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, 2022

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 481,051,097 shares of common stock, $0.01 par value, outstanding as of June 30, 2022.

PHILLIPS 66

TABLE OF CONTENTS

	Page
Part I – Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations	1
Consolidated Statement of Comprehensive Income (Loss)	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	30
Item 3. Quantitative and Qualitative Disclosures About Market Risk	60
Item 4. Controls and Procedures	60
Part II – Other Information
Item 1. Legal Proceedings	61
Item 1A. Risk Factors	61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 6. Exhibits	62
Signatures	64

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Consolidated Statement of Operations Phillips 66

	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2022		2021	2022	2021
Revenues and Other Income
Sales and other operating revenues	$	48,577	27,002	84,756	48,629
Equity in earnings of affiliates	917		830	1,602	1,115
Net gain on dispositions	—		2	1	2
Other income (loss)	(185)		51	(328)	66
Total Revenues and Other Income	49,309		27,885	86,031	49,812
Costs and Expenses
Purchased crude oil and products	42,645		25,218	76,140	45,283
Operating expenses	1,431		1,175	2,771	2,555
Selling, general and administrative expenses	488		433	921	841
Depreciation and amortization	359		364	697	720
Impairments	2		—	2	198
Taxes other than income taxes	118		119	267	258
Accretion on discounted liabilities	6		6	12	12
Interest and debt expense	133		143	268	289
Foreign currency transaction (gains) losses	21		(9)	19	(9)
Total Costs and Expenses	45,203		27,449	81,097	50,147
Income (loss) before income taxes	4,106		436	4,934	(335)
Income tax expense (benefit)	924		62	1,095	(70)
Net Income (Loss)	3,182		374	3,839	(265)
Less: net income attributable to noncontrolling interests	15		78	90	93
Net Income (Loss) Attributable to Phillips 66	$	3,167	296	3,749	(358)
Net Income (Loss) Attributable to Phillips 66 Per Share of Common Stock (dollars)
Basic	$	6.55	0.66	8.03	(0.83)
Diluted	6.53		0.66	8.00	(0.83)
Weighted-Average Common Shares Outstanding (thousands)
Basic	483,088		439,940	466,286	439,722
Diluted	485,035		440,396	468,338	439,722
See Notes to Consolidated Financial Statements.

1

Consolidated Statement of Comprehensive Income (Loss) Phillips 66

	Millions of Dollars
	Three Months Ended June 30			Six Months Ended June 30
	2022		2021	2022	2021
Net Income (Loss)	$	3,182	374	3,839	(265)
Other comprehensive income (loss)
Defined benefit plans
Net actuarial gain (loss) arising during the period	(13)		210	(13)	210
Amortization of net actuarial loss, prior service credit and settlements	40		47	51	69
Plans sponsored by equity affiliates	1		23	6	29
Income taxes on defined benefit plans	(5)		(68)	(8)	(74)
Defined benefit plans, net of income taxes	23		212	36	234
Foreign currency translation adjustments	(245)		19	(327)	4
Income taxes on foreign currency translation adjustments	3		—	3	—
Foreign currency translation adjustments, net of income taxes	(242)		19	(324)	4
Cash flow hedges	—		1	—	3
Income taxes on hedging activities	—		(1)	—	(1)
Hedging activities, net of income taxes	—		—	—	2
Other Comprehensive Income (Loss), Net of Income Taxes	(219)		231	(288)	240
Comprehensive Income (Loss)	2,963		605	3,551	(25)
Less: comprehensive income attributable to noncontrolling interests	15		78	90	93
Comprehensive Income (Loss) Attributable to Phillips 66	$	2,948	527	3,461	(118)

See Notes to Consolidated Financial Statements.

2

Consolidated Balance Sheet Phillips 66

	Millions of Dollars
	June 30 2022		December 31 2021
Assets
Cash and cash equivalents	$	2,809	3,147
Accounts and notes receivable (net of allowances of $62 million in 2022 and $44 million in 2021)	10,759		6,138
Accounts and notes receivable—related parties	2,634		1,332
Inventories	4,580		3,394
Prepaid expenses and other current assets	1,710		686
Total Current Assets	22,492		14,697
Investments and long-term receivables	14,176		14,471
Net properties, plants and equipment	22,229		22,435
Goodwill	1,486		1,484
Intangibles	812		813
Other assets	1,617		1,694
Total Assets	$	62,812	55,594
Liabilities
Accounts payable	$	12,513	7,629
Accounts payable—related parties	1,139		832
Short-term debt	526		1,489
Accrued income and other taxes	1,723		1,254
Employee benefit obligations	494		638
Other accruals	1,213		959
Total Current Liabilities	17,608		12,801
Long-term debt	12,443		12,959
Asset retirement obligations and accrued environmental costs	708		727
Deferred income taxes	5,444		5,475
Employee benefit obligations	971		1,055
Other liabilities and deferred credits	1,065		940
Total Liabilities	38,239		33,957
Equity
Common stock (2,500,000,000 shares authorized at $0.01 par value)      Issued (2022—651,697,833 shares; 2021—650,026,318 shares)
Par value	7		7
Capital in excess of par	19,717		20,504
Treasury stock (at cost: 2022—170,646,736 shares; 2021—211,771,827 shares)	(13,802)		(17,116)
Retained earnings	19,087		16,216
Accumulated other comprehensive loss	(733)		(445)
Total Stockholders’ Equity	24,276		19,166
Noncontrolling interests	297		2,471
Total Equity	24,573		21,637
Total Liabilities and Equity	$	62,812	55,594

See Notes to Consolidated Financial Statements.

3

Consolidated Statement of Cash Flows Phillips 66

	Millions of Dollars
	Six Months Ended June 30
	2022		2021
Cash Flows From Operating Activities
Net income (loss)	$	3,839	(265)
Adjustments to reconcile net income (loss) to net cash provided by operating    activities
Depreciation and amortization	697		720
Impairments	2		198
Accretion on discounted liabilities	12		12
Deferred income taxes	290		163
Undistributed equity earnings	(490)		(1)
Net gain on dispositions	(1)		(2)
Unrealized investment loss	390		—
Other	120		258
Working capital adjustments
Accounts and notes receivable	(5,634)		(1,518)
Inventories	(1,265)		(821)
Prepaid expenses and other current assets	(1,030)		(413)
Accounts payable	5,285		3,482
Taxes and other accruals	704		201
Net Cash Provided by Operating Activities	2,919		2,014
Cash Flows From Investing Activities
Capital expenditures and investments	(746)		(711)
Return of investments in equity affiliates	48		158
Proceeds from asset dispositions	2		24
Advances/loans—related parties	(75)		(245)
Collection of advances/loans—related parties	101		—
Other	(49)		(45)
Net Cash Used in Investing Activities	(719)		(819)
Cash Flows From Financing Activities
Issuance of debt	—		465
Repayment of debt	(1,481)		(979)
Issuance of common stock	67		24
Repurchase of common stock	(66)		—
Dividends paid on common stock	(871)		(788)
Distributions to noncontrolling interests	(101)		(158)
Repurchase of noncontrolling interests	—		(24)
Other	(37)		(27)
Net Cash Used in Financing Activities	(2,489)		(1,487)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(49)		(15)
Net Change in Cash and Cash Equivalents	(338)		(307)
Cash and cash equivalents at beginning of period	3,147		2,514
Cash and Cash Equivalents at End of Period	$	2,809	2,207

See Notes to Consolidated Financial Statements.

4

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, 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
March 31, 2021	$	6	20,420	(17,116)	15,449	(780)	2,478	20,457
Net income	—		—	—	296	—	78	374
Other comprehensive income	—		—	—	—	231	—	231
Dividends paid on common stock ($0.90 per share)	—		—	—	(394)	—	—	(394)
Benefit plan activity	—		43	—	(4)	—	—	39
Distributions to noncontrolling interests	—		—	—	—	—	(82)	(82)
Repurchase of noncontrolling interests	—		—	—	(2)	—	(21)	(23)
June 30, 2021	$	6	20,463	(17,116)	15,345	(549)	2,453	20,602

	Shares
	Three Months Ended June 30
	Common Stock Issued	Treasury Stock
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
March 31, 2021	649,638,881	211,771,827
Shares issued—share-based compensation	122,354	—
June 30, 2021	649,761,235	211,771,827
See Notes to Consolidated Financial Statements.

5

Consolidated Statement of Changes in Equity Phillips 66

	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, 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
December 31, 2020	$	6	20,383	(17,116)	16,500	(789)	2,539	21,523
Net income (loss)	—		—	—	(358)	—	93	(265)
Other comprehensive income	—		—	—	—	240	—	240
Dividends paid on common stock ($1.80 per share)	—		—	—	(788)	—	—	(788)
Benefit plan activity	—		80	—	(7)	—	—	73
Distributions to noncontrolling interests	—		—	—	—	—	(158)	(158)
Repurchase of noncontrolling interests	—		—	—	(2)	—	(21)	(23)
June 30, 2021	$	6	20,463	(17,116)	15,345	(549)	2,453	20,602

	Shares
	Six Months Ended June 30
	Common Stock Issued	Treasury Stock
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
December 31, 2020	648,643,223	211,771,827
Shares issued—share-based compensation	1,118,012	—
June 30, 2021	649,761,235	211,771,827
See Notes to Consolidated Financial Statements.

6

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 2021 Annual Report on Form 10-K. The results of operations for the three and six months ended June 30, 2022, are not necessarily indicative of the results expected for the full year.

On March 9, 2022, we completed the merger between us and Phillips 66 Partners LP (Phillips 66 Partners). See Note 18—Phillips 66 Partners LP, for additional information on the merger transaction.

Note 2—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
	2022		2021	2022	2021
Product Line and Services
Refined petroleum products	$	39,410	21,876	68,792	38,219
Crude oil resales	5,793		3,204	9,548	6,393
Natural gas liquids (NGL)	3,255		1,943	6,485	3,717
Services and other*	119		(21)	(69)	300
Consolidated sales and other operating revenues	$	48,577	27,002	84,756	48,629
Geographic Location**
United States	$	38,899	21,297	67,784	37,909
United Kingdom	5,043		2,835	8,683	5,122
Germany	1,793		1,038	3,175	1,855
Other foreign countries	2,842		1,832	5,114	3,743
Consolidated sales and other operating revenues	$	48,577	27,002	84,756	48,629
* Includes derivatives-related activities. See Note 11—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.

7

Contract-Related Assets and Liabilities

At June 30, 2022, and December 31, 2021, receivables from contracts with customers were $11,043 million and $6,140 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, 2022, and December 31, 2021, our asset balances related to such payments were $480 million and $466 million, respectively.

Our contract liabilities represent advances from our customers prior to product or service delivery. At June 30, 2022, and December 31, 2021, contract liabilities were not material.

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, 2022, the remaining performance obligations related to these minimum volume commitment contracts were immaterial.

Note 3—Credit Losses

We are exposed to credit losses primarily through our sales of refined petroleum products, crude oil and NGL. 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, such as Coronavirus Disease 2019 (COVID-19), we enhance our credit monitoring, and we may seek collateral to support some transactions or require prepayments from higher-risk counterparties.

At June 30, 2022, and December 31, 2021, we reported $13,393 million and $7,470 million of accounts and notes receivable, respectively, net of allowances of $62 million and $44 million, respectively. Based on an aging analysis at June 30, 2022, 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 9—Guarantees, and Note 10—Contingencies and Commitments, for more information on these off-balance sheet exposures.

8

Note 4—Inventories

Inventories consisted of the following:

	Millions of Dollars
	June 30 2022		December 31 2021
Crude oil and petroleum products	$	4,223	3,024
Materials and supplies	357		370
	$	4,580	3,394

Inventories valued on the last-in, first-out (LIFO) basis totaled $4,005 million and $2,792 million at June 30, 2022, and December 31, 2021, respectively. The estimated excess of current replacement cost over LIFO cost of inventories amounted to approximately $10.5 billion and $5.7 billion at June 30, 2022, and December 31, 2021, 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 $3 million and $43 million in the three and six months ended June 30, 2022, respectively. LIFO inventory liquidations decreased our net income by $54 million in the second quarter of 2021, and increased our net loss by $82 million in the first six months of 2021.

9

Note 5—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 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 indicated that it will not take action to stop pipeline operations while it proceeds with the EIS. In May 2021, the Standing Rock Sioux Tribe’s request for an injunction to force a shutdown of the pipeline while the EIS is being prepared was denied. In June 2021, the trial court dismissed the litigation entirely. Once the EIS is completed, new litigation or challenges to the EIS could be filed.

In September 2021, Dakota Access filed a writ of certiorari, requesting the U.S. Supreme Court to review the lower court’s decision to order the EIS and vacate the easement. In February 2022, the writ was denied, and the requirement to prepare the EIS stands. Completion of the EIS was expected in the fall of 2022, but now may be delayed as the USACE engages with the Standing Rock Sioux Tribe on their reasons for withdrawing as a cooperating agency with respect to preparation of the EIS.

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, 2022, 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, 2022, 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, 2022.

At June 30, 2022, the aggregate book value of our investments in Dakota Access and ETCO was $704 million.

CF United LLC (CF United)

We hold 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 variable interest entity (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, 2022, our maximum exposure to loss was comprised of our $280 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.

10

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, 2022, our maximum exposure to loss was $201 million, which represented the book value of our investment in OnCue of $129 million and guaranteed debt obligations of $