeny

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Index to Financial Statements
The following table presents certain information regarding our equity investment pipeline assets as of December 31, 2020.

System NameState of
Origination/Terminus
Commodity HandledInterestLength
(Miles)
Gross Capacity (MBD)
Bakken PipelineNorth Dakota/TexasCrude Oil25.00 %1,918 570 
Bayou Bridge Pipeline
Texas/LouisianaCrude Oil40.00 213 480 
Explorer Pipeline
Texas/IndianaRefined Petroleum Products21.94 1,830 660 
Gray Oak Pipeline*
TexasCrude Oil42.25 845 900 
Sacagawea PipelineNorth DakotaCrude Oil49.50 95 183 
Sacagawea Gas Pipeline**North DakotaNatural Gas49.50 24 0.18 
Sand Hills Pipeline
New Mexico/TexasNatural Gas Liquids33.34 1,400 500 
Southern Hills Pipeline
Kansas/TexasNatural Gas Liquids33.34 981 192 
STACK PipelineOklahomaCrude Oil50.00 149 250 
*Interest reflects our proportionate share, excluding a noncontrolling interest held in a 65 percent-owned consolidated subsidiary. See the “Gray Oak Pipeline, LLC” section of Note 4—Equity Investments, in the Notes to Consolidated Financial Statements, for a discussion of the ownership structure.
**Natural Gas pipeline in billion cubic feet per day.


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Terminal, Rail Rack and Storage Assets

The following table presents certain information regarding our wholly owned terminal, rail rack and storage assets as of December 31, 2020. Each asset listed below has an associated commercial agreement with Phillips 66.
Facility NameLocationCommodity HandledGross Storage Capacity (MBbl)Gross Loading Capacity (MBD)Associated Phillips 66 Refinery
Bayway Products System
Linden
New JerseyRefined Petroleum Products360 95 Bayway
Tremley Point
New JerseyRefined Petroleum Products1,701 25 Bayway
Bayway Rail Rack
New JerseyCrude OilN/A75 Bayway
Billings Crude System
Buffalo Crude
MontanaCrude Oil303 N/ABillings
Billings Crude
MontanaCrude Oil236 N/ABillings
Cut Bank
MontanaCrude Oil315 N/ABillings
Billings Products System
Casper
WyomingRefined Petroleum Products365 Billings
Sheridan
WyomingRefined Petroleum Products94 Billings
Borger Crude System
Buxton Crude
OklahomaCrude Oil400 N/ABorger
Odessa Crude
TexasCrude Oil521 N/ABorger
Borger Products System
Albuquerque Products
New MexicoRefined Petroleum Products274 20 Borger
Amarillo Products
TexasRefined Petroleum Products296 23 Borger
Lubbock Products
TexasRefined Petroleum Products182 18 Borger
Clemens CavernsTexasNatural Gas Liquids16,500 N/AN/A
Clifton Ridge Crude System
Clifton Ridge
LouisianaCrude Oil3,800 N/ALake Charles
Pecan Grove Storage
LouisianaLubricant Base Stocks, Refined Petroleum Products177 N/ALake Charles
Ferndale Rail Rack
WashingtonCrude OilN/A30 Ferndale
Gold Line Products System
East St. Louis
IllinoisRefined Petroleum Products1,529 55 Borger/ Ponca City
Jefferson City
MissouriRefined Petroleum Products103 15 Borger/ Ponca City
Kansas City
KansasRefined Petroleum Products1,410 50 Borger/ Ponca City
Paola
KansasRefined Petroleum Products978 N/ABorger/ Ponca City
Wichita North
KansasRefined Petroleum Products769 20 Borger/ Ponca City
Hartford Connector Products System
Hartford
IllinoisRefined Petroleum Products1,468 21 Wood River
Medford Spheres
OklahomaNatural Gas Liquids70 N/APonca City
Ponca Crude System
Cushing
OklahomaCrude Oil275 N/APonca City
Ponca City
OklahomaCrude Oil1,229 N/APonca City
Wichita FallsTexasCrude Oil225 N/APonca City
Ponca Products System
Glenpool
OklahomaRefined Petroleum Products571 18 Ponca City
Mount Vernon Products
MissouriRefined Petroleum Products365 40 Ponca City
Mount Vernon NGL
MissouriNatural Gas Liquids105 16 Ponca City
Oklahoma City Products
OklahomaRefined Petroleum Products345 42 Ponca City
Ponca City Products
OklahomaRefined Petroleum Products71 22 Ponca City
Ponca City NGL
OklahomaNatural Gas LiquidsN/APonca City
Wichita South
KansasRefined Petroleum Products272 N/APonca City
River Parish NGL SystemLouisianaNatural Gas Liquids1,500 N/AAlliance
Sweeny to Pasadena Products System
Pasadena
TexasRefined Petroleum Products, Natural Gas Liquids3,558 65 Sweeny

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The following table presents certain information regarding our equity investment terminal, rail rack and storage assets as of December 31, 2020.

System NameLocationCommodity HandledInterestGross Storage Capacity (MBbl)Active Terminaling Capacity* (MBD)
Keene TerminalNorth DakotaCrude Oil50 %503 N/A
Palermo TerminalNorth DakotaCrude Oil70 235 100 
South Texas Gateway TerminalTexasCrude Oil25 7,700 N/A
*Active terminaling capacity represents the amount of railcar loading capacity currently available for use by our customers.


Marine Assets

The following table presents certain information regarding our wholly owned marine assets as of December 31, 2020. Each asset listed below has an associated commercial agreement with Phillips 66.

System NameLocationCommodity HandledGross Loading Capacity (MBbl/h)*Associated Phillips 66 Refinery
Clifton Ridge Crude System
Clifton Ridge Ship Dock
LouisianaCrude Oil, Refined Petroleum Products50Lake Charles
Pecan Grove Barge Dock
LouisianaLubricant Base Stocks, Refined Petroleum Products6Lake Charles
Hartford Connector Products System
Hartford Barge Dock
IllinoisRefined Petroleum Products3Wood River
Bayway Products System
Tremley Point
New JerseyRefined Petroleum Products7Bayway
*Marine capacity is in thousands of barrels per hour.


The following table presents certain information regarding our equity investment marine asset as of December 31, 2020.

System NameLocationCommodity HandledInterestGross Loading Capacity* (MBbl/h)
South Texas Gateway TerminalTexasCrude Oil25 %33 
*Marine capacity is in thousands of barrels per hour.


Processing Assets

The following table presents certain information regarding our other wholly owned assets as of December 31, 2020. Each asset listed below has an associated commercial agreement with Phillips 66.

Asset NameLocationCommodity HandledGross Processing Capacity (MBD)
Lake Charles Isomerization UnitLouisianaRefined Petroleum Products25 
Merey Sweeny
Delayed coker unit
TexasCrude Oil Residuals70 
Vacuum distillation unit
TexasCrude Oil Residuals125 
Sweeny FractionatorTexasNatural Gas Liquids100 
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COMPETITION
Many of our assets are subject to contractual relationships with Phillips 66 under our commercial agreements and are directly connected to Phillips 66’s owned or operated refineries. As a result, we believe that we will not face significant competition from other pipelines, terminals, storage facilities, rail racks, fractionators and processing units for Phillips 66’s transportation and terminaling requirements to and from the refineries we support. If Phillips 66’s customers were to reduce their purchases of refined petroleum products, Phillips 66 might only ship the minimum volumes through our pipelines (or make the shortfall payment if it does not ship the minimum volumes), which would cause a decrease in our revenue. Phillips 66 competes with integrated petroleum companies, which have their own crude oil supplies and distribution and marketing systems, as well as with independent refiners, many of which also have their own distribution and marketing systems. Phillips 66 also competes with other suppliers that purchase refined petroleum products for resale. Many of the entities in which we hold equity investments compete with other interstate and intrastate pipelines, rail and truck fleet operations, including those affiliated with major integrated petroleum and petrochemical companies, in terms of transportation fees, reliability and quality of customer service. Competition in any particular geographic area is significantly affected by the volume of products produced by refineries in that area, the volume of crude oil and NGL gathered and transported, and the availability of products and the cost of transportation to that area from distant locations.

Additionally, our crude oil pipelines could face competition from other crude oil pipeline companies, major integrated oil companies, and independent crude oil gathering and marketing companies.  Competition is based primarily on quality of customer service, competitive pricing and proximity to customers and market hubs.


RATES AND SAFETY REGULATIONS
Pipeline Rates
Our common carrier pipeline systems are subject to regulation by various federal, state and local agencies. The Federal Energy Regulatory Commission (FERC) regulates interstate transportation on our common carrier pipeline systems under the Interstate Commerce Act (ICA), the Energy Policy Act of 1992 (EPAct 1992) and the rules and regulations promulgated under those laws. FERC regulations require that rates for interstate service pipelines that transport crude oil and refined petroleum products (collectively referred to as “petroleum pipelines”) and certain other liquids be just and reasonable and must not be unduly discriminatory or confer any undue preference upon any shipper. FERC regulations also require interstate common carrier petroleum pipelines to file with FERC and publicly post tariffs stating their interstate transportation rates and terms and conditions of service. Under the ICA, FERC or interested persons may challenge existing or changed rates or services. FERC is authorized to investigate such changes and may suspend the effectiveness of a new rate for up to seven months. A successful rate challenge could result in a common carrier paying refunds together with interest for the period the rate was in effect. FERC may also order a pipeline to change its rates and may require a common carrier to pay shippers reparations for damages sustained for a period up to two years prior to the filing of a complaint. EPAct 1992 deemed certain interstate petroleum pipeline rates then in effect to be just and reasonable under the ICA. These rates are commonly referred to as “grandfathered rates.” Our rates in effect at the time of the passage of EPAct 1992 for interstate transportation service were deemed just and reasonable and therefore are grandfathered rates. New rates have been established subsequent to EPAct 1992 for certain of our pipeline systems. FERC may change grandfathered rates upon complaint only after it is shown that:

A substantial change has occurred since enactment in either the economic circumstances or the nature of the services that were a basis for the rate.

The complainant was contractually barred from challenging the rate prior to enactment of EPAct 1992 and filed the complaint within 30 days of the expiration of the contractual bar.

A provision of the tariff is unduly discriminatory or preferential.

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EPAct 1992 required FERC to establish a simplified methodology to adjust non-market-based tariff rates for inflation for interstate petroleum pipelines. As a result, FERC adopted an indexing rate methodology which, as currently in effect, allows common carriers to change their rates within prescribed ceiling levels that are tied to changes in the Producer Price Index (PPI) for finished goods. FERC’s indexing methodology is subject to review every five years. The indexing methodology is applicable to existing rates, including grandfathered rates, with the exclusion of market-based rates. On December 17, 2020, FERC issued an Order Establishing Index Level concluding its five-year review of the indexing methodology.  FERC established an index level permitting annual adjustment of an indexed ceiling by PPI for finished goods plus 0.78% for the five-year period commencing July 1, 2021, and ending June 30, 2026. A pipeline is not required to increase its rates up to the indexed ceiling but is permitted to do so. Rate increases made under the index are presumed to be just and reasonable unless a protesting party can demonstrate that the portion of the rate increase resulting from application of the index is substantially in excess of the pipeline’s increase in costs. Under the indexing rate methodology, in any year in which the index is negative, pipelines must file to lower their rates if those rates would otherwise be above the rate ceiling.

While common carriers often use the indexing methodology to change their rates, they may elect to support proposed rates by using other methodologies such as cost-of-service rate making, market-based rates and settlement rates. A pipeline can follow a cost-of-service approach when seeking to increase its rates above the rate ceiling (or when seeking to avoid lowering rates to the reduced rate ceiling). A common carrier can charge market-based rates if it establishes that it lacks significant market power in the affected markets. In addition, a common carrier can establish rates under settlement if agreed upon by all current shippers. We primarily use indexed rates and settlement rates for our different pipeline systems.

Intrastate services provided by certain of our pipeline systems are subject to regulation by state regulatory authorities. These state regulatory authorities use a complaint-based system of regulation, both as to matters involving rates and priority of access. State regulatory authorities could limit our ability to increase our rates or to set rates based on our costs or order us to reduce our rates and require the payment of refunds to shippers. FERC and state regulatory authorities generally have not investigated rates, unless the rates are the subject of a protest or a complaint. Phillips 66 has agreed not to contest our tariff rates applicable for our transportation services agreements for the term of those agreements. However, FERC or a state regulatory authority could investigate our rates on its own initiative or at the urging of a third party, and this could lead to a refund of previously collected revenue.

Pipeline Safety
Our assets are subject to increasingly strict safety laws and regulations. The transportation and storage of crude oil, natural gas liquids and refined petroleum products involves a risk that hazardous liquids may be released into the environment, potentially causing harm to the public or the environment. In turn, any such incidents may result in substantial expenditures for response actions, significant government penalties, liability to government agencies for natural resources damages, and significant business interruption. The United States Department of Transportation (DOT) has adopted safety regulations with respect to the design, construction, operation, maintenance, inspection and management of pipeline assets. These regulations contain requirements for the development and implementation of pipeline integrity management programs, which include the inspection and testing of pipelines and necessary maintenance or repairs. These regulations also require that pipeline operation and maintenance personnel meet certain qualifications and that pipeline operators develop comprehensive spill response plans. We are subject to regulation by the DOT under the Hazardous Liquid Pipeline Safety Act of 1979 (HLPSA). The HLPSA delegated to DOT the authority to develop, prescribe, and enforce minimum federal safety standards for the transportation of hazardous liquids by pipeline. Congress also enacted the Pipeline Safety Act of 1992 (PSA), which added the environment to the list of statutory factors that must be considered in establishing safety standards for hazardous liquid pipelines, required regulations be issued to define the term “gathering line” and establish safety standards for certain “regulated gathering lines,” and mandated that regulations be issued to establish criteria for operators to use in identifying and inspecting pipelines located in High Consequence Areas (HCAs), defined as those areas that are unusually sensitive to environmental damage, that cross a navigable waterway, or that have a high population density. In 1996, Congress enacted the Accountable Pipeline Safety and Partnership Act (APSPA), which limited the operator identification requirement mandate to pipelines that cross a waterway where a substantial likelihood of commercial navigation exists, required that certain areas where a pipeline rupture would likely cause permanent or long-term environmental damage be considered in determining whether an area is unusually sensitive to environmental damage, and mandated that regulations be issued for the qualification and testing of certain pipeline personnel.
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In the Pipeline Inspection, Protection, Enforcement, and Safety Act of 2006, Congress required mandatory inspections for certain U.S. crude oil and natural gas transmission pipelines in HCAs and mandated that regulations be issued for low-stress hazardous liquid pipelines and pipeline control room management. We are also subject to the Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011, which increased penalties for safety violations, established additional safety requirements for newly constructed pipelines, and required studies of certain safety issues that could result in the adoption of new regulatory requirements for existing pipelines.

DOT’s Pipeline and Hazardous Materials Safety Administration (PHMSA) administers compliance with these statutes and has promulgated comprehensive safety standards and regulations for the transportation of hazardous liquid by pipeline, including regulations for (i) the design and construction of new pipeline systems or those that have been relocated, replaced, or otherwise changed; (ii) pressure testing of new pipelines; (iii) operation and maintenance of pipeline systems, establishing programs for public awareness and damage prevention, and managing the operation of pipeline control rooms; (iv) protection of steel pipelines from the adverse effects of internal and external corrosion; and (v) integrity management requirements for pipelines in HCAs.

We monitor the structural integrity of our pipelines through a program of periodic internal assessments using high resolution internal inspection tools, as well as hydrostatic testing and direct assessment that conforms to regulatory standards. We accompany these assessments with a review of the data and repair anomalies, as required, to ensure the integrity of the pipeline. We then utilize sophisticated risk algorithms and a comprehensive data integration effort to ensure that the highest risk-assessed pipelines receive priority for subsequent integrity assessments. We use external coatings and impressed-current cathodic protection systems to protect against external corrosion. We conduct all cathodic protection work in accordance with National Association of Corrosion Engineers standards. We continually monitor, test and record the effectiveness of these corrosion inhibiting systems.

Product Quality Standards
Refined petroleum products that we transport are generally sold by our customers for use by the public. Various federal, state and local agencies have the authority to prescribe product quality specifications for products. Changes in product quality specifications or blending requirements could reduce our throughput volumes, require us to incur additional handling costs or require capital expenditures. For example, different product specifications for different markets affect the fungibility of the products in our system and could require the construction of additional storage. If we are unable to recover these costs through increased revenue, our cash flows and ability to pay cash distributions could be adversely affected. In addition, changes in the product quality of the products we receive on our product pipeline systems could reduce or eliminate our ability to blend products.

Terminal and Processing Unit Safety
Our operations are subject to regulations promulgated by the U.S. Occupational Safety and Health Administration (OSHA), DOT and comparable state and local regulations. We have identified which assets are subject to the jurisdiction of OSHA or DOT. Certain of our facilities are under the dual jurisdiction of OSHA and DOT, whereby certain portions of the facility are subject to OSHA regulation and other assets at the facility are subject to DOT regulation due to the type of asset and the configuration of the facility. Our facilities are operated in a manner consistent with industry safety practices and standards. The tanks designed for crude oil and refined petroleum product storage at our facilities are equipped with appropriate emission controls to promote safety. Our facilities have response plans, spill prevention and control plans, and other programs to respond to emergencies.

Rail Safety
Our rail operations involve crude oil loading, receiving and unloading activities. Generally, rail operations are subject to regulations promulgated by the U.S. Department of Transportation Federal Railroad Administration, PHMSA and comparable state and local regulations. We believe our rail operations are in material compliance with all applicable regulations and meet or exceed current industry standards and practices.

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Security
We are also subject to Department of Homeland Security Chemical Facility Anti-Terrorism Standards, which are designed to regulate the security of high-risk chemical facilities, the Transportation Security Administration’s Pipeline Security Guidelines, and other comparable state and local regulations. We have an internal program of inspection designed to monitor and provide for compliance with all of these requirements. We believe that we are in material compliance with all applicable laws and regulations regarding the security of our facilities. However, these laws and regulations are subject to changes, or to changes in their interpretation, by the regulatory authorities, and continued and future compliance with such laws and regulations may require us to incur significant expenditures.  In addition, any incidents may result in substantial expenditures for response actions, government penalties and business interruption.

While we are not currently subject to governmental standards for the protection of computer-based systems and technology from cyber threats and attacks, proposals to establish such standards are being considered in the U.S. Congress and by U.S. Executive Branch departments and agencies, including the Department of Homeland Security, and we may become subject to such standards in the future. We are continuing to implement our own cyber security programs and protocols; however, we cannot guarantee their effectiveness.


ENVIRONMENTAL REGULATIONS
General
Our operations are subject to extensive and frequently changing federal, state and local laws, regulations and ordinances relating to the protection of the environment. Among other things, these laws and regulations govern the emission or discharge of pollutants into or onto the land, air and water, the handling and disposal of solid and hazardous wastes and the remediation of contamination. As with the industry generally, our compliance with existing and anticipated environmental laws and regulations increases our overall cost of business, including our capital costs to construct, maintain, operate and upgrade equipment and facilities. While these laws and regulations affect our maintenance capital expenditures and net income, we believe they do not affect our competitive position, as the operations of our competitors are largely affected in a similar manner. We believe our facilities are in substantial compliance with applicable environmental laws and regulations. However, these laws and regulations are subject to changes, or to changes in their interpretation, by regulatory authorities, and continued and future compliance with such laws and regulations may require us to incur significant expenditures. Additionally, violation of environmental laws, regulations and permits can result in the imposition of significant administrative, civil and criminal penalties, injunctions limiting our operations, investigatory or remedial liabilities or construction bans or delays in the construction of additional facilities or equipment. Further, a release of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, subject us to substantial expenses, including costs to comply with applicable laws and regulations and to resolve claims by third parties for personal injury or property damage, or by the U.S. federal government or state governments for natural resources damages. These impacts could directly and indirectly affect our business and have an adverse impact on our financial position, results of operations and liquidity. We cannot currently determine the amounts of such future impacts.

Expensed environmental costs were $3 million in 2020 and are expected to be less than $5 million in 2021 and 2022. The majority of the environmental expenses forecasted for 2021 and 2022 relate to environmental matters attributable to ownership of our assets prior to their acquisition from Phillips 66. Phillips 66 has agreed to retain responsibility for these liabilities. Accordingly, although these amounts would be expensed by us, there would be no required cash outflow from us. See the “Indemnification and Excluded Liabilities” section to follow for additional information on Phillips 66-retained liabilities. Capitalized environmental costs were $11 million in 2020 and are expected to be approximately the same in 2021 and 2022. These amounts do not include capital expenditures made for other purposes that have an indirect benefit on environmental compliance.

Air Emissions and Climate Change
We are subject to the Federal Clean Air Act (FCAA) and its regulations and comparable state and local statutes and regulations in connection with air emissions from our operations. Under these laws, permits may be required before construction can commence on a new source of potentially significant air emissions, and operating permits may be required for sources that are already constructed. These permits may require controls on our air emission sources, and we may become subject to more stringent regulations requiring the installation of additional emission control technologies.

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Future expenditures may be required to comply with the FCAA and other federal, state and local requirements for our various sites, including our pipeline and storage facilities. The impact of future legislative and regulatory developments, if enacted or adopted, could result in increased compliance costs and additional operating restrictions on our business, all of which could have an adverse impact on our financial position, results of operations and liquidity.

Air emissions requirements also affect Phillips 66’s domestic refineries from which we directly or indirectly receive the majority of our revenue. Phillips 66 has been required in the past, and will likely be required in the future, to incur significant capital expenditures to comply with new legislative and regulatory requirements relating to its operations. To the extent these capital expenditures have a material effect on Phillips 66, they could have a material effect on our business and results of operations.

In December 2007, Congress passed the Energy Independence and Security Act (EISA) that created a second Renewable Fuels Standard (RFS2). This standard requires the total volume of renewable transportation fuels (including ethanol and advanced biofuels) required to be blended into transportation fuels sold or introduced annually in the United States to rise to 36 billion gallons by 2022. The requirements could reduce future demand for petroleum products and thereby have an indirect effect on certain aspects of our business. For compliance year 2019, the U.S. Environmental Protection Agency (EPA) reduced the statutory volumes of advanced and total renewable fuels using authority granted to it under the EISA. For compliance year 2020, the EPA increased the volumes of advanced and total renewable fuels from the volumes established in 2019. The EPA’s actions pertaining to these compliance years have been legally challenged. Uncertainty also exists surrounding compliance year 2021, as the EPA has not yet promulgated standards for that compliance year, although we expect the EPA to follow its past practice of using its authority to reduce the statutorily required volumes under EISA of advanced and total renewable fuels required to be blended into transportation fuels.

Currently, various legislative and regulatory measures to address greenhouse gas (GHG) emissions (including carbon dioxide, methane and other gases) are in various phases of discussion or implementation. These include existing requirements to report emissions of GHGs to the EPA, and proposed federal legislation and regulation as well as state actions to develop statewide or regional programs, each of which require or could require reductions in our GHG emissions or those of Phillips 66. In addition, the United Nations Framework Convention on Climate Change, commonly known as the Paris Agreement, entered into force on November 4, 2016. In 2017, President Trump announced his intention to withdraw the United States from the Paris Agreement and that withdrawal became effective on November 4, 2020. On January 20, 2021, President Biden signed the “Acceptance on Behalf of the United States of America,” which allows the United States to rejoin the Paris Agreement. The United States rejoined the Paris Agreement in February 2021, which could lead to further GHG emission reduction requirements. Requiring reductions in GHG emissions could result in increased costs to (1) operate and maintain our facilities, (2) install new emission controls at our facilities and (3) administer and manage any GHG emissions programs, including acquiring emission credits or allotments. These requirements may also impact Phillips 66’s domestic refinery operations and may have an indirect effect on our business, financial condition and results of operations.

In addition, the EPA has proposed and may adopt further regulations under the FCAA addressing GHGs, some of which may directly impact Phillips 66’s domestic refinery operations, while others, such as the EPA’s Clean Power Plan (CO2 emission rules for existing fossil fuel-fired electric generating units), which remains the subject of litigation and administrative reconsideration, may indirectly affect such operations. Both types of impacts may affect our business. In October 2017, the EPA commenced rulemaking proceedings to rescind the Clean Power Plan, and in December 2017, the EPA published an Advanced Notice of Proposed Rulemaking, announcing an intent to commence a new rulemaking to replace the Clean Power Plan with an alternative framework for regulating carbon dioxide. In August 2018, the EPA proposed the Affordable Clean Energy (ACE) rule as a replacement for the Clean Power Plan. On January 19, 2021, the U.S. Court of Appeals for the District of Columbia invalidated the ACE rule and remanded the matter to the EPA, essentially restarting the rulemaking process.

Congress continues to consider legislation on GHG emissions, which may include a delay in the implementation of GHG regulations by the EPA or a limitation on the EPA’s authority to regulate GHGs, although the ultimate adoption and form of any federal legislation cannot presently be predicted. The impact of future regulatory and legislative developments, if adopted or enacted, including any cap-and-trade program, is likely to result in increased compliance costs, increased utility costs, additional operating restrictions on our business and an increase in the cost of products generally. Although such costs may impact our business directly or indirectly by impacting Phillips 66’s facilities or operations, the extent and
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magnitude of that impact cannot be reliably or accurately estimated due to the present uncertainty regarding the additional measures and how they will be implemented.

Waste Management and Related Liabilities
To some extent, the environmental laws and regulations affecting our operations relate to the release of hazardous substances or solid wastes into soils, groundwater, and surface water and include measures to control pollution of the environment. These laws generally regulate the generation, storage, treatment, transportation and disposal of solid and liquid hazardous waste. They also require corrective action, including investigation and remediation, at a facility where such waste may have been released or disposed.

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which is also known as Superfund, and comparable state laws impose liability, without regard to fault or to the legality of the original conduct, on certain classes of persons that contributed to the release of a “hazardous substance” into the environment. These persons include the former and present owner or operator of the site where the release occurred and the transporters and generators of the hazardous substances found at the site. Under CERCLA, these persons may be subject to joint and several liabilities for the costs of cleaning up the hazardous substances released into the environment, for damages to natural resources, and for the costs of certain health studies. CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment. In the course of our ordinary operations, we generate waste that falls within CERCLA’s definition of a “hazardous substance,” and, as a result, we may be jointly and severally liable under CERCLA for all or part of the costs required to clean up certain sites where we are alleged to have liability.

We also generate solid wastes, including hazardous wastes, that are subject to the requirements of the Resource Conservation and Recovery Act (RCRA) and comparable state statutes. From time to time, the EPA considers the adoption of stricter disposal standards for non-hazardous wastes. Hazardous wastes are subject to more rigorous and costly disposal requirements than are non-hazardous wastes. Any changes in the regulations could increase our maintenance capital expenditures and operating expenses. We continue to seek methods to minimize the generation of hazardous wastes in our operations.

We currently own and lease, and Phillips 66 has in the past owned and leased, properties where hydrocarbons are being handled or for many years have been handled. Although we utilized operating and disposal practices that were standard in the industry at the time, hydrocarbons or other waste may have been disposed of or released on or under the properties owned or leased by us or on or under other locations where these wastes have been transported for disposal. In addition, many of these properties were operated by third parties whose treatment and disposal or release of hydrocarbons or other wastes were not under our control. These properties and wastes disposed thereon may be subject to CERCLA, RCRA and analogous state laws. Under these laws, we could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators), to clean up contaminated property (including contaminated groundwater), or to perform remedial operations to prevent further contamination.

Water
Our operations can result in the discharge of pollutants, including crude oil and petroleum products. Regulations under the Water Pollution Control Act of 1972 (Clean Water Act), Oil Pollution Act of 1990 (OPA 90) and comparable state laws impose regulatory burdens on our operations. Spill Prevention Control and Countermeasure (SPCC) requirements of federal laws and some state laws require containment to prevent or mitigate contamination of navigable waters in the event of an oil overflow, rupture, or leak. For example, the Clean Water Act requires us to maintain SPCC plans at many of our facilities. We maintain numerous discharge permits as required under the National Pollutant Discharge Elimination System program of the Clean Water Act and have implemented systems to oversee our compliance efforts.

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In addition, the transportation and storage of crude oil and petroleum products over and adjacent to water involves risk and subjects us to the provisions of OPA 90 and related state requirements. Among other requirements, OPA 90 requires the owner or operator of a vessel or a facility to maintain an emergency plan to respond to releases of oil or hazardous substances. Also, in case of any such release, OPA 90 requires the responsible entity to pay resulting removal costs and damages. OPA 90 also provides for civil penalties and imposes criminal sanctions for violations of its provisions. We operate facilities at which releases of oil and hazardous substances could occur. We have implemented emergency spill response plans for all of our components and facilities covered by OPA 90, and we have established SPCC plans for facilities subject to Clean Water Act SPCC requirements. Construction or maintenance of our pipelines, terminals and storage facilities may impact wetlands, which are also regulated under the Clean Water Act by the EPA and the United States Army Corps of Engineers. Regulatory requirements governing wetlands (including associated mitigation projects) may result in the delay of our projects while we obtain necessary permits and may increase the cost of new projects and maintenance activities.

Workplace Safety
We are subject to requirements promulgated by OSHA and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and citizens. We believe our operations are in substantial compliance with OSHA requirements, including general industry standards, record keeping requirements and monitoring of occupational exposure to regulated substances.

Endangered Species Act
The Endangered Species Act and its state law equivalents restrict activities that may affect endangered species or their habitats. While some of our facilities are in areas that may be designated as habitats for endangered species, we believe we are in substantial compliance with the Endangered Species Act. However, the discovery of previously unidentified endangered species could cause us to incur additional costs or become subject to operating restrictions or bans in the affected area.

Hazardous Materials Transportation Requirements
The DOT regulations affecting pipeline safety require pipeline operators to implement measures designed to reduce the environmental impact of crude oil and petroleum products discharge from onshore crude oil and petroleum product pipelines. These regulations require operators to maintain comprehensive spill response plans, including extensive spill response training for pipeline personnel. In addition, the DOT regulations contain detailed specifications for pipeline operation and maintenance. We believe our operations are in substantial compliance with these regulations. The DOT also has a pipeline integrity management rule, with which we are in substantial compliance.

Indemnification and Excluded Liabilities
Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize non-cash expenses and associated non-cash capital contributions from our General Partner, as these are considered liabilities paid for by a principal unitholder.


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GENERAL

Major Customer
Phillips 66 accounted for 98%, 97% and 96% of our total operating revenues in the years ended December 31, 2020, 2019 and 2018, respectively. Through our wholly owned and joint venture operations, we provide crude oil, refined petroleum products and NGL transportation, terminaling, storage, stevedoring, fractionation, processing and rail terminal services to Phillips 66.

Seasonality
The volumes of crude oil, refined petroleum products and NGL transported in our wholly owned and joint venture pipelines, stored in our terminals, rail racks and storage facilities and processed through our fractionator and processing units are directly affected by the level of supply and demand for crude oil, refined petroleum products and NGL in the markets served directly or indirectly by our assets. The effects of seasonality on our cash flows should be substantially mitigated through the use of fee-based commercial agreements that include minimum volume commitments.

Pipeline Control Operations
Our wholly owned pipeline systems are operated from a central control room owned and operated by Phillips 66. The control center operates with a supervisory control and data acquisition system equipped with computer systems designed to continuously monitor operational data. Monitored data includes pressures, temperatures, gravities, flow rates and alarm conditions. The control center operates remote pumps, motors and valves associated with the receipt and delivery of crude oil and refined petroleum products, and provides for the remote-controlled shutdown of pump stations on the pipeline systems. A fully functional back-up operations center is also maintained and routinely operated throughout the year to ensure safe and reliable operations.

Employees and Human Capital
We are managed and operated by the executive officers of our General Partner with oversight provided by its Board of Directors. Neither we nor our subsidiaries have any employees and as such, there are no human capital objectives or measures material to an understanding of our business. Our General Partner has the sole responsibility for providing the employees and other personnel necessary to conduct our operations. As of December 31, 2020, Phillips 66 employed approximately 600 people who provided direct support for our operations.

Website Access to SEC Reports
Our Internet website address is http://www.phillips66partners.com. Information contained on our Internet website is not part of this Annual Report on Form 10-K.

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments and exhibits to these reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available on our website, free of charge, as soon as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission (SEC). Alternatively, you may access these reports at the SEC’s website at http://www.sec.gov. We also post on our website our beneficial ownership reports filed by officers and directors of our General Partner, as well as principal security holders, under Section 16(a) of the Securities Exchange Act of 1934, governance guidelines, audit and conflicts committee charters, code of business ethics and conduct, and information on how to contact our General Partner’s Board of Directors.
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Item 1A. RISK FACTORS

You should carefully consider the risks described below with all of the other information included in this Annual Report on Form 10-K. Each of these risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common units. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we do not currently consider to present significant risks to our operations.

COVID-19 Pandemic Risk

The Coronavirus Disease 2019 (COVID-19) pandemic has resulted in a significant decrease in demand for petroleum products, which has decreased demand for our transportation and midstream services and negatively affected our business, financial condition, results of operations and cash flow.

Responses of governmental authorities, companies and individuals to prevent the spread of COVID-19, including travel restrictions, business and school closures, and stay at home orders have significantly reduced global economic activity. The reduction in economic activity has resulted in substantial decreases in the demand for many refined petroleum products, which has led refiners to reduce crude oil processing rates and also to lower crude oil demand and prices. These events have negatively impacted the volumes of products we transport and terminal.

The extent to which COVID-19 will continue to negatively impact our business and operations, as well as the business and operations of our equity affiliates, and our customers, including Phillips 66, will depend on the severity, location and duration of the effects and spread of COVID-19, related impacts on overall economic activity, including the actions undertaken by national, regional and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume.

Risks Related to Our Business

Any substantial reductions in the volume of NGL, crude oil and refined petroleum products we or our joint ventures transport, store or process would have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

Our and our joint ventures’ financial results depend on continued demand for petroleum products, crude oil production, and operation of refineries that supply or are supplied by our and our joint ventures’ operations. Disruption or decreases to this demand, production or operation can materially and negatively impact our results of operations and/or the results of operations of our joint ventures. Global economic conditions and other factors, including an increase in the use of alternative fuels and significant fluctuations in the market prices of petroleum products, can result in the reduced demand for NGL, crude oil and refined petroleum products and consequently for the services we and our joint ventures provide.

Additionally, crude oil production can decrease as a result of lower overall crude prices, exhaustion of reserves, weather or other natural causes, adverse legal or regulatory developments, or lower overall demand for crude oil and the products derived from crude oil. Any such decreased production also would negatively impact the demand for our services. Other factors that could negatively impact the volume of products we transport, store and process include outages at refineries or reduced or interrupted throughput on gathering systems or pipelines due to weather related or other natural causes, competitive forces, testing, line repair, damage, reduced operating pressures and other causes that reduce shipments.

Phillips 66 accounts for a significant portion of our revenues and any loss of Phillips 66’s business would have a material and adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

We derive a substantial portion of our revenue from Phillips 66 and we believe that Phillips 66 will continue to account for a large portion of our revenues in the future. We have no control over the business decisions and operations of Phillips 66, and it could elect to pursue a business strategy that does not favor us and our business.
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Additionally, any event that materially and adversely affects Phillips 66 could affect the level of volumes we transport, store or process for Phillips 66. Accordingly, we are indirectly subject to the operational and business risks of Phillips 66, particularly risks of reduced demand for Phillips 66’s products and disruptions to the operations of its facilities.

We have entered into commercial agreements with Phillips 66, but it is not obligated to use our services in excess of the minimum volume commitments under those agreements. Additionally, certain of the agreements include provisions that permit Phillips 66 to suspend, reduce or terminate its obligations if certain events occur. Any such reduction, suspension or termination of Phillips 66’s obligations could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

Competition could negatively impact our earnings and reduce the amount of cash we or our joint ventures generate.

We and our joint ventures compete with other pipelines and terminals that provide similar services in the same markets as our assets. We compete on the basis of many factors, including but not limited to rates, service levels and offerings, geographic location, connectivity and reliability. Our competitors could construct new assets or redeploy existing assets in a manner that would result in more intense competition. Additionally, we could be required to increase our costs or reduce the fees we charge in order to retain our customers.

We and our joint ventures have made and continue to make significant investments in new infrastructure projects to meet market demand. Similar investments have been made, and additional investments may be made in the future, by us, our competitors or by new entrants to the markets we serve. The success of these investments largely depends on the realization of anticipated market demand, and these projects typically require significant development periods, during which time demand for such infrastructure may change, or additional investments by competitors may be made.

Any of these or other competitive forces could materially adversely affect our results of operations, financial position or cash flows, as well as our ability to pay cash distributions.

Our operations are subject to operational hazards, as are those of our customers, including Phillips 66. Any resulting business interruptions or shutdowns could significantly reduce the volume of products we transport, store or process and adversely affect our results of operations. Additionally, we may not be adequately insured for any such events.

We are subject to all of the risks and operational hazards inherent in processing, fractionating, transporting, terminaling and storing crude oil, NGL and refined petroleum products, which could lead to business interruptions or shutdowns of our facilities or assets. We are also subject to the risk that our customers, including Phillips 66, experience casualty events, thereby suspending their operations and reducing their need for our services. Certain of the risks and operational hazards that could cause business interruptions or shutdowns of our assets or facilities, or those of our customers, include, but are not limited to:

Damages to pipelines, terminals and facilities, related equipment and surrounding properties caused by earthquakes, tornados, hurricanes, floods, fires, severe weather, explosions and other natural disasters, acts of terrorism and inadvertent damage to pipelines from construction, farm and utility equipment.

Maintenance, repairs, or mechanical or structural failures, including electrical shortages, power disruptions and power grid failures.

Damages to and loss of availability of interconnecting third-party pipelines, terminals and other means of delivering crude oil, feedstocks, NGL and refined petroleum products.

Disruption or failure of information technology systems and network infrastructure due to various causes, including unauthorized access or attack.

Curtailments of operations due to severe weather.

Riots, strikes, lockouts or other industrial disturbances.
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These risks could also result in substantial losses due to personal injury and/or loss of life, severe damage to and destruction of property and equipment and pollution or other environmental damage. Any such event could have a material adverse effect on our business, financial condition and results of operations.

Additionally, we do not maintain insurance coverage against all potential losses and could suffer losses for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. We carry separate policies for certain property damage, business interruption and third-party liabilities, which includes pollution liabilities, and are also insured under certain Phillips 66 liability policies and are subject to Phillips 66’s policy limits under these policies. The occurrence of an event that is not fully covered by insurance or failure by one or more insurers to honor its coverage commitments for an insured event could have a material adverse effect on our business, financial condition and results of operations.

We and our equity affiliates may be unable to obtain, maintain or renew permits necessary for our operations, which could interrupt current or future operations. Additionally, legal actions related to the Dakota Access Pipeline, or similar challenges with respect to other pipelines, could cause interruptions to those operations. Any of these events could have an adverse effect on our business and results of operations.

Pipelines and other midstream assets operate under a number of federal and state permits, licenses and approvals with terms and conditions containing a significant number of prescriptive limits and performance standards in order to operate. All of these permits, licenses, approval limits and standards require a significant amount of monitoring, record keeping and reporting in order to demonstrate compliance with their terms and conditions. Noncompliance or incomplete documentation of our compliance status may result in the imposition of fines, penalties and injunctive relief.

Since 2016, there has been ongoing litigation challenging permits and easements issued by the U.S. Army Corps of Engineers to Dakota Access, LLC related to the Dakota Access Pipeline. The outcome of the litigation is uncertain, and there can be no assurances that the pipeline will not be shut down, either temporarily or permanently.

A decision by a government agency to deny or delay issuing a new or renewed material permit or approval, or a decision by such agency or a court to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations and on our financial condition, results of operations and cash flows.

We do not control, and therefore may not be able to cause or prevent certain actions by, certain of our joint ventures.

Certain of our operations are conducted through joint ventures, some of which have their own governing boards. With respect to our joint ventures, we share ownership and management responsibilities with partners that may not share our goals and objectives. Consequently, it may be difficult or impossible for us to cause the joint venture entity to take actions that we believe would be in the joint venture’s best interests. Likewise, we may be unable to prevent actions of the joint venture. Differences in views among joint venture partners may result in delayed decisions or failures to agree on major matters, such as the timing and amount of distributions, large expenditures or contractual commitments, the construction or acquisition of assets or borrowing money, among others. Delay or failure to agree may prevent action with respect to such matters, even though such action may serve our best interest or that of the joint venture. Accordingly, delayed decisions and disagreements could adversely affect the business and operations of the joint ventures and, in turn, our business and operations.

Additionally, our joint venture participants may be unable to meet their economic or other obligations, and we may be required to fulfill those obligations alone. If we fail to make a required capital contribution, we could be deemed to be in default under the applicable joint venture agreement. Our joint venture partners may be permitted to pursue a variety of remedies, including funding any deficiency resulting from our failure to make any such capital contribution, which would result in a dilution of our ownership interest, or, in some cases, our joint venture partners may have the option to purchase all of our existing interest in the subject joint venture.

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We do not own all of the land on which our operations are located, and we may not be able to maintain or obtain real property rights, which could result in disruptions to our operations.

We do not own all of the land on which our operations are located. We obtain the rights to construct and operate our pipelines on land owned by third parties and governmental agencies, and some of our agreements may grant us those rights for only a specific period of time. Therefore, we are subject to the possibility of more onerous terms and increased costs to retain necessary land use if our leases, rights-of-way or other property rights lapse, terminate or are reduced or it is determined that we do not have valid leases, rights-of-way or other property rights. Any loss of or reduction in these rights, including loss or reduction due to legal, governmental or other actions or difficulty renewing leases, right-of-way agreements or permits on satisfactory terms or at all, could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions to our unitholders.

Certain components of our revenue have exposure to direct commodity price risk.

We have exposure to direct commodity price risk through the loss allowance provisions of our regulated tariffs and the commodity imbalance provisions of our commercial agreements. Any future losses due to our commodity price risk exposure could adversely affect our results of operations and financial condition and our ability in the future to make distributions to our unitholders. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk, for more information.

Many of our assets have been in service for many years and require significant expenditures to maintain them. As a result, our maintenance or repair costs may increase in the future.

Our pipelines, terminals, fractionator, processing and storage assets are generally long-lived assets, and many of them have been in service for many years. The age and condition of our assets could result in increased maintenance or repair expenditures in the future. Any significant increase in these expenditures could adversely affect our results of operations, financial position or cash flows, as well as our ability to make cash distributions to our unitholders.


Risks Related to Growth and the Execution of our Strategy

Any planned expansion projects or construction of new assets may not be successfully completed or result in expected revenue increases, and societal and political pressures to the future development, transportation and use of carbon-based fuels could adversely impact our ability to realize certain growth strategies.

We intend to continue to evaluate and capitalize on opportunities for expansion projects to increase revenue on our pipeline, terminal, fractionation, processing and storage systems. These expansion projects, such as adding horsepower, pump stations or loading/unloading racks, or the construction of a new pipeline, terminal, fractionator, processing or storage asset, involve numerous regulatory, environmental, political and legal uncertainties, many of which are beyond our control. If we undertake these projects, they may not be completed on schedule, at the budgeted cost, or at all.

Moreover, we may not receive sufficient long-term contractual commitments from customers to provide the revenue needed to support such projects, and we may be unable to negotiate acceptable interconnection agreements with third-party pipelines to provide destinations for increased throughput. Even if we receive such commitments or make such interconnections, we may not realize an increase in revenue for an extended period of time. As a result, new facilities may not be able to attract enough throughput to achieve our expected investment return, which could materially and adversely affect our results of operations and financial condition and our ability in the future to make distributions to our unitholders.

Additionally, certain of our planned expenditures are based upon the assumption that societal sentiment will continue to enable, and existing regulations will remain intact to allow for, the future development, transportation and use of carbon-based fuels. Policy decisions relating to the production, refining, transportation and marketing of carbon-based fuels are subject to political pressures and the influence and protests of environmental and other special interest groups.
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We could experience delays or cost increases, as well as cancellation of projects, which could negatively impact our results of operations, cash flows and our return on capital employed.

If we are unable to make acquisitions on economically acceptable terms from Phillips 66 or third parties, our future growth beyond organic opportunities could be reduced.

Our strategy to grow our business and increase distributions to our unitholders is in part dependent on our ability to make acquisitions that result in an increase in distributable cash flow per unit. The acquisition component of our growth strategy is based, in large part, on our expectation of ongoing divestitures of transportation and storage assets by industry participants, including Phillips 66. Our ability to make acquisitions, from Phillips 66 or third parties, depends on several factors beyond our control, including the availability of attractive acquisition candidates and our ability to negotiate acceptable terms of the acquisition and any necessary financing.

Additionally, unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we consider in any possible future acquisitions before they are consummated.

Any acquisitions we pursue will involve the integration of new assets or businesses and present risks that could adversely affect our business, financial condition and results of operations.

Significant acquisitions of assets or businesses involve potential risks. The expected benefits from an acquisition may not be realized if our estimates of the potential synergies, revenues, capital expenditures and operating costs associated with the acquisition are not correct. If we fail to identify operating problems or liabilities associated with the acquisition, we may have limited recourse against the seller, and indemnification may be unavailable or inadequate. Additionally, any acquisition, and the integration of the assets or business acquired, may divert management’s attention from current operations. If any of these factors or unanticipated liabilities were to occur, any desired benefits from an acquisition may not be fully realized, if at all, and our future financial performance, results of operations and cash available for distribution could be negatively impacted.


Indebtedness Risk

Our significant indebtedness and the restrictions in our debt agreements may adversely affect our future financial and operating flexibility.

We have significant indebtedness and may incur substantial additional indebtedness in the future. Our debt service obligations reduce the funds available for our operations, business opportunities and distributions to unitholders because of the amount of our cash flow required to make interest payments on our debt. Additionally, our ability to service our debt depends on, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service any future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, investments or capital expenditures, selling assets or issuing equity, which could materially and adversely affect our financial condition, results of operations, cash flows and ability to make distributions to unitholders, as well as the trading price of our common units. We may not be able to affect any of these actions on satisfactory terms or at all.

In addition, a failure to comply with the provisions of our revolving credit facility could result in an event of default that would enable our lenders to terminate their commitments and accelerate the maturity of any outstanding principal of that debt, together with accrued interest. If the payment of our debt is accelerated, defaults under our debt instruments may be triggered. If triggered, our assets may be insufficient to repay such debt in full, and the holders of our units could experience a partial or total loss of their investment. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity, for additional information about our revolving credit facility.


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Environmental and Climate Risks

Climate change and severe weather may adversely affect our facilities and our ongoing operations.

The potential physical effects of climate change and severe weather on our operations are highly uncertain and depend upon the unique geographic and environmental factors present. Examples of such effects include rising sea levels at our coastal facilities, changing storm patterns and intensities, and changing temperature levels. As many of our facilities are located near coastal areas or serve refineries in coastal areas, rising sea levels or extreme weather events may disrupt our ability to transport crude oil and refined petroleum products. Extended periods of such disruption could have an adverse effect on our results of operations. The potential physical effects of climate change and severe weather also could affect the facilities and operations of Phillips 66 with which our facilities and operations are connected.

Evolving environmental laws and regulations on climate change could adversely affect our results of operations and financial condition.

Potential additional laws and regulations regarding climate change could affect our operations. Currently, various U.S. legislative and regulatory agencies and bodies are considering various measures in regard to GHG emissions. These measures include EPA programs to control GHG emissions and state actions to develop statewide or regional programs, each of which could impose reductions in GHG emissions. These actions could result in increased (i) costs to operate and maintain our facilities, (ii) capital expenditures to install new emission controls on our facilities and (iii) costs to administer and manage any potential GHG emissions regulations or carbon trading or tax programs. These actions could also have an indirect adverse effect on our business if Phillips 66’s refinery operations are adversely affected. See Items 1 and 2. Business and Properties—Environmental Regulations—Air Emissions and Climate Change, for additional information.

Evolving environmental laws and regulations on hydraulic fracturing could have an indirect effect on our financial performance.

Hydraulic fracturing is a common practice used to stimulate production of crude oil and/or natural gas from dense subsurface rock formations, and presently, is primarily regulated by state agencies. If new or more stringent federal, state or local legal restrictions relating to drilling activities or to the hydraulic fracturing process are adopted in areas where producers of product we ship operate, those producers could incur potentially significant added costs to comply with such requirements and experience delays or curtailment in the pursuit of production or development activities. The producers’ added costs or delays could reduce demand for our transportation and midstream services, negatively impacting our results of operations.

New and proposed regulations governing fuel efficiency and renewable fuels could have an indirect but material adverse effect on our business.

Increases in fuel mileage standards and the increased use of renewable fuels could decrease demand for refined petroleum products, which could have an indirect, but material, adverse effect on our business, financial condition and results of operations. For example, in 2007, Congress enacted legislation that, among other things, sets a miles per gallon target for the combined fleet of cars and light trucks in the United States and contains a second renewable fuels standard. In 2012, the National Highway Traffic Safety Administration enacted regulations establishing an average industry fleet fuel economy standard. The second renewable fuels standard has required, and may in the future continue to require, additional capital expenditures or expenses by Phillips 66 to accommodate increased renewable fuels use. Phillips 66 may experience a decrease in demand for refined petroleum products due to an increase in combined fleet mileage or due to the replacement of refined petroleum products with renewable fuels or the increased electrification of the transportation sector. Any such decrease could in turn reduce the need for our transportation and midstream services.


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Risks Related to Terrorism and Cybersecurity

Terrorist attacks and threats, cyberattacks, or escalation of military activity in response to these attacks could have a material adverse effect on our business, financial condition or results of operations.

Terrorist attacks and threats, cyberattacks, or escalation of military activity in response to these attacks may have significant effects on general economic conditions, fluctuations in consumer confidence and spending and market liquidity, each of which could materially and adversely affect our business. Strategic targets, such as energy-related assets and transportation assets, may be at greater risk of future terrorist or cyberattacks than other targets in the United States. Any future terrorist attack on our facilities, those of our customers and, in some cases, those of other pipelines, could have a material adverse effect on our business. Similarly, any future terrorist attacks that severely disrupt the markets we serve could materially and adversely affect our results of operations, financial position and cash flows.

We rely on the performance of information technology systems, and the interruption or failure of any information technology system, including an interruption or failure due to a cybersecurity breach, could have an adverse effect on our business, financial condition, results of operations and cash flows.

We are increasingly dependent on information technology systems, including Phillips 66’s information technology infrastructure and cloud applications, for the safe and effective operation of our business. We rely on such systems to process, transmit and store electronic information, and to manage or support a variety of business processes, including our pipeline operations. The systems and networks we rely on, as well as those of our vendors and counterparties, may become the target of cyberattacks or information security breaches, which in turn could result in the unauthorized release and misuse of confidential or proprietary information as well as disruption of our operations or damage to our facilities. Additionally, as cyber incidents continue to evolve and escalate, we may be required to reimburse Phillips 66 for additional costs incurred associated with the modification or enhancement of systems or networks that directly serve our operations in order to prevent or remediate such attacks. We do not maintain specialized insurance for possible liability or loss resulting from a cyberattack on our assets that may shut down all or part of our business. It is possible that any of these occurrences, or a combination of them, could have a material adverse effect on our business, financial condition and results of operations.


Industry Regulation Risks

Our assets and operations are subject to federal, state and local laws and regulations relating to environmental protection and safety, including spills, releases, and pipeline integrity, any of which could require us to make substantial expenditures.

Our operations are subject to increasingly stringent federal, state and local laws and regulations related to protection of the environment. These laws and regulations have raised operating costs for the crude oil, NGL and refined petroleum products industry, and compliance with such laws and regulations may cause us to incur potentially material capital expenditures.

Transportation of crude oil, NGL and refined petroleum products involves inherent risks of spills and releases. We have contracted with various spill response service companies in the areas in which we transport or store crude oil and refined petroleum products; however, these companies may not be able to adequately contain a “worst case discharge” in all instances, and we cannot ensure that all of their services would be available at any given time. In these and other cases, we may be subject to liability in connection with the discharge of crude oil or petroleum products. We could incur potentially significant additional expenses should we determine that any of our assets are not in compliance with applicable laws and regulations.

Our failure to comply with environmental, safety or pipeline-related regulations could result in the assessment of administrative, civil, or criminal penalties, the imposition of investigatory and remedial liabilities, and the issuance of injunctions that may subject us to additional operational constraints. Any such penalties or liability could have a material adverse effect on our business, financial condition, or results of operations.
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Even if we are insured or indemnified against such risks, we may be responsible for costs or penalties to the extent our insurers or indemnitors do not fulfill their obligations to us. See Items 1 and 2. Business and Properties—Environmental Regulations and Items 1 and 2. Business and Properties—Rates and Safety Regulations—Pipeline Safety, for additional information.

We may incur greater than anticipated costs and liabilities in order to comply with safety regulations, including pipeline integrity management program testing and related repairs.

The U.S. government has adopted regulations requiring, among other things, pipeline operators to develop integrity management programs for certain transmission pipelines. The regulations require operators, including us, to, among other matters, perform ongoing assessments of pipeline integrity; repair and remediate pipelines as necessary; and implement preventative and mitigating actions. Revisions to the integrity management requirements or the inclusion of additional pipelines subject to the regulation’s requirements could have a material adverse effect on our operations and costs of transportation services.

Although some of our facilities fall within a class that is currently not subject to these requirements, we may incur significant costs and liabilities associated with repair, remediation, preventative or mitigation measures associated with our non-exempt pipelines. We have not estimated the costs for any repair, remediation, preventative or mitigating actions that may be determined to be necessary as a result of these safety regulations, which could be substantial, or any lost cash flows resulting from shutting down our pipelines during the pendency of such repairs. Additionally, should we fail to comply with these or comparable state regulations, we could be subject to penalties and fines.

The tariff rates of our regulated assets are subject to review and possible adjustment by federal and state regulators, which could adversely affect our revenue and our ability to make distributions to our unitholders.

Certain of our pipelines provide interstate service that is subject to regulation by FERC. FERC uses prescribed rate methodologies to develop regulated tariff rates for interstate oil and product pipelines. Our tariff rates approved by FERC may not recover all of our costs of providing services. In addition, these methodologies, changes to the methodologies, or challenges to our application of an approved methodology could adversely affect our rates.

Shippers may protest (and FERC may investigate) the lawfulness of new or changed tariff rates. FERC can suspend those tariff rates for up to seven months and can also require refunds of amounts collected pursuant to rates that are ultimately found to be unlawful, and prescribe new rates prospectively. FERC and interested parties can also challenge tariff rates that have become final and effective. Under our existing commercial agreements, Phillips 66 has agreed not to challenge, or to cause others to challenge, our tariff rates in effect during the term of the agreements, except to the extent changes to the base tariff rate are inconsistent with FERC’s indexing methodology or other rate changing methodologies. This agreement does not prevent other shippers or interested persons from challenging our tariffs, including our tariff rates and proration rules. Due to the complexity of rate making, the lawfulness of any rate is never assured. A successful challenge of our rates could adversely affect our revenues and our ability to make distributions to our unitholders.

Our pipelines are common carriers and, as a consequence, we may be required to provide service to customers with credit and other performance characteristics with whom we would otherwise choose not to do business.

Certain of our pipelines provide intrastate service that is subject to regulation by various state agencies. These state agencies could limit our ability to increase our rates or to set rates based on our costs or could order us to reduce our rates and could require the payment of refunds to shippers. Such regulation or a successful challenge to our intrastate pipeline rates could adversely affect our financial position, cash flows or results of operations. See Items 1 and 2. Business and Properties—Rates and Safety Regulations, for additional information.


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Risks Inherent in an Investment in Us

Our partnership agreement requires that we distribute all of our available cash, which could limit our growth opportunities.

Our partnership agreement requires that we distribute all of our available cash to our unitholders. Because we distribute all of our available cash, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. We expect to primarily rely upon external financing sources, including related-party financing from Phillips 66, borrowings under our revolving credit facility and future issuances of equity and debt securities, to fund expansion capital expenditures and acquisitions. If we are unable to finance our growth externally, our cash distribution policy may significantly impair our ability to grow.

To the extent we issue units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. Additional commercial borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, may reduce the amount of cash that we have available to distribute to our unitholders.

Our General Partner’s discretion in establishing cash reserves may reduce the amount of cash we have available to distribute to our unitholders.

Our partnership agreement permits our General Partner to reduce available cash by establishing cash reserves for the proper conduct of our business, to comply with applicable law or agreements, or to provide funds for future distributions. These cash reserves will affect the amount of cash we have available to distribute to our unitholders.

Our General Partner and its affiliates, including Phillips 66, have conflicts of interest with us, and they may favor their own interests to our detriment and that of our unitholders.

Conflicts of interest may arise between Phillips 66 and its affiliates, including our General Partner, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts, our General Partner may favor its own interests and the interests of its affiliates, including Phillips 66, over the interests of our common unitholders. Examples of these conflicts include, among others:

Phillips 66, as our primary customer, has an incentive to cause us to not seek higher tariff rates, even if such higher rates or fees would reflect rates and fees that could be obtained in arm’s length, third-party transactions.

Our General Partner determines the amount and timing of investment transactions, borrowings, issuance of additional partnership securities and the creation, reduction or increase of cash reserves, each of which can affect the amount of cash that is distributed to our unitholders.

Our General Partner determines the amount and timing of many of our cash expenditures and whether each such expenditure is classified as an expansion or a maintenance capital expenditure, which can affect the amount of available cash from operating surplus that is distributed to our unitholders and the amount of adjusted operating surplus generated in any given period.

Our General Partner determines which costs incurred by it and its affiliates are reimbursable by us and the amount of the reimbursements. Additionally, our partnership agreement does not restrict our General Partner from entering into additional contractual arrangements with any of these entities on our behalf.

Our General Partner may cause us to borrow funds in order to permit the payment of cash distributions.

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Our General Partner controls the enforcement of obligations owed to us by our General Partner and its affiliates, including our commercial agreements with Phillips 66.

Affiliates of our General Partner may compete with us, and neither our General Partner nor its affiliates have any obligation to present business opportunities to us.

Neither Phillips 66 nor any other affiliates of our General Partner, including DCP Midstream LLC and Chevron Phillips Chemical Company, is prohibited from owning assets or engaging in businesses that compete with us. Additionally, if our General Partner or any of its affiliates become aware of a potential transaction or other matter that may be an opportunity for us, they have no duty to communicate or offer such opportunity to us. Consequently, they may acquire, construct or dispose of additional midstream assets in the future without any obligation to offer us the opportunity first. As a result, competition from Phillips 66 and other affiliates of our General Partner could materially and adversely impact our results of operations and distributable cash flow.

Our partnership agreement replaces our General Partner’s fiduciary duties to holders of our common units with contractual standards and restricts holders’ remedies for actions that might otherwise constitute a breach of fiduciary duty.

As permitted by Delaware law, our partnership agreement eliminates the fiduciary standards to which our General Partner would otherwise be subject and replaces those duties with several different contractual standards. For example, our partnership agreement permits our General Partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our General Partner, free of any duties to us and our unitholders other than the implied contractual covenant of good faith and fair dealing. This provision entitles our General Partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. By purchasing a common unit, a unitholder is treated as having consented to the provisions in our partnership agreement, including these provisions.

When acting in its capacity as our General Partner, our General Partner is required to make determinations in good faith, meaning that it subjectively believes that the decision is in the best interests of the partnership. Unless a court determines that our General Partner or its officers and directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal, they will not be liable for any damages to us or our limited partners.

Additionally, our General Partner will not be in breach of its obligations under our partnership agreement or its fiduciary duties if a transaction with an affiliate or the resolution of a conflict of interest is approved in accordance with our partnership agreement. Under our partnership agreement, our Conflicts Committee and the Board of Directors of our General Partner are entitled to a presumption that they acted in good faith. In any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing such proceeding will have the burden of overcoming such presumption.

Our partnership agreement designates the Delaware Court of Chancery as the exclusive forum for certain proceedings brought by our limited partners, which would limit their ability to choose the forum for disputes with us or our General Partner’s directors, officers or other employees.

Our partnership agreement provides that, with certain limited exceptions, any claims arising out of or relating to our partnership agreement brought in a derivative manner on our behalf asserting a claim of breach of a duty owed to us, arising pursuant to Delaware’s limited partnership laws, or governed by the internal affairs doctrine, must be brought in the Delaware Court of Chancery. By purchasing our units, unitholders are deemed to have received notice of and consented to the exclusive forum provisions.

To the fullest extent permitted by law, this exclusive forum provision will apply to state and federal law claims, although limited partners will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations thereunder.
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The enforceability of similar forum provisions has been challenged, and it is possible that a court could find the provisions contained in our partnership agreement to be inapplicable or unenforceable, including with respect to claims arising under the U.S. federal securities laws.

The exclusive forum provision may limit the ability of a limited partner to commence litigation in a forum the partner prefers, and commencing litigation in Delaware may be more expensive for such partner, each of which may discourage lawsuits against us or our General Partner’s directors or officers. Alternatively, if a court were to find the exclusive forum provision inapplicable or unenforceable, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our results of operations and financial condition.

Unitholders have very limited voting rights and, even if they are dissatisfied, they cannot remove our General Partner without its consent.

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights and, therefore, limited ability to influence management’s decisions. Additionally, the Board of Directors of our General Partner is chosen by the member of our General Partner, which is a wholly owned subsidiary of Phillips 66; unitholders have no right to elect our General Partner or the Board of Directors of our General Partner. Unitholders’ voting rights are further restricted by the partnership agreement provision providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our General Partner, its affiliates, their transferees, and persons who acquired such units with the prior approval of the Board of Directors of our General Partner, cannot vote on any matter.

Our unitholders currently do not own sufficient units to remove our General Partner. The vote of the holders of at least 66 2/3% of all outstanding common units and Series A preferred units (on an as-converted basis) voting as a single class is required to remove our General Partner. As of December 31, 2020, our General Partner and its affiliates owned approximately 70% of all outstanding units.

The control of our General Partner may be transferred to a third party and new general partners could be admitted to the partnership without unitholder consent.

There is no restriction in our partnership agreement on the ability of Phillips 66 to transfer its membership interest in our General Partner to a third party. The new owner of our General Partner would then be in a position to replace the Board of Directors and officers of our General Partner with its own choices. Additionally, we could issue general partner interests to a person who is not an affiliate of Phillips 66, causing the management of our business to no longer reside solely with our General Partner. Affiliates of any newly admitted general partner may compete with us, and neither that general partner nor such affiliates would have any obligation to present business opportunities to us.

We may issue additional units without unitholder approval, which would dilute unitholder interests, and Phillips 66 may sell the common units it owns, which could negatively impact the trading price of the common units.

At any time, we may issue an unlimited number of general partner interests or limited partner interests of any type without the approval of our unitholders and our unitholders have no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such general partner interests or limited partner interests. Further, there are no limitations in our partnership agreement on our ability to issue equity securities that rank equal or senior to our common units as to distributions or in liquidation or that have special voting and other rights. The issuance by us of additional common units or other equity securities of equal or senior rank will dilute current unitholders’ ownership interest and may decrease per unit distributions, relative voting strength, the market price for our common units, and increase the ratio of taxable income to distributions.

At December 31, 2020, Phillips 66 indirectly owned 169,760,137 common units. Phillips 66 has certain registration rights under applicable securities laws and the sale by Phillips 66 of its common units in the public markets could have an adverse impact on the trading price of our common units.

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Our General Partner has a limited call right that may require unitholders to sell their common units at an undesirable time or price.

If at any time our General Partner and its affiliates own more than 80% of our then-outstanding common units, our General Partner has the right, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our General Partner and its affiliates owned approximately 74% of our total outstanding common units, and approximately 70% of our total outstanding common units and Series A preferred units (on an as-converted basis) in the aggregate, as of December 31, 2020.

If a unitholder is not both a citizenship eligible holder and a rate eligible holder, its common units may be subject to redemption.

In order to avoid (i) any material adverse effect on the maximum applicable rates that can be charged to customers by our subsidiaries on assets that are subject to rate regulation by FERC or any analogous regulatory body, and (ii) any substantial risk of cancellation or forfeiture of any property, including any governmental permit, endorsement or other authorization, in which we have an interest, we have adopted certain requirements regarding those investors who may own our common units. Citizenship eligible holders are individuals or entities whose nationality, citizenship or other related status does not create a substantial risk of cancellation or forfeiture of any property, including any governmental permit, endorsement or authorization, in which we have an interest, and will generally include individuals and entities who are U.S. citizens. Rate eligible holders are individuals or entities subject to U.S. federal income taxation on the income generated by us or entities not subject to U.S. federal income taxation on the income generated by us, as all of the entity’s owners are subject to such taxation. A unitholder that does not meet the requirements to be a citizenship eligible holder and a rate eligible holder runs the risk of having its units redeemed by us at the market price as of the date three days before the date the notice of redemption is mailed. In addition, a unitholder who does not meet the requirements to be a citizenship eligible holder will not be entitled to voting rights.

Increases in interest rates could adversely impact the price of our common units, our ability to issue equity, or our ability to make distributions at our intended levels.

Similar to other yield-oriented securities, our common unit price is impacted by our level of distributions and the implied distribution yield of our common units. The distribution yield is often utilized by investors to compare and rank yield-oriented securities for investment decision-making purposes. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our units, and a rising interest rate environment could have an adverse impact on the price of our common units, our ability to issue equity, or our ability to make distributions at our intended levels.

The NYSE does not require a publicly traded limited partnership like us to comply with certain of its corporate governance requirements.

We currently list our common units on the NYSE under the symbol PSXP. Because we are a publicly traded limited partnership, the NYSE does not require us to have a majority of independent directors on our General Partner’s Board of Directors or to establish a compensation committee or a nominating and corporate governance committee. Additionally, any future issuance of additional common units or other securities, including to affiliates, will not be subject to the NYSE’s shareholder approval rules that apply to a corporation. Accordingly, unitholders do not have the same protections afforded to certain corporations that are subject to all of the NYSE corporate governance requirements. See Item 10. Directors, Executive Officers and Corporate Governance, for additional information.


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Tax Risks

Our tax treatment depends on our status as a partnership for federal income tax purposes. If the Internal Revenue Service (IRS) were to treat us as a corporation for federal income tax purposes, which would subject us to entity-level taxation, or if we were otherwise subjected to a material amount of additional entity-level taxation, then our distributable cash flow to our unitholders would be substantially reduced.

The anticipated after-tax economic benefit of an investment in the common units depends largely on our being treated as a partnership for federal income tax purposes. We have not requested a ruling from the IRS on this or any other tax matter affecting us.

Although we are a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as ours to be treated as a corporation for federal income tax purposes. A change in our business or a change in current law could cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity.

If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 21%, and would likely pay state and local income tax at varying rates. Distributions would generally be taxable to the unitholder as corporate dividends (to the extent of our current and accumulated earnings and profits), and no income, gains, losses, deductions, or credits would flow through to unitholders. If a tax is imposed upon us as a corporation, our distributable cash flow would be substantially reduced. In addition, changes in current state law may subject us to additional entity-level taxation by individual states. Several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Imposition of any such taxes may substantially reduce the cash available for distribution to unitholders. Therefore, if we were treated as a corporation for federal income tax purposes or otherwise subjected to a material amount of entity-level taxation, there would be a material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our common units.

Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution levels may be adjusted to reflect the impact of that law on us.

The present federal income tax treatment of publicly traded partnerships, including us, may be modified by administrative, legislative or judicial interpretation at any time. For example, from time to time, members of Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly traded partnerships. Any modification to the federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible to meet the exception for us to be treated as a partnership for federal income tax purposes. We are unable to predict whether any such changes will ultimately be enacted. However, it is possible that a change in law could affect us, and any such changes could negatively impact the value of an investment in our common units.

If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our distributable cash flow to our unitholders.

We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes or any other matter affecting us. The IRS may adopt positions that differ from the positions we take, and the IRS’s positions may ultimately be sustained. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take and such positions may not ultimately be sustained. A court may not agree with some or all of the positions we take. Any contest with the IRS, and the outcome of any IRS contest, may have a material adverse impact on the market for our common units and the price at which they trade. In addition, our costs of any contest with the IRS will be borne indirectly by our unitholders and our General Partner because the costs will reduce our distributable cash flow.
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If the IRS makes audit adjustments to our income tax returns for tax years beginning after 2017, it may collect any resulting taxes (including any applicable penalties and interest) directly from us, in which case our cash available for distribution to our unitholders might be substantially reduced.

Pursuant to the Bipartisan Budget Act of 2015, if the IRS makes audit adjustments to our income tax returns for tax years beginning after 2017, it may collect any resulting taxes (including any applicable penalties and interest) directly from us. We will generally have the ability to shift any such tax liability to our General Partner and our unitholders in accordance with their interests in us during the year under audit, but there can be no assurance that we will be able to do so under all circumstances. If we are required to make payments of taxes, penalties and interest resulting from audit adjustments, our cash available for distribution to our unitholders might be substantially reduced.

We treat each purchaser of common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of our common units.

Because we cannot match transferors and transferees of common units and because of other reasons, we adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to unitholders. It also could affect the timing of these tax benefits or the amount of gain from sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to our unitholders’ tax returns.

We prorate our items of income, gain, loss and deduction for federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first business day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge aspects of our proration method, and, if successful, we would be required to change the allocation of items of income, gain, loss and deduction among our unitholders.

We prorate our items of income, gain, loss and deduction for federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first business day of each month, instead of on the basis of the date a particular unit is transferred. Treasury Regulations permit publicly traded partnerships to use a monthly simplifying convention that is similar to ours, but they do not specifically authorize all aspects of the proration method we have adopted. If the IRS were to successfully challenge this method, we could be required to change the allocation of items of income, gain, loss and deduction among our unitholders.

We have adopted certain valuation methodologies in determining a unitholder’s allocations of income, gain, loss and deduction. The IRS may challenge these methodologies or the resulting allocations, and such a challenge could adversely affect the value of our common units.

In determining the items of income, gain, loss and deduction allocable to our unitholders, in certain circumstances, including when we issue additional units, we must determine the fair market value of our assets. Although we may, from time to time, consult with professional appraisers regarding valuation matters, we make many fair market value estimates using a methodology based on the market value of our common units as a means to measure the fair market value of our assets. The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction.

A successful IRS challenge to these methods or allocations could adversely affect the amount, character and timing of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.

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We may be required to deduct and withhold amounts from distributions to foreign unitholders related to withholding tax obligations arising from the sale or disposition of our units by foreign unitholders.

Upon the sale, exchange or other disposition of a unit by a foreign unitholder, the transferee is generally required to withhold 10% of the amount realized on such sale, exchange or other disposition if any portion of the gain on such sale, exchange or other disposition would be treated as effectively connected with a U.S. trade or business. The U.S. Department of the Treasury and the IRS recently issued final regulations providing guidance on the application of these rules for transfers of certain publicly traded partnership interests, including transfers of our units. Under these regulations, the “amount realized” on a transfer of our units will generally be the amount of gross proceeds paid to the broker effecting the applicable transfer on behalf of the transferor, and such broker will generally be responsible for the relevant withholding obligations. Distributions to foreign persons may also be subject to additional withholding under these rules to the extent a portion of a distribution is attributable to an amount in excess of our cumulative net income that has not previously been distributed. The U.S. Department of the Treasury and the IRS have provided that these rules will generally not apply to transfers of, or distributions on, our common units occurring before January 1, 2022.


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Item 1B. UNRESOLVED STAFF COMMENTS

None.


Item 3. LEGAL PROCEEDINGS

Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not a party to any reportable litigation or governmental or other proceeding, including those involving governmental authorities under federal, state and local laws regulating the discharge of materials into the environment, that we reasonably believe will be in excess of $300,000 or have a material adverse impact on our consolidated financial position.  In addition, as discussed in Note 11—Contingencies, in the Notes to Consolidated Financial Statements, under our amended omnibus agreement, and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 indemnifies us or assumes responsibility for certain liabilities relating to litigation and environmental matters attributable to the ownership or operation of our assets prior to their contribution to us from Phillips 66.


Item 4. MINE SAFETY DISCLOSURES

Not applicable.
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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common units trade on the New York Stock Exchange (NYSE) under the symbol PSXP. At January 29, 2021, there were 14 unitholders of record of our common units. In determining the number of unitholders, we consider clearing agencies and security position listings as one unitholder for each agency or listing.


Item 6. [REMOVED AND RESERVED]
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Item 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis is the Partnership’s analysis of its financial performance and financial condition, and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.


EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT

Partnership Overview
We are a Delaware limited partnership formed in 2013 by Phillips 66 Company and Phillips 66 Partners GP LLC (our General Partner), both wholly owned subsidiaries of Phillips 66. On August 1, 2019, all of the outstanding incentive distribution rights (IDRs) held by our General Partner were eliminated and its general partner interest in us was converted to a noneconomic interest in exchange for common units issued to Phillips 66 Project Development Inc. (Phillips 66 PDI). We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. Our common units trade on the New York Stock Exchange under the symbol PSXP.

Executive Overview
Net income attributable to the Partnership was $791 million in 2020. We generated cash from operations of $955 million, received $177 million of return of investment distributions from equity affiliates, and raised net proceeds of $390 million through debt financings. This cash was primarily used to fund our capital expenditures and investments and make quarterly cash distributions to our common and preferred unitholders. As of December 31, 2020, we had cash and cash equivalents of $7 million and $334 million of unused capacity under our $750 million revolving credit facility.

How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our performance, including: (1) volumes handled; (2) operating and maintenance expenses; (3) net income (loss) before net interest expense, income taxes, depreciation and amortization (EBITDA); (4) adjusted EBITDA; and (5) distributable cash flow.

Volumes Handled
The amount of revenue we generate primarily depends on the volumes of crude oil, refined petroleum products and natural gas liquids (NGL) that we handle in our pipeline, terminal, rail rack, processing, storage and fractionator systems. In addition, our equity affiliates generate revenue from transporting and terminaling crude oil, refined petroleum products and NGL. These volumes are primarily affected by the supply of, and demand for, crude oil, refined petroleum products and NGL in the markets served directly or indirectly by our assets, as well as the operational status of the refineries served by our assets. Phillips 66 has committed to minimum throughput volumes under many of our commercial agreements.

Operating and Maintenance Expenses
Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses primarily consist of labor expenses (including contractor services), utility costs, and repair and maintenance expenses. Operating and maintenance expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the mix of activities, particularly maintenance activities, performed during the period. Our processing assets are periodically subject to major maintenance, or turnaround activities, which can significantly increase operating and maintenance expenses in a given year. Although we seek to manage our maintenance expenditures on our facilities to avoid significant variability in our quarterly cash flows, we balance this approach with our high standards of safety and environmental stewardship, such that critical maintenance is regularly performed.

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Our operating and maintenance expenses are also affected by volumetric gains/losses resulting from variances in meter readings and other measurement methods, as well as volume fluctuations due to pressure and temperature changes. Under certain commercial agreements with Phillips 66, the value of any crude oil, refined petroleum product and NGL volumetric gains and losses are determined by reference to the monthly average reference price for the applicable commodity. Any gains/losses under these provisions decrease or increase, respectively, our operating and maintenance expenses in the period in which they are realized. These contractual volumetric gain/loss provisions could increase variability in our operating and maintenance expenses.

EBITDA, Adjusted EBITDA and Distributable Cash Flow
We define EBITDA as net income plus net interest expense, income taxes, depreciation and amortization.

Adjusted EBITDA is EBITDA attributable to the Partnership after deducting the adjusted EBITDA attributable to noncontrolling interest, further adjusted for:
The proportional share of equity affiliates’ net interest expense, income taxes, depreciation and amortization, and impairments.
Transaction costs associated with acquisitions.
Certain other noncash items, including gains and losses on asset sales and asset impairments.
Distributable cash flow is defined as adjusted EBITDA less (i) equity affiliate distributions less than proportional adjusted EBITDA, (ii) maintenance capital expenditures, (iii) net interest expense, (iv) income taxes paid and (v) preferred unit distributions, plus adjustments for deferred revenue impacts.

EBITDA, adjusted EBITDA, and distributable cash flow are not presentations made in accordance with generally accepted accounting principles in the United States (GAAP). EBITDA, adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management believes external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may find useful to assess:
Our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA and adjusted EBITDA, financing methods.
The ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders.
Our ability to incur and service debt and fund capital expenditures.
The viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
The GAAP performance measure most directly comparable to EBITDA and adjusted EBITDA is net income. The GAAP liquidity measure most directly comparable to EBITDA and distributable cash flow is net cash provided by operating activities. These non-GAAP financial measures should not be considered alternatives to GAAP net income or net cash provided by operating activities. They have important limitations as analytical tools because they exclude some items that affect net income and net cash provided by operating activities. Additionally, because EBITDA, adjusted EBITDA, and distributable cash flow may be defined differently by other companies in our industry, our definition of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

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Business Environment
We do not own any of the crude oil, refined petroleum products and NGL we handle and do not engage in the trading of those commodities, and therefore have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.

Our throughput volumes primarily depend on the volume of crude oil processed and refined petroleum products produced at Phillips 66’s owned or operated refineries with which our assets are integrated. These volumes are primarily dependent on Phillips 66’s refining margins and maintenance schedules. Refining margins depend on the price of crude oil or other feedstocks and the price of refined petroleum products. These prices are affected by numerous factors beyond our or Phillips 66’s control, including the domestic and global supply of and demand for crude oil and refined petroleum products. Throughput volumes of our equity affiliates primarily depend on upstream drilling activities, refinery performance and product supply and demand.

The COVID-19 pandemic continues to disrupt economic activities globally. Actions taken by governments to prevent the spread of the disease have included travel and business restrictions, which have resulted in substantial decreases in the demand for crude oil and many refined petroleum products, particularly gasoline and jet fuel. The lack of demand for petroleum products has resulted in low crude oil prices and refining margins. As a result, crude oil producers have shut in high cost production and refiners have reduced crude oil processing rates. These actions have reduced throughput volumes on both our and our joint ventures’ assets.

The near-term outlook for petroleum product demand remains highly uncertain, and margins and volumes remain challenged. Our customers, including Phillips 66, may continue to experience adverse economic effects in the near term as the depth and duration of the economic consequences of the COVID-19 pandemic remain unknown. We continuously monitor our asset and investment portfolio for impairments in this challenging business environment. We recorded impairments totaling $96 million in 2020, and additional impairments may be required in the future.

While we believe we and the majority of our joint ventures have substantially mitigated our indirect exposure to commodity price fluctuations through the minimum volume commitments included in our commercial agreements, our ability to execute our growth strategy will depend, in part, on the availability of attractively priced crude oil in the areas served by our crude oil pipelines and rail racks, demand for refined petroleum products in the markets served by our refined petroleum product pipelines and terminals, and the general demand for midstream services, including NGL transportation and fractionation.


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Table of Contents
Index to Financial Statements
RESULTS OF OPERATIONS
Millions of Dollars
Years Ended December 312020 2019 2018 
Revenues and Other Income
Operating revenues—related parties$1,008 1,097 1,012 
Operating revenues—third parties30 29 33 
Equity in earnings of affiliates493 535 439 
Gain from equity interest transfer84 — — 
Other income3 
Total revenues and other income1,618 1,667 1,486 
Costs and Expenses
Operating and maintenance expenses342 405 354 
Depreciation135 120 117 
Impairments96 — — 
General and administrative expenses66 67 64 
Taxes other than income taxes40 39 35 
Interest and debt expense121 108 115 
Other expenses7 
Total costs and expenses807 741 686 
Income before income taxes811 926 800 
Income tax expense3 
Net Income808 923 796 
Less: Net income attributable to noncontrolling interest
17 — — 
Net Income Attributable to the Partnership791 923 796 
Less: Preferred unitholders’ interest in net income attributable to the Partnership41 37 37 
Less: General partner’s interest in net income attributable to the Partnership
 140 240 
Limited Partners’ Interest in Net Income Attributable to the Partnership
$750 746 519 
Net Cash Provided by Operating Activities $955 1,016 892 
Adjusted EBITDA$1,221 1,268 1,137 
Distributable Cash Flow $970 989 854 
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Table of Contents
Index to Financial Statements
Year Ended December 31
2020 2019 2018 
Wholly Owned Operating Data
Pipelines
Pipeline revenues (millions of dollars)
$436 473 454 
Pipeline volumes(1) (thousands of barrels daily)
Crude oil864 991 1,016 
Refined petroleum products and NGL869 947 929 
Total1,733 1,938 1,945 
Average pipeline revenue per barrel (dollars)
$0.68 0.67 0.64 
Terminals
Terminal revenues (millions of dollars)
$153 167 157 
Terminal throughput (thousands of barrels daily)
Crude oil(2)
354 470 462 
Refined petroleum products713 804 780 
Total1,067 1,274 1,242 
Average terminaling revenue per barrel (dollars)
$0.39 0.35 0.34 
Storage, processing and other revenues (millions of dollars)
$449 486 434 
Total Operating Revenues (millions of dollars)
$1,038 1,126 1,045 
Joint Venture Operating Data(3)
Crude oil, refined petroleum products and NGL (thousands of barrels
    daily)
1,007 760 652 
(1) Represents the sum of volumes transported through each separately tariffed pipeline segment.
(2) Bayway and Ferndale rail rack volumes included in crude oil terminals.
(3) Proportional share of total pipeline and terminal volumes of joint ventures consistent with recognized equity in earnings of affiliates.


36

Table of Contents
Index to Financial Statements
The following tables present reconciliations of EBITDA and adjusted EBITDA to net income, and EBITDA and distributable cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.

Millions of Dollars
Year Ended December 31
2020 2019 2018 
Reconciliation to Net Income Attributable to the Partnership
Net Income Attributable to the Partnership$791 923 796 
Plus:
Net income attributable to noncontrolling interest17 — — 
Net Income808 923 796 
Plus:
Depreciation135 120 117 
Net interest expense120 105 114 
Income tax expense3 
EBITDA1,066 1,151 1,031 
Plus:
Proportional share of equity affiliates’ net interest, taxes, depreciation and amortization, and impairments
172 116 101 
Expenses indemnified or prefunded by Phillips 662 
Transaction costs associated with acquisitions1 — 
Impairments96 — — 
Less:
Gain from equity interest transfer84 — — 
Adjusted EBITDA attributable to noncontrolling interest
32 — — 
Adjusted EBITDA1,221 1,268 1,137 
Plus:
Deferred revenue impacts*
8 (6)(6)
Less:
Equity affiliate distributions less than proportional adjusted EBITDA 56 64 
Maintenance capital expenditures
97 74