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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended			June 30, 2023

or

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

For the transition period from

to

Commission file number:			001-35349

Phillips 66

(Exact name of registrant as specified in its charter) 

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

2331 CityWest Blvd., Houston, Texas 77042

(Address of principal executive offices) (Zip Code)

832-765-3010

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

PSX

New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

The registrant had 445,287,928 shares of common stock, $0.01 par value, outstanding as of June 30, 2023.

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PHILLIPS 66

TABLE OF CONTENTS

 

			Page
Part I – Financial Information
Item 1. Financial Statements
Consolidated Statement of Income			1
Consolidated Statement of Comprehensive Income			2
Consolidated Balance Sheet			3
Consolidated Statement of Cash Flows			4
Consolidated Statement of Changes in Equity			5
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and      Results of Operations			37
Item 3. Quantitative and Qualitative Disclosures About Market Risk			68
Item 4. Controls and Procedures			68
Part II – Other Information
Item 1. Legal Proceedings			69
Item 1A. Risk Factors			70
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			70
Item 5. Other Information			70
Item 6. Exhibits			71
Signatures			72

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

 

Consolidated Statement of Income			Phillips 66

			Millions of Dollars
			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
Revenues and Other Income
Sales and other operating revenues			$	35,090					48,577						69,486			84,756
Equity in earnings of affiliates			563						917						1,174			1,602
Net gain (loss) on dispositions			(12)						—						22			1
Other income (loss)			99						(185)						147			(328)
Total Revenues and Other Income			35,740						49,309						70,829			86,031
Costs and Expenses
Purchased crude oil and products			30,571						42,645						59,912			76,140
Operating expenses			1,384						1,431						2,962			2,771
Selling, general and administrative expenses			593						488						1,198			921
Depreciation and amortization			495						359						971			697
Impairments			4						2						12			2
Taxes other than income taxes			174						118						381			267
Accretion on discounted liabilities			7						6						13			12
Interest and debt expense			266						133						458			268
Foreign currency transaction losses			2						21						27			19
Total Costs and Expenses			33,496						45,203						65,934			81,097
Income before income taxes			2,244						4,106						4,895			4,934
Income tax expense			510						924						1,084			1,095
Net Income			1,734						3,182						3,811			3,839
Less: net income attributable to noncontrolling interests			37						15						153			90
Net Income Attributable to Phillips 66			$	1,697					3,167						3,658			3,749
Net Income Attributable to Phillips 66 Per Share of Common Stock (dollars)
Basic			$	3.73					6.55						7.95			8.03
Diluted			3.72						6.53						7.92			8.00
Weighted-Average Common Shares Outstanding (thousands)
Basic			454,450						483,088						459,602			466,286
Diluted			456,168						485,035						461,906			468,338
See Notes to Consolidated Financial Statements.

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Consolidated Statement of Comprehensive Income			Phillips 66

 

			Millions of Dollars
			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
Net Income			$	1,734					3,182						3,811			3,839
Other comprehensive income (loss)
Defined benefit plans
Net actuarial loss arising during the period			—						(13)						—			(13)
Amortization of net actuarial loss, prior service credit and settlements			5						40						15			51
Plans sponsored by equity affiliates			—						1						3			6
Income taxes on defined benefit plans			(1)						(5)						(4)			(8)
Defined benefit plans, net of income taxes			4						23						14			36
Foreign currency translation adjustments			98						(245)						174			(327)
Income taxes on foreign currency translation adjustments			(1)						3						—			3
Foreign currency translation adjustments, net of income taxes			97						(242)						174			(324)
Income taxes on hedging activities			—						—						—			—
Hedging activities, net of income taxes			—						—						—			—
Other Comprehensive Income (Loss), Net of Income Taxes			101						(219)						188			(288)
Comprehensive Income			1,835						2,963						3,999			3,551
Less: comprehensive income attributable to noncontrolling interests			37						15						153			90
Comprehensive Income Attributable to Phillips 66			$	1,798					2,948						3,846			3,461

See Notes to Consolidated Financial Statements.

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Consolidated Balance Sheet			Phillips 66

 

			Millions of Dollars
			June 30 2023						December 31 2022
Assets
Cash and cash equivalents			$	3,029					6,133
Accounts and notes receivable (net of allowances of $68 million in 2023 and $67 million in 2022)			8,234						9,497
Accounts and notes receivable—related parties			1,224						1,488
Inventories			6,380						3,276
Prepaid expenses and other current assets			1,031						1,528
Total Current Assets			19,898						21,922
Investments and long-term receivables			15,532						14,950
Net properties, plants and equipment			35,232						35,163
Goodwill			1,486						1,486
Intangibles			786						831
Other assets			1,952						2,090
Total Assets			$	74,886					76,442
Liabilities
Accounts payable			$	9,722					10,748
Accounts payable—related parties			714						575
Short-term debt			832						529
Accrued income and other taxes			1,181						1,397
Employee benefit obligations			557						764
Other accruals			1,965						1,876
Total Current Liabilities			14,971						15,889
Long-term debt			19,034						16,661
Asset retirement obligations and accrued environmental costs			876						879
Deferred income taxes			6,819						6,671
Employee benefit obligations			924						937
Other liabilities and deferred credits			1,202						1,299
Total Liabilities			43,826						42,336
Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value)      Issued (2023—653,361,255 shares; 2022—652,373,645 shares)
Par value			7						7
Capital in excess of par			19,463						19,791
Treasury stock (at cost: 2023—208,073,327 shares; 2022—186,529,667 shares)			(17,422)						(15,276)
Retained earnings			28,122						25,432
Accumulated other comprehensive loss			(272)						(460)
Total Stockholders’ Equity			29,898						29,494
Noncontrolling interests			1,162						4,612
Total Equity			31,060						34,106
Total Liabilities and Equity			$	74,886					76,442

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Cash Flows			Phillips 66

			Millions of Dollars
			Six Months Ended June 30
			2023						2022
Cash Flows From Operating Activities
Net income			$	3,811					3,839
Adjustments to reconcile net income to net cash provided by operating    activities
Depreciation and amortization			971						697
Impairments			12						2
Accretion on discounted liabilities			13						12
Deferred income taxes			265						290
Undistributed equity earnings			(566)						(490)
Loss on early redemption of debt			53						—
Net gain on dispositions			(22)						(1)
Unrealized investment loss			26						390
Other			(101)						120
Working capital adjustments
Accounts and notes receivable			1,548						(5,634)
Inventories			(2,939)						(1,265)
Prepaid expenses and other current assets			372						(1,030)
Accounts payable			(923)						5,285
Taxes and other accruals			(366)						704
Net Cash Provided by Operating Activities			2,154						2,919
Cash Flows From Investing Activities
Capital expenditures and investments			(929)						(746)
Return of investments in equity affiliates			119						48
Proceeds from asset dispositions			90						2
Advances/loans—related parties			—						(75)
Collection of advances/loans—related parties			—						101
Other			23						(49)
Net Cash Used in Investing Activities			(697)						(719)
Cash Flows From Financing Activities
Issuance of debt			5,047						—
Repayment of debt			(2,459)						(1,481)
Issuance of common stock			12						67
Repurchase of common stock			(2,109)						(66)
Dividends paid on common stock			(960)						(871)
Distributions to noncontrolling interests			(125)						(101)
Repurchase of noncontrolling interests			(3,957)						—
Other			(59)						(37)
Net Cash Used in Financing Activities			(4,610)						(2,489)
Effect of Exchange Rate Changes on Cash and Cash Equivalents			49						(49)
Net Change in Cash and Cash Equivalents			(3,104)						(338)
Cash and cash equivalents at beginning of period			6,133						3,147
Cash and Cash Equivalents at End of Period			$	3,029					2,809

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Changes in Equity			Phillips 66

			Millions of Dollars
			Three Months Ended June 30
			Attributable to Phillips 66
			Common Stock
			Par Value			Capital in Excess of Par			Treasury Stock			Retained Earnings			Accum. Other Comprehensive Loss			Noncontrolling Interests			Total
March 31, 2023			$	7		19,795			(16,083)			26,903			(373)			4,667			34,916
Net income			—			—			—			1,697			—			37			1,734
Other comprehensive income			—			—			—			—			101			—			101
Dividends paid on common stock ($1.05 per share)			—			—			—			(474)			—			—			(474)
Repurchase of common stock			—			—			(1,339)			—			—			—			(1,339)
Benefit plan activity			—			46			—			(4)			—			4			46
Distributions to noncontrolling interests			—			—			—			—			—			(67)			(67)
Acquisition of noncontrolling interests in DCP Midstream, LP			—			(378)			—			—			—			(3,479)			(3,857)
June 30, 2023			$	7		19,463			(17,422)			28,122			(272)			1,162			31,060
March 31, 2022			$	7		19,667			(13,736)			16,391			(514)			306			22,121
Net income			—			—			—			3,167			—			15			3,182
Other comprehensive loss			—			—			—			—			(219)			—			(219)
Dividends paid on common stock ($0.97 per share)			—			—			—			(467)			—			—			(467)
Repurchase of common stock			—			—			(66)			—			—			—			(66)
Benefit plan activity			—			82			—			(4)			—			—			78
Distributions to noncontrolling interests			—			—			—			—			—			(24)			(24)
Acquisition of noncontrolling interest in Phillips 66 Partners LP			—			(32)			—			—			—			—			(32)
June 30, 2022			$	7		19,717			(13,802)			19,087			(733)			297			24,573

			Shares
			Three Months Ended June 30
			Common Stock Issued			Treasury Stock
March 31, 2023			653,266,184			194,403,868
Repurchase of common stock			—			13,669,459
Shares issued—share-based compensation			95,071			—
June 30, 2023			653,361,255			208,073,327
March 31, 2022			651,046,617			169,946,591
Repurchase of common stock			—			700,145
Shares issued—share-based compensation			651,216			—
June 30, 2022			651,697,833			170,646,736
See Notes to Consolidated Financial Statements.

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			Millions of Dollars
			Six Months Ended June 30
			Attributable to Phillips 66
			Common Stock
			Par Value			Capital in Excess of Par			Treasury Stock			Retained Earnings			Accum. Other Comprehensive Loss			Noncontrolling Interests			Total
December 31, 2022			$	7		19,791			(15,276)			25,432			(460)			4,612			34,106
Net income			—			—			—			3,658			—			153			3,811
Other comprehensive income			—			—			—			—			188			—			188
Dividends paid on common stock ($2.10 per share)			—			—			—			(960)			—			—			(960)
Repurchase of common stock			—			—			(2,146)			—			—			—			(2,146)
Benefit plan activity			—			50			—			(8)			—			1			43
Distributions to noncontrolling interests			—			—			—			—			—			(125)			(125)
Acquisition of noncontrolling interests in DCP Midstream, LP			—			(378)			—			—			—			(3,479)			(3,857)
June 30, 2023			$	7		19,463			(17,422)			28,122			(272)			1,162			31,060
December 31, 2021			$	7		20,504			(17,116)			16,216			(445)			2,471			21,637
Net income			—			—			—			3,749			—			90			3,839
Other comprehensive loss			—			—			—			—			(288)			—			(288)
Dividends paid on common stock ($1.89 per share)			—			—			—			(871)			—			—			(871)
Repurchase of common stock			—			—			(66)			—			—			—			(66)
Benefit plan activity			—			114			—			(7)			—			—			107
Distributions to noncontrolling interests			—			—			—			—			—			(101)			(101)
Acquisition of noncontrolling interest in Phillips 66 Partners LP			—			(901)			3,380			—			—			(2,163)			316
June 30, 2022			$	7		19,717			(13,802)			19,087			(733)			297			24,573

			Shares
			Six Months Ended June 30
			Common Stock Issued			Treasury Stock
December 31, 2022			652,373,645			186,529,667
Repurchase of common stock			—			21,543,660
Shares issued—share-based compensation			987,610			—
June 30, 2023			653,361,255			208,073,327
December 31, 2021			650,026,318			211,771,827
Repurchase of common stock			—			700,145
Shares issued—share-based compensation			1,671,515			—
Shares issued—acquisition of noncontrolling interest in Phillips 66 Partners LP			—			(41,825,236)
June 30, 2022			651,697,833			170,646,736
See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements			Phillips 66

Note 1—Interim Financial Information

The unaudited interim financial information presented in the financial statements included in this report is prepared in accordance with generally accepted accounting principles in the United States (GAAP) and includes all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of the consolidated financial position of Phillips 66 and its results of operations and cash flows for the periods presented. Unless otherwise specified, all such adjustments are of a normal and recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these interim financial statements should be read in conjunction with the consolidated financial statements and notes included in our 2022 Annual Report on Form 10-K. The results of operations for the three and six months ended June 30, 2023, are not necessarily indicative of the results expected for the full year.

Note 2—Change in Accounting Principle

Effective January 1, 2023, we adopted ASU 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” This ASU requires the buyer in a supplier finance program to disclose qualitative and quantitative information about the program. At the time of adoption, this ASU did not have a material impact on our consolidated financial statements.

Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers

DCP Midstream, LLC and Gray Oak Holdings LLC Merger (DCP Midstream Merger)

On August 17, 2022, we and our co-venturer, Enbridge Inc. (Enbridge), agreed to merge DCP Midstream, LLC (DCP Midstream) and Gray Oak Holdings LLC (Gray Oak Holdings), with DCP Midstream as the surviving entity.

Prior to the DCP Midstream Merger, we and Enbridge each held a 50% interest and jointly governed DCP Midstream, whose primary assets are its general partner and limited partner interests in DCP Midstream, LP (DCP LP), and we each held indirect economic interests in DCP LP of 28.26%. DCP LP is a variable interest entity (VIE) because its limited partners do not have the ability to remove its general partner with a simple majority vote, nor do its limited partners have substantive participating rights in the significant decisions made in the ordinary course of business. DCP Midstream ultimately consolidates DCP LP because one of its wholly owned subsidiaries is the primary beneficiary of DCP LP.

We and Enbridge also held 65% and 35% interests, respectively, in Gray Oak Holdings, whose primary asset was a 65% noncontrolling interest in Gray Oak Pipeline, LLC (Gray Oak Pipeline). Our and Enbridge’s indirect economic interests in Gray Oak Pipeline were 42.25% and 22.75%, respectively. We had voting control over and consolidated Gray Oak Holdings and reported Gray Oak Holdings’ 65% interest in Gray Oak Pipeline as an equity investment and Enbridge’s interest in Gray Oak Holdings as a noncontrolling interest.

In connection with the DCP Midstream Merger, we and Enbridge entered into a Third Amended and Restated Limited Liability Company Agreement of DCP Midstream (Amended and Restated LLC Agreement), which realigned the members’ economic interests and governance responsibilities. Under the Amended and Restated LLC Agreement, two classes of membership interests in DCP Midstream were created, Class A and Class B, that are intended to track the assets, liabilities, revenues and expenses of the following operating segments of DCP Midstream:

•Class A Segment comprised of the businesses, activities, assets and liabilities of DCP LP and its subsidiaries and its general partner entities (DCP Midstream Class A Segment).

•Class B Segment comprised of the business, activities, assets and liabilities of Gray Oak Pipeline (DCP Midstream Class B Segment).

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We hold a 76.64% Class A membership interest, which represents an indirect economic interest in DCP LP of 43.3%, and a 10% Class B membership interest, which represents an indirect economic interest in Gray Oak Pipeline of 6.5%. Enbridge holds the remaining Class A and Class B membership interests. We have been designated as the managing member of DCP Midstream Class A Segment and are responsible for conducting, directing and managing all activities associated with this segment, except as limited in certain instances. Enbridge has been designated as the managing member of DCP Midstream Class B Segment. Earnings and distributions from each segment are allocated to the members based on their membership interest in each membership class, except as otherwise provided.

DCP Midstream Class A Segment and DCP Midstream Class B Segment were determined to be silos under the variable interest consolidation model. As a result, DCP Midstream was also determined to be a VIE. We determined that we are the primary beneficiary of DCP Midstream Class A Segment because of the governance rights granted to us under the Amended and Restated LLC Agreement as managing member of the segment.

We hold a 33.33% direct ownership interest in DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills). DCP LP holds the remaining 66.67% ownership interest in these entities. As a result of the governance rights granted to us over DCP Midstream Class A Segment and the governance rights we hold through our direct ownership interests, we obtained controlling financial interests in these entities in connection with the DCP Midstream Merger. As a result, our aggregate direct and indirect economic interests in DCP Sand Hills and DCP Southern Hills increased to 62.2% from 52.2%.

Starting on August 18, 2022, we began consolidating the financial results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills and reporting the direct and indirect economic interests held by others in these entities as noncontrolling interests on our financial statements.

We account for our remaining indirect economic interest in Gray Oak Pipeline, now held through DCP Midstream Class B Segment, using the equity method of accounting. As a result of the DCP Midstream Merger, we derecognized Enbridge’s noncontrolling interest in Gray Oak Holdings.

We accounted for our consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills as a business combination using the acquisition method of accounting. See Note 4—Business Combinations, for additional information regarding our accounting for this transaction. See Note 21—DCP Midstream Class A Segment, for additional information regarding our variable interest in DCP Midstream Class A Segment.

DCP LP Merger

On June 15, 2023, we completed the acquisition of all publicly held common units of DCP LP pursuant to the terms of the Agreement and Plan of Merger, dated as of January 5, 2023 (DCP LP Merger Agreement). The DCP LP Merger Agreement was entered into with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries merged with and into DCP LP, with DCP LP surviving as a Delaware limited partnership. Under the terms of the DCP LP Merger Agreement, at the effective time of the DCP LP Merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP Midstream and its subsidiaries) issued and outstanding as of immediately prior to the effective time was converted into the right to receive $41.75 per common unit in cash, without interest. We accounted for the DCP LP Merger as an equity transaction. The DCP LP Merger increased our economic interest in DCP LP from 43.3% to 86.8%.

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

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Note 4—Business Combinations

On August 17, 2022, we realigned our economic interest in, and governance rights over, DCP Midstream and Gray Oak Holdings through the DCP Midstream Merger, with DCP Midstream as the surviving entity. As part of the DCP Midstream Merger, we transferred a 35.75% indirect economic interest in Gray Oak Pipeline and contributed $404 million of cash to DCP Midstream, which was then paid to Enbridge, in return for a 15.05% incremental indirect economic ownership interest in DCP LP. As noted above, the additional governance rights we were granted as part of this transaction resulted in us consolidating the DCP Midstream Class A Segment, as well as DCP Sand Hills and DCP Southern Hills. Given the nature of this transaction, we have accounted for the consolidation of these entities using the acquisition method of accounting.

The components of the fair value of the DCP Midstream Merger consideration are:

			Millions of Dollars
Cash contributed			$	404
Fair value of transferred equity interest			634
Fair value of previously held equity interests			3,853
Total merger consideration			$	4,891

The aggregate purchase consideration noted above was allocated to the assets acquired and liabilities assumed of the entities consolidated based upon a preliminary estimate of their fair values as of the August 17, 2022, DCP Midstream Merger date. Due to the level of effort required to develop fair value measurements, the valuation information necessary to determine the fair values of assets acquired and liabilities assumed is preliminary, including the underlying cash flows, appraisals and other information used to estimate the fair values of the net assets acquired and noncontrolling interests in those net assets. We continue to evaluate the factors used in establishing the fair values of assets and liabilities as of the acquisition date, including, but not limited to, those factors that could affect the estimated fair values of properties, plants and equipment (PP&E), investments in unconsolidated affiliates accounted for under the equity method, inventories, identifiable intangible assets, leases, financial instruments, asset retirement and environmental obligations, legal and tax contingencies, debt and noncontrolling interests. We will complete a final determination of the fair values of assets acquired and liabilities assumed within the one-year measurement period from the date of the DCP Midstream Merger. Any adjustments made in subsequent periods could be material to the preliminary values.

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The following table shows the preliminary purchase price allocation as of the date of the DCP Midstream Merger, and cumulative adjustments we have made as of June 30, 2023:

			Millions of Dollars
			As Originally Reported			Adjustments			As Adjusted
Fair value of assets acquired:
Cash and cash equivalents			$	98		—			98
Accounts and notes receivable			1,003			—			1,003
Inventories			74			166			240
Prepaid expenses and other current assets			439			—			439
Investments and long-term receivables			2,192			57			2,249
Properties, plants and equipment			12,837			23			12,860
Intangibles			36			(36)			—
Other assets			343			(158)			185
Total assets acquired			17,022			52			17,074
Fair value of liabilities assumed:
Accounts payable			912			—			912
Short-term debt			625			(2)			623
Accrued income and other taxes			107			(11)			96
Employee benefit obligation—current			50			22			72
Other accruals			497			(11)			486
Long-term debt			4,541			40			4,581
Asset retirement obligations and accrued environmental costs			168			16			184
Deferred income taxes			40			14			54
Employee benefit obligations			54			—			54
Other liabilities and deferred credits			227			(5)			222
Total liabilities assumed			7,221			63			7,284
Fair value of net assets			9,801			(11)			9,790
Less: Fair value of noncontrolling interests			4,910			(11)			4,899
Total merger consideration			$	4,891		—			4,891

The adjustments reflected in the table above include reclassification adjustments we have made to the preliminary purchase price allocation to conform with our historical presentation and adjustments we have made to the estimated fair value of certain assets acquired and liabilities assumed. The adjustments recorded in the six months ended June 30, 2023, were not material.

Marketing and Specialties Acquisition

On August 1, 2023, we acquired certain marketing operations on the U.S. West Coast for cash consideration of approximately $260 million plus an adjustment for net working capital.

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Note 5—Sales and Other Operating Revenues

Disaggregated Revenues

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

			Millions of Dollars
			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
Product Line and Services
Refined petroleum products			$	26,517					39,410						51,235			68,792
Crude oil resales			4,650						5,793						9,215			9,548
Natural gas liquids (NGL) and natural gas			3,257						3,255						7,678			6,485
Services and other*			666						119						1,358			(69)
Consolidated sales and other operating revenues			$	35,090					48,577						69,486			84,756
Geographic Location**
United States			$	27,990					38,899						55,055			67,784
United Kingdom			3,251						5,043						7,181			8,683
Germany			1,372						1,793						2,678			3,175
Other countries			2,477						2,842						4,572			5,114
Consolidated sales and other operating revenues			$	35,090					48,577						69,486			84,756
* Includes derivatives-related activities. See Note 14—Derivatives and Financial Instruments, for additional information.
** Sales and other operating revenues are attributable to countries based on the location of the operations generating the revenues.

Contract-Related Assets and Liabilities

At June 30, 2023, and December 31, 2022, receivables from contracts with customers were $7,633 million and $8,749 million, respectively. Significant noncustomer balances, such as buy/sell receivables and excise tax receivables, were excluded from these amounts.

Our contract-related assets also include payments we make to our marketing customers related to incentive programs. An incentive payment is initially recognized as an asset and subsequently amortized as a reduction to revenue over the contract term, which generally ranges from 5 to 15 years. At June 30, 2023, and December 31, 2022, our asset balances related to such payments were $525 million and $505 million, respectively.

Our contract liabilities represent advances from our customers prior to product or service delivery. At June 30, 2023, and December 31, 2022, contract liabilities were $221 million and $156 million, respectively.

Remaining Performance Obligations

Most of our contracts with customers are spot contracts or term contracts with only variable consideration. We do not disclose remaining performance obligations for these contracts as the expected duration is one year or less or because the variable consideration has been allocated entirely to an unsatisfied performance obligation. We also have certain contracts in our Midstream segment that include minimum volume commitments with fixed pricing. At June 30, 2023, the remaining performance obligations related to these minimum volume commitment contracts amounted to $416 million. This amount excludes variable consideration and estimates of variable rate escalation clauses in our contracts with customers, and is expected to be recognized through 2031 with a weighted average remaining life of three years as of June 30, 2023.

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Note 6—Credit Losses

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

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

At June 30, 2023, and December 31, 2022, we reported $9,458 million and $10,985 million of accounts and notes receivable, respectively, net of allowances of $68 million and $67 million, respectively. Based on an aging analysis at June 30, 2023, more than 95% of our accounts receivable were outstanding less than 60 days.

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

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Note 7—Inventories

Inventories consisted of the following:

			Millions of Dollars
			June 30 2023						December 31 2022
Crude oil and petroleum products			$	5,982					2,914
Materials and supplies			398						362
			$	6,380					3,276

Inventories valued on the last-in, first-out (LIFO) basis totaled $5,799 million and $2,635 million at June 30, 2023, and December 31, 2022, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $5.4 billion and $6.3 billion at June 30, 2023, and December 31, 2022, respectively.

Certain planned reductions in inventory that are not expected to be replaced by the end of the year cause liquidations of LIFO inventory values. LIFO inventory liquidations increased our net income by $1 million and $5 million in the three and six months ended June 30, 2023, respectively. LIFO inventory liquidations increased our net income by $3 million and $43 million in the three and six months ended June 30, 2022, respectively.

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Note 8—Investments, Loans and Long-Term Receivables

Equity Investments

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

In 2020, the trial court presiding over litigation brought by the Standing Rock Sioux Tribe (the Tribe) ordered the U.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) addressing an easement under Lake Oahe in North Dakota. The court later vacated the easement. Although the easement is vacated, the USACE has no plans to stop pipeline operations while it proceeds with the EIS, and the Tribe’s request for a shutdown was denied in May 2021. In June 2021, the trial court dismissed the litigation entirely. Once the EIS is completed, new litigation or challenges may be filed.

In February 2022, the U.S. Supreme Court (the Court) denied Dakota Access’ writ of certiorari requesting the Court to review the lower court’s decision to order the EIS and vacate the easement. Therefore, the requirement to prepare the EIS stands. Also in February 2022, the Tribe withdrew as a cooperating agency, causing the USACE to halt the EIS process while the USACE engaged with the Tribe on their reasons for withdrawing. The draft EIS process resumed in August 2022, and release is expected in the third quarter of 2023.

Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access in March 2019. On April 1, 2022, Dakota Access’ wholly owned subsidiary repaid $650 million aggregate principal amount of its outstanding senior notes upon maturity. We funded our 25% share, or $163 million, with a capital contribution of $89 million in March 2022 and $74 million of distributions we elected not to receive from Dakota Access in the first quarter of 2022. At June 30, 2023, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $1.85 billion.

In conjunction with the notes offering, Phillips 66 Partners LP (Phillips 66 Partners), now a wholly owned subsidiary of Phillips 66, and its co-venturers in Dakota Access also provided a Contingent Equity Contribution Undertaking (CECU). Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the above-mentioned ongoing litigation. At June 30, 2023, our 25% share of the maximum potential equity contributions under the CECU was approximately $467 million.

If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we could be required to support our 25% share of the ongoing expenses, including scheduled interest payments on the notes of approximately $20 million annually, in addition to the potential obligations under the CECU at June 30, 2023.

At June 30, 2023, the aggregate book value of our investments in Dakota Access and ETCO was $651 million.

CF United LLC (CF United)

We own a 50% voting interest and a 48% economic interest in CF United, a retail marketing joint venture with operations primarily on the U.S. West Coast. CF United is considered a VIE because our co-venturer has an option to require us to purchase its interest based on a fixed multiple. The put option becomes effective July 1, 2023, and expires on March 31, 2024. The put option is viewed as a variable interest as the purchase price on the exercise date may not represent the then-current fair value of CF United. We have determined that we are not the primary beneficiary because we and our co-venturer jointly direct the activities of CF United that most significantly impact economic performance. At June 30, 2023, our maximum exposure to loss was comprised of our $283 million investment in CF United, and any potential future loss resulting from the put option should the purchase price based on a fixed multiple exceed the then-current fair value of CF United.

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OnCue Holdings, LLC (OnCue)

We hold a 50% interest in OnCue, a joint venture that owns and operates retail convenience stores. We fully guaranteed various debt agreements of OnCue and our co-venturer did not participate in the guarantees. This entity is considered a VIE because our debt guarantees resulted in OnCue not being exposed to all potential losses. We have determined we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact economic performance. At June 30, 2023, our maximum exposure to loss was $220 million, which represented the book value of our investment in OnCue of $153 million and guaranteed debt obligations of $67 million.

DCP Midstream, DCP Sand Hills, DCP Southern Hills, and Gray Oak Pipeline—Prior to the DCP Midstream Merger, we held:

•A 50% interest in DCP Midstream a joint venture that owns and operates NGL and gas pipelines, gas plants, gathering systems, storage facilities and fractionation plants, through its subsidiary DCP LP.

•A 33.33% direct ownership interest in DCP Sand Hills a joint venture that owns a NGL pipeline system that extends from the Permian Basin and Eagle Ford to facilities on the Texas Gulf Coast and to the Mont Belvieu, Texas, market hub.

•A 33.33% direct ownership interest in DCP Southern Hills a joint venture that owns a NGL pipeline system that extends from the Midcontinent region to the Mont Belvieu, Texas, market hub.

•A 65% interest in Gray Oak Pipeline, which was held through a consolidated holding company, Gray Oak Holdings. Our indirect interest in Gray Oak Pipeline was 42.25%, after considering a co-venturer’s 35% interest in Gray Oak Holdings. Gray Oak Pipeline is a crude oil pipeline that extends from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi, Texas, and the Sweeny area, including our Sweeny Refinery.

Midstream Investment Disposition

On August 1, 2023, we sold our 25% ownership interest in the South Texas Gateway Terminal for approximately $275 million. At June 30, 2023, the book value of our investment was $171 million.

Other Investments

In September 2021, we acquired 78 million ordinary shares, representing a 16% ownership interest, in NOVONIX Limited (NOVONIX), which are traded on the Australian Securities Exchange. NOVONIX is a Brisbane, Australia-based company that develops technology and supplies materials for lithium-ion batteries. Since we do not have significant influence over the operating and financial policies of NOVONIX and the shares we own have a readily determinable fair value, our investment is recorded at fair value at the end of each reporting period. The fair value of our investment is recorded in the “Investments and long-term receivables” line item on our consolidated balance sheet. The change in the fair value of our investment due to fluctuations in NOVONIX’s stock price, or unrealized investment losses, is recorded in the “Other income (loss)” line item of our consolidated statement of income, while changes due to foreign currency fluctuations are recorded in the “Foreign currency transaction losses” line item on our consolidated statement of income. The fair value of our investment in NOVONIX was $51 million at June 30, 2023. The fair value of our investment in NOVONIX declined by $15 million and $27 million during the three and six months ended June 30, 2023, respectively, reflecting unrealized investment losses of $15 million and $26 million and immaterial unrealized foreign currency losses in both periods. See Note 15—Fair Value Measurements, for additional information regarding the recurring fair value measurement of our investment in NOVONIX.

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Note 9—Properties, Plants and Equipment

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

			Millions of Dollars
			June 30, 2023																		December 31, 2022
			Gross PP&E						Accum. D&A						Net PP&E						Gross PP&E						Accum. D&A						Net PP&E
Midstream			$	25,705					3,943						21,762						25,422						3,524						21,898
Chemicals			—						—						—						—						—						—
Refining			24,611						12,719						11,892						24,200						12,523						11,677
Marketing and Specialties			1,842						1,113						729						1,800						1,058						742
Corporate and Other			1,617						768						849						1,568						722						846
			$	53,775					18,543						35,232						52,990						17,827						35,163

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Note 10—Earnings Per Share

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

			Three Months Ended June 30															Six Months Ended June 30
			2023									2022									2023						2022
			Basic			Diluted						Basic			Diluted						Basic			Diluted			Basic			Diluted
Amounts Attributed to Phillips 66 Common Stockholders (millions):
Net Income Attributable to Phillips 66			$	1,697		1,697						3,167			3,167						3,658			3,658			3,749			3,749
Income allocated to participating securities			(3)			(1)						(3)			—						(6)			—			(5)			—
Net income available to common stockholders			$	1,694		1,696						3,164			3,167						3,652			3,658			3,744			3,749
Weighted-average common shares outstanding (thousands):			452,752			454,450						481,105			483,088						457,783			459,602			464,249			466,286
Effect of share-based compensation			1,698			1,718						1,983			1,947						1,819			2,304			2,037			2,052
Weighted-average common shares outstanding—EPS			454,450			456,168						483,088			485,035						459,602			461,906			466,286			468,338
Earnings Per Share of Common Stock (dollars)			$	3.73		3.72						6.55			6.53						7.95			7.92			8.03			8.00

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Note 11—Debt

Debt Issuances and Repayments

On May 19, 2023, DCP LP redeemed its 5.850% junior subordinated notes due May 2043 with an aggregate principal amount outstanding of $550 million using borrowings under its revolving credit and accounts receivable securitization facilities. On the date of redemption, our carrying value of DCP LP’s junior subordinated notes was $497 million, which resulted in a $53 million loss before income taxes. DCP LP’s junior subordinated notes were adjusted to fair value on August 17, 2022, in connection with the consolidation of DCP LP. See Note 15—Fair Value Measurements, for additional information regarding the preliminary fair value of DCP LP’s junior subordinated notes.

On March 29, 2023, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $1.25 billion aggregate principal amount of senior unsecured notes consisting of:

•$750 million aggregate principal amount of 4.950% Senior Notes due December 2027 (2027 Notes).

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

The 2027 Notes and 2033 Notes (collectively, the Notes) are fully and unconditionally guaranteed by Phillips 66. Interest on the 2027 Notes is payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2023. Interest on the 2033 Notes is payable semi-annually on June 30 and December 30 of each year, commencing on December 30, 2023.

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

In April 2022, upon maturity, Phillips 66 repaid its 4.300% senior notes with an aggregate principal amount of $1.0 billion and Phillips 66 Partners repaid its $450 million term loan.

Related Party Advance Term Loan Agreement

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

Term Loan Agreement

On March 27, 2023, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, entered into a $1.5 billion delayed draw term loan agreement guaranteed by Phillips 66 (the Term Loan Agreement). The Term Loan Agreement provides for a single borrowing during a 90-day period commencing on the closing date, which borrowing was contingent upon the completion of the DCP LP Merger. The Term Loan Agreement contains customary covenants similar to those contained in our revolving credit agreement, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. The Term Loan Agreement has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts after grace periods; and violation of covenants. We may at any time prepay outstanding borrowings under the Term Loan Agreement, in whole or in part, without premium or penalty. Outstanding borrowings under the Term Loan Agreement bear interest at either: (a) Adjusted Term SOFR in effect from time to time plus the applicable margin; or (b) the reference rate plus the applicable margin, as defined in the Term Loan Agreement. As of June 30, 2023, $1.25 billion was borrowed under the Term Loan Agreement, which matures in June 2026.

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP LP Merger.

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Credit Facilities and Commercial Paper

Phillips 66 and Phillips 66 Company

On June 23, 2022, we entered into a $5 billion revolving credit facility with Phillips 66 Company as the borrower and Phillips 66 as the guarantor. At both June 30, 2023, and December 31, 2022, no amount had been drawn under the $5 billion revolving credit facility or $5 billion uncommitted commercial paper program.

DCP Midstream Class A Segment

At June 30, 2023, DCP LP had $850 million of borrowings outstanding under its $1.4 billion credit facility and $2 million of letters of credit had been issued that supported the credit facility. At December 31, 2022, DCP LP had no borrowings outstanding under its $1.4 billion credit facility, and $10 million in letters of credit had been issued that are supported by the credit facility.

As of June 30, 2023, and December 31, 2022, $280 million and $40 million of borrowings, respectively, were outstanding under DCP LP’s accounts receivable securitization facility, which are secured by its accounts receivable at DCP Receivables LLC.

Note 12—Guarantees

At June 30, 2023, we were liable for certain contingent obligations under various contractual arrangements as described below. We recognize a liability for the fair value of our obligation as a guarantor for newly issued or modified guarantees. Unless the carrying amount of the liability is noted below, we have not recognized a liability either because the guarantees were issued prior to December 31, 2002, or because the fair value of the obligation is immaterial. In addition, unless otherwise stated, we are not currently performing with any significance under the guarantees and expect future performance to be either immaterial or have only a remote chance of occurrence.

Lease Residual Value Guarantees

Under the operating lease agreement for our headquarters facility in Houston, Texas, we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at June 30, 2023. We also have residual value guarantees associated with railcar, airplane and truck leases with maximum potential future exposures totaling $164 million. These leases have remaining terms of four to ten years.

Guarantees of Joint Venture Obligations

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

At June 30, 2023, we also had other guarantees outstanding primarily for our portion of certain joint venture debt, which have remaining terms of up to two years. The maximum potential future exposures under these guarantees were approximately $82 million. Payment would be required if a joint venture defaults on its obligations.

Indemnifications

Over the years, we have entered into various agreements to sell ownership interests in certain corporations, joint ventures and assets that gave rise to indemnifications. Agreements associated with these sales include indemnifications for taxes, litigation, environmental liabilities, permits and licenses, employee claims, and real estate tenant defaults. The provisions of these indemnifications vary greatly. The majority of these indemnifications are related to environmental issues, which generally have indefinite terms and potentially unlimited exposure. At June 30, 2023, and December 31, 2022, the carrying amount of recorded indemnifications was $143 million and $137 million, respectively.

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We amortize the indemnification liability over the relevant time period, if one exists, based on the facts and circumstances surrounding each type of indemnity. In cases where the indemnification term is indefinite, we will reverse the liability when we have information to support the reversal. Although it is reasonably possible future payments may exceed amounts recorded, due to the nature of the indemnifications, it is not possible to make a reasonable estimate of the maximum potential amount of future payments. At June 30, 2023, and December 31, 2022, environmental accruals for known contamination of $115 million and $108 million, respectively, were included in the carrying amount of the recorded indemnifications noted above. These environmental accruals were primarily included in the “Asset retirement obligations and accrued environmental costs” line item on our consolidated balance sheet. For additional information about environmental liabilities, see Note 13—Contingencies and Commitments.

Indemnification and Release Agreement

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

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Note 13—Contingencies and Commitments

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

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

Environmental

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

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

We are currently participating in environmental assessments and cleanups at numerous federal Superfund and comparable state sites. After an assessment of environmental exposures for cleanup and other costs, we make accruals on an undiscounted basis (except those pertaining to sites acquired in a business combination, which we record on a discounted basis) for planned investigation and remediation activities for sites where it is probable future costs will be incurred and these costs can be reasonably estimated. At June 30, 2023, our total environmental accruals were $449 million, compared with $434 million at December 31, 2022. We expect to incur a substantial amount of these expenditures within the next 30 years. We have not reduced these accruals for possible insurance recoveries. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

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Legal Proceedings

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

Other Contingencies

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

At June 30, 2023, we had performance obligations secured by letters of credit and bank guarantees of $1 billion related to various purchase and other commitments incident to the ordinary conduct of business.

Note 14—Derivatives and Financial Instruments

Derivative Instruments

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

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

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

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DCP Midstream Class A Segment

Through DCP LP’s operations, DCP Midstream Class A Segment is exposed to a variety of risks including but not limited to changes in the prices of commodities that DCP LP buys or sells. Effective from the date of the DCP Midstream Merger, we include DCP LP’s financial instruments in our financial statements. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP Midstream Merger and the associated accounting treatment.

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

			Millions of Dollars
			June 30, 2023															December 31, 2022
			Commodity Derivatives						Effect of Collateral Netting			Net Carrying Value Presented on the Balance Sheet									Commodity Derivatives						Effect of Collateral Netting			Net Carrying Value Presented on the Balance Sheet
			Assets			Liabilities												Assets			Liabilities
Assets
Prepaid expenses and other current assets			$	2,264		(2,000)			(28)			236									1,331			(1,110)			—			221
Other assets			19			(1)			—			18									46			(1)			—			45
Liabilities
Other accruals			177			(244)			10			(57)									471			(750)			90			(189)
Other liabilities and deferred credits			25			(27)			—			(2)									12			(35)			—			(23)
Total			$	2,485		(2,272)			(18)			195									1,860			(1,896)			90			54

At June 30, 2023, there was $3 million of collateral paid that was not offset on our consolidated balance sheet. At December 31, 2022, there was $93 million of cash collateral paid that was not offset on our consolidated balance sheet.

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

 

			Millions of Dollars
			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
Sales and other operating revenues			$	210					(135)						260			(555)
Other income			24						37						10			62
Purchased crude oil and products			(34)						(253)						103			(481)
Net gain (loss) from commodity derivative activity			$	200					(351)						373			(974)

The following table summarizes our material net exposures resulting from outstanding commodity derivative contracts. These financial and physical derivative contracts are primarily used to manage price exposure on our underlying operations. The underlying exposures may be from nonderivative positions such as inventory volumes. Financial derivative contracts may also offset physical derivative contracts, such as forward purchase and sales contracts. The percentage of our derivative contract volumes expiring within the next 12 months was more than 90% at June 30, 2023, and December 31, 2022.

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			Open Position Long / (Short)
			June 30 2023						December 31 2022
Commodity
Crude oil, refined petroleum products, NGL and renewable feedstocks (millions of barrels)			(50)						(25)
Natural gas (billions of cubic feet)			(32)						(77)

Credit Risk from Derivative and Financial Instruments

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

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

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

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

The aggregate fair values of all derivative instruments with such credit-risk-related contingent features that were in a liability position were immaterial at June 30, 2023, and December 31, 2022.

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Note 15—Fair Value Measurements

Recurring Fair Value Measurements

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

•Level 1: Fair value measured with unadjusted quoted prices from an active market for identical assets or liabilities.

•Level 2: Fair value measured either with: (1) adjusted quoted prices from an active market for similar assets or liabilities; or (2) other valuation inputs that are directly or indirectly observable.

•Level 3: Fair value measured with unobservable inputs that are significant to the measurement.

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

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

•Cash and cash equivalents—The carrying amount reported on our consolidated balance sheet approximates fair value.

•Accounts and notes receivable—The carrying amount reported on our consolidated balance sheet approximates fair value.

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

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

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

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•Rabbi trust assets—These deferred compensation investments are measured at fair value using unadjusted quoted prices available from national securities exchanges and are therefore categorized as Level 1 in the fair value hierarchy.

•Investment in NOVONIX—Our investment in NOVONIX is measured at fair value using unadjusted quoted prices available from the Australian Securities Exchange and is therefore categorized as Level 1 in the fair value hierarchy.

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

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

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

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

			Millions of Dollars
			June 30, 2023
			Fair Value Hierarchy																		Total Fair Value of Gross Assets & Liabilities			Effect of Counterparty Netting			Effect of Collateral Netting			Difference in Carrying Value and Fair Value			Net Carrying Value Presented on the Balance Sheet
			Level 1						Level 2						Level 3
Commodity Derivative Assets
Exchange-cleared instruments			$	2,334					47						2						2,383			(2,187)			(28)			—			168
OTC instruments			—						18						7						25			—			—			—			25
Physical forward contracts			—						77						—						77			(16)			—			—			61
Rabbi trust assets			181						—						—						181			N/A			N/A			—			181
Investment in NOVONIX			51						—						—						51			N/A			N/A			—			51
			$	2,566					142						9						2,717			(2,203)			(28)			—			486
Commodity Derivative Liabilities
Exchange-cleared instruments			$	2,198					38						2						2,238			(2,187)			(10)			—			41
OTC instruments			—						6						3						9			—			—			—			9
Physical forward contracts			—						25						—						25			(16)			—			—			9
Floating-rate debt			—						2,480						—						2,480			N/A			N/A			—			2,480
Fixed-rate debt, excluding finance leases and software obligations			—						16,096						—						16,096			N/A			N/A			1,024			17,120
			$	2,198					18,645						5						20,848			(2,203)			(10)			1,024			19,659

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			Millions of Dollars
			December 31, 2022
			Fair Value Hierarchy																		Total Fair Value of Gross Assets & Liabilities			Effect of Counterparty Netting			Effect of Collateral Netting			Difference in Carrying Value and Fair Value			Net Carrying Value Presented on the Balance Sheet
			Level 1						Level 2						Level 3
Commodity Derivative Assets
Exchange-cleared instruments			$	1,615					130						3						1,748			(1,582)			—			—			166
OTC instruments			—						7						16						23			—			—			—			23
Physical forward contracts			—						86						3						89			(12)			—			—			77
Rabbi trust assets			126						—						—						126			N/A			N/A			—			126
Investment in NOVONIX			78						—						—						78			N/A			N/A			—			78
Other investments			42						1						—						43			N/A			N/A			—			43
			$	1,861					224						22						2,107			(1,594)			—			—			513
Commodity Derivative Liabilities
Exchange-cleared instruments			$	1,676					164						5						1,845			(1,582)			(90)			—			173
OTC instruments			—						9						—						9			—			—			—			9
Physical forward contracts			—						42						—						42			(12)			—			—			30
Floating-rate debt			—						65						—						65			N/A			N/A			—			65
Fixed-rate debt, excluding finance leases and software obligations			—						15,871						—						15,871			N/A			N/A			977			16,848
			$	1,676					16,151						5						17,832			(1,594)			(90)			977			17,125

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

Nonrecurring Fair Value Measurements

DCP Midstream Merger

On August 17, 2022, we and Enbridge agreed to merge DCP Midstream and Gray Oak Holdings with DCP Midstream as the surviving entity. As a result, we began consolidating the financial results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills, and accordingly, accounted for the business combination using the acquisition method of accounting, which requires DCP Midstream Class A Segment’s, DCP Sand Hills’ and DCP Southern Hills’, assets and liabilities to be recorded at fair value as of the acquisition date on our consolidated balance sheet. See Note 4—Business Combinations, for additional information regarding the DCP Midstream Merger.

Equity Investments

The preliminary fair value of the investments we acquired that are accounted for under the equity method was $2,215 million. The preliminary fair value of these assets was determined using the income approach. The income approach used discounted cash flow models that require various observable and non-observable inputs, such as margins, tariffs and rates, utilization, volumes, product costs, operating expenses, capital expenditures, terminal-year values and risk-adjusted discount rates. These valuations resulted in Level 3 nonrecurring fair value measurements.

PP&E

The preliminary fair value of PP&E was $12,860 million. The preliminary fair value of these assets was determined primarily using the cost approach. The cost approach used assumptions for the current replacement costs of similar plant and equipment assets adjusted for estimated physical deterioration, functional obsolescence and economic obsolescence. The estimated fair value of properties was determined using a sales comparison approach. These valuations resulted in Level 3 nonrecurring fair value measurements.

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Debt

The preliminary fair value of DCP LP’s senior and junior subordinated notes was measured using a market approach, based on the average of quotes for the acquired debt from major financial institutions. These valuations resulted in Level 2 nonrecurring fair value measurements.

Noncontrolling Interests

As a result of our consolidation of the DCP Midstream Class A Segment, the noncontrolling interests held in the DCP Midstream Class A Segment were recorded at their estimated fair values on the DCP Midstream Merger date. These noncontrolling interests on the DCP Midstream Merger date primarily include Enbridge’s indirect economic interest in DCP LP, the public holders of DCP LP’s common units and the holders of DCP LP’s preferred units. The fair value of the noncontrolling interests in DCP LP’s common units was based on their unit market price as of the date of the DCP Midstream Merger, August 17, 2022. The fair value of the noncontrolling interests in DCP LP’s publicly traded preferred units was based on their respective market price as of the date of the DCP Midstream Merger, August 17, 2022. These valuations resulted in Level 1 nonrecurring fair value measurements. The preliminary fair value of the noncontrolling interests in DCP LP’s other preferred units was based on an income approach that used projected distributions that were discounted using an average implied yield of DCP LP’s publicly traded preferred units and expected redemption dates. This valuation resulted in a Level 2 nonrecurring fair value measurement.

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Note 16—Pension and Postretirement Plans

The components of net periodic benefit (credit) cost for the three and six months ended June 30, 2023 and 2022, were as follows:

			Millions of Dollars
			Pension Benefits																								Other Benefits
			2023												2022												2023						2022
			U.S.						Int’l.						U.S.						Int’l.
Components of Net Periodic Benefit Cost
Three Months Ended June 30
Service cost			$	27					3						35						7						1						1
Interest cost			30						8						21						5						2						2
Expected return on plan assets			(32)						(11)						(39)						(15)						—						—
Amortization of prior service credit			—						—						—						—						—						(1)
Amortization of net actuarial loss (gain)			3						(1)						6						3						(1)						—
Settlements			4						—						24						—						—						—
Net periodic benefit (credit) cost*			$	32					(1)						47						—						2						2
Six Months Ended June 30
Service cost			$	54					6						70						15						2						2
Interest cost			59						16						42						11						4						3
Expected return on plan assets			(63)						(21)						(78)						(31)						—						—
Amortization of prior service credit			—						—						—						—						—						(1)
Amortization of net actuarial loss (gain)			6						(2)						12						6						(3)						(1)
Settlements			14						—						25						—						—						—
Net periodic benefit (credit) cost*			$	70					(1)						71						1						3						3
* Included in the “Operating expenses” and “Selling, general and administrative expenses” line items on our consolidated statement of income.

During the six months ended June 30, 2023, we contributed $44 million to our U.S. pension and other postretirement benefit plans and $10 million to our international pension plans. We currently expect to make additional contributions of approximately $375 million to our U.S. pension and other postretirement benefit plans and approximately $10 million to our international pension plans during the remainder of 2023.

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Note 17—Accumulated Other Comprehensive Loss

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

			Millions of Dollars
			Defined Benefit Plans						Foreign Currency Translation						Hedging						Accumulated Other Comprehensive Loss
December 31, 2022			$	(122)					(336)						(2)						(460)
Other comprehensive income before reclassifications			2						174						—						176
Amounts reclassified from accumulated other    comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss and settlements			12						—						—						12
Foreign currency translation			—						—						—						—
Hedging			—						—						—						—
Net current period other comprehensive income			14						174						—						188
June 30, 2023			$	(108)					(162)						(2)						(272)
December 31, 2021			$	(398)					(45)						(2)						(445)
Other comprehensive loss before reclassifications			(5)						(324)						—						(329)
Amounts reclassified from accumulated other comprehensive loss
Defined benefit plans*
Amortization of net actuarial loss, prior service credit and settlements			41						—						—						41
Foreign currency translation			—						—						—						—
Hedging			—						—						—						—
Net current period other comprehensive income (loss)			36						(324)						—						(288)
June 30, 2022			$	(362)					(369)						(2)						(733)
* Included in the computation of net periodic benefit cost. See Note 16—Pension and Postretirement Plans, for additional information.

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Note 18—Related Party Transactions

Significant transactions with related parties were:

			Millions of Dollars
			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
Operating revenues and other income (a)(d)			$	1,059					1,975						2,363			3,315
Purchases (b)(d)			3,957						6,203						7,656			10,884
Operating expenses and selling, general and administrative expenses (c)			76						70						148			140

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

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

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

(d)As a result of the DCP Midstream Merger, we began consolidating DCP Midstream Class A Segment, as well as DCP Sand Hills and DCP Southern Hills. As a result, transactions with these parties after August 17, 2022, are not presented in the table above.

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Note 19—Segment Disclosures and Related Information

Effective October 1, 2022, we changed the organizational structure of the internal financial information reviewed by our President and Chief Executive Officer, and determined this resulted in a change in the composition of our operating segments. As part of the realignment, we moved the results and net assets of our Merey Sweeny vacuum distillation and delayed coker units at our Sweeny Refinery and the isomerization unit at our Lake Charles Refinery from our Midstream segment to our Refining segment. Additionally, commissions charged to the Refining segment by the M&S segment related to sales of specialty products were eliminated and the costs of the sales organization were reclassified from the M&S segment to the Refining segment. The segment realignment is presented for the three and six months ended June 30, 2023, with prior periods recast for comparability.

Our operating segments are:

1)Midstream—Provides natural gas and NGL transportation, storage, fractionation, gathering, processing and marketing services, as well as crude oil and refined petroleum product transportation, terminaling and processing services, mainly in the United States. As a result of the DCP Midstream Merger on August 17, 2022, we began consolidating DCP Midstream Class A Segment, as well as DCP Sand Hills and DCP Southern Hills. On March 9, 2022, we also completed the merger between us and Phillips 66 Partners. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers and Note 22—Phillips 66 Partners LP, for additional information about these transactions. This segment also includes our 16% investment in NOVONIX.

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

3)Refining—Refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, at 12 refineries in the United States and Europe.

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

Corporate and Other includes general corporate overhead, interest expense, our investment in research of new technologies and various other corporate activities. Corporate assets include all cash, cash equivalents and income tax-related assets. Corporate and Other also includes restructuring costs related to our business transformation. See Note 23—Restructuring for additional information regarding restructuring costs.

Intersegment sales are at prices that we believe approximate market.

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Analysis of Results by Operating Segment

			Millions of Dollars
			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023						2022
Sales and Other Operating Revenues*
Midstream
Total sales			$	4,124					3,755						9,416						7,777
Intersegment eliminations			(676)						(650)						(1,371)						(1,476)
Total Midstream			3,448						3,105						8,045						6,301
Chemicals			—						—						—						—
Refining
Total sales			23,006						32,960						45,347						57,101
Intersegment eliminations			(14,450)						(20,878)						(28,545)						(36,454)
Total Refining			8,556						12,082						16,802						20,647
Marketing and Specialties
Total sales			23,973						34,339						46,372						59,550
Intersegment eliminations			(897)						(956)						(1,752)						(1,754)
Total Marketing and Specialties			23,076						33,383						44,620						57,796
Corporate and Other			10						7						19						12
Consolidated sales and other operating revenues			$	35,090					48,577						69,486						84,756
* See Note 5—Sales and Other Operating Revenues, for further details on our disaggregated sales and other operating revenues.
Income (Loss) Before Income Taxes
Midstream			$	604					258						1,306						470
Chemicals			192						273						390						669
Refining			1,134						3,096						2,742						3,269
Marketing and Specialties			644						739						1,070						1,035
Corporate and Other			(330)						(260)						(613)						(509)
Consolidated income before income taxes			$	2,244					4,106						4,895						4,934

			Millions of Dollars
			June 30 2023						December 31 2022
Total Assets
Midstream			$	29,294					30,273
Chemicals			7,171						6,785
Refining			23,549						21,581
Marketing and Specialties			10,114						9,939
Corporate and Other			4,758						7,864
Consolidated total assets			$	74,886					76,442

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Note 20—Income Taxes

Our effective income tax rates for the three months ended June 30, 2023 and 2022 were 23%, and our effective income tax rates for the six months ended June 30, 2023 and 2022 were 22%.

The effective tax rate for the three and six months ended June 30, 2023, varied from the U.S. federal statutory income tax rate primarily due to state income taxes, partially offset by the impact of noncontrolling interest.

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (IRA) that includes, among other provisions, changes to the U.S. corporate income tax system, including 15% minimum tax based on adjusted financial statement income as defined in the IRA, which was effective after December 31, 2022. We do not anticipate owing 2023 corporate alternative minimum tax as the regular U.S. tax liability is forecasted to exceed the corporate alternative minimum tax.

Note 21—DCP Midstream Class A Segment

DCP Midstream Class A Segment is a VIE and we are the primary beneficiary. DCP Midstream Class A Segment is comprised of the businesses, activities, assets and liabilities of DCP LP and its subsidiaries and its general partner entities. Refer to Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers and Note 4—Business Combinations, for more details regarding the DCP Midstream Merger and related accounting.

DCP LP, headquartered in Denver, Colorado, is a master limited partnership whose operations currently include producing and fractionating NGL, gathering, compressing, treating and processing natural gas; recovering condensate; and transporting, trading, marketing and storing natural gas and NGL.

As a result of our consolidation of DCP Midstream Class A Segment, the public common and preferred unitholders’ ownership interests and Enbridge’s indirect economic interest in DCP LP are reflected as noncontrolling interests in our consolidated financial statements. We completed the DCP LP Merger on June 15, 2023, acquiring all publicly held common units of DCP LP and eliminating the public common unit noncontrolling interest in our consolidated financial statements from the DCP LP Merger date, forward. The DCP LP Merger increased our economic interest in DCP LP from 43.3% to 86.8%. Refer to Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information about the DCP Midstream and DCP LP Mergers.

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

			Millions of Dollars
			June 30 2023						December 31 2022
Accounts receivable, trade*			$	467					988
Net properties, plants and equipment			9,264						9,297
Investments in unconsolidated affiliates**			2,118						2,161
Accounts payable			581						1,239
Short-term debt			7						504
Long-term debt			4,863						4,248

* Included in the “Accounts and notes receivable” line item on the Phillips 66 consolidated balance sheet.

** Included in the “Investments and long-term receivables” line item on the Phillips 66 consolidated balance sheet.

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DCP LP Merger

On June 15, 2023, we completed the acquisition of approximately 91 million publicly held common units of DCP LP pursuant to the terms of the DCP LP Merger Agreement. The DCP LP Merger Agreement was entered into with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries merged with and into DCP LP, with DCP LP surviving as a Delaware limited partnership. Under the terms of the DCP LP Merger Agreement, at the effective time of the DCP LP Merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP Midstream and its subsidiaries) issued and outstanding as of immediately prior to the effective time was converted into the right to receive $41.75 per common unit in cash, without interest. We paid $3,796 million in cash consideration, funded through a combination of cash generated from operating activities and proceeds from the offering of the Notes and borrowings under the Term Loan Agreement. See Note 11—Debt, for additional information.

The merger was accounted for as an equity transaction and resulted in decreases to “Cash and cash equivalents” of $3,796 million, “Noncontrolling interests” of $3,318 million, “Capital in excess of par” of $378 million, “Deferred income taxes” of $118 million, and an increase to “Other accruals” of $18 million on our consolidated balance sheet.

Preferred Units

DCP LP redeemed its Series B preferred units at the aggregated liquidation preference of $161 million in June 2023, which approximated the book value of these preferred units. As of June 30, 2023, DCP LP had 4,400,000 Series C preferred units outstanding with an aggregate liquidation preference of $110 million. The Series C preferred units are publicly traded on the New York Stock Exchange.

Distributions

During the three and six months ended June 30, 2023, DCP LP made cash distributions of $5 million and $10 million, respectively, to preferred unitholders and cash distributions of $51 million and $102 million, respectively, to common unit holders other than Phillips 66 and its subsidiaries.

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Note 22—Phillips 66 Partners LP

On March 9, 2022, we completed a merger between us and Phillips 66 Partners. The merger resulted in the acquisition of all limited partnership interests in Phillips 66 Partners not already owned by us in exchange for 41.8 million shares of Phillips 66 common stock issued from treasury stock. Phillips 66 Partners common unitholders received 0.50 shares of Phillips 66 common stock for each outstanding Phillips 66 Partners common unit. Phillips 66 Partners’ perpetual convertible preferred units were converted into common units at a premium to the original issuance price prior to being exchanged for Phillips 66 common stock. The merger was accounted for as an equity transaction. Upon closing, Phillips 66 Partners became a wholly owned subsidiary of Phillips 66 and its common units are no longer publicly traded.

Note 23—Restructuring

In April 2022, we announced that we are progressing a multi-year business transformation focused on enterprise-wide opportunities to improve our cost structure. For the three and six months ended June 30, 2023, we recorded restructuring costs totaling $41 million and $76 million, respectively, primarily related to consulting fees. These costs are primarily recorded in the “Selling, general and administrative expenses” line item on our consolidated statement of income and are reported in our Corporate segment.

In addition, in the three and six months ended June 30, 2023, we recorded restructuring costs of $22 million and $34 million, respectively, associated with the integration of DCP Midstream Class A Segment primarily related to severance and contract exit costs. These costs are primarily recorded in the “Selling, general and administrative expenses” line item on our consolidated statement of income and are reported in our Midstream segment.

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

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

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

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

EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT

Phillips 66 is a diversified energy company with Midstream, Chemicals, Refining, and Marketing and Specialties (M&S) operating segments. At June 30, 2023, we had total assets of $74.9 billion. Our common stock trades on the New York Stock Exchange under the symbol PSX.

Executive Overview

In the second quarter of 2023, we reported earnings of $1.7 billion and generated cash from operating activities of $1 billion. In addition, we had net borrowings of $1.3 billion. We used available cash to repurchase $4 billion of noncontrolling interests in DCP Midstream, LP (DCP LP), repurchase $1.3 billion of common stock, fund capital expenditures and investments of $551 million, and pay dividends on our common stock of $474 million. We ended the second quarter of 2023 with $3 billion of cash and cash equivalents.

Business Transformation

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

DCP Midstream, LLC and Gray Oak Holdings LLC Merger (DCP Midstream Merger)

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

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Starting on August 18, 2022, our financial results reflect the consolidation of DCP Midstream Class A Segment, as well as DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills). Since the DCP Midstream Merger, we have taken steps to integrate the operations and personnel of DCP Midstream Class A Segment to enable the capture of commercial and operational synergies.

DCP LP Merger

To further advance our NGL growth strategy on June 15, 2023, we completed the acquisition of all publicly held common units of DCP LP pursuant to the terms of the Agreement and Plan of Merger, dated as of January 5, 2023 (DCP LP Merger Agreement). The DCP LP Merger Agreement was entered into with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries merged with and into DCP LP, with DCP LP surviving as a Delaware limited partnership. Under the terms of the DCP LP Merger Agreement, at the effective time of the DCP LP Merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP Midstream and its subsidiaries) issued and outstanding as of immediately prior to the effective time was converted into the right to receive $41.75 per common unit in cash, without interest. The DCP LP Merger increased our economic interest in DCP LP from 43.3% to 86.8%.

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding the DCP Midstream and DCP LP Mergers.

Business Environment

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

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

Our Refining segment results are driven by several factors, including market crack spreads, refinery throughput, feedstock costs, product yields, turnaround activity, and other operating costs. The price of U.S. benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of $73.78 per barrel during the second quarter of 2023, compared with an average of $108.66 per barrel in the second quarter of 2022. Market crack spreads are used as indicators of refining margins and measure the difference between market prices for refined petroleum products and crude oil. Worldwide market crack spreads decreased to an average of $28.65 per barrel during the second quarter of 2023, compared with an average of $46.72 per barrel in the second quarter of 2022. The decrease in market crack spreads were primarily driven by lower refined product and crude oil prices as a result of weaker diesel demand and energy supplies adjusting from the market instability caused by the outbreak of the Russia-Ukraine war in 2022.

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

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RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three and six months ended June 30, 2023, is based on a comparison with the corresponding periods of 2022.

Basis of Presentation

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

Effective October 1, 2022, we changed the organizational structure of the internal financial information reviewed by our President and Chief Executive Officer, and determined this resulted in a change in the composition of our operating segments. As part of the realignment, we moved the results and net assets of our Merey Sweeny vacuum distillation and delayed coker units at our Sweeny Refinery and the isomerization unit at our Lake Charles Refinery from our Midstream segment to our Refining segment. Additionally, commissions charged to the Refining segment by the M&S segment related to sales of specialty products were eliminated and the costs of the sales organization were reclassified from the M&S segment to the Refining segment. Further, we are no longer presenting disaggregated business line results for our Chemicals and M&S segments to align with changes in our internal financial reporting. The segment realignment and business line reporting changes are presented for the three and six months ended June 30, 2023, with the prior periods recast for comparability.

Consolidated Results

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

			Millions of Dollars
			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
Midstream			$	604					258						1,306			470
Chemicals			192						273						390			669
Refining			1,134						3,096						2,742			3,269
Marketing and Specialties			644						739						1,070			1,035
Corporate and Other			(330)						(260)						(613)			(509)
Income before income taxes			2,244						4,106						4,895			4,934
Income tax expense			510						924						1,084			1,095
Net income			1,734						3,182						3,811			3,839
Less: net income attributable to noncontrolling interests			37						15						153			90
Net income attributable to Phillips 66			$	1,697					3,167						3,658			3,749

Our net income attributable to Phillips 66 in the second quarter of 2023 was $1.7 billion, compared with $3.2 billion in the second quarter of 2022. The decrease in net income attributable to Phillips 66 was primarily due to lower realized refining margins, partially offset by higher Midstream results from the increase in economic interest in DCP LP as a result of the DCP Midstream and DCP LP Mergers, as well as lower income tax expense.

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Our net income attributable to Phillips 66 for the six months ended June 30, 2023 and 2022, was $3.7 billion. Our results were down slightly from the six months ended June 30, 2022 due to a decline in realized refining margins, lower equity earnings from CPChem and higher corporate restructuring costs. These reductions to earnings were partly offset by higher Midstream results, which reflect the increase in economic interest in DCP LP as a result of the DCP Midstream and DCP LP Mergers.

See the “Segment Results” section for additional information about our segment performance and Note 20—Income Taxes, in the Notes to Consolidated Financial Statements, for additional information regarding income taxes. See also Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding these merger transactions.

Statement of Income Analysis

Sales and other operating revenues for the second quarter and six-month period of 2023 decreased 28% and 18%, respectively, and purchased crude oil and products decreased 28% and 21%, respectively. These decreases were mainly due to lower prices for refined petroleum products, crude oil and NGL.

Equity in earnings of affiliates decreased 39% and 27% in the second quarter and six-month period of 2023, respectively. The decrease in both periods reflects lower equity earnings from DCP Midstream, DCP Sand Hills, DCP Southern Hills and Gray Oak Pipeline due to the DCP Midstream Merger in August 2022, as well as lower equity earnings from CPChem primarily due to a decline in margins. The second quarter of 2023 also reflects lower equity earnings from WRB, primarily due to lower margins, partially offset by improved operating costs. The decrease in the six-month period of 2023 was partially offset by higher equity earnings from WRB, driven by lower operating costs and improved margins. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers and the Chemicals segment analysis in the “Segment Results” section for additional information regarding CPChem.

Net gain (loss) on dispositions increased $21 million for the six-month period of 2023, primarily due to a before-tax gain associated with the sale of the Belle Chasse Terminal.

We had other income of $99 million and $147 million in the second quarter and six-month period of 2023, respectively, compared with other loss of $185 million and $328 million in the second quarter and six-month period of 2022, respectively. The improvements in both periods of 2023 were primarily driven by lower unrealized losses on our investment in NOVONIX and higher interest income. See Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information regarding our investment in NOVONIX.

Selling, general and administrative expenses increased 22% and 30% in the second quarter and six-month period of 2023, respectively. The increases were primarily due to consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022, as well as restructuring costs associated with our business transformation.

Depreciation and amortization increased 38% and 39% in the second quarter and six-month period of 2023, respectively. The increases were primarily due to additional depreciation and amortization related to assets acquired as a result of consolidating DCP Midstream Class A Segment, DCP Southern Hills and DCP Sand Hills starting in August 2022.

Taxes other than income taxes increased 47% and 43% in the second quarter and six-month period of 2023, respectively. The increases were primarily due to consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022 and higher crude oil and refined petroleum product excise taxes.

Interest and debt expense increased $133 million and $190 million in the second quarter and six-month period of 2023, respectively. The increase was primarily driven by higher average debt principal balances as a result of consolidating DCP Midstream Class A Segment, DCP Southern Hills and DCP Sand Hills starting in August 2022, as well as a $53 million before-tax loss on the early redemption of DCP LP’s 5.850% junior subordinated notes.

Income tax expense decreased $414 million in the six-month period of 2023, primarily due to lower results. See Note 20—Income Taxes, in the Notes to Consolidated Financial Statements, for information regarding our effective income tax rates.

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Net income attributable to noncontrolling interests increased $22 million and $63 million in the second quarter and six-month period of 2023, respectively. The increases in both periods reflect the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills and the derecognition of a noncontrolling interest related to Gray Oak Holdings as a result of the DCP Midstream Merger in August 2022. The increase in the six-month period was also partially offset by a decrease due to the merger between us and Phillips 66 Partners LP (Phillips 66 Partners) that occurred in the first quarter of 2022. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 21—DCP Midstream Class A Segment, and Note 22—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information regarding these merger transactions.

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Segment Results

Midstream

			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
			Millions of Dollars
Income (Loss) Before Income Taxes
Transportation			$	284					250						590			528
NGL and Other			335						248						743			340
NOVONIX			(15)						(240)						(27)			(398)
Total Midstream			$	604					258						1,306			470

			Thousands of Barrels Daily
Transportation Volumes
Pipelines*			3,254						3,066						3,147			3,082
Terminals			3,149						2,917						3,176			2,908
Operating Statistics
NGL fractionated**			738						469						699			461
NGL production***			444						438						433			419

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

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

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

			Dollars Per Gallon
Market Indicator
Weighted-Average NGL Price*			$	0.61					1.15						0.68			1.13
* Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component mix.

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

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

In the Notes to Consolidated Financial Statements, see Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP Midstream Merger.

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Results from our Midstream segment increased $346 million in the second quarter of 2023 and $836 million in the six-month period of 2023.

Results from our Transportation business increased $34 million and $62 million in the second quarter and six-month period of 2023, respectively. The increase in the second quarter of 2023 was primarily due to higher volumes and lower operating costs. The increase in the six-month period of 2023 included a gain of $36 million from the sale of the Belle Chasse Terminal. Excluding the gain on sale, results were up slightly from higher volumes and improved operating costs, partially offset by lower equity earnings driven by a decrease in our indirect economic interest in Gray Oak Pipeline in connection with the DCP Midstream Merger.

Results from our NGL and Other business increased $87 million and $403 million in the second quarter and six-month period of 2023, respectively. The increase in both periods was primarily due to the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022 forward. Additionally, for both periods, the benefit of improved volume and margin at the Sweeny Hub was partially offset by lower results from DCP Midstream Class A Segment driven by lower prices and restructuring costs.

The fair value of our investment in NOVONIX declined by $15 million in the second quarter of 2023, compared with $240 million in the second quarter of 2022. The fair value of our investment in NOVONIX declined by $27 million in the six-month period of 2023, compared with $398 million in the six-month period of 2022.

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

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

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Chemicals

			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
			Millions of Dollars
Income Before Income Taxes			$	192					273						390			669

 

			Millions of Pounds
CPChem Externally Marketed Sales Volumes*			5,892						6,057						11,598			12,296
* Represents 100% of CPChem’s outside sales of produced petrochemical products, as well as commission sales from equity affiliates.

Olefins and Polyolefins Capacity Utilization (percent)			98		%				94						96			96

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

Results from the Chemicals segment decreased $81 million and $279 million in the second quarter and six-month period of 2023, respectively. The decrease in both periods was primarily due to a decline in margins, lower equity earnings from CPChem’s equity affiliates, partially offset by improved utility costs. The decline in margins in both periods was driven by lower sales prices.

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

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Refining

			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
			Millions of Dollars
Income Before Income Taxes
Atlantic Basin/Europe			$	149					1,102						291			1,254
Gulf Coast			243						906						948			947
Central Corridor			630						491						1,369			356
West Coast			112						597						134			712
Worldwide			$	1,134					3,096						2,742			3,269

			Dollars Per Barrel
Income Before Income Taxes
Atlantic Basin/Europe			$	3.33					22.10						3.45			12.81
Gulf Coast			4.83						17.25						9.33			9.05
Central Corridor			23.02						21.69						25.65			7.68
West Coast			3.58						19.77						2.25			12.05
Worldwide			7.38						19.95						9.17			10.62
Realized Refining Margins*
Atlantic Basin/Europe			$	10.94					30.39						13.37			21.22
Gulf Coast			11.84						25.71						16.61			17.18
Central Corridor			22.62						26.72						24.68			17.12
West Coast			16.27						33.31						16.39			25.70
Worldwide			15.32						28.62						17.94			19.78

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

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			Thousands of Barrels Daily
			Three Months Ended June 30									Six Months Ended June 30
Operating Statistics			2023						2022						2023			2022
Refining operations*
Atlantic Basin/Europe
Crude oil capacity			537						537						537			537
Crude oil processed			464						526						453			515
Capacity utilization (percent)			86		%				98						84			96
Refinery production			495						550						467			544
Gulf Coast
Crude oil capacity			529						529						529			529
Crude oil processed			498						500						509			498
Capacity utilization (percent)			94		%				94						96			94
Refinery production			562						586						571			588
Central Corridor
Crude oil capacity			531						531						531			531
Crude oil processed			498						435						487			444
Capacity utilization (percent)			94		%				82						92			84
Refinery production			519						446						507			460
West Coast
Crude oil capacity			319						364						319			364
Crude oil processed			314						306						297			300
Capacity utilization (percent)			98		%				84						93			82
Refinery production			343						330						328			326
Worldwide
Crude oil capacity			1,916						1,961						1,916			1,961
Crude oil processed			1,774						1,767						1,746			1,757
Capacity utilization (percent)			93		%				90						91			90
Refinery production			1,919						1,912						1,873			1,918
* Includes our share of equity affiliates.

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

Results from our Refining segment decreased $1,962 million and $527 million in the second quarter and six-month period of 2023, respectively. The decrease in the second quarter of 2023 was primarily due to lower realized margins, partially offset by higher volumes. The decrease in the six-month period of 2023 was primarily due to lower realized margins. The decrease in realized margins in both periods was primarily driven by a decline in market crack spreads, partially offset by improved feedstock advantage.

Our worldwide refining crude oil capacity utilization rate was 93% and 91% in the second quarter and six-month period of 2023, compared with 90% in the second quarter and six-month period of 2022. See the “Executive Overview and Business Environment” section for information on market factors impacting this quarter’s results.

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Marketing and Specialties

			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
			Millions of Dollars
Income Before Income Taxes			$	644					739						1,070			1,035

			Dollars Per Barrel
Income Before Income Taxes
U.S.			$	2.45					2.86						2.14			2.00
International			5.67						7.30						5.30			4.14
Realized Marketing Fuel Margins*
U.S.			$	2.88					3.24						2.61			2.42
International			7.28						8.20						6.87			5.27

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

			Dollars Per Gallon
U.S. Average Wholesale Prices*
Gasoline			$	2.99					3.88						2.90			3.48
Distillates			2.99						4.42						3.11			3.83
* On third-party branded petroleum product sales, excluding excise taxes.

			Thousands of Barrels Daily
Marketing Refined Petroleum Product Sales
Gasoline			1,225						1,176						1,168			1,152
Distillates			975						960						912			986
Other			20						19						19			18
			2,220						2,155						2,099			2,156

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

Before-tax income from the M&S segment decreased $95 million in the second quarter of 2023, primarily driven by lower realized marketing fuel margins. Before-tax income from the M&S segment increased $35 million for the six-month period of 2023, primarily driven by higher realized marketing fuel margins, partially offset by lower results from trading activities and decreased equity earnings.

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

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Corporate and Other

			Millions of Dollars
			Three Months Ended June 30									Six Months Ended June 30
			2023						2022						2023			2022
Loss Before Income Taxes
Net interest expense			$	(182)					(127)						(306)			(259)
Corporate overhead and other			(148)						(133)						(307)			(250)
Total Corporate and Other			$	(330)					(260)						(613)			(509)

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

Net interest expense increased $55 million and $47 million, in the second quarter and six-month period of 2023, respectively. The increases were primarily driven by higher interest expense as a result of consolidating DCP Midstream Class A Segment and early redemption of DCP LP’s 5.850% junior subordinated notes, partially offset by increased interest income. See Note 11—Debt, in the Notes to Consolidated Financial Statements, for additional information regarding DCP LP’s redemption of its junior subordinated notes.

Corporate overhead and other costs increased $15 million and $57 million in the second quarter and six-month period of 2023, respectively. The increases were primarily due to restructuring costs associated with our business transformation, mainly related to consulting fees. See Note 23—Restructuring, in the Notes to Consolidated Financial Statements, for additional information regarding restructuring costs.

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CAPITAL RESOURCES AND LIQUIDITY

Financial Indicators

			Millions of Dollars, Except as Indicated
			June 30 2023						December 31 2022
Cash and cash equivalents			$	3,029					6,133
Short-term debt			832						529
Total debt			19,866						17,190
Total equity			31,060						34,106
Percent of total debt to capital*			39%						34
Percent of floating-rate debt to total debt			12%						—
* Capital includes total debt and total equity.

To meet our short- and long-term liquidity requirements, we use a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. During the first six months of 2023, we generated $2.2 billion of cash from operations and had net borrowings of $2.6 billion. We used available cash primarily to repurchase $4 billion of noncontrolling interests in DCP LP, repurchase $2.1 billion of our common stock, pay dividends on our common stock of $960 million, and fund capital expenditures and investments of $929 million. During the first six months of 2023, cash and cash equivalents decreased to $3 billion.

Significant Sources of Capital

Operating Activities

During the first six months of 2023, cash generated by operating activities was $2.2 billion, compared with $2.9 billion for the first six months of 2022. The decrease was primarily due to lower distributions from equity affiliates and unfavorable working capital impacts.

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

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

Equity Affiliate Operating Distributions

Our operating cash flows are also impacted by distribution decisions made by our equity affiliates, including CPChem. During the first six months of 2023, cash from operations included aggregate distributions of $608 million from our equity affiliates. During the same period of 2022, cash from operations included aggregate distributions of $1.1 billion. The decrease in equity distributions was primarily due to lower distributions from CPChem. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured.

Senior Note Issuances

On March 29, 2023, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $1.25 billion aggregate principal amount of senior unsecured notes consisting of:

•$750 million aggregate principal amount of 4.950% Senior Notes due December 2027 (2027 Notes).

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

The 2027 Notes and 2033 Notes (collectively, the Notes) are fully and unconditionally guaranteed by Phillips 66. Interest on the 2027 Notes is payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2023. Interest on the 2033 Notes is payable semi-annually on June 30 and December 30 of each year, commencing on December 30, 2023.

Related Party Advance Term Loan Agreement

On May 31, 2023, we borrowed $75 million from WRB Refining LP under an Advance Term Loan agreement. The debt matures on May 31, 2038. Borrowings will bear interest at a floating rate of 1.042% plus Adjusted Term SOFR, payable on the last day of each month.

On July 31, 2023, we borrowed an additional $130 million under the Advance Term Loan agreement.

Term Loan Agreement

On March 27, 2023, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, entered into a $1.5 billion delayed draw term loan agreement guaranteed by Phillips 66 (the Term Loan Agreement). The Term Loan Agreement provides for a single borrowing during a 90-day period commencing on the closing date, which borrowing was contingent upon the completion of the DCP LP Merger. The Term Loan Agreement contains customary covenants similar to those contained in our revolving credit agreement, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. The Term Loan Agreement has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts after grace periods; and violation of covenants. We may at any time prepay outstanding borrowings under the Term Loan Agreement, in whole or in part, without premium or penalty. Outstanding borrowings under the Term Loan Agreement bear interest at either: (a) Adjusted Term SOFR in effect from time to time plus the applicable margin; or (b) the reference rate plus the applicable margin, as defined in the Term Loan Agreement. As of June 30, 2023, $1.25 billion was borrowed under the Term Loan Agreement, which matures in June 2026. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP LP Merger.

Credit Facilities and Commercial Paper

Phillips 66 and Phillips 66 Company

On June 23, 2022, we entered into a $5 billion revolving credit facility with Phillips 66 Company as the borrower and Phillips 66 as the guarantor. At both June 30, 2023, and December 31, 2022, no amount had been drawn under the $5 billion revolving credit facility or $5 billion uncommitted commercial paper program.

DCP Midstream Class A Segment

At June 30, 2023, DCP LP had $850 million of borrowings outstanding under its $1.4 billion credit facility and $2 million of letters of credit had been issued that supported the credit facility. At December 31, 2022, DCP LP had no borrowings outstanding under its $1.4 billion credit facility, and $10 million in letters of credit had been issued that are supported by the credit facility.

As of June 30, 2023, and December 31, 2022, $280 million and $40 million of borrowings, respectively, were outstanding under DCP LP’s accounts receivable securitization facility, which are secured by its accounts receivable at DCP Receivables LLC.

Total Committed Capacity Available
At June 30, 2023, and December 31, 2022, we had approximately $5.6 billion and $6.7 billion, respectively, of total committed capacity available under the credit facilities described above.

Dispositions

On February 28, 2023, we closed on the sale of the Belle Chasse Terminal for approximately $76 million.

On August 1, 2023, we sold our 25% ownership interest in the South Texas Gateway Terminal for approximately $275 million.

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Off-Balance Sheet Arrangements

Lease Residual Value Guarantees

Under the operating lease agreement for our headquarters facility in Houston, Texas, we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at June 30, 2023. We also have residual value guarantees associated with railcar, truck and airplane leases with maximum potential future exposures totaling $164 million. These leases have remaining terms of four to ten years.

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

In 2020, the trial court presiding over litigation brought by the Standing Rock Sioux Tribe (the Tribe) ordered the U.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) addressing an easement under Lake Oahe in North Dakota. The court later vacated the easement. Although the easement is vacated, the USACE has no plans to stop pipeline operations while it proceeds with the EIS, and the Tribe’s request for a shutdown was denied in May 2021. In June 2021, the trial court dismissed the litigation entirely. Once the EIS is completed, new litigation or challenges may be filed.

In February 2022, the U.S. Supreme Court (the Court) denied Dakota Access’ writ of certiorari requesting the Court to review the lower court’s decision to order the EIS and vacate the easement. Therefore, the requirement to prepare the EIS stands. Also in February 2022, the Tribe withdrew as a cooperating agency, causing the USACE to halt the EIS process while the USACE engaged with the Tribe on their reasons for withdrawing. The draft EIS process resumed in August of 2022, and release is expected in the third quarter of 2023.

Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access in March 2019. On April 1, 2022, Dakota Access’ wholly owned subsidiary repaid $650 million aggregate principal amount of its outstanding senior notes upon maturity. We funded our 25% share, or $163 million, with a capital contribution of $89 million in March 2022 and $74 million of distributions we elected not to receive from Dakota Access in the first quarter of 2022. At June 30, 2023, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $1.85 billion.

In conjunction with the notes offering, Phillips 66 Partners, now a wholly owned subsidiary of Phillips 66, and its co-venturers in Dakota Access also provided a Contingent Equity Contribution Undertaking (CECU). Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the above-mentioned ongoing litigation. At June 30, 2023, our 25% share of the maximum potential equity contributions under the CECU was approximately $467 million.

If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we could be required to support our 25% share of the ongoing expenses, including scheduled interest payments on the notes of approximately $20 million annually, in addition to the potential obligations under the CECU at June 30, 2023.

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

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Capital Requirements

Capital Expenditures and Investments

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

Debt Financing

Our debt balance at June 30, 2023, and December 31, 2022, was $19.9 billion and $17.2 billion, respectively. Our total debt-to-capital ratio was 39% and 34% at June 30, 2023, and December 31, 2022, respectively.

On May 19, 2023, DCP LP redeemed its 5.850% junior subordinated notes due May 2043 with an aggregate principal amount outstanding of $550 million using borrowings under its revolving credit and accounts receivable securitization facilities.

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

In April 2022, upon maturity, Phillips 66 repaid its 4.300% senior notes with an aggregate principal amount of $1.0 billion and Phillips 66 Partners repaid its $450 million term loan.

DCP LP Merger

On June 15, 2023, we completed the acquisition of all publicly held common units of DCP LP pursuant to the terms of the Agreement and Plan of Merger, dated as of January 5, 2023. The DCP LP Merger Agreement was entered into with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries merged with and into DCP LP, with DCP LP surviving as a Delaware limited partnership. Under the terms of the DCP LP Merger Agreement, at the effective time of the DCP LP Merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP Midstream and its subsidiaries) issued and outstanding as of immediately prior to the effective time was converted into the right to receive $41.75 per common unit in cash, without interest. The DCP LP Merger increased our economic interest in DCP LP from 43.3% to 86.8%.

We paid approximately $3.8 billion in cash consideration, funded through a combination of cash generated from operating activities and proceeds from the offering of the Notes and borrowings under the Term Loan Agreement.

See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 11—Debt and Note 21—DCP Midstream Class A Segment, in the Notes to the Consolidated Financial Statements, for additional information regarding the DCP Midstream and DCP LP Mergers.

DCP LP Preferred Units

DCP LP redeemed its Series B preferred units with an aggregate liquidation preference of approximately $161 million in June 2023. DCP LP funded this redemption with borrowings under its credit facilities.

DCP LP Cash Distributions to Unitholders

DCP LP’s partnership agreement requires that, within 45 days after the end of each quarter, DCP LP distributes all available cash. During the six months ended June 30, 2023, DCP LP made cash distributions of $102 million to common unitholders other than Phillips 66 and its subsidiaries and $10 million to preferred unitholders.

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

On July 14, 2023, the board of directors of DCP Midstream, GP, LLC, declared a quarterly distribution on DCP LP’s common units of $0.43 per common unit and a quarterly distribution on DCP LP’s Series C preferred units of $0.4969 per unit. The distribution on the common units will be paid on August 11, 2023, to unitholders of record on July 31, 2023. The Series C distribution will be paid on October 16, 2023, to preferred unitholders of record on October 2, 2023.

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See Note 21—DCP Midstream Class A Segment, in the Notes to the Consolidated Financial Statements, for additional information regarding the DCP LP public common unit acquisition and the redemption of DCP LP’s Series B preferred units.

Dividends

On May 10, 2023, our board of directors declared a quarterly cash dividend of $1.05 per common share. The dividend was paid on June 1, 2023, to shareholders of record at the close of business on May 22, 2023. On July 12, 2023, our board of directors declared a quarterly cash dividend of $1.05 per common share. This dividend is payable on September 1, 2023, to shareholders of record as of the close of business on August 18, 2023.

Share Repurchases

Since July 2012, our board of directors has authorized an aggregate of $20 billion of repurchases of our outstanding common stock. The authorizations do not have expiration dates. Future share repurchases are expected to be funded primarily through available cash. We are not obligated to repurchase any shares of common stock pursuant to these authorizations and may commence, suspend or terminate repurchases at any time. For the six months ended June 30, 2023, we repurchased 21.5 million shares at an aggregate cost of approximately $2.1 billion. Since the inception of our share repurchase program in 2012, we have repurchased 197.5 million shares at an aggregate cost of $16.2 billion. Shares of stock repurchased are held as treasury shares.

Employee Benefit Plan Contributions

During the six months ended June 30, 2023, we contributed $44 million to our U.S. pension and other postretirement benefit plans and $10 million to our international pension plans. We currently expect to make additional contributions of approximately $375 million to our U.S. pension and other postretirement benefit plans and approximately $10 million to our international pension plans during the remainder of 2023.

Rodeo Renewed

We expect the total capital project cost for the ongoing conversion of the San Francisco refinery in Rodeo, California into a renewable fuels facility to be approximately $1.25 billion. As a result, our projected capital spend on the Rodeo Renewed renewable fuels facility project in 2023 is expected to be approximately $200 million higher than budgeted.

Marketing and Specialties Acquisition

On August 1, 2023, we acquired certain marketing operations on the U.S. West Coast for cash consideration of approximately $260 million plus an adjustment for net working capital. The acquisition of these operations support the placement of renewable fuels that will be produced by the Rodeo Renewed facility.

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Capital Spending

			Millions of Dollars
			Six Months Ended June 30
			2023						2022
Capital Expenditures and Investments
Midstream*			$	300					268
Chemicals			—						—
Refining			556						393
Marketing and Specialties			36						30
Corporate and Other			37						55
Total Capital Expenditures and Investments			$	929					746
Selected Equity Affiliates**
CPChem			519						274
WRB			92						89
			$	611					363
* Includes 100% of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills capital expenditures and investments from August 18, 2022, forward, net of acquired cash.
** Our share of joint ventures’ capital spending.

Midstream

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

Chemicals

During the first six months of 2023, on a 100% basis, CPChem’s capital expenditures and investments were $1,038 million. The capital spending was primarily for the development of petrochemical projects on the U.S. Gulf Coast and in the Middle East, as well as sustaining, debottlenecking and optimization projects on existing assets. CPChem’s capital program was self-funded, and we expect CPChem to continue self-funding its capital program for the remainder of 2023.

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Refining

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

Major capital activities included:

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

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

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

Marketing and Specialties

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

Corporate and Other

Capital spending for Corporate and Other during the first six months of 2023 was primarily for information technology and certain business transformation initiatives.

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Contingencies

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

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

Legal and Tax Matters

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

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Environmental

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

We are required to purchase RINs in the open market to satisfy the portion of our obligation under the Renewable Fuel Standard (RFS) that is not fulfilled by blending renewable fuels into the motor fuels we produce. For the six months ended June 30, 2023 and 2022, we incurred expenses of $293 million and $271 million, respectively, associated with our obligation to purchase RINs in the open market to comply with the RFS for our wholly owned refineries. These expenses are included in the “Purchased crude oil and products” line item on our consolidated statement of income. Our jointly owned refineries also incurred expenses associated with the purchase of RINs in the open market, of which our share was $217 million and $175 million for the six months ended June 30, 2023 and 2022, respectively. These expenses are included in the “Equity in earnings of affiliates” line item on our consolidated statement of income. The amount of these expenses and fluctuations between periods is primarily driven by the market price of RINs, refinery production, blending activities and renewable volume obligation requirements.

We occasionally receive requests for information or notices of potential liability from the Environmental Protection Agency (EPA) and state environmental agencies alleging that we are a potentially responsible party under the Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or an equivalent state statute. On occasion, we also have been made a party to cost recovery litigation by those agencies or by private parties. These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically are not owned by us, but allegedly contain wastes attributable to our past operations. At June 30, 2023 and December 31, 2022, we had been notified of potential liability under CERCLA and comparable state laws at 22 sites within the United States.

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

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Climate Change

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

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

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

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

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GUARANTOR FINANCIAL INFORMATION

We have various cross guarantees between Phillips 66 and its wholly owned subsidiary Phillips 66 Company (together, the Obligor Group) with respect to publicly held debt securities. Phillips 66 conducts substantially all of its operations through subsidiaries, including Phillips 66 Company, and those subsidiaries generate substantially all of its operating income and cash flow. Phillips 66 has fully and unconditionally guaranteed the payment obligations of Phillips 66 Company with respect to its publicly held debt securities. In addition, Phillips 66 Company has fully and unconditionally guaranteed the payment obligations of Phillips 66 with respect to its publicly held debt securities. All guarantees are full and unconditional. At June 30, 2023, $13.3 billion of senior unsecured notes outstanding has been guaranteed by the Obligor Group.

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

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The summarized results of operations for the six months ended June 30, 2023, and the summarized financial position at June 30, 2023, and December 31, 2022, for the Obligor Group on a combined basis were:

Summarized Combined Statement of Income			Millions of Dollars
			Six Months Ended June 30, 2023
Sales and other operating revenues			$	51,438
Revenues and other income—non-guarantor subsidiaries			2,885
Purchased crude oil and products—third parties			30,041
Purchased crude oil and products—related parties			7,603
Purchased crude oil and products—non-guarantor subsidiaries			10,820
Income before income taxes			2,811
Net income			2,203

Summarized Combined Balance Sheet			Millions of Dollars
			June 30 2023						December 31 2022
Accounts and notes receivable—third parties			$	4,968					5,485
Accounts and notes receivable—related parties			1,085						1,376
Due from non-guarantor subsidiaries, current			1,022						741
Total current assets			13,237						15,566
Investments and long-term receivables			11,139						10,433
Net properties, plants and equipment			11,830						11,652
Goodwill			1,047						1,047
Due from non-guarantor subsidiaries, noncurrent			2,216						2,163
Other assets associated with non-guarantor subsidiaries			1,854						2,144
Total noncurrent assets			29,838						29,209
Total assets			43,075						44,775
Due to non-guarantor subsidiaries, current			$	2,467					2,297
Total current liabilities			11,508						11,148
Long-term debt			13,738						12,060
Due to non-guarantor subsidiaries, noncurrent			7,951						7,088
Total noncurrent liabilities			27,814						25,223
Total liabilities			39,322						36,371
Total equity			3,753						8,404
Total liabilities and equity			43,075						44,775

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NON-GAAP RECONCILIATIONS

Refining

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

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

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			Millions of Dollars, Except as Indicated
Realized Refining Margins			Atlantic Basin/ Europe			Gulf Coast			Central Corridor			West Coast			Worldwide
Three Months Ended June 30, 2023
Income before income taxes			$	149		243			630			112			1,134
Plus:
Taxes other than income taxes			17			25			26			31			99
Depreciation, amortization and impairments			53			63			38			55			209
Selling, general and administrative expenses			8			4			17			8			37
Operating expenses			235			249			157			300			941
Equity in (earnings) losses of affiliates			2			—			(119)			—			(117)
Other segment (income) expense, net			4			12			(3)			2			15
Proportional share of refining gross margins contributed by equity affiliates			22			—			313			—			335
Realized refining margins			$	490		596			1,059			508			2,653
Total processed inputs (thousands of barrels)			44,781			50,266			27,370			31,246			153,663
Adjusted total processed inputs (thousands of barrels)*			44,781			50,266			46,841			31,246			173,134
Income before income taxes per barrel (dollars per barrel)**			$	3.33		4.83			23.02			3.58			7.38
Realized refining margins (dollars per barrel)***			10.94			11.84			22.62			16.27			15.32
Three Months Ended June 30, 2022
Income before income taxes			$	1,102		906			491			597			3,096
Plus:
Taxes other than income taxes			14			22			18			19			73
Depreciation, amortization and impairments			51			67			36			63			217
Selling, general and administrative expenses			7			5			13			8			33
Operating expenses			296			320			264			306			1,186
Equity in (earnings) losses of affiliates			2			3			(228)			—			(223)
Other segment expense, net			8			1			2			—			11
Proportional share of refining gross margins contributed by equity affiliates			26			—			469			—			495
Special items:
Regulatory compliance costs			9			26			22			13			70
Realized refining margins			$	1,515		1,350			1,087			1,006			4,958
Total processed inputs (thousands of barrels)			49,854			52,523			22,635			30,199			155,211
Adjusted total processed inputs (thousands of barrels)*			49,854			52,523			40,629			30,199			173,205
Income before income taxes per barrel (dollars per barrel)**			$	22.10		17.25			21.69			19.77			19.95
Realized refining margins (dollars per barrel)***			30.39			25.71			26.72			33.31			28.62
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.
** Income before income taxes divided by total processed inputs.
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

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			Millions of Dollars, Except as Indicated
Realized Refining Margins			Atlantic Basin/ Europe			Gulf Coast			Central Corridor			West Coast			Worldwide
Six Months Ended June 30, 2023
Income before income taxes			$	291		948			1,369			134			2,742
Plus:
Taxes other than income taxes			39			58			51			64			212
Depreciation, amortization and impairments			103			123			76			109			411
Selling, general and administrative expenses			18			8			38			18			82
Operating expenses			600			535			323			650			2,108
Equity in (earnings) losses of affiliates			4			(1)			(319)			—			(316)
Other segment (income) expense, net			24			17			(4)			3			40
Proportional share of refining gross margins contributed by equity affiliates			48			—			715			—			763
Realized refining margins			$	1,127		1,688			2,249			978			6,042
Total processed inputs (thousands of barrels)			84,253			101,615			53,374			59,662			298,904
Adjusted total processed inputs (thousands of barrels)*			84,253			101,615			91,156			59,662			336,686
Income before income taxes per barrel (dollars per barrel)**			$	3.45		9.33			25.65			2.25			9.17
Realized refining margins (dollars per barrel)***			13.37			16.61			24.68			16.39			17.94
Six Months Ended June 30, 2022
Income before income taxes			$	1,254		947			356			712			3,269
Plus:
Taxes other than income taxes			33			49			36			43			161
Depreciation, amortization and impairments			103			123			71			123			420
Selling, general and administrative expenses			13			9			26			15			63
Operating expenses			592			637			448			612			2,289
Equity in (earnings) losses of affiliates			5			5			(212)			—			(202)
Other segment (income) expense, net			20			1			(2)			1			20
Proportional share of refining gross margins contributed by equity affiliates			49			—			674			—			723
Special items:
Regulatory compliance costs			9			26			22			13			70
Realized refining margins			$	2,078		1,797			1,419			1,519			6,813
Total processed inputs (thousands of barrels)			97,869			104,674			46,326			59,076			307,945
Adjusted total processed inputs (thousands of barrels)*			97,869			104,674			82,896			59,076			344,515
Income before income taxes per barrel (dollars per barrel)**			$	12.81		9.05			7.68			12.05			10.62
Realized refining margins (dollars per barrel)***			21.22			17.18			17.12			25.70			19.78
* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate.
** Income before income taxes divided by total processed inputs.
*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

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Marketing

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

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

			Millions of Dollars, Except as Indicated
			Three Months Ended June 30, 2023									Three Months Ended June 30, 2022
			U.S.			International						U.S.			International
Realized Marketing Fuel Margins
Income before income taxes			$	432		145						489			185
Plus:
Depreciation and amortization			3			21						3			19
Selling, general and administrative expenses			204			63						210			62
Equity in earnings of affiliates			(12)			(30)						(16)			(32)
Other operating revenues*			(122)			(2)						(139)			(9)
Other (income) expense, net			4			5						6			(3)
Marketing margins			509			202						553			222
Less: margin for nonfuel related sales			—			16						—			14
Realized marketing fuel margins			$	509		186						553			208
Total fuel sales volumes (thousands of barrels)			176,349			25,569						170,899			25,329
Income before income taxes per barrel (dollars per barrel)			$	2.45		5.67						2.86			7.30
Realized marketing fuel margins (dollars per barrel)**			2.88			7.28						3.24			8.20
* Includes other nonfuel revenues.
** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

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			Millions of Dollars, Except as Indicated
			Six Months Ended June 30, 2023									Six Months Ended June 30, 2022
			U.S.			International						U.S.			International
Realized Marketing Fuel Margins
Income before income taxes			$	705		270						680			208
Plus:
Depreciation and amortization			6			39						6			37
Selling, general and administrative expenses			385			125						392			125
Equity in earnings of affiliates			(15)			(52)						(23)			(58)
Other operating revenues*			(230)			(15)						(246)			(21)
Other expense, net			9			11						12			1
Marketing margins			860			378						821			292
Less: margin for nonfuel related sales			—			28						—			27
Realized marketing fuel margins			$	860		350						821			265
Total fuel sales volumes (thousands of barrels)			329,011			50,949						340,095			50,255
Income before income taxes per barrel (dollars per barrel)			$	2.14		5.30						2.00			4.14
Realized marketing fuel margins (dollars per barrel)**			2.61			6.87						2.42			5.27
* Includes other nonfuel revenues.
** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts.

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

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

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

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

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

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

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

•The ability to achieve the expected benefits of the DCP LP integration.

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

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

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

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

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

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

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

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

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

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

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

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

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

•International monetary conditions and exchange controls.

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

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

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

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

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

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

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

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

•The factors generally described in Item 1A.—Risk Factors in our 2022 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

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Item 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our commodity price risk and interest rate risk at June 30, 2023, did not differ materially from the risks disclosed under Item 7A of our 2022 Annual Report on Form 10-K.

Item 4.   CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported within the time periods specified in U.S. Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of June 30, 2023, with the participation of management, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer carried out an evaluation, pursuant to Rule 13a-15(b) of the Act, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of June 30, 2023.

There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the quarterly period ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.   LEGAL PROCEEDINGS

From time to time, we may be involved in litigation and claims arising out of our operations in the normal course of business. Additionally, we have elected a $300,000 threshold to disclose certain proceedings arising under federal, state or local environmental laws when a governmental authority is a party to the proceedings. During the second quarter of 2023, no such new matters arose and no material developments occurred with respect to matters previously reported but still unresolved. We do not currently believe that the eventual outcome of any matters previously reported but still unresolved, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Further, our U.S. refineries are implementing two separate consent decrees, regarding alleged violations of the Federal Clean Air Act, with the EPA, five states and one local air pollution agency. Some of the requirements and limitations contained in the decrees provide for stipulated penalties for violations. Stipulated penalties under the decrees are not automatic, but must be requested by one of the agency signatories. As part of periodic reports under the decrees or other reports required by permits or regulations, we occasionally report matters that could be subject to a request for stipulated penalties. If a specific request for stipulated penalties meeting the reporting threshold set forth in U.S. Securities and Exchange Commission (SEC) rules is made pursuant to these decrees based on a given reported exceedance, we will separately report that matter and the amount of the proposed penalty. We received such a request in the first quarter of 2023, which was described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023. There have been no further developments with respect to this matter.

See Note 13—Contingencies and Commitments, in the Notes to Consolidated Financial Statements, for additional information.

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Item 1A.   RISK FACTORS

There have been no material changes from the risk factors disclosed in Item 1A of our 2022 Annual Report on Form 10-K and Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

Item 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

																		Millions of Dollars
Period			Total Number of Shares Purchased*						Average Price Paid per Share**			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs***						Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1-30, 2023			3,893,914						$	103.36		3,893,914						$	4,765
May 1-31, 2023			5,043,391						95.41			5,043,391						4,284
June 1-30, 2023			4,732,154						96.29			4,732,154						3,828
Total			13,669,459						$	97.98		13,669,459
* Includes repurchase of shares of common stock from company employees in connection with the company’s broad-based employee incentive plans, when applicable.
** Average price paid per share includes excise tax.
*** Since July 2012, our board of directors has authorized an aggregate of $20 billion of repurchases of our outstanding common stock. Repurchases pursuant to the current authorizations do not have an expiration date. The share repurchases are expected to be funded primarily through available cash. We are not obligated to repurchase any shares of common stock pursuant to these authorizations and may commence, suspend or terminate repurchases at any time. Shares of stock repurchased are held as treasury shares.

Item 5.   OTHER INFORMATION

During the quarter ended June 30, 2023, no director or Section 16 officer adopted, modified or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (in each case, as defined in Item 408(a) of Regulation S-K).

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Item 6. EXHIBITS

Incorporated by Reference

Exhibit Number

Exhibit Description

Form

Exhibit Number

Filing Date

SEC File No.

22*

List of Guarantor Subsidiaries.

31.1*

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2*

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32*

Certifications pursuant to 18 U.S.C. Section 1350.

101.INS*

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

Inline XBRL Schema Document.

101.CAL*

Inline XBRL Calculation Linkbase Document.

101.LAB*

Inline XBRL Labels Linkbase Document.

101.PRE*

Inline XBRL Presentation Linkbase Document.

101.DEF*

Inline XBRL Definition Linkbase Document.

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

						PHILLIPS 66
						/s/ J. Scott Pruitt
						J. Scott Pruitt Vice President and Controller (Chief Accounting and Duly Authorized Officer)

Date: August 3, 2023

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