mlp-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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


For the quarterly period ended			September 30, 2020


☐			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:			001-36011

Phillips 66 Partners LP

(Exact name of registrant as specified in its charter)


Delaware						38-3899432
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

2331 CityWest Blvd., Houston, Texas 77042

(Address of principal executive offices) (Zip Code)

(855) 283-9237

(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 Units, Representing Limited Partner Interests

PSXP

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 228,340,146 common units outstanding as of September 30, 2020.

Table of Contents

PHILLIPS 66 PARTNERS LP

TABLE OF CONTENTS


			Page
Part I – Financial Information			1

Item 1. Financial Statements			1
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			21

Item 3. Quantitative and Qualitative Disclosures About Market Risk			36

Item 4. Controls and Procedures			36

Part II – Other Information			37

Item 1. Legal Proceedings			37

Item 1A. Risk Factors			37

Item 6. Exhibits			38

Signatures			39

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS


Consolidated Statement of Income			Phillips 66 Partners LP


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019	2020	2019
Revenues and Other Income
Operating revenues—related parties	$	256	262	750	814
Operating revenues—third parties	9		8	23	21
Equity in earnings of affiliates	129		139	369	395
Gain from equity interest transfer	—		—	84	—
Other income	—		2	2	5
Total revenues and other income	394		411	1,228	1,235

Costs and Expenses
Operating and maintenance expenses	85		91	257	315
Depreciation	35		30	96	88
General and administrative expenses	16		16	50	51
Taxes other than income taxes	9		10	30	30
Interest and debt expense	32		26	89	80
Other expenses	—		—	7	—
Total costs and expenses	177		173	529	564
Income before income taxes	217		238	699	671
Income tax expense	1		1	2	3
Net Income	216		237	697	668
Less: Net income attributable to noncontrolling interest	10		—	10	—
Net Income Attributable to the Partnership	206		237	687	668
Less: Preferred unitholders’ interest in net income attributable to the Partnership	10		9	29	28
Less: General partner’s interest in net income attributable to the Partnership	—		—	—	140
Limited Partners’ Interest in Net Income Attributable to the Partnership	$	196	228	658	500

Net Income Attributable to the Partnership Per Limited Partner Unit (dollars)
Common units—basic	$	0.86	1.18	2.88	3.39
Common units—diluted	0.85		1.15	2.84	3.25



Weighted-Average Limited Partner Units Outstanding (thousands)
Common units—basic	228,340		192,274	228,331	147,368
Common units—diluted	242,160		206,093	242,151	161,187

See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Statement of Comprehensive Income			Phillips 66 Partners LP


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019	2020	2019

Net Income	$	216	237	697	668

Defined benefit plans
Plan sponsored by equity affiliates, net of income taxes	—		—	—	—


Other comprehensive income	—		—	—	—
Comprehensive Income	216		237	697	668
Less: Comprehensive income attributable to noncontrolling interest	10		—	10	—
Comprehensive Income Attributable to the Partnership	$	206	237	687	668
See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Balance Sheet			Phillips 66 Partners LP


	Millions of Dollars
	September 30 2020		December 31 2019
Assets
Cash and cash equivalents	$	2	286
Accounts receivable—related parties	85		101
Accounts receivable—third parties	3		4
Materials and supplies	14		13
Prepaid expenses and other current assets	7		10

Total current assets	111		414
Equity investments	3,373		2,961
Net properties, plants and equipment	3,575		3,349
Goodwill	185		185



Other assets	50		52
Total Assets	$	7,294	6,961

Liabilities
Accounts payable—related parties	$	17	19
Accounts payable—third parties	104		84

Accrued interest	39		42
Deferred revenues	22		16

Short-term debt	340		25
Accrued property and other taxes	28		10
Other current liabilities	3		3
Total current liabilities	553		199

Long-term debt	3,443		3,491
Obligation from equity interest transfer	—		343
Other liabilities	91		94

Total Liabilities	4,087		4,127

Equity
Preferred unitholders (2020 and 2019—13,819,791 units issued and outstanding)	747		746
Common unitholders—public (2020—58,580,009 units issued and outstanding; 2019—58,539,439 units issued and outstanding)	2,734		2,717
Common unitholder—Phillips 66 (2020 and 2019—169,760,137 units issued and outstanding)	(578)		(628)



Accumulated other comprehensive loss	(1)		(1)
Total unitholders’ equity	2,902		2,834
Noncontrolling interest	305		—
Total Equity	3,207		2,834
Total Liabilities and Equity	$	7,294	6,961
See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Statement of Cash Flows			Phillips 66 Partners LP


	Millions of Dollars
	Nine Months Ended September 30
	2020		2019
Cash Flows From Operating Activities
Net income	$	697	668
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	96		88



Undistributed equity earnings	9		7
Gain from equity interest transfer	(84)		—
Other	7		8
Working capital adjustments
Accounts receivable	17		(7)
Materials and supplies	(1)		—
Prepaid expenses and other current assets	3		15
Accounts payable	20		7
Accrued interest	(3)		(3)
Deferred revenues	6		(44)

Other accruals	18		18
Net Cash Provided by Operating Activities	785		757

Cash Flows From Investing Activities



Cash capital expenditures and investments	(796)		(924)
Advances/loans—related party	—		(95)
Collection of advances/loans—related party	—		95
Liberty acquisition	(75)		—
Return of investment from equity affiliates	124		52
Proceeds from sale of equity interest	—		81

Net Cash Used in Investing Activities	(747)		(791)

Cash Flows From Financing Activities



Issuance of debt	290		1,758
Repayment of debt	(25)		(985)
Issuance of common units	2		133

Debt issuance costs	—		(6)

Quarterly distributions to preferred unitholders	(28)		(28)
Quarterly distributions to common unitholders—public	(153)		(142)
Quarterly distributions to common unitholder—Phillips 66	(446)		(174)

Quarterly distributions to General Partner—Phillips 66	—		(206)
Net proceeds from equity interest transfer	40		341
Proceeds from noncontrolling interest	3		—
Distributions to noncontrolling interest	(13)		—
Other distributions from (to) Phillips 66	8		(3)
Net Cash Provided by (Used in) Financing Activities	(322)		688

Net Change in Cash and Cash Equivalents	(284)		654
Cash and cash equivalents at beginning of period	286		1
Cash and Cash Equivalents at End of Period	$	2	655
See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Statement of Changes in Equity			Phillips 66 Partners LP


	Millions of Dollars
	Three Months Ended September 30
	Preferred Unitholders Public		Common Unitholders Public	Common Unitholder Phillips 66	General Partner Phillips 66	Accum. Other Comprehensive Loss	Noncontrolling Interest	Total

June 30, 2020	$	746	2,735	(572)	—	(1)	305	3,213


Net income	10		50	146	—	—	10	216
Quarterly cash distributions to unitholders ($0.875 per common unit)	(9)		(51)	(149)	—	—	—	(209)

Proceeds from noncontrolling interest	—		—	—	—	—	3	3
Distributions to noncontrolling interest	—		—	—	—	—	(13)	(13)
Other distributions to Phillips 66	—		—	(3)	—	—	—	(3)
September 30, 2020	$	747	2,734	(578)	—	(1)	305	3,207

June 30, 2019	$	746	2,555	626	(1,310)	(1)	—	2,616

Issuance of common units	—		91	—	—	—	—	91
Net income	9		67	161	—	—	—	237
Quarterly cash distributions to unitholders and General Partner ($0.855 per common unit)	(9)		(49)	(58)	(70)	—	—	(186)
Conversion of GP economic interest	—		—	(1,384)	1,381	—	—	(3)
Other distributions to Phillips 66	—		—	—	(1)	—	—	(1)
September 30, 2019	$	746	2,664	(655)	—	(1)	—	2,754


	Units
	Three Months Ended September 30
	Preferred Units Public	Common Units Public	Common Units Phillips 66	General Partner Units Phillips 66	Total Units

June 30, 2020	13,819,791	58,580,009	169,760,137	—	242,159,937
Units issued in public equity offerings	—	—	—	—	—
September 30, 2020	13,819,791	58,580,009	169,760,137	—	242,159,937

June 30, 2019	13,819,791	56,178,286	68,760,137	2,480,051	141,238,265
Units issued in public equity offerings	—	1,635,669	—	—	1,635,669
Units issued in conversion of GP economic interest	—	—	101,000,000	(2,480,051)	98,519,949
September 30, 2019	13,819,791	57,813,955	169,760,137	—	241,393,883
See Notes to Consolidated Financial Statements.

Table of Contents


Consolidated Statement of Changes in Equity			Phillips 66 Partners LP


	Millions of Dollars
	Nine Months Ended September 30
	Preferred Unitholders Public		Common Unitholders Public	Common Unitholder Phillips 66	General Partner Phillips 66	Accum. Other Comprehensive Loss	Noncontrolling Interest	Total

December 31, 2019	$	746	2,717	(628)	—	(1)	—	2,834
Issuance of common units	—		2	—	—	—	—	2
Net income	29		168	490	—	—	10	697
Quarterly cash distributions to unitholders ($2.625 per common unit)	(28)		(153)	(446)	—	—	—	(627)
Transfer of equity interest	—		—	—	—	—	305	305
Proceeds from noncontrolling interest	—		—	—	—	—	3	3
Distributions to noncontrolling interest	—		—	—	—	—	(13)	(13)
Other contributions from Phillips 66	—		—	6	—	—	—	6
September 30, 2020	$	747	2,734	(578)	—	(1)	305	3,207

December 31, 2018	$	746	2,485	592	(1,313)	(1)	—	2,509
Cumulative effect of accounting change	—		(1)	—	—	—	—	(1)
Issuance of common units	—		133	—	—	—	—	133
Net income	28		189	311	140	—	—	668
Quarterly cash distributions to unitholders and General Partner ($2.535 per common unit)	(28)		(142)	(174)	(206)	—	—	(550)
Conversion of GP economic interest	—		—	(1,384)	1,381	—	—	(3)
Other distributions to Phillips 66	—		—	—	(2)	—	—	(2)
September 30, 2019	$	746	2,664	(655)	—	(1)	—	2,754


	Units
	Nine Months Ended September 30
	Preferred Units Public	Common Units Public	Common Units Phillips 66	General Partner Units Phillips 66	Total Units

December 31, 2019	13,819,791	58,539,439	169,760,137	—	242,119,367
Units issued in public equity offerings	—	40,570	—	—	40,570
September 30, 2020	13,819,791	58,580,009	169,760,137	—	242,159,937

December 31, 2018	13,819,791	55,343,918	68,760,137	2,480,051	140,403,897
Units issued in public equity offerings	—	2,470,037	—	—	2,470,037
Units issued in conversion of GP economic interest	—	—	101,000,000	(2,480,051)	98,519,949
September 30, 2019	13,819,791	57,813,955	169,760,137	—	241,393,883
See Notes to Consolidated Financial Statements.

Table of Contents


Notes to Consolidated Financial Statements			Phillips 66 Partners LP

Note 1—Description of the Business

Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” or “GP” refer to Phillips 66 Partners GP LLC, and references to “Phillips 66 PDI” refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us and wholly owns our General Partner.

We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. Our operations consist of crude oil, refined petroleum products and natural gas liquids (NGL) transportation, terminaling, processing and storage assets. We conduct our operations through both wholly owned and joint venture operations. The majority of our wholly owned assets are associated with, and are integral to the operation of, nine of Phillips 66’s owned or joint venture refineries. Our operations consist of one reportable segment.

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

Note 2—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 our financial position, 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 audited consolidated financial statements and notes included in our 2019 Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2020, are not necessarily indicative of the results to be expected for the full year.

The Coronavirus Disease 2019 (COVID-19) pandemic continues to result in economic disruption globally. Reduced demand for petroleum products has resulted in decreased volumes through logistics infrastructure. The depth and duration of the economic consequences of the COVID-19 pandemic remain unknown. We continue to assess our long-lived assets and equity investments for impairment in this challenging business environment. Impairments may be required in the future if there is a further deterioration in our projected cash flows.

Note 3—Operating Revenues

Operating revenues are primarily generated from long-term pipeline transportation, terminaling, storage, processing and fractionation lease and service agreements, mainly with Phillips 66. These agreements typically include escalation clauses to adjust transportation tariffs and terminaling and storage fees to reflect changes in price indices. In addition, most of these agreements contain renewal options, which typically require the mutual consent of both our customers and us.

Table of Contents

Total operating revenues disaggregated by asset type were as follows:


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019	2020	2019

Pipelines	$	117	121	325	347
Terminals	36		41	112	120
Storage, processing and other revenues	112		108	336	368
Total operating revenues	$	265	270	773	835

The majority of our agreements with Phillips 66 are considered operating leases under GAAP. The classification of a lease as either an operating or a financing lease requires judgment in assessing the contract’s lease and service components and in determining the asset’s fair value. We have elected to account for lease and service elements of contracts classified as leases on a combined basis, except for leases of processing-type assets, which contain non-ratable fees related to turnaround activity. For these types of leases, we continue to separate the lease and service elements based on relative standalone prices and apply the lease standard to the lease element and the revenue standard to the service element.

Total operating revenues disaggregated by lease and service revenues were as follows:


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019	2020	2019

Lease revenues	$	209	217	622	688
Service revenues	56		53	151	147
Total operating revenues	$	265	270	773	835

Accounts Receivable

We bill our customers, mainly Phillips 66, under our lease and service contracts generally on a monthly basis.

Total accounts receivable by revenue type was as follows:


	Millions of Dollars
	September 30 2020		December 31 2019

Lease receivables	$	69	87
Service receivables	19		18

Total accounts receivable	$	88	105

Table of Contents

Deferred Revenues

Our deferred revenues represent payments received from our customers, mainly Phillips 66, in advance of the period in which lease and service contract performance obligations have been fulfilled. The majority of our deferred revenues relate to a tolling agreement and a storage agreement that are classified as leases. The remainder of our deferred revenues relate to lease and service agreements that contain minimum volume commitments with recovery provisions. Our deferred revenues are recorded in the “Deferred revenues” and “Other liabilities” line items on our consolidated balance sheet.

Total deferred revenues under our lease and service agreements were as follows:


	Millions of Dollars
	September 30 2020		December 31 2019

Deferred lease revenues	$	41	41
Deferred service revenues	3		1
Total deferred revenues	$	44	42

Future Minimum Lease Payments from Customers

At September 30, 2020, future minimum payments to be received under our lease agreements with customers were estimated to be:


	Millions of Dollars

Remainder of 2020	$	178
2021	706
2022	694
2023	648
2024	526
Remaining years	1,389
Total future minimum lease payments from customers	$	4,141

Remaining Performance Obligations

We typically have long-term service contracts with our customers, of which the original durations range from 5 to 15 years. The weighted-average remaining duration of these contracts is 10 years. These contracts include both fixed and variable transaction price components. At September 30, 2020, future service revenues expected to be recognized for the fixed component of the transaction price of our remaining performance obligations from service contracts with our customers that have an original expected duration of greater than one year were:


	Millions of Dollars

Remainder of 2020	$	39
2021	152
2022	151
2023	151
2024	132
Remaining years	756
Total future service revenues	$	1,381

Table of Contents

For the remaining service performance obligations, we applied the exemption for variable prices allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer distinct services as part of a performance obligation.

Note 4—Equity Investments

The following table summarizes the carrying value of our equity investments:


			Millions of Dollars
	Percentage Ownership		September 30 2020		December 31 2019

Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)	25.00	%	$	578	592
Bayou Bridge Pipeline, LLC (Bayou Bridge)	40.00		292		294
DCP Sand Hills Pipeline, LLC (Sand Hills)	33.34		586		595
DCP Southern Hills Pipeline, LLC (Southern Hills)	33.34		215		215
Explorer Pipeline Company (Explorer)	21.94		98		105
Gray Oak Pipeline, LLC	65.00		896		759
Liberty Pipeline LLC (Liberty)	50.00		239		—
Paradigm Pipeline LLC (Paradigm)	50.00		141		143
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)	70.00		66		70
South Texas Gateway Terminal LLC (South Texas Gateway Terminal)	25.00		152		74
STACK Pipeline LLC (STACK)	50.00		110		114
Total equity investments			$	3,373	2,961

Earnings from our equity investments were as follows:


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019	2020	2019

Bakken Pipeline	$	37	58	124	167
Bayou Bridge	6		9	23	21
Sand Hills	33		39	111	113
Southern Hills	11		10	32	34
Explorer	6		12	17	26
Gray Oak Pipeline, LLC	30		(2)	49	(2)
Liberty	—		—	—	—
Paradigm	4		4	10	10
Phillips 66 Partners Terminal	(1)		6	(2)	18
South Texas Gateway Terminal	2		—	2	—
STACK	1		3	3	8
Total equity in earnings of affiliates	$	129	139	369	395

Table of Contents

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

In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $2.5 billion aggregate principal amount of senior unsecured notes, consisting of:

•$650 million aggregate principal amount of 3.625% Senior Notes due 2022.

•$1.0 billion aggregate principal amount of 3.900% Senior Notes due 2024.

•$850 million aggregate principal amount of 4.625% Senior Notes due 2029.

Dakota Access and ETCO have guaranteed repayment of the notes. In addition, we and our co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the ongoing litigation related to an easement granted by the U.S. Army Corps of Engineers (USACE) to allow the pipeline to be constructed under Lake Oahe in North Dakota. Contributions may be required if Dakota Access determines that the issues included in any such final judgment cannot be remediated and Dakota Access has or is projected to have insufficient funds to satisfy repayment of the notes. If Dakota Access undertakes remediation to cure issues raised in a final judgment, contributions may be required if any series of the notes become due, whether by acceleration or at maturity, during such time, to the extent Dakota Access has or is projected to have insufficient funds to pay such amounts. At September 30, 2020, our share of the maximum potential equity contributions under the CECU was approximately $631 million.

In March 2020, the trial court presiding over this litigation ordered the USACE to prepare an Environmental Impact Statement (EIS), and requested additional information to enable a decision on whether the Dakota Access Pipeline should be shut down while the EIS is being prepared. On July 6, 2020, the trial court ordered the Dakota Access Pipeline to be shut down and emptied of crude oil within 30 days, and that the pipeline should remain shut down pending the preparation of the EIS by the USACE, which the USACE has indicated is expected to take approximately 13 months. Dakota Access filed an appeal and a request for a stay of the order, which was granted. The case is now on an expedited appellate track and oral arguments regarding whether the pipeline easement is valid and whether the USACE must prepare an EIS are set for early November 2020, with a decision expected in late 2020 or early 2021. In addition to the proceedings in the appellate court, the trial court has been asked to issue an injunction to shut down the pipeline until the USACE completes the EIS, which could be ruled on as early as late December 2020. If the pipeline is required to cease operations pending the preparation of the EIS, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we also could be asked to support our share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually, in addition to the potential obligations under the CECU.

Summarized financial information for 100% of Dakota Access is as follows:


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019		2020	2019

Revenues	$	196	258		623	748
Income before income taxes	121		189		401	527
Net income	121		189		401	527

Table of Contents

Gray Oak Pipeline, LLC

Gray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. We have a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party exercised its option to acquire a 35% interest in the holding company. Because the holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which was considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP at that time. The Gray Oak Pipeline commenced full operations in the second quarter of 2020 and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the sale under GAAP. Accordingly, at June 30, 2020, the co-venturer’s 35% interest in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet, and the premium of $84 million previously paid by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of income. For the nine months ended September 30, 2020, the co-venturer contributed an aggregate of $64 million to the holding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls. We have an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC, after considering our co-venturer’s 35% interest in the consolidated holding company.

In September 2020, Gray Oak Pipeline, LLC closed its offering of $1.4 billion aggregate principal amount of senior unsecured notes with maturities ranging from 2023 to 2027. These senior notes are not guaranteed by the Partnership or any of its co-venturers. Net proceeds from the offering were used to repay a third-party term loan of $1,379 million, and for general company purposes. Concurrent with the full repayment of the third-party term loan facility, the associated guarantee we issued through an equity contribution agreement was terminated.

During its development phase, Gray Oak Pipeline, LLC was considered a variable interest entity (VIE) because it did not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We determined we were not the primary beneficiary because we and our co-venturers jointly directed the activities of Gray Oak Pipeline, LLC that most significantly impact economic performance. The Gray Oak Pipeline commenced full operations in the second quarter of 2020 and ceased being a VIE.

Liberty

In February 2020, we entered into a Purchase and Sale Agreement with Phillips 66 PDI to acquire its 50% interest in the Liberty Pipeline joint venture for $75 million. The purchase price reflected the reimbursement of project costs incurred by Phillips 66 prior to the effective date of the transaction. The transaction was funded through a combination of cash on hand and our revolving credit facility, and closed on March 2, 2020. Liberty was formed to develop and construct the Liberty Pipeline system which, upon completion, will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. On March 24, 2020, we and our co-venturer announced we are deferring the development and construction of the Liberty Pipeline system as a result of the current challenging business environment.

Liberty is considered a VIE because it does not have sufficient equity at risk to fully fund the construction of all assets required for principal operations. We have determined we are not the primary beneficiary because we and our co-venturer jointly direct the activities of Liberty that most significantly impact economic performance. At September 30, 2020, our maximum exposure to loss was $239 million, which represented the aggregate book value of our equity investment in Liberty. At September 30, 2020, Phillips 66 had an outstanding guarantee of $13 million to vendors for our proportionate share of the payment of certain purchase obligations of Liberty.

Note 5—Net Income Per Limited Partner Unit

Net income per limited partner unit applicable to common units is computed by dividing the limited partners’ interest in net income by the weighted-average number of common units outstanding for the period. Prior to August 1, 2019, we had more than one class of participating securities and used the two-class method to calculate net income per unit applicable to the limited partners. The classes of participating securities prior to August 1, 2019, included common units, general partner units and incentive distribution rights (IDRs). Effective August 1, 2019, common units are the only participating securities. For the three and nine months ended September 30, 2020 and 2019, our preferred units are potentially dilutive securities and were dilutive to net income per limited partner unit.

Table of Contents

Net income earned by the Partnership is allocated between the classes of participating securities in accordance with our partnership agreement, after giving effect to priority income allocations to the holders of the preferred units. First, earnings are allocated based on actual cash distributions declared to our unitholders. To the extent net income exceeds or is less than cash distributions declared, this difference is allocated based on the unitholders’ respective ownership percentages, after consideration of any priority allocations of earnings. For the diluted net income per limited partner unit calculation, the preferred units are assumed to be converted at the beginning of the period into common limited partner units on a one-for-one basis, and the distribution formula for available cash in our partnership agreement is recalculated, using the original available cash amount increased only for the preferred distributions which would not have been paid after conversion.


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019		2020	2019

Net income attributable to the Partnership	$	206	237		687	668
Less:
General partners’ distributions declared (including IDRs)*	—		—		—	139
Limited partners’ distributions declared on preferred units*	10		9		29	28
Limited partners’ distributions declared on common units*	200		197		599	409
Distributions less than (more than) net income attributable to the Partnership	$	(4)	31		59	92

*Distributions declared are attributable to the indicated periods.


	Limited Partners’ Common Units		Limited Partners’ Preferred Units	Total
Three Months Ended September 30, 2020
Net income attributable to the Partnership (millions):
Distributions declared	$	200	10	210
Distributions more than net income attributable to the Partnership	(4)		—	(4)
Net income attributable to the Partnership (basic)	196		10	206
Dilutive effect of preferred units	10
Net income attributable to the Partnership (diluted)	$	206

Weighted-average units outstanding—basic	228,340,146
Dilutive effect of preferred units	13,819,791
Weighted-average units outstanding—diluted	242,159,937

Net income attributable to the Partnership per limited partner unit—basic (dollars)	$	0.86
Net income attributable to the Partnership per limited partner unit—diluted (dollars)	0.85

Table of Contents


	Limited Partners’ Common Units		Limited Partners’ Preferred Units	Total
Three Months Ended September 30, 2019
Net income attributable to the Partnership (millions):
Distributions declared	$	197	9	206
Distributions less than net income attributable to the Partnership	31		—	31
Net income attributable to the Partnership (basic)	228		9	237
Dilutive effect of preferred units	9
Net income attributable to the Partnership (diluted)	$	237

Weighted-average units outstanding—basic	192,273,672
Dilutive effect of preferred units	13,819,792
Weighted-average units outstanding—diluted	206,093,464

Net income attributable to the Partnership per limited partner unit—basic (dollars)	$	1.18
Net income attributable to the Partnership per limited partner unit—diluted (dollars)	1.15


	Limited Partners’ Common Units		Limited Partners’ Preferred Units	Total
Nine Months Ended September 30, 2020
Net income attributable to the Partnership (millions):
Distributions declared	$	599	29	628
Distributions less than net income attributable to the Partnership	59		—	59
Net income attributable to the Partnership (basic)	658		29	687
Dilutive effect of preferred units	29
Net income attributable to the Partnership (diluted)	$	687

Weighted-average units outstanding—basic	228,330,885
Dilutive effect of preferred units	13,819,791
Weighted-average units outstanding—diluted	242,150,676

Net income attributable to the Partnership per limited partner unit—basic (dollars)	$	2.88
Net income attributable to the Partnership per limited partner unit—diluted (dollars)	2.84

Table of Contents


	Limited Partners’ Common Units		General Partner (including IDRs)	Limited Partners’ Preferred Units	Total
Nine Months Ended September 30, 2019
Net income attributable to the Partnership (millions):
Distributions declared	$	409	139	28	576
Distributions less than net income attributable to the Partnership	91		1	—	92
Net income attributable to the Partnership (basic)	500		140	28	668
Dilutive effect of preferred units*	23
Net income attributable to the Partnership (diluted)	$	523

Weighted-average units outstanding—basic	147,367,681
Dilutive effect of preferred units*	13,819,791
Weighted-average units outstanding—diluted	161,187,472

Net income attributable to the Partnership per limited partner unit—basic (dollars)	$	3.39
Net income attributable to the Partnership per limited partner unit—diluted (dollars)	3.25
*The dilutive effect of preferred units assumes the reallocation of net income attributable to the partnership to the limited and general partners, including a reallocation associated with IDRs, pursuant to the available cash formula in the partnership agreement.

On October 20, 2020, the Board of Directors of our General Partner declared a quarterly cash distribution of $0.875 per common unit, which will result in a total distribution of $200 million attributable to the third quarter of 2020. This distribution is payable on November 13, 2020, to common unitholders of record as of October 30, 2020.

Note 6—Properties, Plants and Equipment

Our investment in properties, plants and equipment (PP&E), with the associated accumulated depreciation, was:


	Millions of Dollars
	September 30 2020		December 31 2019

Land	$	19	19
Buildings and improvements	95		94
Pipelines and related assets*	1,522		1,424
Terminals and related assets*	840		741
Rail racks and related assets*	137		137
Processing and related assets*	1,058		1,041
Caverns and related assets*	742		585
Construction-in-progress	312		367
Gross PP&E	4,725		4,408
Accumulated depreciation	(1,150)		(1,059)
Net PP&E	$	3,575	3,349
*Assets for which we are the lessor.

Table of Contents

Note 7—Debt


	Millions of Dollars
	September 30 2020		December 31 2019

2.450% Senior Notes due December 2024	$	300	300
3.605% Senior Notes due February 2025	500		500
3.550% Senior Notes due October 2026	500		500
3.750% Senior Notes due March 2028	500		500
3.150% Senior Notes due December 2029	600		600
4.680% Senior Notes due February 2045	450		450
4.900% Senior Notes due October 2046	625		625

Tax-exempt bonds due April 2020 and April 2021 at 0.535% and 1.85% at September 30, 2020, and December 31, 2019, respectively	50		75
Revolving credit facility borrowings due October 2020 at 1.401%	290		—
Debt at face value	3,815		3,550
Net unamortized discounts and debt issuance costs	(32)		(34)
Total debt	3,783		3,516
Short-term debt	(340)		(25)
Long-term debt	$	3,443	3,491

The fair value of our fixed-rate and floating-rate debt is estimated based on observable market prices and is classified as Level 2 of the fair value hierarchy. The fair value of our fixed-rate debt was $3,567 million and $3,650 million at September 30, 2020, and December 31, 2019, respectively. The fair value of our floating-rate debt approximated carrying value of $340 million and $75 million at September 30, 2020, and December 31, 2019, respectively.

At September 30, 2020, borrowings of $290 million were outstanding and $3 million in letters of credit had been drawn under our $750 million revolving credit facility.

On April 1, 2020, we repaid the $25 million tranche of tax-exempt bonds due April 2020. The two remaining tranches, totaling $50 million, mature in April 2021.

Note 8—Contingencies

From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against 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 sites. We regularly assess the need for accounting 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 less than certain.

Table of Contents

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 any 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 federal, state and local environmental laws and regulations. We record accruals for contingent environmental liabilities based on management’s best estimates, using all information that is available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency 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.

In the future, we may be involved in additional environmental assessments, cleanups and proceedings.

Legal Proceedings

Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal support services, and we pay an operational and administrative support fee for these services. Phillips 66’s 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. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables 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, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. As of September 30, 2020, and December 31, 2019, we did not have any material accrued contingent liabilities associated with litigation matters.

Indemnification and Excluded Liabilities

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

Table of Contents

Note 9—Equity

ATM Programs

We have authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. The first two programs concluded in June 2018 and December 2019, respectively. We did not issue any common units under the current ATM program during the three months ended September 30, 2020. For the nine months ended September 30, 2020, on a settlement date basis, we issued an aggregate of 40,570 common units, generating net proceeds of $2 million. For the three and nine months ended September 30, 2019, we issued an aggregate of 1,635,669 and 2,470,037 common units, respectively, generating net proceeds of $91 million and $133 million, respectively. Since inception in June 2016 through September 30, 2020, we issued an aggregate of 9,487,055 common units under our ATM programs, and generated net proceeds of $494 million, after broker commissions of $5 million and other costs of $3 million. The net proceeds from sales under the ATM programs are used for general partnership purposes, which may include debt repayment, acquisitions, capital expenditures and additions to working capital.

Restructuring Transaction

On August 1, 2019, we closed on the transactions contemplated by the Partnership Interests Restructuring Agreement, dated July 24, 2019, entered into with our General Partner. Pursuant to this agreement, all of the outstanding IDRs held by our General Partner were eliminated and its approximately 2% general partner interest in us was converted into a non-economic general partner interest; both in exchange for an aggregate of 101 million common units issued to Phillips 66 PDI. Because these transactions were between entities under common control, the common units issued to Phillips 66 PDI were not assigned any value; rather, our General Partner’s negative equity balance of $1.4 billion at August 1, 2019, was transferred to Phillips 66’s limited partner equity account.

Note 10—Related Party Transactions

Commercial Agreements

We have entered into long-term, fee-based commercial agreements with Phillips 66 to provide transportation, terminaling, storage, stevedoring, fractionation, processing, and rail terminal services. Under these agreements, Phillips 66 commits to provide us with minimum transportation, throughput or storage volumes, or minimum monthly service fees. If Phillips 66 does not meet its minimum volume commitments under an agreement, Phillips 66 pays us a deficiency payment based on the calculation described in the agreement.

Amended and Restated Operational Services Agreement

Under our amended and restated operational services agreement, we reimburse Phillips 66 for certain operational services provided in support of our pipelines, terminaling, processing, and storage facilities. These services include routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as we and Phillips 66 may mutually agree upon from time to time.

Amended Omnibus Agreement

The amended omnibus agreement addresses our payment of an operating and administrative support fee and our obligation to reimburse Phillips 66 for all other direct or allocated costs and expenses incurred by Phillips 66 in providing general and administrative services. Additionally, the omnibus agreement addresses Phillips 66’s indemnification to us and our indemnification to Phillips 66 for certain environmental and other liabilities. Further, it addresses the granting of a license from Phillips 66 to us with respect to the use of certain Phillips 66 trademarks.

The operational and administrative support fee is for the provision of certain services, including: logistical services; asset oversight, such as operational management and supervision; corporate engineering services, including asset integrity and regulatory services; business development services; executive services; financial and administrative services (including treasury and accounting); information technology; legal services; corporate health, safety and environmental services; facility services; human resources services; procurement services; investor relations; tax matters; and public company reporting services. We pay Phillips 66 an operational and administrative support fee under the terms of our amended omnibus agreement in the amount of $8 million per month.

Table of Contents

We also reimburse Phillips 66 for all other direct or allocated costs incurred on behalf of us, pursuant to the terms of our amended omnibus agreement. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the functional nature of the services performed for our operations. Under our amended and restated operational services agreement, we reimburse Phillips 66 for the provision of certain operational services in support of our operating assets. Additionally, we pay Phillips 66 for insurance services provided to us, and recoveries under these policies are recorded as an offset to our expenses. Operating and maintenance expenses also include volumetric gains and losses associated with volumes transported by Phillips 66.

Tax Sharing Agreement

Under our tax sharing agreement, we reimburse Phillips 66 for our share of state and local income and other taxes incurred by Phillips 66 due to our results of operations being included in a combined or consolidated tax return filed by Phillips 66. Any reimbursement is limited to the tax that we (and our subsidiaries) would have paid had we not been included in a combined group with Phillips 66. Phillips 66 may use its tax attributes to cause its combined or consolidated group to owe no tax; however, we would nevertheless reimburse Phillips 66 for the tax we would have owed, even though Phillips 66 had no cash expense for that period.

Related Party Transactions

Significant related party transactions included in our costs and expenses were:


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019		2020	2019

Operating and maintenance expenses	$	46	48		136	203
General and administrative expenses	15		14		46	47

Other related party balances were included in the following line items on our consolidated balance sheet, all of which were related to commercial agreements with Phillips 66:


	Millions of Dollars
	September 30 2020		December 31 2019

Prepaid expenses and other current assets	$	4	7
Other assets	48		44
Deferred revenues	22		16
Other current liabilities	1		1
Other liabilities	66		70

Equity Affiliate Arrangements

In March 2019, we and our co-venturers in Dakota Access provided a CECU in conjunction with a senior unsecured notes offering. See Note 4—Equity Investments, for additional information.

In September 2020, concurrent with the full repayment of a third-party term loan facility by Gray Oak Pipeline, LLC, the associated guarantee we issued through an equity contribution agreement was terminated. See Note 4—Equity Investments, for additional information.

Table of Contents

Note 11—Cash Flow Information

Capital Expenditures and Investments

Our capital expenditures and investments consisted of:


	Millions of Dollars
	Nine Months Ended September 30
	2020		2019

Cash capital expenditures and investments	$	796	924
Change in capital expenditure accruals	(1)		(17)
Total capital expenditures and investments	$	795	907

Table of Contents

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

Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” refer to Phillips 66 Partners GP LLC, and references to “Phillips 66 PDI” refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us and wholly owns our General Partner.

Management’s Discussion and Analysis is the Partnership’s analysis of its financial performance, financial condition, and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the Partnership’s plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions normally identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The Partnership does not undertake to update, revise or correct any 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 Partnership’s disclosures under the heading: “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.”

BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW

Partnership Overview

Our common units trade on the New York Stock Exchange under the symbol PSXP.

How We Evaluate Our Operations

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

Volumes Handled

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

Table of Contents

Operating and Maintenance Expenses

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

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

EBITDA, Adjusted EBITDA and Distributable Cash Flow

We define EBITDA as net income (loss) plus net interest expense, income taxes, depreciation and amortization.

Adjusted EBITDA is EBITDA attributable to the Partnership after deducting the adjusted EBITDA attributable to noncontrolling interest, further adjusted for:

•The proportional share of equity affiliates’ net interest expense, income taxes and depreciation and amortization.

•Transaction costs associated with acquisitions.

•Certain other noncash items, including expenses indemnified by Phillips 66.

Distributable cash flow is defined as adjusted EBITDA less (i) equity affiliate distributions less than proportional EBITDA, (ii) maintenance capital expenditures, (iii) net interest expense, (iv) income taxes paid and (v) preferred unit distributions, plus adjustments for deferred revenue impacts.

EBITDA, adjusted EBITDA, and distributable cash flow are not presentations made in accordance with generally accepted accounting principles in the United States (GAAP). EBITDA, adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management believes external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may find useful to assess:

•Our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA and adjusted EBITDA, financing methods.

•The ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders.

•Our ability to incur and service debt and fund capital expenditures.

•The viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Table of Contents

The GAAP performance measure most directly comparable to EBITDA and adjusted EBITDA is net income. The GAAP liquidity measure most directly comparable to EBITDA and distributable cash flow is net cash provided by operating activities. These non-GAAP financial measures should not be considered alternatives to GAAP net income or net cash provided by operating activities. They have important limitations as analytical tools because they exclude some items that affect net income and net cash provided by operating activities. Additionally, because EBITDA, adjusted EBITDA, and distributable cash flow may be defined differently by other companies in our industry, our definition of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

Business Environment

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

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

The Coronavirus Disease 2019 (COVID-19) pandemic continues to result in economic disruption globally. Actions taken by governments to prevent the spread of the disease have included travel and business restrictions, which have resulted in substantial decreases in the demand for crude oil and many refined petroleum products, particularly gasoline and jet fuel. The lack of demand for petroleum products has resulted in low crude oil prices and refining margins. As a result, crude oil producers have shut in high cost production and refiners have reduced crude oil processing rates. These actions have reduced throughput volumes on both our and our joint ventures’ assets.

The near-term outlook for petroleum product demand remains highly uncertain, and margins and volumes remain challenged. Our customers, including Phillips 66, may continue to experience adverse economic effects in the near term as the depth and duration of the economic consequences of the COVID-19 pandemic remain unknown. We continue to assess our long-lived assets and equity investments for impairment in this challenging business environment. Impairments may be required in the future if there is a further deterioration in our projected cash flows.

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

Table of Contents

RESULTS OF OPERATIONS

Unless otherwise indicated, discussion of results for the three and nine months ended September 30, 2020, is based on a comparison with the corresponding periods of 2019.


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019		2020	2019
Revenues and Other Income
Operating revenues—related parties	$	256	262		750	814
Operating revenues—third parties	9		8		23	21
Equity in earnings of affiliates	129		139		369	395
Gain from equity interest transfer	—		—		84	—
Other income	—		2		2	5
Total revenues and other income	394		411		1,228	1,235

Costs and Expenses
Operating and maintenance expenses	85		91		257	315
Depreciation	35		30		96	88
General and administrative expenses	16		16		50	51
Taxes other than income taxes	9		10		30	30
Interest and debt expense	32		26		89	80
Other expenses	—		—		7	—
Total costs and expenses	177		173		529	564
Income before income taxes	217		238		699	671
Income tax expense	1		1		2	3
Net Income	216		237		697	668
Less: Net income attributable to noncontrolling interest	10		—		10	—

Net Income Attributable to the Partnership	206		237		687	668
Less: Preferred unitholders’ interest in net income attributable to the Partnership	10		9		29	28
Less: General partner’s interest in net income attributable to the Partnership	—		—		—	140
Limited Partners’ Interest in Net Income Attributable to the Partnership	$	196	228		658	500

Net Cash Provided by Operating Activities	$	296	276		785	757

Adjusted EBITDA	$	313	323		903	923

Distributable Cash Flow	$	243	255		730	735

Table of Contents


	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019		2020	2019
Wholly Owned Operating Data
Pipelines
Pipeline revenues (millions of dollars)	$	117	121		325	347
Pipeline volumes(1) (thousands of barrels daily)
Crude oil	867		998		871	986
Refined petroleum products and NGL	907		990		866	918
Total	1,774		1,988		1,737	1,904

Average pipeline revenue per barrel (dollars)	$	0.71	0.66		0.68	0.67

Terminals
Terminal revenues (millions of dollars)	$	36	41		112	120
Terminal throughput (thousands of barrels daily)
Crude oil(2)	296		493		378	473
Refined petroleum products	700		819		713	788
Total	996		1,312		1,091	1,261

Average terminaling revenue per barrel (dollars)	$	0.39	0.33		0.37	0.34

Storage, processing and other revenues (millions of dollars)	$	112	108		336	368
Total Operating Revenues (millions of dollars)	$	265	270		773	835

Joint Venture Operating Data(3)
Crude oil, refined petroleum products and NGL (thousands of barrels daily)	1,142		786		975	749

(1) Represents the sum of volumes transported through each separately tariffed pipeline segment.

(2) Bayway and Ferndale rail rack volumes included in crude oil terminals.

(3) Proportional share of total pipeline and terminal volumes of joint ventures consistent with recognized equity in earnings of affiliates.

Table of Contents

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


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019		2020	2019
Reconciliation to Net Income Attributable to the Partnership
Net Income Attributable to the Partnership	$	206	237		687	668
Plus:
Net income attributable to noncontrolling interest	10		—		10	—
Net Income	216		237		697	668
Plus:
Depreciation	35		30		96	88
Net interest expense	31		25		88	78
Income tax expense	1		1		2	3
EBITDA	283		293		883	837
Plus:
Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization	45		30		118	85
Expenses indemnified or prefunded by Phillips 66	1		—		1	1
Transaction costs associated with acquisitions	—		—		1	—
Less:
Gain from equity interest transfer	—		—		84	—
Adjusted EBITDA attributable to noncontrolling interest	16		—		16	—
Adjusted EBITDA	313		323		903	923
Plus:
Deferred revenue impacts*†	(3)		—		4	(4)
Less:
Equity affiliate distributions less than (more than) proportional EBITDA	4		9		(5)	31
Maintenance capital expenditures†	21		25		64	46
Net interest expense	31		25		88	78
Preferred unit distributions	10		9		29	28
Income taxes paid	1		—		1	1
Distributable Cash Flow	$	243	255		730	735

*Difference between cash receipts and revenue recognition.

†Excludes Merey Sweeny capital reimbursements and turnaround impacts.

Table of Contents


	Millions of Dollars
	Three Months Ended September 30			Nine Months Ended September 30
	2020		2019		2020	2019
Reconciliation to Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities	$	296	276		785	757
Plus:
Net interest expense	31		25		88	78
Income tax expense	1		1		2	3
Changes in working capital	(45)		(9)		(60)	14
Undistributed equity earnings	—		(4)		(9)	(7)
Gain from equity interest transfer	—		—		84	—
Deferred revenues and other liabilities	1		2		3	(6)
Other	(1)		2		(10)	(2)
EBITDA	283		293		883	837
Plus:
Proportional share of equity affiliates’ net interest, taxes and depreciation and amortization	45		30		118	85
Expenses indemnified or prefunded by Phillips 66	1		—		1	1
Transaction costs associated with acquisitions	—		—		1	—
Less:
Gain from equity interest transfer	—		—		84	—
Adjusted EBITDA attributable to noncontrolling interest	16		—		16	—

Adjusted EBITDA	313		323		903	923
Plus:
Deferred revenue impacts*†	(3)		—		4	(4)



Less:
Equity affiliate distributions less than (more than) proportional EBITDA	4		9		(5)	31
Maintenance capital expenditures†	21		25		64	46
Net interest expense	31		25		88	78
Preferred unit distributions	10		9		29	28
Income taxes paid	1		—		1	1
Distributable Cash Flow	$	243	255		730	735

*Difference between cash receipts and revenue recognition.

†Excludes Merey Sweeny capital reimbursements and turnaround impacts.

Statement of Income Analysis

Operating revenues decreased $62 million, or 7%, in the nine-month period of 2020. The decrease was primarily attributable to the recognition of deferred revenues related to turnaround activity at Merey Sweeny LLC (Merey Sweeny) in the first quarter of 2019, as well as lower volumes, partially offset by increased rates.

Equity in earnings of affiliates decreased $10 million, or 7%, and decreased $26 million, or 7%, in the third quarter and nine-month period of 2020, respectively. The decreases in both periods were primarily due to decreased volumes, partially offset by an increase in equity earnings from Gray Oak Pipeline, LLC, which commenced full operations during the second quarter of 2020. See Note 4—Equity Investments, in the Notes to Consolidated Financial Statements, for additional information.

Table of Contents

Gain on equity interest transfer reflects the second-quarter 2020 gain recognition related to a co-venturer’s prior-year acquisition of a 35% interest in the consolidated holding company that owns an interest in Gray Oak Pipeline, LLC. See Note 4—Equity Investments, in the Notes to Consolidated Financial Statements, for additional information.

Operating and maintenance expenses decreased $58 million, or 18%, in the nine-month period of 2020. The decrease was primarily due to turnaround activity at Merey Sweeny in 2019.

Depreciation increased $5 million, or 17%, and increased $8 million, or 9%, in the third quarter and nine-month period of 2020, respectively. The increases in both periods were attributable to additional assets placed in operation, including the isomerization unit at the Phillips 66 Lake Charles Refinery and additional storage capacity at Clemens Caverns.

Interest and debt expense increased $6 million, or 23%, and increased $9 million, or 11%, in the third quarter and nine-month period of 2020, respectively. The increases in both periods were attributable to lower capitalized interest and increased borrowings on our revolving credit facility.

CAPITAL RESOURCES AND LIQUIDITY

Significant Sources of Capital

Our sources of liquidity include cash generated from operations, distributions from our equity affiliates, borrowings from related parties and under our revolving credit facility, issuances of additional debt and equity securities, and funding from joint venture partners. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements, long-term capital expenditure requirements and our quarterly cash distributions.

Operating Activities

We generated $785 million in cash from operations during the first nine months of 2020, an improvement of $28 million compared with the corresponding period of 2019. The improvement was primarily driven by lower operating and maintenance expenses, partly offset by lower operating distributions from equity affiliates.

Equity Affiliate Operating Distributions

Our operating cash flows are also impacted by distribution decisions made by our equity affiliates. During the first nine months of 2020, cash from operations included distributions of $378 million from our equity affiliates, compared with $402 million during the same period of 2019. We cannot control the amount or timing of future distributions from equity affiliates; therefore, future distributions are not assured.

ATM Programs

Revolving Credit Facility

At September 30, 2020, borrowings of $290 million were outstanding and $3 million in letters of credit had been drawn under our $750 million revolving credit facility.

Table of Contents

Transfer of Equity Interest

Off-Balance Sheet Arrangements

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

In March 2019, a wholly owned subsidiary of Dakota Access closed an offering of $2.5 billion aggregate principal amount of senior unsecured notes, consisting of:

•$650 million aggregate principal amount of 3.625% Senior Notes due 2022.

•$1.0 billion aggregate principal amount of 3.900% Senior Notes due 2024.

•$850 million aggregate principal amount of 4.625% Senior Notes due 2029.

Table of Contents

Gray Oak Pipeline, LLC

Gray Oak Pipeline, LLC had a third-party term loan facility with a borrowing capacity of $1,379 million, inclusive of accrued interest. Borrowings under the facility were due on June 3, 2022. We and our co-venturers provided a guarantee through an equity contribution agreement requiring proportionate equity contributions to Gray Oak Pipeline, LLC up to the total outstanding loan amount, plus any additional accrued interest and associated fees, if Gray Oak Pipeline, LLC defaults on certain of its obligations thereunder. In September 2020, Gray Oak Pipeline, LLC fully repaid the outstanding balance of the term loan facility and the associated guarantee we issued through an equity contribution agreement was terminated.

Capital Requirements

Liberty Acquisition

In February 2020, we entered into a Purchase and Sale Agreement with Phillips 66 PDI to acquire its 50% interest in the Liberty Pipeline joint venture for $75 million. The purchase price reflected the reimbursement of project costs incurred by Phillips 66 prior to the effective date of the transaction. The transaction was funded through a combination of cash on hand and our revolving credit facility, and closed on March 2, 2020. Liberty Pipeline LLC was formed to develop and construct the Liberty Pipeline system which, upon completion, will transport crude oil from the Rockies and Bakken production areas to Cushing, Oklahoma. On March 24, 2020, we and our co-venturer announced we are deferring the development and construction of the Liberty Pipeline system as a result of the current challenging business environment.

Capital Expenditures and Investments

Our operations are capital intensive and require investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational requirements of our wholly owned and joint venture entities. Our capital requirements consist of maintenance and expansion capital expenditures, as well as contributions to our joint ventures. Maintenance capital expenditures are those made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or to maintain existing system volumes and related cash flows. In contrast, expansion capital expenditures are those made to expand and upgrade our systems and facilities and to construct or acquire new systems or facilities to grow our business, including contributions to joint ventures that are using the contributed funds for such purposes.

Our capital expenditures and investments represent the total spending for our capital requirements. Our adjusted capital spending is a non-GAAP financial measure that demonstrates our net share of capital spending, and reflects an adjustment for the portion of consolidated capital spending funded by certain joint venture partners. Additionally, the disaggregation of adjusted capital spending between expansion and maintenance is not a distinction recognized under GAAP. We disaggregate adjusted capital spending because our partnership agreement requires that we treat expansion and maintenance capital differently for operating and capital surplus determinations. Further, we generally fund expansion capital spending with both operating and financing cash flows and fund maintenance capital spending with operating cash flows.

Our capital expenditures and investments were:


	Millions of Dollars
	Nine Months Ended September 30
	2020		2019
Capital Expenditures and Investments
Capital expenditures and investments	$	795	907
Capital expenditures and investments funded by certain joint venture partners*	(64)		(422)
Adjusted Capital Spending	$	731	485

Expansion	$	667	433
Maintenance	64		52

*See Note 4—Equity Investments, in the Notes to Consolidated Financial Statements, for additional information.

Table of Contents

Our capital expenditures and investments for the first nine months of 2020 were primarily associated with the following activities:

•Contributions to Gray Oak Pipeline, LLC to complete construction of the pipeline system.

•Contributions to Liberty Pipeline LLC for its previous commitments related to the development and construction of the crude oil pipeline system.

•Construction activities related to a new ethane pipeline from the Clemens Caverns to petrochemical facilities in Gregory, Texas, near Corpus Christi.

•Contributions to South Texas Gateway Terminal for construction activities related to the marine export terminal that connects to the Gray Oak Pipeline in Corpus Christi, Texas.

•Completion of construction activities related to increasing capacity on the Sweeny to Pasadena refined petroleum products pipeline.

•Completion of construction activities related to increasing storage capacity at Clemens Caverns.

•Spending associated with other return, reliability and maintenance projects.

2021 Capital Budget

We currently expect our 2021 capital budget to be approximately $300 million.

Cash Distributions

The holders of our preferred units are entitled to receive cumulative quarterly distributions equal to $0.678375 per preferred unit. Preferred unitholders will receive $10 million of distributions attributable to the third quarter of 2020. This distribution is payable on November 13, 2020, to preferred unitholders of record as of October 30, 2020.

Beginning with the distribution to preferred unitholders attributable to the fourth quarter of 2020, the preferred unitholders are entitled to receive a quarterly distribution equal to the greater of $0.678375 per unit, or the per-unit distribution amount paid to the common unitholders.

Debt Repayment

On April 1, 2020, we repaid the $25 million tranche of tax-exempt bonds due April 2020. The two remaining tranches, totaling $50 million, mature in April 2021.

Contingencies

Table of Contents

Regulatory Matters

Our interstate common carrier crude oil and refined petroleum products pipeline operations are subject to rate regulation by the Federal Energy Regulatory Commission under the Interstate Commerce Act and Energy Policy Act of 1992, and certain of our pipeline systems providing intrastate service are subject to rate regulation by applicable state authorities under their respective laws and regulations. Our pipeline, rail rack and terminal operations are also subject to safety regulations adopted by the Department of Transportation, as well as to state regulations.

Legal and Tax Matters

Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal and tax support services, and we pay an operational and administrative support fee for these services. Phillips 66’s legal and tax organizations apply their knowledge, experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. Phillips 66’s legal organization employs a litigation management process to manage and monitor the legal proceedings against us. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables 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, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and recommends if adjustment of existing accruals, or establishment of new accruals, is required. As of September 30, 2020, and December 31, 2019, we did not have any material accrued contingent liabilities associated with litigation matters.

Environmental

We are subject to extensive federal, state and local environmental laws and regulations. These requirements, which frequently change, regulate the discharge of materials into the environment or otherwise relate to protection of the environment. Compliance with these laws and regulations may require us to remediate environmental damage from any discharge of petroleum or chemical substances from our facilities or require us to install additional pollution control equipment at or on our facilities. Our failure to comply with these or any other environmental or safety-related regulations could result in the assessment of administrative, civil, or criminal penalties, the imposition of investigatory and remedial liabilities, and the issuance of governmental orders that may subject us to additional operational constraints. Future expenditures may be required to comply with the Federal Clean Air Act and other federal, state and local requirements in respect of our various sites, including our pipelines and storage assets. The impact of legislative and regulatory developments, if enacted or adopted, could result in increased compliance costs and additional operating restrictions on our business, each of which could have an adverse impact on our financial position, results of operations and liquidity.

As with all costs, if these expenditures are not ultimately recovered in the tariffs and other fees we receive for our services, our operating results will be adversely affected. We believe that substantially all similarly situated parties and holders of comparable assets must comply with similar environmental laws and regulations. However, the specific impact on each may vary depending on a number of factors, including, but not limited to, the age and location of its operating facilities.

Table of Contents

We accrue for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs can be reasonably estimated. As environmental remediation matters proceed toward ultimate resolution or as additional remediation obligations arise, charges in excess of those previously accrued may be required. New or expanded environmental requirements, which could increase our environmental costs, may arise in the future. We believe we are in substantial compliance with all legal obligations regarding the environment and have established the environmental accruals that are currently required; however, it is not possible to predict all of the ultimate costs of compliance, including remediation costs that may be incurred and penalties that may be imposed, because not all of the costs are fixed or presently determinable (even under existing legislation) and the costs may be affected by future legislation or regulations.

Indemnification and Excluded Liabilities

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

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements. 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, although the absence of these words does not mean that a statement is not forward-looking.

We based the forward-looking statements on our current expectations, estimates and projections about us, our operations, the operations of our joint ventures and the entities in which we own equity interests, as well as the industries in which we and they operate in general. We caution you these statements are not guarantees of future performance as they 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 the forward-looking statements. Any differences could result from a variety of factors, including the following:

•The continued ability of Phillips 66 to satisfy its obligations under our commercial and other agreements.

•Reductions in the volume of crude oil, refined petroleum products and NGL we or our equity affiliates transport, fractionate, process, terminal and store.

•Changes to the tariff rates with respect to volumes transported through regulated assets, which rates are subject to review and possible adjustment by federal and state regulators.

•Changes in revenue we realize under the loss allowance provisions of our regulated tariffs resulting from changes in underlying commodity prices.

•Fluctuations in the prices and demand for crude oil, refined petroleum products and NGL.

•Changes in global economic conditions and the effects of a global economic downturn on the business of Phillips 66 and the business of its suppliers, customers, business partners and credit lenders.

•The continuing effects of the COVID-19 pandemic and its negative impact on the demand for crude oil and refined petroleum products, as well as the extent and duration of recovery of economies and the demand for crude oil and refined petroleum products after the pandemic subsides.

•Actions taken by OPEC and other countries impacting supply and demand and, correspondingly, commodity prices.

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

•Potential liabilities associated with the risks and operational hazards inherent in transporting, fractionating, processing, terminaling and storing crude oil, refined petroleum products and NGL.

•Curtailment of operations due to severe weather (including as a result of climate change) disruption or natural disasters; riots, strikes, lockouts or other industrial disturbances.

•Failure of information technology systems due to various causes, including unauthorized access or attack.

•Accidents or other unscheduled shutdowns affecting our pipelines, processing, fractionating, terminaling, and storage facilities or equipment, or those of our equity affiliates, suppliers or customers.

•Our, and our equity affiliates’, inability to obtain or maintain permits, in a timely manner or at all, and the possibility of the revocation or modification of such permits.

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

•The failure to complete construction of announced and future capital projects in a timely manner, cost overruns associated with such projects, and the ability to obtain or maintain permits necessary for such projects.

•Our ability to successfully execute our growth strategies, whether through organic growth or acquisitions.

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

•Costs or liabilities associated with federal, state, and local laws and regulations relating to environmental protection and safety, including spills, releases and pipeline integrity.

•Costs associated with compliance with evolving environmental laws and regulations on climate change.

•Costs associated with compliance with safety regulations, including pipeline integrity management program testing and related repairs.

Table of Contents

•Changes in the cost or availability of third-party vessels, pipelines, railcars and other means of delivering and transporting crude oil, refined petroleum products and NGL.

•General domestic and international economic and political developments including armed hostilities, expropriation of assets, and other political, economic or diplomatic developments, including those caused by public health issues and outbreaks of diseases and pandemics.

•Direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war.

•Our ability to comply with the terms of our credit facility, indebtedness and other financing arrangements, which, if accelerated, we may not be able to repay.

•Our ability to incur additional indebtedness or our ability to obtain financing on terms that we deem acceptable, including the refinancing of our current obligations; higher interest rates and costs of financing would increase our expenses.

•Changes in tax, environmental and other laws and regulations.

•The factors generally described in Item 1A. Risk Factors in our 2019 Annual Report on Form 10-K and in Item 1A.— Risk Factors of Part II in this Quarterly Report on Form 10-Q.

Table of Contents

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our commodity price risk and interest rate risk at September 30, 2020, did not differ materially from that disclosed under Item 7A of our 2019 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 our General Partner’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, 2020, our General Partner’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer, with the participation of the General Partner’s management, 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 General Partner’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of September 30, 2020.

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 September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Under our amended omnibus agreement, and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 indemnifies us or assumes responsibility for certain liabilities relating to litigation and environmental matters attributable to the ownership or operation of our assets prior to their contribution to us from Phillips 66. See Note 10—Related Party Transactions, in the Notes to Consolidated Financial Statements, for additional information.

In this section, we identify reportable legal proceedings attributable to the ownership or operation of our assets, including those involving governmental authorities under federal, state and local laws regulating the discharge of materials into the environment, for this reporting period. There are no new matters to report.

Item 1A. RISK FACTORS

Except as provided below, there were no material changes from the risk factors disclosed in Item 1A of our 2019 Annual Report on Form 10-K.

The Coronavirus Disease 2019 (COVID-19) pandemic has materially adversely affected, and may continue to materially adversely affect, general economic, financial and business conditions, and could materially and adversely affect our business, financial condition, results of operations and cash flow. The impacts of COVID-19 also may have materially adverse effects on our equity affiliates as well as our customers, suppliers and other counterparties.

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

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

To the extent COVID-19 adversely affects our business, financial condition, results of operations and liquidity, or the business, financial condition, results of operation and liquidity of our equity affiliates, as well as our customers, including Phillips 66, suppliers or counterparties, it may also have the effect of heightening many of the other risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.

Table of Contents

Item 6. EXHIBITS

Exhibit

Number

Exhibit Description

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 Taxonomy Extension Schema Document.

101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*

Inline XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104*

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

* Filed herewith.

Table of Contents

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 PARTNERS LP

			By: Phillips 66 Partners GP LLC, its general partner

			/s/ Chukwuemeka A. Oyolu
			Chukwuemeka A. Oyolu Vice President and Controller (Chief Accounting and Duly Authorized Officer)

Date: October 30, 2020


			/s/ Greg C. Garland
			Greg C. Garland
			Chairman of the Board of Directors and Chief Executive Officer
			Phillips 66 Partners GP LLC (the general partner of Phillips 66 Partners LP)


			/s/ Kevin J. Mitchell
			Kevin J. Mitchell
			Director, Vice President and Chief Financial Officer
			Phillips 66 Partners GP LLC (the general partner of Phillips 66 Partners LP)


			/s/ Greg C. Garland
			Greg C. Garland

			Chairman of the Board of Directors and Chief Executive Officer
			Phillips 66 Partners GP LLC (the general partner of Phillips 66 Partners LP)


			/s/ Kevin J. Mitchell
			Kevin J. Mitchell

			Director, Vice President and Chief Financial Officer
			Phillips 66 Partners GP LLC (the general partner of Phillips 66 Partners LP)

Cover Page	9 Months Ended
Cover Page	Sep. 30, 2020 shares
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	001-36011
Entity Registrant Name	Phillips 66 Partners LP
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	38-3899432
Entity Address, Address Line One	2331 CityWest Blvd
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77042
City Area Code	855
Local Phone Number	283-9237
Title of 12(b) Security	Common Units, Representing Limited Partner Interests
Trading Symbol	PSXP
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding	228,340,146
Entity Central Index Key	0001572910
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Amendment Flag	false

Consolidated Statement of Income - USD ($) $ in Millions	3 Months Ended		9 Months Ended
Consolidated Statement of Income - USD ($) $ in Millions	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenues and Other Income
Operating revenues	$ 265	$ 270	$ 773	$ 835
Equity in earnings of affiliates	129	139	369	395
Gain from equity interest transfer	0	0	84	0
Other income	0	2	2	5
Total revenues and other income	394	411	1,228	1,235
Costs and Expenses
Operating and maintenance expenses	85	91	257	315
Depreciation	35	30	96	88
General and administrative expenses	16	16	50	51
Taxes other than income taxes	9	10	30	30
Interest and debt expense	32	26	89	80
Other expenses	0	0	7	0
Total costs and expenses	177	173	529	564
Income before income taxes	217	238	699	671
Income tax expense	1	1	2	3
Net Income	216	237	697	668
Less: Net income attributable to noncontrolling interest	10	0	10	0
Net Income Attributable to the Partnership	206	237	687	668
Less: Preferred unitholders’ interest in net income attributable to the Partnership	10	9	29	28
Less: General partner’s interest in net income attributable to the Partnership	0	0	0	140
Limited Partners’ Interest in Net Income Attributable to the Partnership	$ 196	$ 228	$ 658	$ 500
Common Units
Net Income Attributable to the Partnership Per Limited Partner Unit (dollars)
Common units - basic (in dollars per share)	$ 0.86	$ 1.18	$ 2.88	$ 3.39
Common units - diluted (in dollars per share)	$ 0.85	$ 1.15	$ 2.84	$ 3.25
Weighted-Average Limited Partner Units Outstanding (thousands)
Common units—basic (in shares)	228,340,146	192,273,672	228,330,885	147,367,681
Common units—diluted (in shares)	242,160,000	206,093,000	242,151,000	161,187,000
Third Party
Revenues and Other Income
Operating revenues	$ 9	$ 8	$ 23	$ 21
Related Party
Revenues and Other Income
Operating revenues	$ 256	$ 262	$ 750	$ 814

Consolidated Balance Sheet - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Assets
Cash and cash equivalents	$ 2	$ 286
Accounts receivable—related parties	85	101
Accounts receivable—third parties	3	4
Materials and supplies	14	13
Prepaid expenses and other current assets	7	10
Total current assets	111	414
Equity investments	3,373	2,961
Net properties, plants and equipment	3,575	3,349
Goodwill	185	185
Other assets	50	52
Total Assets	7,294	6,961
Liabilities
Accounts payable—related parties	17	19
Accounts payable—third parties	104	84
Accrued interest	39	42
Deferred revenues	22	16
Short-term debt	340	25
Accrued property and other taxes	28	10
Other current liabilities	3	3
Total current liabilities	553	199
Long-term debt	3,443	3,491
Obligation from equity interest transfer	0	343
Other liabilities	91	94
Total Liabilities	4,087	4,127
Equity
Accumulated other comprehensive loss	(1)	(1)
Total unitholders’ equity	2,902	2,834
Noncontrolling interest	305	0
Total Equity	3,207	2,834
Total Liabilities and Equity	7,294	6,961
Public \| Preferred Units
Equity
Preferred unitholders (2020 and 2019—13,819,791 units issued and outstanding)	747	746
Total Equity	747	746
Public \| Common Units
Equity
Common unitholders	2,734	2,717
Total Equity	2,734	2,717
Non-public \| Common Units \| Phillips 66
Equity
Common unitholders	(578)	(628)
Total Equity	$ (578)	$ (628)

Consolidated Balance Sheet (Parenthetical) - shares	Sep. 30, 2020	Dec. 31, 2019
Public
Preferred units, issued (in shares)	13,819,791	13,819,791
Preferred units, outstanding (in shares)	13,819,791	13,819,791
Common Units \| Public
Units issued (in shares)	58,580,009	58,539,439
Units outstanding (in shares)	58,580,009	58,539,439
Common Units \| Non-public \| Phillips 66
Units issued (in shares)	169,760,137	169,760,137
Units outstanding (in shares)	169,760,137	169,760,137

Consolidated Statement of Cash Flows - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash Flows From Operating Activities
Net income	$ 697	$ 668
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	96	88
Undistributed equity earnings	9	7
Gain from equity interest transfer	(84)	0
Other	7	8
Working capital adjustments
Accounts receivable	17	(7)
Materials and supplies	(1)	0
Prepaid expenses and other current assets	3	15
Accounts payable	20	7
Accrued interest	(3)	(3)
Deferred revenues	6	(44)
Other accruals	18	18
Net Cash Provided by Operating Activities	785	757
Cash Flows From Investing Activities
Cash capital expenditures and investments	(796)	(924)
Advances/loans—related party	0	(95)
Collection of advances/loans—related party	0	95
Liberty acquisition	(75)	0
Return of investment from equity affiliates	124	52
Proceeds from sale of equity interest	0	81
Net Cash Used in Investing Activities	(747)	(791)
Cash Flows From Financing Activities
Issuance of debt	290	1,758
Repayment of debt	(25)	(985)
Issuance of common units	2	133
Debt issuance costs	0	(6)
Net proceeds from equity interest transfer	40	341
Proceeds from noncontrolling interest	3	0
Distributions to noncontrolling interest	(13)	0
Other distributions from (to) Phillips 66	8	(3)
Net Cash Provided by (Used in) Financing Activities	(322)	688
Net Change in Cash and Cash Equivalents	(284)	654
Cash and cash equivalents at beginning of period	286	1
Cash and Cash Equivalents at End of Period	2	655
Preferred Units
Cash Flows From Financing Activities
Quarterly distributions to unitholders	(28)	(28)
Public \| Preferred Units
Cash Flows From Operating Activities
Net income	29	28
Public \| Common Units
Cash Flows From Operating Activities
Net income	168	189
Cash Flows From Financing Activities
Quarterly distributions to unitholders	(153)	(142)
General Partner
Cash Flows From Operating Activities
Net income		140
Cash Flows From Financing Activities
Quarterly distributions to unitholders	0	(206)
Phillips 66 \| Non-public \| Common Units
Cash Flows From Operating Activities
Net income	490	311
Cash Flows From Financing Activities
Quarterly distributions to unitholders	$ (446)	$ (174)

Consolidated Statement of Changes in Equity - USD ($) $ in Millions	Total	Noncontrolling Interest	Cumulative Effect, Period of Adoption, Adjustment	Accum. Other Comprehensive Loss	General Partner	Preferred Units Public	Common Units Public	Common Units Public Cumulative Effect, Period of Adoption, Adjustment	Common Units Non-public Phillips 66
Beginning Balance at Dec. 31, 2018	$ 2,509	$ 0	$ (1)	$ (1)	$ (1,313)	$ 746	$ 2,485	$ (1)	$ 592
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common units	133						133
Net income	668				140	28	189		311
Quarterly cash distributions to unitholders and General Partner	(550)				(206)	(28)	(142)		(174)
Conversion of GP economic interest	(3)				1,381				(1,384)
Other distributions to Phillips 66	(2)				(2)
Ending Balance at Sep. 30, 2019	$ 2,754	0		(1)	$ 0	$ 746	$ 2,664		$ (655)
Beginning balance, Units (in shares) at Dec. 31, 2018	140,403,897				2,480,051	13,819,791	55,343,918		68,760,137
Units Outstanding [Roll Forward]
Units issued in public equity offerings (in shares)	2,470,037						2,470,037
Units issued in conversion of GP economic interest (in shares)	98,519,949				(2,480,051)				101,000,000
Ending balance, Units (in shares) at Sep. 30, 2019	241,393,883				0	13,819,791	57,813,955		169,760,137
Beginning Balance at Jun. 30, 2019	$ 2,616	0		(1)	$ (1,310)	$ 746	$ 2,555		$ 626
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common units	91						91
Net income	237					9	67		161
Quarterly cash distributions to unitholders and General Partner	(186)				(70)	(9)	(49)		(58)
Conversion of GP economic interest	(3)				1,381				(1,384)
Other distributions to Phillips 66	(1)				(1)
Ending Balance at Sep. 30, 2019	$ 2,754	0		(1)	$ 0	$ 746	$ 2,664		$ (655)
Beginning balance, Units (in shares) at Jun. 30, 2019	141,238,265				2,480,051	13,819,791	56,178,286		68,760,137
Units Outstanding [Roll Forward]
Units issued in public equity offerings (in shares)	1,635,669						1,635,669
Units issued in conversion of GP economic interest (in shares)	98,519,949				(2,480,051)				101,000,000
Ending balance, Units (in shares) at Sep. 30, 2019	241,393,883				0	13,819,791	57,813,955		169,760,137
Beginning Balance at Dec. 31, 2019	$ 2,834	0		(1)	$ 0	$ 746	$ 2,717		$ (628)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common units	2						2
Net income	697	10				29	168		490
Quarterly cash distributions to unitholders and General Partner	(627)					(28)	(153)		(446)
Transfer of equity interest	305	305
Proceeds from noncontrolling interest	3	3
Distributions to noncontrolling interest	(13)	(13)
Other distributions to Phillips 66	6								6
Ending Balance at Sep. 30, 2020	$ 3,207	305		(1)	$ 0	$ 747	$ 2,734		$ (578)
Beginning balance, Units (in shares) at Dec. 31, 2019	242,119,367				0	13,819,791	58,539,439		169,760,137
Units Outstanding [Roll Forward]
Units issued in public equity offerings (in shares)	40,570						40,570
Ending balance, Units (in shares) at Sep. 30, 2020	242,159,937				0	13,819,791	58,580,009		169,760,137
Beginning Balance at Jun. 30, 2020	$ 3,213	305		(1)	$ 0	$ 746	$ 2,735		$ (572)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	216	10				10	50		146
Quarterly cash distributions to unitholders and General Partner	(209)					(9)	(51)		(149)
Proceeds from noncontrolling interest	3	3
Distributions to noncontrolling interest	(13)	(13)
Other distributions to Phillips 66	(3)								(3)
Ending Balance at Sep. 30, 2020	$ 3,207	$ 305		$ (1)	$ 0	$ 747	$ 2,734		$ (578)
Beginning balance, Units (in shares) at Jun. 30, 2020	242,159,937				0	13,819,791	58,580,009		169,760,137
Units Outstanding [Roll Forward]
Units issued in public equity offerings (in shares)	0						0
Ending balance, Units (in shares) at Sep. 30, 2020	242,159,937				0	13,819,791	58,580,009		169,760,137

Description of the Business	9 Months Ended
Description of the Business	Sep. 30, 2020
Description of Business [Abstract]
Description of the Business	Note 1—Description of the Business Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” or “GP” refer to Phillips 66 Partners GP LLC, and references to “Phillips 66 PDI” refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us and wholly owns our General Partner. We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. Our operations consist of crude oil, refined petroleum products and natural gas liquids (NGL) transportation, terminaling, processing and storage assets. We conduct our operations through both wholly owned and joint venture operations. The majority of our wholly owned assets are associated with, and are integral to the operation of, nine of Phillips 66’s owned or joint venture refineries. Our operations consist of one reportable segment. We primarily generate revenue by providing fee-based transportation, terminaling, processing, storage and fractionation services to Phillips 66 and other customers. Our equity affiliates primarily generate revenue from transporting and terminaling crude oil, refined petroleum products and NGL. Since we do not own any of the crude oil, refined petroleum products and NGL we handle and do not engage in the trading of those commodities, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.

Interim Financial Information	9 Months Ended
Interim Financial Information	Sep. 30, 2020
Interim Financial Information [Abstract]
Interim Financial Information	Note 2—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 our financial position, 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 audited consolidated financial statements and notes included in our 2019 Annual Report on Form 10-K. The results of operations for the three and nine months ended September 30, 2020, are not necessarily indicative of the results to be expected for the full year. The Coronavirus Disease 2019 (COVID-19) pandemic continues to result in economic disruption globally. Reduced demand for petroleum products has resulted in decreased volumes through logistics infrastructure. The depth and duration of the economic consequences of the COVID-19 pandemic remain unknown. We continue to assess our long-lived assets and equity investments for impairment in this challenging business environment. Impairments may be required in the future if there is a further deterioration in our projected cash flows.

Contingencies	9 Months Ended
Contingencies	Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract]
Contingencies	Note 8—Contingencies From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against 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 sites. We regularly assess the need for accounting 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 less than certain. 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 any 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 federal, state and local environmental laws and regulations. We record accruals for contingent environmental liabilities based on management’s best estimates, using all information that is available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency 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. In the future, we may be involved in additional environmental assessments, cleanups and proceedings. Legal Proceedings Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal support services, and we pay an operational and administrative support fee for these services. Phillips 66’s 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. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables 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, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. As of September 30, 2020, and December 31, 2019, we did not have any material accrued contingent liabilities associated with litigation matters. Indemnification and Excluded Liabilities Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize noncash expenses and associated noncash capital contributions from our General Partner, as these are considered liabilities paid for by a principal unitholder.

Equity	9 Months Ended
Equity	Sep. 30, 2020
Equity [Abstract]
Equity	Note 9—Equity ATM Programs We have authorized an aggregate of $750 million under three $250 million continuous offerings of common units, or at-the-market (ATM) programs. The first two programs concluded in June 2018 and December 2019, respectively. We did not issue any common units under the current ATM program during the three months ended September 30, 2020. For the nine months ended September 30, 2020, on a settlement date basis, we issued an aggregate of 40,570 common units, generating net proceeds of $2 million. For the three and nine months ended September 30, 2019, we issued an aggregate of 1,635,669 and 2,470,037 common units, respectively, generating net proceeds of $91 million and $133 million, respectively. Since inception in June 2016 through September 30, 2020, we issued an aggregate of 9,487,055 common units under our ATM programs, and generated net proceeds of $494 million, after broker commissions of $5 million and other costs of $3 million. The net proceeds from sales under the ATM programs are used for general partnership purposes, which may include debt repayment, acquisitions, capital expenditures and additions to working capital. Restructuring Transaction On August 1, 2019, we closed on the transactions contemplated by the Partnership Interests Restructuring Agreement, dated July 24, 2019, entered into with our General Partner. Pursuant to this agreement, all of the outstanding IDRs held by our General Partner were eliminated and its approximately 2% general partner interest in us was converted into a non-economic general partner interest; both in exchange for an aggregate of 101 million common units issued to Phillips 66 PDI. Because these transactions were between entities under common control, the common units issued to Phillips 66 PDI were not assigned any value; rather, our General Partner’s negative equity balance of $1.4 billion at August 1, 2019, was transferred to Phillips 66’s limited partner equity account.

Net Income Per Limited Partner Unit (Policies)	9 Months Ended
Net Income Per Limited Partner Unit (Policies)	Sep. 30, 2020
Partners' Capital Notes [Abstract]
Net Income Per Limited Partner Unit	Net income per limited partner unit applicable to common units is computed by dividing the limited partners’ interest in net income by the weighted-average number of common units outstanding for the period. Prior to August 1, 2019, we had more than one class of participating securities and used the two-class method to calculate net income per unit applicable to the limited partners. The classes of participating securities prior to August 1, 2019, included common units, general partner units and incentive distribution rights (IDRs). Effective August 1, 2019, common units are the only participating securities. For the three and nine months ended September 30, 2020 and 2019, our preferred units are potentially dilutive securities and were dilutive to net income per limited partner unit.

Description of the Business (Details)	9 Months Ended
Description of the Business (Details)	Sep. 30, 2020 segment refinery
Property, Plant and Equipment [Line Items]
Number of reportable segments \| segment	1
Phillips 66
Property, Plant and Equipment [Line Items]
Number of refineries \| refinery	9

Operating Revenues (Accounts Receivable) (Details) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Revenue from External Customer [Line Items]
Total accounts receivable	$ 88	$ 105
Lease receivables
Revenue from External Customer [Line Items]
Total accounts receivable	69	87
Service receivables
Revenue from External Customer [Line Items]
Total accounts receivable	$ 19	$ 18

Operating Revenues (Deferred Revenue) (Details) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Revenue from External Customer [Line Items]
Total deferred revenues	$ 44	$ 42
Lease revenues
Revenue from External Customer [Line Items]
Total deferred revenues	41	41
Service revenues
Revenue from External Customer [Line Items]
Total deferred revenues	$ 3	$ 1

Operating Revenues (Schedule of Future Minimum Operating Lease Income) (Details) $ in Millions	Sep. 30, 2020 USD ($)
Revenue from Contract with Customer [Abstract]
Remainder of 2020	$ 178
2021	706
2022	694
2023	648
2024	526
Remaining years	1,389
Total future minimum lease payments from customers	$ 4,141

Operating Revenues (Narrative) (Details)	9 Months Ended
Operating Revenues (Narrative) (Details)	Sep. 30, 2020
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Customer contracts, average remaining duration	10 years
Minimum
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Customer contracts, term	5 years
Maximum
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Customer contracts, term	15 years

Operating Revenues (Performance Obligations) (Details) $ in Millions	Sep. 30, 2020 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation, amount	$ 1,381
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation, amount	$ 39
Revenue, remaining performance obligation, expected timing of satisfaction, period	3 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation, amount	$ 152
Revenue, remaining performance obligation, expected timing of satisfaction, period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation, amount	$ 151
Revenue, remaining performance obligation, expected timing of satisfaction, period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation, amount	$ 151
Revenue, remaining performance obligation, expected timing of satisfaction, period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation, amount	$ 132
Revenue, remaining performance obligation, expected timing of satisfaction, period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2025-01-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Remaining performance obligation, amount	$ 756
Revenue, remaining performance obligation, expected timing of satisfaction, period

Equity Investments (Schedule of Carrying Value Equity Investments) (Details) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Schedule of Equity Method Investments [Line Items]
Carrying Value	$ 3,373	$ 2,961
Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline)
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	25.00%
Carrying Value	$ 578	592
Bayou Bridge Pipeline, LLC (Bayou Bridge)
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	40.00%
Carrying Value	$ 292	294
DCP Sand Hills Pipeline, LLC (Sand Hills)
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	33.34%
Carrying Value	$ 586	595
DCP Southern Hills Pipeline, LLC (Southern Hills)
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	33.34%
Carrying Value	$ 215	215
Explorer Pipeline Company (Explorer)
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	21.94%
Carrying Value	$ 98	105
Gray Oak Pipeline, LLC
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	65.00%
Carrying Value	$ 896	759
Liberty Pipeline, LLC
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	50.00%
Carrying Value		0
Paradigm Pipeline LLC (Paradigm)
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	50.00%
Carrying Value	$ 141	143
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal)
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	70.00%
Carrying Value	$ 66	70
South Texas Gateway Terminal LLC (South Texas Gateway Terminal)
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	25.00%
Carrying Value	$ 152	74
STACK Pipeline LLC (STACK)
Schedule of Equity Method Investments [Line Items]
Percentage Ownership	50.00%
Carrying Value	$ 110	$ 114

Equity Investments (Narrative) (Details) - USD ($)				1 Months Ended	3 Months Ended			9 Months Ended
Equity Investments (Narrative) (Details) - USD ($)	Sep. 30, 2020	Sep. 15, 2020	Jul. 06, 2020	Feb. 29, 2020	Sep. 30, 2020	Jun. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Mar. 31, 2019	Feb. 28, 2019	Dec. 31, 2018
Schedule of Equity Method Investments [Line Items]
Gain from equity interest transfer					$ 0		$ 0	$ 84,000,000	$ 0
Repayments of debt								25,000,000	$ 985,000,000
Gray Oak Pipeline, LLC
Schedule of Equity Method Investments [Line Items]
Repayments of debt		$ 1,379,000,000
Gray Oak Pipeline, LLC \| Senior Notes
Schedule of Equity Method Investments [Line Items]
Debt instrument, face amount	$ 1,400,000,000				$ 1,400,000,000			$ 1,400,000,000
Dakota Access, LLC
Schedule of Equity Method Investments [Line Items]
Estimated period of time to prepare Environmental Impact Statement			13 months
Dakota Access, LLC \| Senior Notes
Schedule of Equity Method Investments [Line Items]
Debt instrument, face amount										$ 2,500,000,000
Dakota Access, LLC \| Senior Notes \| Senior Notes Due 2022
Schedule of Equity Method Investments [Line Items]
Debt instrument, face amount										$ 650,000,000
Interest rate, stated percentage										3.625%
Dakota Access, LLC \| Senior Notes \| Senior Notes Due 2024
Schedule of Equity Method Investments [Line Items]
Debt instrument, face amount										$ 1,000,000,000.0
Interest rate, stated percentage										3.90%
Dakota Access, LLC \| Senior Notes \| Senior Notes Due 2029
Schedule of Equity Method Investments [Line Items]
Debt instrument, face amount										$ 850,000,000
Interest rate, stated percentage										4.625%
Dakota Access and ETCO
Schedule of Equity Method Investments [Line Items]
Scheduled annual interest payments	$ 25,000,000
Common Control Transaction \| Phillips 66 \| Phillips 66 PDI \| Liberty Pipeline, LLC
Schedule of Equity Method Investments [Line Items]
Controlling interest acquired, percentage				50.00%
Business combination, consideration transferred				$ 75,000,000
Liberty Pipeline, LLC
Schedule of Equity Method Investments [Line Items]
Ownership interest acquired, percentage	50.00%				50.00%			50.00%
VIE, reporting entity involvement, maximum exposure	$ 239,000,000				$ 239,000,000			$ 239,000,000
Guarantor obligations, current carrying value	$ 13,000,000				$ 13,000,000			$ 13,000,000
Gray Oak Pipeline, LLC
Schedule of Equity Method Investments [Line Items]
Ownership interest acquired, percentage	65.00%				65.00%			65.00%
Gain from equity interest transfer						$ 84,000,000
Effective ownership interest	42.25%				42.25%			42.25%
Gray Oak Pipeline, LLC \| Gray Oak Holdings LLC
Schedule of Equity Method Investments [Line Items]
Ownership interest acquired, percentage											65.00%
Gray Oak Pipeline, LLC \| Third Party
Schedule of Equity Method Investments [Line Items]
Amount contributed to fund cash calls								$ 64,000,000
Gray Oak Holdings LLC \| Third Party
Schedule of Equity Method Investments [Line Items]
Percentage of ownership												35.00%
Dakota Access and ETCO
Schedule of Equity Method Investments [Line Items]
Maximum exposure, undiscounted	$ 631,000,000				$ 631,000,000			$ 631,000,000

Net Income Per Limited Partner Unit (Narrative) (Details) $ / shares in Units, $ in Millions		9 Months Ended
	Oct. 20, 2020 USD ($) $ / shares	Sep. 30, 2020
Subsequent Event [Line Items]
Conversion ratio of preferred units to common units		1
Common Units \| Cash Distribution \| Subsequent Event
Subsequent Event [Line Items]
Quarterly cash distribution declared per limited partner unit (in dollars per share) \| $ / shares	$ 0.875
Distribution made to limited partner, cash distributions declared \| $	$ 200

Properties, Plants and Equipment (Details) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Property, Plant and Equipment [Line Items]
Gross PP&E	$ 4,725	$ 4,408
Accumulated depreciation	(1,150)	(1,059)
Net PP&E	3,575	3,349
Land
Property, Plant and Equipment [Line Items]
Gross PP&E	19	19
Buildings and improvements
Property, Plant and Equipment [Line Items]
Gross PP&E	95	94
Pipelines and related assets
Property, Plant and Equipment [Line Items]
Gross PP&E	1,522	1,424
Terminals and related assets
Property, Plant and Equipment [Line Items]
Gross PP&E	840	741
Rail racks and related assets
Property, Plant and Equipment [Line Items]
Gross PP&E	137	137
Processing and related assets
Property, Plant and Equipment [Line Items]
Gross PP&E	1,058	1,041
Caverns and related assets
Property, Plant and Equipment [Line Items]
Gross PP&E	742	585
Construction-in-progress
Property, Plant and Equipment [Line Items]
Gross PP&E	$ 312	$ 367

Debt (Summary of Long-Term Debt) (Details) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Debt at face value	$ 3,815	$ 3,550
Net unamortized discounts and debt issuance costs	(32)	(34)
Total debt	3,783	3,516
Short-term debt	(340)	(25)
Long-term debt	3,443	3,491
Revolving Credit Facility
Debt Instrument [Line Items]
Long-term debt, gross	$ 290	0
Interest rate, stated percentage	1.401%
Tax-exempt bonds due April 2020 and April 2021 at 0.535% and 1.85% at September 30, 2020, and December 31, 2019, respectively
Debt Instrument [Line Items]
Long-term debt, gross	$ 50	$ 75
Short-term debt	$ (50)
Interest rate, stated percentage	0.535%	1.85%
Senior Notes \| 2.450% Senior Notes due December 2024
Debt Instrument [Line Items]
Long-term debt, gross	$ 300	$ 300
Interest rate, stated percentage	2.45%
Senior Notes \| 3.605% Senior Notes due February 2025
Debt Instrument [Line Items]
Long-term debt, gross	$ 500	500
Interest rate, stated percentage	3.605%
Senior Notes \| 3.550% Senior Notes due October 2026
Debt Instrument [Line Items]
Long-term debt, gross	$ 500	500
Interest rate, stated percentage	3.55%
Senior Notes \| 3.750% Senior Notes due March 2028
Debt Instrument [Line Items]
Long-term debt, gross	$ 500	500
Interest rate, stated percentage	3.75%
Senior Notes \| 3.150% Senior Notes due December 2029
Debt Instrument [Line Items]
Long-term debt, gross	$ 600	600
Interest rate, stated percentage	3.15%
Senior Notes \| 4.680% Senior Notes due February 2045
Debt Instrument [Line Items]
Long-term debt, gross	$ 450	450
Interest rate, stated percentage	4.68%
Senior Notes \| 4.900% Senior Notes due October 2046
Debt Instrument [Line Items]
Long-term debt, gross	$ 625	$ 625
Interest rate, stated percentage	4.90%

Debt (Narrative) (Details)		9 Months Ended
Debt (Narrative) (Details)	Apr. 01, 2020 USD ($) tranche	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
Debt Instrument [Line Items]
Line of credit facility, outstanding		$ 290,000,000
Letters of credit outstanding, amount		3,000,000
Repayments of debt		25,000,000	$ 985,000,000
Short-term debt		340,000,000		$ 25,000,000
Tax-Exempt Bonds
Debt Instrument [Line Items]
Repayments of debt	$ 25,000,000
Number of tranches remaining \| tranche	2
Short-term debt		50,000,000
Credit Agreement \| Revolving Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity		750,000,000
Fair Value, Inputs, Level 2 \| Tax-Exempt Bonds
Debt Instrument [Line Items]
Debt instrument, fair value disclosure		340,000,000		75,000,000
Fair Value, Inputs, Level 2 \| Senior Notes
Debt Instrument [Line Items]
Debt instrument, fair value disclosure		$ 3,567,000,000		$ 3,650,000,000

Equity (Details)		3 Months Ended		9 Months Ended		52 Months Ended
Equity (Details)	Aug. 01, 2019 USD ($) shares	Sep. 30, 2020 offering shares	Sep. 30, 2019 USD ($) shares	Sep. 30, 2020 USD ($) offering shares	Sep. 30, 2019 USD ($) shares	Sep. 30, 2020 USD ($) offering shares
Limited Partners' Capital Account [Line Items]
Number of common units issued in public offering (in shares) \| shares		0	1,635,669	40,570	2,470,037
General Partner Interest To Be Converted Into Non-Economic General Partner Interest
Limited Partners' Capital Account [Line Items]
General partner interest, percent	2.00%
Common Units
Limited Partners' Capital Account [Line Items]
Shares, issued (in shares) \| shares	101,000,000
General partners equity balance	$ 1,400,000,000
At The Market Offering Program
Limited Partners' Capital Account [Line Items]
Aggregate authorized amount				$ 750,000,000
At The Market Offering Program \| Common Units
Limited Partners' Capital Account [Line Items]
Number of continuous offerings \| offering		3		3		3
Authorized amount per program				$ 250,000,000
Number of common units issued in public offering (in shares) \| shares		0	1,635,669	40,570	2,470,037	9,487,055
Issuance of common units			$ 91,000,000	$ 2,000,000	$ 133,000,000	$ 494,000,000
Brokers commissions						5,000,000
Other costs						$ 3,000,000

Related Party Transactions (Narrative) (Details) $ in Millions	9 Months Ended
	Sep. 30, 2020 USD ($)
Phillips 66 \| Phillips 66 \| Amended Omnibus Agreement
Related Party Transaction [Line Items]
Monthly operational and administrative support fee	$ 8

Related Party Transactions (Other Related Party Balances) (Details) - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Related Party Transaction [Line Items]
Prepaid expenses and other current assets	$ 7	$ 10
Other assets	50	52
Deferred revenues	22	16
Other current liabilities	3	3
Other liabilities	91	94
Phillips 66
Related Party Transaction [Line Items]
Prepaid expenses and other current assets	4	7
Other assets	48	44
Deferred revenues	22	16
Other current liabilities	1	1
Other liabilities	$ 66	$ 70

Cash Flow Information (Details) - USD ($) $ in Millions	9 Months Ended
Cash Flow Information (Details) - USD ($) $ in Millions	Sep. 30, 2020	Sep. 30, 2019
Supplemental Cash Flow Information [Abstract]
Cash capital expenditures and investments	$ 796	$ 924
Change in capital expenditure accruals	(1)	(17)
Total capital expenditures and investments	$ 795	$ 907