# Phillips 66 (PSX) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from Phillips 66's 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/1534701/000153470124000078/psx-20231231.htm Accession: 0001534701-24-000078 Filing date: 2024-02-21 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/PSX/ All MD&A years: /company/PSX/mda/ Previous year: /company/PSX/mda/fy2022/ (FY 2022) Next year: /company/PSX/mda/fy2024/ (FY 2024) Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis is the company’s analysis of its financial performance, financial condition, and significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The term “earnings” as used in Management’s Discussion and Analysis refers to net income attributable to Phillips 66. The terms “results,” “before-tax income” or “before-tax loss” as used in Management’s Discussion and Analysis refer to income (loss) before income taxes. EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT Phillips 66 is uniquely positioned as a diversified and integrated downstream energy company operating with Midstream, Chemicals, Refining, and Marketing and Specialties (M&S) segments. At December 31, 2023, we had total assets of $75.5 billion. Executive Overview During 2023, we reported earnings of $7 billion, generated $7 billion in cash from operating activities and received proceeds from debt offerings, net of debt repayments, of $2 billion. We used available cash primarily to repurchase noncontrolling interests in DCP Midstream, LP (DCP LP) for $4.1 billion, fund capital expenditures and investments of $2.4 billion, repurchase shares of common stock for $4 billion and pay dividends on our common stock of $1.9 billion. We ended 2023 with $3.3 billion of cash and cash equivalents and approximately $6.4 billion of total committed capacity available under our credit facilities. Strategic Priorities Update In November 2022, we announced financial and operational targets toward achieving the company’s strategic priorities and in October 2023, we announced updates to certain targets. Our strategic priorities that are intended to enhance long-term shareholder value include: •Deliver Shareholder Returns – We believe shareholder value is enhanced through, among other things, a secure, competitive and growing dividend, complemented by share repurchases. We increased our target for returns to shareholders through share repurchases and dividends from July 2022 through year-end 2024 to a range of $13 billion to $15 billion from a range of $10 billion to $12 billion. In support of the increased target, our Board of Directors approved a $5 billion increase to our share repurchase authorization on October 25, 2023. We plan to return at least 50% of net cash provided by operating activities to shareholders through share repurchases and dividends. In 2023, we paid $4 billion to repurchase shares of our common stock and paid dividends on our common stock of $1.9 billion. The amount and timing of future dividend payments and the level and timing of future share repurchases is subject to the discretion of, and approval by, our Board of Directors and will depend on various factors including our share price, results of operations, financial condition and cash required for future business plans. We also plan to monetize certain assets that are no longer considered to be a long-term strategic fit. We expect to generate proceeds of over $3 billion from the disposition of these non-core assets, which we plan to use to further advance our strategic priorities, including returns to shareholders through share repurchases and dividends. The timing of these asset dispositions will be subject to satisfactory market conditions and any necessary regulatory approvals. •Improve Refining Performance – We are focused on optimizing utilization rates and product yield at our refineries through reliable and safe operations, which will enable us to capture the value available in the market in terms of prices and margins. We plan to enhance Refining segment returns and increase our utilization rates by focusing on low-capital, higher-return projects that increase asset reliability, improve market capture and reduce costs. During 2023, our worldwide refining crude oil capacity utilization rate was 92% and our worldwide refining clean product yield was 85%, compared to 90% and 84%, respectively, in 2022. 42 Table of Contents Index to Financial Statements •Capture Value from Wellhead-to-Market – We are focused on growing our fully integrated natural gas liquids (NGL) wellhead-to-market value chain within our Midstream segment. As part of executing this strategy, we completed two transactions that increased our economic interest in DCP LP; the first in 2022, which increased our indirect economic interest to 43.3%, and the second in 2023, which increased our aggregate direct and indirect economic interest in DCP LP to 86.8%. We have already captured operating and commercial synergies from these transactions and remain focused on capturing additional synergies as we complete our integration activities in 2024. In 2024, we have budgeted $985 million of capital expenditures and investments in our Midstream segment, of which $593 million will be focused on enhancing our integrated NGL wellhead-to-market value chain. In addition, growth capital includes $250 million related to the repayment of our 25% share of Dakota Access, LLC’s (Dakota Access) debt due in 2024. •Execute Business Transformation – We continue to progress our multi-year business transformation aimed at sustainably reducing our cost structure. We exceeded our savings target by achieving a run-rate cost reduction of $900 million per year and sustaining capital reduction of $300 million per year by the end of 2023. As such, we are now targeting a run-rate cost reduction of $1.1 billion per year by the end of 2024, while maintaining our sustaining capital reduction of $300 million per year in 2024. •Maintain Financial Strength and Flexibility – During 2023, we successfully reduced our sustaining capital spend and used available cash and proceeds from debt offerings to increase our economic interest in DCP LP, repurchase shares of our common stock, pay dividends on our common stock, fund capital expenditures and investments and repay a portion of DCP LP’s debt. •Drive Disciplined Growth and Returns – A disciplined capital allocation process ensures we invest in projects that are expected to generate competitive returns. Our strategy remains focused on investing growth capital in the Midstream and Chemicals segments. We are also investing in capital-efficient renewable fuels projects to advance a lower-carbon future. In 2024, we have budgeted $2.2 billion in capital expenditures and investments, which includes $1.3 billion of growth capital. DCP Midstream, LLC and Gray Oak Holdings LLC Merger (DCP Midstream Merger) On August 17, 2022, we announced a realignment of our economic and governance interests in DCP LP and Gray Oak Pipeline, LLC (Gray Oak Pipeline) resulting from the merger of DCP Midstream, LLC (DCP Midstream) and Gray Oak Holdings LLC (Gray Oak Holdings). In connection with the DCP Midstream Merger, we were delegated DCP Midstream’s governance rights over DCP LP and its general partner entities, referred to as DCP Midstream Class A Segment, and our indirect economic interest in DCP LP increased to 43.3%. Starting on August 18, 2022, our financial results reflect the consolidation of DCP Midstream Class A Segment, as well as DCP Sand Hills Pipeline, LLC (DCP Sand Hills) and DCP Southern Hills Pipeline, LLC (DCP Southern Hills). Since the DCP Midstream Merger, we have taken steps to integrate the operations and personnel of DCP Midstream Class A Segment to enable the capture of commercial and operational synergies. DCP Midstream, LP Merger (DCP LP Merger) On June 15, 2023, we completed the acquisition of all publicly held common units of DCP LP pursuant to the terms of the Agreement and Plan of Merger, dated as of January 5, 2023 (DCP LP Merger Agreement). The DCP LP Merger Agreement was entered into with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries merged with and into DCP LP, with DCP LP surviving as a Delaware limited partnership. Under the terms of the DCP LP Merger Agreement, at the effective time of the DCP LP Merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP Midstream and its subsidiaries) issued and outstanding as of immediately prior to the effective time was converted into the right to receive $41.75 per common unit in cash. The DCP LP Merger increased our aggregate direct and indirect economic interest in DCP LP from 43.3% to 86.8%. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information on the DCP Midstream and DCP LP Mergers. 43 Table of Contents Index to Financial Statements Business Environment The Midstream segment includes our Transportation and NGL businesses. Our Transportation business contains fee-based operations not directly exposed to commodity price risk. Our NGL business, including DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022, forward, contains both fee-based operations and operations directly impacted by NGL and natural gas prices. During 2023, NGL and natural gas prices decreased, compared with 2022, as the result of increased production. The Chemicals segment consists of our 50% equity investment in Chevron Phillips Chemical Company LLC (CPChem). The chemicals and plastics industry is mainly a commodity-based industry where the margins for key products are based on supply and demand, as well as cost factors. Compared with 2022, the benchmark high-density polyethylene chain margin decreased in 2023, due to lower polyethylene sales prices as a result of industry oversupply driven by recent capacity additions. Our Refining segment results are driven by several factors, including market crack spreads, refinery throughput, feedstock costs, product yields, turnaround activity, and other operating costs. Market crack spreads are used as indicators of refining margins and measure the difference between market prices for refined petroleum products and crude oil. The composite 3:2:1 market crack spread for our business decreased to an average of $28.37 per barrel during 2023, from an average of $34.26 per barrel in 2022. The decrease in the composite market crack spread was primarily driven by lower global prices for gasoline and distillates reflecting reduced refining costs due to lower natural gas prices. While the composite market crack spread fell in 2023, from the highest levels in at least a decade during 2022, it remains well above the five-year and 10-year average levels. The price of U.S. benchmark crude oil, West Texas Intermediate (WTI) at Cushing, Oklahoma, decreased to an average of $77.69 per barrel during 2023, from an average of $94.44 per barrel in 2022. The decrease in crude oil prices was primarily driven by increased production in the United States and other countries outside of the Organization of Petroleum Exporting Countries (OPEC). Results for our M&S segment depend largely on marketing fuel and lubricant margins and sales volumes of our refined petroleum products. While marketing fuel and lubricant margins are primarily driven by market factors, largely determined by the relationship between supply and demand, marketing fuel margins, in particular, are influenced by trends in spot prices, and where applicable, retail prices for refined petroleum products in the regions and countries where we operate. 44 Table of Contents Index to Financial Statements RESULTS OF OPERATIONS Our business segment and consolidated results reflect the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills, in connection with the DCP Midstream Merger, from August 18, 2022, forward. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding the DCP Midstream Merger. Consolidated Results A summary of income before income taxes by business segment with a reconciliation to net income attributable to Phillips 66 follows: [[GREPCENT_TABLE]] [["","Millions of Dollars"],["","Year Ended December 31"],["","2023","","2022","","2021"],["Midstream","$","2,774","","","4,734","","","1,500"],["Chemicals","600","","","856","","","1,844"],["Refining","5,266","","","7,816","","","(2,353)"],["Marketing and Specialties","2,135","","","2,402","","","1,723"],["Corporate and Other","(1,306)","","","(1,169)","","","(974)"],["Income before income taxes","9,469","","","14,639","","","1,740"],["Income tax expense","2,230","","","3,248","","","146"],["Net income","7,239","","","11,391","","","1,594"],["Less: net income attributable to noncontrolling interests","224","","","367","","","277"],["Net income attributable to Phillips 66","$","7,015","","","11,024","","","1,317"]] [[/GREPCENT_TABLE]] 2023 vs. 2022 Net income attributable to Phillips 66 for the year ended December 31, 2023, was $7,015 million, compared with $11,024 million for the year ended December 31, 2022. The decrease in 2023 was primarily due to the recognition of an aggregate before-tax gain of $3,013 million in 2022 in our Midstream segment in connection with the DCP Midstream Merger and a decline in realized refining margins, partially offset by a decrease in income tax expense and lower unrealized investment losses related to our investment in NOVONIX Limited (NOVONIX). 2022 vs. 2021 Net income attributable to Phillips 66 for the year ended December 31, 2022, was $11,024 million, compared with $1,317 million for the year ended December 31, 2021. The improvement was primarily due to higher realized refining margins, an aggregate before-tax gain of $3,013 million recognized in our Midstream segment in connection with the DCP Midstream Merger, lower impairments in the Refining segment, and improved international marketing fuel margins. These improvements were partially offset by an increase in income tax expense, lower equity earnings from CPChem, and an unrealized decrease in the fair value of our investment in NOVONIX. See the “Segment Results” section for additional information on our segment results and Note 23—Income Taxes, in the Notes to Consolidated Financial Statements, for additional information on income taxes. See also Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding the DCP Midstream Merger. 45 Table of Contents Index to Financial Statements Statement of Income Analysis 2023 vs. 2022 Sales and other operating revenues and purchased crude oil and products decreased 13% and 15%, respectively, in 2023. These decreases were mainly due to lower prices for refined petroleum products, crude oil and NGL. Equity in earnings of affiliates decreased 32% in 2023, resulting from lower equity earnings from DCP Midstream, DCP Sand Hills, DCP Southern Hills and Gray Oak Pipeline due to the DCP Midstream Merger in August 2022, as well as decreased equity earnings from WRB Refining LP (WRB) and CPChem primarily due to lower margins, partially offset by lower operating costs. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, and the Chemicals segment analysis in the “Segment Results” section for additional information. Net gain on dispositions increased $108 million in 2023, primarily due to a before-tax gain recognized in the Midstream segment in the third quarter of 2023 associated with the sale of our 25% ownership interest in the South Texas Gateway Terminal. Other income decreased $2,378 million in 2023, primarily due to an aggregate before-tax gain of $3,013 million recognized in our Midstream segment in connection with the DCP Midstream Merger in August 2022. The decrease was partially offset by lower unrealized investment losses on our investment in NOVONIX in 2023 compared to 2022, and higher interest income. See Note 4—Business Combinations, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on the aggregate before-tax gain. See Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information regarding our investment in NOVONIX. Selling, general and administrative expenses increased 16% in 2023, mainly driven by the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022 and higher costs associated with our business transformation. These increases were partially offset by lower selling expenses due to decreased refined petroleum product prices. See Note 31—Restructuring, in the Notes to Consolidated Financial Statements, for additional information regarding restructuring costs. Depreciation and amortization increased 21% in 2023, primarily due to additional depreciation and amortization related to assets acquired as a result of consolidating DCP Midstream Class A Segment, DCP Southern Hills and DCP Sand Hills starting in August 2022. Taxes other than income taxes increased 33% in 2023, primarily due to consolidating DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills starting in August 2022 and an increase in environmental taxes. Interest and debt expense increased 45% in 2023, primarily driven by higher interest expense as a result of consolidating DCP Midstream Class A Segment, new debt issuances in 2023 related to the DCP LP Merger, and a $53 million before-tax loss on the early redemption of DCP LP’s 5.850% junior subordinated notes. Income tax expense decreased 31% in 2023, primarily due to lower income before income taxes. See Note 23—Income Taxes, in the Notes to Consolidated Financial Statements, for more information regarding our income taxes. Net income attributable to noncontrolling interests decreased 39% in 2023. The decrease reflects the impacts of the DCP LP Merger in June 2023, and the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills and the derecognition of a noncontrolling interest related to Gray Oak Holdings as a result of the DCP Midstream Merger in August 2022. The decrease also reflects the impact of the merger between us and Phillips 66 Partners in March 2022. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, and Note 30—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the DCP Midstream Merger and the Phillips 66 Partners merger, respectively. 46 Table of Contents Index to Financial Statements 2022 vs. 2021 Sales and other operating revenues and purchased crude oil and products increased 52% and 47%, respectively, in 2022. These increases were mainly due to higher prices for refined petroleum products, crude oil and NGL. Other income increased $2,283 million in 2022, primarily due to an aggregate before-tax gain of $3,013 million recognized in our Midstream segment in connection with the DCP Midstream Merger. The impact of this gain was partially offset by an unrealized investment loss on our investment in NOVONIX, compared with an unrealized gain in 2021. See Note 4—Business Combinations, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on the aggregate before-tax gain. See Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information regarding our investment in NOVONIX. Operating expenses increased 19% in 2022, mainly attributable to higher utility costs driven by increased natural gas and power prices and higher turnaround and other maintenance expenses. Selling, general and administrative expenses increased 24% in 2022, primarily driven by higher employee-related expenses, restructuring costs related to our business transformation and increased selling expenses driven by rising refined petroleum product prices. Impairments decreased 96% in 2022, primarily due to a before-tax impairment of $1,298 million recorded in the third quarter of 2021 associated with our Alliance Refinery. See Note 11—Impairments, in the Notes to Consolidated Financial Statements, for additional information. Taxes other than income taxes increased 29% in 2022, primarily due to tax credits received from renewable diesel blending activity at our San Francisco Refinery in the third quarter of 2021, as well as higher property and other taxes. Income tax expense increased $3,102 million in 2022 primarily due to improved results. See Note 23—Income Taxes, in the Notes to Consolidated Financial Statements, for more information regarding our income taxes. Net income attributable to noncontrolling interests increased 32% in 2022. The increase was primarily driven by the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills as part of the DCP Midstream Merger in August 2022, which resulted in us reflecting the additional noncontrolling interests owned by the public common and preferred unitholders of DCP LP, as well as Enbridge’s noncontrolling interest in DCP Midstream Class A Segment, on our consolidated statement of income. The increase was partially offset by a decrease due to the merger between us and Phillips 66 Partners in March 2022 that resulted in Phillips 66 Partners becoming a wholly owned subsidiary of Phillips 66. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, and Note 30—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the DCP Midstream Merger and the Phillips 66 Partners merger, respectively. 47 Table of Contents Index to Financial Statements Segment Results Midstream [[GREPCENT_TABLE]] [["","Year Ended December 31"],["","2023","","2022","","2021"],["","Millions of Dollars"],["Income (Loss) Before Income Taxes"],["Transportation","$","1,310","","","1,176","","","678"],["NGL and Other","1,503","","","4,000","","","452"],["NOVONIX","(39)","","","(442)","","","370"],["Total Midstream","$","2,774","","","4,734","","","1,500"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","Thousands of Barrels Daily"],["Transportation Volumes"],["Pipelines*","3,069","","","3,089","","","3,271"],["Terminals","3,246","","","2,981","","","2,790"],["Operating Statistics"],["NGL fractionated**","711","","","529","","","410"],["NGL production***","437","","","423","","","394"],["Wellhead Volume (Bcf/D)***","4.6","","","4.4","","","4.2"]] [[/GREPCENT_TABLE]] * Pipelines represent the sum of volumes transported through each separately tariffed consolidated pipeline segment, excluding NGL pipelines. ** Includes 100% of DCP Midstream Class A Segment’s volumes from August 18, 2022, forward. *** Includes 100% of DCP Midstream Class A Segment’s volumes. [[GREPCENT_TABLE]] [["","Dollars Per Gallon"],["Market Indicator"],["Weighted-Average NGL Price*","$","0.67","","","1.00","","","0.83"]] [[/GREPCENT_TABLE]] * Based on index prices from the Mont Belvieu market hub, which are weighted by NGL component mix. The Midstream segment provides crude oil and refined petroleum product transportation, terminaling and processing services; NGL production, transportation, storage, fractionation, processing and marketing services; natural gas gathering, compressing, treating, processing, storage, transportation and marketing services; and condensate recovery. These activities are mainly in the United States. This segment also includes our investment in NOVONIX. In connection with the DCP Midstream Merger, the results of our Transportation business reflect a decrease in our indirect economic interest in Gray Oak Pipeline to 6.5% from August 18, 2022, forward. Prior to August 18, 2022, the Transportation results presented in the table above reflect Gray Oak Holdings’ 65% economic interest in Gray Oak Pipeline. In addition, the results of our NGL and Other business include the consolidated results of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022, forward. Prior to August 18, 2022, our investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills were accounted for using the equity method and equity earnings from these investments are included in the results of our NGL and Other business. In the Notes to Consolidated Financial Statements, see Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, for additional information regarding the DCP Midstream Merger. 48 Table of Contents Index to Financial Statements 2023 vs. 2022 Results from our Midstream segment decreased $1,960 million in 2023, compared with 2022. Results from our Transportation business increased $134 million in 2023, compared with 2022. The increase in 2023 was primarily due to higher volumes and tariffs, as well as decreased operating costs, partially offset by lower before-tax gains on sales and transfers of interests in equity affiliates. In August 2023, we recognized a $101 million before-tax gain on the sale of our 25% ownership interest in the South Texas Gateway Terminal, while in August 2022, we recognized a before-tax gain of $182 million related to the transfer of an indirect economic interest in Gray Oak Pipeline as part of the DCP Midstream Merger. Results from our NGL and Other business decreased $2,497 million in 2023, compared with 2022. The decrease was primarily due to an aggregate before-tax gain of $2,831 million recognized in the third quarter of 2022 from remeasuring our previously held equity investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills to their fair values in connection with the DCP Midstream Merger. The decrease was partially offset by the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022, forward, as well as increased fractionation volumes at the Sweeny Hub reflecting the startup of Frac 4 in October 2022. The fair value of our investment in NOVONIX declined by $39 million in 2023, compared with a decline of $442 million in 2022. In the Notes to Consolidated Financial Statements, see Note 8—Investments, Loans and Long-Term Receivables, for additional information on our investment in NOVONIX and the before-tax gain on the sale of our 25% ownership interest in the South Texas Gateway Terminal in August 2023. See also Note 4—Business Combinations, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding the before-tax gains recorded in connection with the DCP Midstream Merger. See the “Executive Overview and Business Environment” section for information on market factors impacting 2023 results. 2022 vs. 2021 Midstream’s results increased $3,234 million in 2022, compared with 2021. Results from our Transportation business increased $498 million in 2022, compared with 2021. The increase was primarily due to a before-tax impairment of $198 million recorded in the first quarter of 2021 related to Phillips 66 Partners’ decision to exit the Liberty Pipeline project, a before-tax gain of $182 million from the transfer of a 35.75% indirect economic interest in Gray Oak Pipeline to our co-venturer as part of the DCP Midstream Merger, and lower depreciation and amortization expense from logistic assets that were retired in the fourth quarter of 2021 as part of the planned conversion of the Alliance Refinery to a terminal. Results from our NGL and Other business increased $3,548 million in 2022, compared with 2021. The increase was primarily due to before-tax gains totaling $2,831 million recognized from remeasuring our previously held equity investments in DCP Midstream, DCP Sand Hills and DCP Southern Hills to their fair values in connection with the DCP Midstream Merger. Additionally, the increased results reflect the consolidation of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills from August 18, 2022, forward, as well as improved Sweeny Hub results. In 2022, the fair value of our investment in NOVONIX decreased by $442 million compared with an increase of $370 million in 2021. We acquired this investment in September 2021. See Note 11—Impairments, and Note 8—Investments, Loans and Long-Term Receivables, in the Notes to Consolidated Financial Statements, for additional information on impairments and our investment in NOVONIX, respectively. See Note 4—Business Combinations, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information regarding the before-tax gains recorded in connection with the DCP Midstream Merger. 49 Table of Contents Index to Financial Statements Chemicals [[GREPCENT_TABLE]] [["","Year Ended December 31"],["","2023","","2022","","2021"],["","Millions of Dollars"],["Income Before Income Taxes","$","600","","","856","","","1,844"],["","Millions of Pounds"],["CPChem Externally Marketed Sales Volumes*","23,798","","","23,749","","","24,067"],["* Represents 100% of CPChem\u2019s outside sales of produced petrochemical products, as well as commission sales from equity affiliates."],["Olefins and Polyolefins Capacity Utilization (percent)","96","%","","91","","","95"]] [[/GREPCENT_TABLE]] The Chemicals segment consists of our 50% interest in CPChem, which we account for under the equity method. CPChem uses NGL and other feedstocks to produce petrochemicals. These products are then marketed and sold or used as feedstocks to produce plastics and other chemicals. CPChem produces and markets ethylene and other olefin products. Ethylene produced is primarily consumed within CPChem for the production of polyethylene, normal alpha olefins and polyethylene pipe. CPChem manufactures and markets aromatics and styrenics products, such as benzene, cyclohexane, styrene and polystyrene, as well as manufactures and/or markets a variety of specialty chemical products. Unless otherwise noted, amounts referenced below reflect our net 50% interest in CPChem. 2023 vs. 2022 Results from the Chemicals segment decreased $256 million in 2023, compared with 2022. The decrease was primarily due to lower margins driven by decreased sales prices, partially offset by lower utility costs due to a decline in natural gas prices. See the “Executive Overview and Business Environment” section for information on market factors impacting CPChem’s 2023 results. 2022 vs. 2021 Results from the Chemicals segment decreased $988 million in 2022, compared with 2021. The decrease was primarily due to lower margins driven by decreased sales prices, higher feedstock and utility costs, as well as decreased results from CPChem’s equity affiliates. 50 Table of Contents Index to Financial Statements Refining [[GREPCENT_TABLE]] [["","Year Ended December 31"],["","2023","","2022","","2021"],["","Millions of Dollars"],["Income (Loss) Before Income Taxes"],["Atlantic Basin/Europe","$","910","","","2,402","","","1"],["Gulf Coast","1,640","","","2,091","","","(1,759)"],["Central Corridor","2,210","","","2,415","","","72"],["West Coast","506","","","908","","","(667)"],["Worldwide","$","5,266","","","7,816","","","(2,353)"],["","Dollars Per Barrel"],["Income (Loss) Before Income Taxes"],["Atlantic Basin/Europe","$","4.99","","","12.05","","","0.01"],["Gulf Coast","7.95","","","10.29","","","(7.30)"],["Central Corridor","21.50","","","24.64","","","0.75"],["West Coast","4.20","","","7.86","","","(5.90)"],["Worldwide","8.61","","","12.69","","","(3.69)"],["Realized Refining Margins*"],["Atlantic Basin/Europe","$","13.30","","","20.30","","","7.48"],["Gulf Coast","15.17","","","18.25","","","5.65"],["Central Corridor","22.67","","","24.96","","","9.65"],["West Coast","19.07","","","24.31","","","7.70"],["Worldwide","17.32","","","21.55","","","7.42"]] [[/GREPCENT_TABLE]] * See the “Non-GAAP Reconciliations” section for a reconciliation of this non-GAAP measure to the most directly comparable measure under generally accepted accounting principles in the United States (GAAP), income (loss) before income taxes per barrel. 51 Table of Contents Index to Financial Statements [[GREPCENT_TABLE]] [["","Thousands of Barrels Daily"],["","Year Ended December 31"],["","2023","","2022","","2021"],["Operating Statistics"],["Refining operations*"],["Atlantic Basin/Europe"],["Crude oil capacity","537","","","537","","","537"],["Crude oil processed","479","","","524","","","479"],["Capacity utilization (percent)","89","%","","98","","","89"],["Refinery production","502","","","549","","","522"],["Gulf Coast**"],["Crude oil capacity","529","","","529","","","720"],["Crude oil processed","511","","","488","","","592"],["Capacity utilization (percent)","97","%","","92","","","82"],["Refinery production","574","","","565","","","662"],["Central Corridor"],["Crude oil capacity","531","","","531","","","531"],["Crude oil processed","477","","","469","","","461"],["Capacity utilization (percent)","90","%","","88","","","87"],["Refinery production","497","","","487","","","476"],["West Coast***"],["Crude oil capacity","313","","","364","","","364"],["Crude oil processed","299","","","290","","","284"],["Capacity utilization (percent)","95","%","","80","","","78"],["Refinery production","329","","","315","","","308"],["Worldwide"],["Crude oil capacity","1,910","","","1,961","","","2,152"],["Crude oil processed","1,766","","","1,771","","","1,816"],["Capacity utilization (percent)","92","%","","90","","","84"],["Refinery production","1,902","","","1,916","","","1,968"],["* Includes our share of equity affiliates."],["** Excludes operating statistics of the Alliance Refinery beginning on October 1, 2021."],["*** Reflects reduced capacity of our San Francisco refinery from the shutdown of the Santa Maria facility in February 2023 and the shutdown of one of the Rodeo facility\u2019s crude units in October 2023 in connection with converting this refinery into a renewable fuels facility."]] [[/GREPCENT_TABLE]] Our Refining segment refines crude oil and other feedstocks into petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels. This segment includes 12 refineries in the United States and Europe.  In the fourth quarter of 2021, we shut down our Alliance Refinery and converted it into a terminal. 2023 vs. 2022 Results from the Refining segment decreased $2,550 million in 2023, compared with 2022. The decrease was primarily due to lower realized margins, partially offset by lower utility costs. The decrease in realized margins was primarily driven by a decline in market crack spreads, partially offset by increased feedstock advantage and improved crude optimization benefits. Our worldwide refining crude oil capacity utilization rate was 92% and 90% in 2023 and 2022, respectively. See the “Executive Overview and Business Environment” section for information on industry crack spreads and other market factors impacting this year’s results. 52 Table of Contents Index to Financial Statements 2022 vs. 2021 Results from the Refining segment increased $10,169 million in 2022, compared with 2021. The improved results were primarily due to higher realized refining margins driven by improved market crack spreads, partially offset by higher operating costs. In addition, 2021 included a before-tax impairment of $1,288 million associated with our Alliance Refinery. See Note 11—Impairments, in the Notes to Consolidated Financial Statements, for additional information regarding this impairment. Our worldwide refining crude oil capacity utilization rate was 90% and 84% in 2022 and 2021, respectively. The increase in 2022 was primarily driven by improved demand for refined petroleum products due to supply constraints caused by the conflict between Russia and Ukraine and easing of restrictions from the COVID-19 pandemic. 53 Table of Contents Index to Financial Statements Marketing and Specialties [[GREPCENT_TABLE]] [["","Year Ended December 31"],["","2023","","2022","","2021"],["","Millions of Dollars"],["Income Before Income Taxes","$","2,135","","","2,402","","","1,723"],["","Dollars Per Barrel"],["Income Before Income Taxes"],["U.S.","$","1.97","","","1.95","","","1.74"],["International","4.87","","","7.44","","","4.13"],["Realized Marketing Fuel Margins*"],["U.S.","$","2.45","","","2.34","","","2.19"],["International","6.00","","","8.29","","","5.96"],["* See the \u201cNon-GAAP Reconciliations\u201d section for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure, income before income taxes per barrel."],["","Dollars Per Gallon"],["U.S. Average Wholesale Prices*"],["Gasoline","$","2.93","","","3.30","","","2.46"],["Distillates","3.23","","","3.86","","","2.36"],["* On third-party branded refined petroleum product sales, excluding excise taxes."],["","Thousands of Barrels Daily"],["Marketing Refined Petroleum Product Sales"],["Gasoline","1,218","","","1,167","","","1,154"],["Distillates","957","","","962","","","959"],["Other","18","","","18","","","17"],["","2,193","","","2,147","","","2,130"]] [[/GREPCENT_TABLE]] The M&S segment purchases for resale and markets refined petroleum products, such as gasoline, distillates and aviation fuels, as well as renewable fuels, mainly in the United States and Europe. In addition, this segment includes the manufacturing and marketing of base oils and lubricants. 2023 vs. 2022 Before-tax income from the M&S segment decreased $267 million in 2023, compared with 2022. The decrease in 2023 was primarily driven by lower international realized marketing fuel margins and decreased equity earnings from affiliates, partially offset by higher U.S. realized marketing fuel margins. See the “Executive Overview and Business Environment” section for information on marketing fuel margins and other market factors impacting 2023 results. 2022 vs. 2021 Before-tax income from the M&S segment increased $679 million in 2022, compared with 2021. The increase in 2022 was primarily driven by improved realized international marketing fuel margins and higher results from our specialty lubricants and other businesses. 54 Table of Contents Index to Financial Statements Corporate and Other [[GREPCENT_TABLE]] [["","Millions of Dollars"],["","Year Ended December 31"],["","2023","","2022","","2021"],["Loss Before Income Taxes"],["Net interest expense","$","(628)","","","(537)","","","(583)"],["Corporate overhead and other","(678)","","","(632)","","","(391)"],["Total Corporate and Other","$","(1,306)","","","(1,169)","","","(974)"]] [[/GREPCENT_TABLE]] Net interest expense consists of interest and financing expense, net of interest income and capitalized interest. Corporate overhead and other includes general and administrative expenses, technology costs, environmental costs associated with sites no longer in operation, restructuring costs related to our business transformation, foreign currency transaction gains and losses, and other costs not directly associated with an operating segment. 2023 vs. 2022 Net interest expense increased $91 million in 2023, compared with 2022, primarily driven by higher interest expense as a result of consolidating DCP Midstream Class A Segment, new debt issuances in 2023 related to the DCP LP Merger and a $53 million before-tax loss on the early redemption of DCP LP’s 5.850% junior subordinated notes. The increase in interest expense in 2023 was partially offset by increased interest income. See Note 14—Debt, in the Notes to Consolidated Financial Statements, for additional information regarding debt. Corporate overhead and other increased $46 million in 2023, compared with 2022, primarily due to higher costs related to our business transformation. See Note 31—Restructuring, in the Notes to Consolidated Financial Statements, for additional information regarding restructuring costs. 2022 vs. 2021 Net interest expense decreased $46 million in 2022, compared with 2021, primarily driven by increased interest income, partially offset by increased interest expense as a result of consolidating DCP Midstream Class A Segment from August 18, 2022, forward. See Note 14—Debt, in the Notes to Consolidated Financial Statements, for additional information regarding debt. Corporate overhead and other increased $241 million in 2022, compared with 2021. The increase was primarily due to restructuring costs associated with our business transformation for consulting fees, severance and an impairment related to assets held for sale, as well as higher employee related expenses. See Note 28—Segment Disclosures and Related Information, and Note 31—Restructuring, in the Notes to Consolidated Financial Statements, for additional information regarding restructuring costs. 55 Table of Contents Index to Financial Statements CAPITAL RESOURCES AND LIQUIDITY Financial Indicators [[GREPCENT_TABLE]] [["","Millions of Dollars, Except as Indicated"],["","2023","","2022","","2021"],["Cash and cash equivalents","$","3,323","","","6,133","","","3,147"],["Net cash provided by operating activities","7,029","","","10,813","","","6,017"],["Short-term debt","1,482","","","529","","","1,489"],["Total debt","19,359","","","17,190","","","14,448"],["Total equity","31,650","","","34,106","","","21,637"],["Percent of total debt to capital*","38","%","","34","","","40"],["Percent of floating-rate debt to total debt","10","%","","\u2014","","","3"],["* Capital includes total debt and total equity."]] [[/GREPCENT_TABLE]] To meet our short- and long-term liquidity requirements, we use a variety of funding sources but rely primarily on cash generated from operating activities and debt financing. During 2023, we generated $7 billion in cash from operations and received proceeds from debt offerings, net of debt repayments, of $2 billion. We used available cash primarily to repurchase noncontrolling interests in DCP LP for $4.1 billion, repurchase shares of our common stock for $4 billion, fund capital expenditures and investments of $2.4 billion, and pay dividends on our common stock of $1.9 billion. During 2023, cash and cash equivalents decreased $2.8 billion to $3.3 billion. Significant Sources of Capital Operating Activities During 2023, cash generated by operating activities was $7 billion, a $3.8 billion decrease compared with 2022. The decrease was primarily due to lower realized refining margins, working capital impacts, reduced operating distributions from equity affiliates, completion of long-term crude oil exchanges and higher contributions to our pension plans. During 2022, cash generated by operating activities was $10.8 billion, a $4.8 billion increase compared with 2021. The increase was primarily due to higher earnings resulting from improved realized refining margins, partially offset by working capital impacts and lower operating distributions from equity affiliates. Our short- and long-term operating cash flows are highly dependent upon refining and marketing margins, NGL prices and chemicals margins. Prices and margins in our industry are typically volatile, and are driven by market conditions over which we have little or no control. Absent other mitigating factors, as these prices and margins fluctuate, we would expect a corresponding change in our operating cash flows. The level and quality of output from our refineries also impacts our cash flows. Factors such as operating efficiency, maintenance turnarounds, market conditions, feedstock availability, and weather conditions can affect output. We actively manage the operations of our refineries, and any variability in their operations typically has not been as significant to cash flows as that caused by margins and prices. Our worldwide refining crude oil capacity utilization was 92%, 90% and 84% in 2023, 2022 and 2021, respectively. Our worldwide refining clean product yield was 85%, 84% and 83% in 2023, 2022 and 2021, respectively. Equity Affiliate Operating Distributions Our operating cash flows are also impacted by distribution decisions made by our equity affiliates, including CPChem. Over the three years ended December 31, 2023, our operating cash flows included aggregate distributions from our equity affiliates of $5.6 billion, including $2.2 billion from CPChem. We cannot control the amount of future dividends from equity affiliates; therefore, future dividend payments by these equity affiliates are not assured. 56 Table of Contents Index to Financial Statements Tax Refunds We received a U.S. federal income tax refund of $1.1 billion in the second quarter of 2021. Asset Dispositions On August 1, 2023, we sold our 25% ownership interest in the South Texas Gateway Terminal for approximately $275 million. On February 28, 2023, we closed on the sale of the Belle Chasse Terminal for approximately $76 million. Debt Issuances On March 29, 2023, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, issued $1.25 billion aggregate principal amount of senior unsecured notes consisting of: •$750 million aggregate principal amount of 4.950% Senior Notes due December 2027 (2027 Notes). •$500 million aggregate principal amount of 5.300% Senior Notes due June 2033 (2033 Notes). The 2027 Notes and 2033 Notes (collectively, the Notes) are fully and unconditionally guaranteed by Phillips 66. Interest on the 2027 Notes is payable semi-annually on June 1 and December 1 of each year and commenced on December 1, 2023. Interest on the 2033 Notes is payable semi-annually on June 30 and December 30 of each year and commenced on December 30, 2023. Term Loan Agreement On March 27, 2023, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, entered into a $1.5 billion delayed draw term loan agreement guaranteed by Phillips 66 (the Term Loan Agreement). The Term Loan Agreement provides for a single borrowing during a 90-day period commencing on the closing date, which borrowing was contingent upon the completion of the DCP LP Merger. The Term Loan Agreement contains customary covenants similar to those contained in our revolving credit agreement, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. The Term Loan Agreement has customary events of default, such as nonpayment of principal when due; nonpayment of interest, fees or other amounts after grace periods; and violation of covenants. We may at any time prepay outstanding borrowings under the Term Loan Agreement, in whole or in part, without premium or penalty. Outstanding borrowings under the Term Loan Agreement bear interest at either: (a) the adjusted term Secured Overnight Financing Rate (SOFR) in effect from time to time plus the applicable margin; or (b) the reference rate plus the applicable margin, as defined in the Term Loan Agreement. At December 31, 2023, $1.25 billion was borrowed under the Term Loan Agreement, which matures in June 2026. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, in the Notes to Consolidated Financial Statements, for additional information regarding the DCP LP Merger. Related Party Advance Term Loan Agreements Borrowings under related party Advance Term Loan agreements with WRB increased from $25 million at December 31, 2022, to $290 million at December 31, 2023. Borrowings under these agreements are due in 2035 and 2038 and bear interest at a floating rate based on the adjusted term SOFR plus an applicable margin, payable on the last day of each month. 57 Table of Contents Index to Financial Statements Credit Facilities and Commercial Paper Phillips 66 and Phillips 66 Company On June 23, 2022, we entered into a $5 billion revolving credit facility (the Facility) with Phillips 66 Company as the borrower and Phillips 66 as the guarantor and a scheduled maturity date of June 22, 2027. The Facility replaced our previous $5 billion revolving credit facility with Phillips 66 as the borrower and Phillips 66 Company as the guarantor. The Facility contains usual and customary covenants that are similar to the previous revolving credit facility, including a maximum consolidated net debt-to-capitalization ratio of 65% as of the last day of each fiscal quarter. We have the option to increase the overall capacity to $6 billion, subject to certain conditions. We also have the option to extend the scheduled maturity of the Facility for up to two additional one-year terms, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment. Outstanding borrowings under the Facility bear interest at either (a) the adjusted term SOFR (as described in the Facility) in effect from time to time plus the applicable margin; or (b) the reference rate (as described in the Facility) plus the applicable margin. The Facility also provides for customary fees, including commitment fees. The pricing levels for the commitment fees and interest-rate margins are determined based on the ratings in effect for our senior unsecured long-term debt from time to time. We may at any time prepay outstanding borrowings, in whole or in part, without premium or penalty. At December 31, 2023 and 2022, no amount had been drawn under the Facility. Phillips 66 also has a $5 billion uncommitted commercial paper program for short-term working capital needs that is supported by the Facility. Commercial paper maturities are contractually limited to 365 days. At December 31, 2023 and 2022, no borrowings were outstanding under the program. Phillips 66 Partners In connection with entering into the Facility, we terminated Phillips 66 Partners’ $750 million revolving credit facility. DCP Midstream Class A Segment DCP LP has a credit facility under its amended credit agreement (the Credit Agreement), with a borrowing capacity of up to $1.4 billion that matures on March 18, 2027. The Credit Agreement grants DCP LP the option to increase the revolving loan commitment by an aggregate principal amount of up to $500 million and to extend the term for up to two additional one-year periods, subject to requisite lender approval. Indebtedness under the Credit Agreement bears interest at either: (a) an adjusted SOFR (as described in the Credit Agreement) plus the applicable margin; or (b) the base rate (as described in the Credit Agreement) plus the applicable margin. The Credit Agreement also provides for customary fees, including commitment fees. The cost of borrowing under the Credit Agreement is determined by a ratings-based pricing grid based on DCP LP’s credit rating. At December 31, 2023, DCP LP had $25 million in borrowings outstanding under the Credit Agreement. At December 31, 2022, DCP LP had no borrowings outstanding under the Credit Agreement. At December 31, 2023, and December 31, 2022, respectively, $2 million and $10 million in letters of credit had been issued that are supported by the Credit Agreement. DCP LP has an accounts receivable securitization facility (the Securitization Facility) that provides for up to $350 million of borrowing capacity through August 2024 at an adjusted SOFR and includes an uncommitted option to increase the total commitments under the Securitization Facility by up to an additional $400 million. Under the Securitization Facility, certain of DCP LP’s wholly owned subsidiaries sell or contribute receivables to another of DCP LP’s consolidated subsidiaries, DCP Receivables LLC, a bankruptcy-remote special purpose entity created for the sole purpose of the Securitization Facility. At December 31, 2023, and December 31, 2022, respectively, $350 million and $40 million of borrowings were outstanding under the Securitization Facility, which are secured by accounts receivable at DCP Receivables LLC. Total Committed Capacity Available At December 31, 2023, and 2022, we had approximately $6.4 billion and $6.7 billion, respectively, of total committed capacity available under the credit facilities described above. 58 Table of Contents Index to Financial Statements Other Debt Issuances and Financings Senior Unsecured Notes In November 2021, Phillips 66 closed its public offering of $1 billion aggregate principal amount of 3.300% senior unsecured notes due 2052. Interest on the Senior Notes due 2052 is payable semiannually on March 15 and September 15 of each year, commencing on March 15, 2022. Proceeds received from the public offering were $982 million, net of underwriters’ discounts and commissions, as well as debt issuance costs. In December 2021, Phillips 66 used the proceeds from this offering, together with cash on hand, to repay $1 billion in aggregate principal amount of its $2 billion 4.300% Senior Notes due April 2022. Phillips 66 Partners Term Loan In April 2021, Phillips 66 Partners entered into a $450 million term loan agreement with a one-year term and borrowed the full amount. The term loan agreement was repaid upon maturity in April 2022 without premium or penalty. Phillips 66 Availability of Debt Financing We have an A3 credit rating, with a stable outlook, from Moody’s Investors Service and a BBB+ credit rating, with a stable outlook, from Standard & Poor’s. These investment grade ratings have served to lower our borrowing costs and facilitate access to a variety of lenders. We do not have any ratings triggers on any of our corporate debt that would cause an automatic default, and thereby impact our access to liquidity, in the event of a rating downgrade by one or both rating agencies. Failure to maintain investment grade ratings could prohibit us from accessing the commercial paper market, although we would expect to be able to access funds under our liquidity facilities mentioned above. DCP LP Availability of Debt Financing DCP LP has a BBB+ credit rating, with a stable outlook, from Standard and Poor’s and a Baa3 credit rating, with a positive outlook, from Moody’s Investors Service. These ratings facilitate DCP LP’s access to a variety of lenders. DCP LP does not have any ratings triggers on any of its corporate debt that would cause an automatic default, and thereby impact access to liquidity, in the event of a rating downgrade by one or more rating agencies. 59 Table of Contents Index to Financial Statements Off-Balance Sheet Arrangements Lease Residual Value Guarantees Under the operating lease agreement for our headquarters facility in Houston, Texas, we have the option, at the end of the lease term in September 2025, to request to renew the lease, purchase the facility or assist the lessor in marketing it for resale. We have a residual value guarantee associated with the operating lease agreement with a maximum potential future exposure of $514 million at December 31, 2023. We also have residual value guarantees associated with railcar, airplane and truck leases with maximum potential future exposures totaling $168 million. These leases have remaining terms of one to ten years. Dakota Access and Energy Transfer Crude Oil Company, LLC (ETCO) In 2020, the trial court presiding over litigation brought by the Standing Rock Sioux Tribe (the Tribe) ordered the U.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) addressing an easement under Lake Oahe in North Dakota. The trial court later vacated the easement. Although the easement is vacated, the USACE has no plans to stop pipeline operations while it proceeds with the EIS, and the Tribe’s request for a shutdown was denied in May 2021. In June 2021, the trial court dismissed the litigation entirely. Once the EIS is completed, new litigation or challenges may be filed. In February 2022, the U.S. Supreme Court (the Court) denied Dakota Access’ writ of certiorari requesting the Court to review the trial court’s decision to order the EIS and vacate the easement. Therefore, the requirement to prepare the EIS stood. Also in February 2022, the Tribe withdrew as a cooperating agency, causing the USACE to halt the EIS process while the USACE engaged with the Tribe on their reasons for withdrawing. The draft EIS process resumed in August 2022, and in September 2023 the USACE published its draft EIS for public comment. The USACE identified five potential outcomes, but did not indicate which one it preferred. The options comprise two “no action” alternatives where the USACE would deny an easement to Dakota Access and require it to shut down the pipeline and either remove the pipe from under Lake Oahe or allow the pipeline to be abandoned-in-place under the lake. The USACE also identified three “action” alternatives. Two of them contemplate that the USACE would reissue the easement to Dakota Access under essentially the same terms as 2017 with either the same or a larger volume of oil allowed through the pipeline while the third alternative would require decommissioning the current pipeline and construction of a new line 39 miles upstream from the current location. The USACE has not indicated when it will issue its final decision. Dakota Access and ETCO have guaranteed repayment of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access in March 2019. On April 1, 2022, Dakota Access’ wholly owned subsidiary repaid $650 million aggregate principal amount of its outstanding senior notes upon maturity. We funded our 25% share, or $163 million, with a capital contribution of $89 million in March 2022 and $74 million of distributions we elected not to receive from Dakota Access in the first quarter of 2022. At December 31, 2023, the aggregate principal amount outstanding of Dakota Access’ senior unsecured notes was $1.85 billion. In conjunction with the notes offering, Phillips 66 Partners, now a wholly owned subsidiary of Phillips 66, and its co-venturers in Dakota Access also provided a Contingent Equity Contribution Undertaking (CECU). Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access if there is an unfavorable final judgment in the above-mentioned ongoing litigation. At December 31, 2023, our 25% share of the maximum potential equity contributions under the CECU was approximately $467 million. If the pipeline is required to cease operations, it may have a material adverse effect on our results of operations and cash flows. Should operations cease and Dakota Access and ETCO not have sufficient funds to pay its expenses, we also could be required to support our 25% share of the ongoing expenses, including scheduled interest payments on the notes of approximately $20 million annually, in addition to the potential obligations under the CECU at December 31, 2023. See Note 15—Guarantees, in the Notes to Consolidated Financial Statements, for additional information regarding guarantees. 60 Table of Contents Index to Financial Statements Capital Requirements Capital Expenditures and Investments For information about our capital expenditures and investments, see the “Capital Spending” section below. Debt Financing Our debt balance at December 31, 2023, was $19.4 billion and our total debt-to-capital ratio was 38%. See Note 14—Debt, in the Notes to Consolidated Financial Statements, for our annual debt maturities over the next five years and more information on debt repayments. 2023 Repayments On May 19, 2023, DCP LP redeemed its 5.850% junior subordinated notes due May 2043 with an aggregate principal amount outstanding of $550 million. On March 15, 2023, DCP LP repaid its 3.875% senior unsecured notes due March 2023 with an aggregate principal amount of $500 million. 2022 Repayments In December 2022, Phillips 66 repaid its 3.700% senior notes due April 2023 with an aggregate principal amount of $500 million. After our consolidation of DCP Midstream Class A Segment on August 17, 2022, DCP LP repaid $470 million of borrowings under its accounts receivable securitization and revolving credit facilities that were outstanding on the acquisition date. In April 2022, upon maturity, Phillips 66 repaid its 4.300% senior notes with an aggregate principal amount of $1 billion and Phillips 66 Partners repaid its $450 million term loan. Subsequent Repayment On February 15, 2024, upon maturity, Phillips 66 repaid its 0.900% senior notes due February 2024 with an aggregate principal amount of $800 million. Debt Exchange On May 5, 2022, Phillips 66 Company, a wholly owned subsidiary of Phillips 66, completed offers to exchange (the Exchange Offers) all validly tendered notes of seven different series of notes issued by Phillips 66 Partners (collectively, the Old Notes), with an aggregate principal amount of approximately $3.5 billion, for notes issued by Phillips 66 Company (collectively, the New Notes). The New Notes are fully and unconditionally guaranteed by Phillips 66 and rank equally with Phillips 66 Company’s other unsecured and unsubordinated indebtedness, and the guarantees rank equally with Phillips 66’s other unsecured and unsubordinated indebtedness. Old Notes with an aggregate principal amount of approximately $3.2 billion were tendered in the Exchange Offers. The New Notes have the same interest rates, interest payment dates and maturity dates as the Old Notes. Holders that validly tendered before the end of the early participation period on April 19, 2022 (the Early Participation Date), received New Notes with an aggregate principal amount equivalent to the Old Notes, while holders that validly tendered after the Early Participation Date, but before the Expiration Date, received New Notes with an aggregate principal amount 3% less than the Old Notes. Substantially all of the Old Notes exchanged were tendered during the Early Participation Period. DCP Midstream Merger On August 17, 2022, we and our co-venturer, Enbridge, agreed to merge DCP Midstream and Gray Oak Holdings with DCP Midstream as the surviving entity. As part of the DCP Midstream Merger, we made a net cash payment of $306 million. 61 Table of Contents Index to Financial Statements DCP LP Merger On June 15, 2023, we completed the acquisition of all publicly held common units of DCP LP pursuant to the terms of the Agreement and Plan of Merger, dated as of January 5, 2023 (DCP LP Merger Agreement). The DCP LP Merger Agreement was entered into with DCP LP, its subsidiaries and its general partner entities, pursuant to which one of our wholly owned subsidiaries merged with and into DCP LP, with DCP LP surviving as a Delaware limited partnership. Under the terms of the DCP LP Merger Agreement, at the effective time of the DCP LP Merger, each publicly held common unit representing a limited partner interest in DCP LP (other than the common units owned by DCP Midstream and its subsidiaries) issued and outstanding as of immediately prior to the effective time was converted into the right to receive $41.75 per common unit in cash. The DCP LP Merger increased our aggregate direct and indirect economic interest in DCP LP from 43.3% to 86.8%. We paid approximately $3.8 billion in cash consideration, funded with a combination of available cash and proceeds from the offering of the Notes and borrowings under the Term Loan Agreement. See Note 3—DCP Midstream, LLC and DCP Midstream, LP Mergers, Note 14—Debt, and Note 29—DCP Midstream Class A Segment, in the Notes to Consolidated Financial Statements, for additional information. DCP LP Preferred Units On October 16, 2023, DCP LP redeemed its Series C preferred units with an aggregate liquidation preference of approximately $110 million. On June 15, 2023, DCP LP redeemed its Series B preferred units with an aggregate liquidation preference of approximately $161 million. In December 2022, DCP LP redeemed its Series A preferred units with an aggregate liquidation preference of $500 million. DCP LP Cash Distributions to Unitholders DCP LP’s partnership agreement requires it to distribute all available cash within 45 days after the end of each quarter. For the year ended December 31, 2023, DCP LP made cash distributions of $125 million to common unitholders other than Phillips 66 and its subsidiaries and $15 million to preferred unitholders. See Note 29—DCP Midstream Class A Segment, in the Notes to Consolidated Financial Statements, for additional information regarding the DCP LP public common unit acquisition and the redemptions of DCP LP’s Series B and Series C preferred units. Merger with Phillips 66 Partners On March 9, 2022, we completed a merger between us and Phillips 66 Partners. The merger resulted in the acquisition of all limited partnership interests in Phillips 66 Partners not already owned by us in exchange for 41.8 million shares of Phillips 66 common stock issued from treasury stock. Phillips 66 Partners common unitholders received 0.50 shares of Phillips 66 common stock for each outstanding Phillips 66 Partners common unit. Phillips 66 Partners’ perpetual convertible preferred units were converted into common units at a premium to the original issuance price prior to being exchanged for Phillips 66 common stock. Upon closing, Phillips 66 Partners became a wholly owned subsidiary of Phillips 66 and its common units are no longer publicly traded. See Note 30—Phillips 66 Partners LP, in the Notes to Consolidated Financial Statements, for additional information on the merger transaction. Dividends On February 7, 2024, our Board of Directors declared a quarterly cash dividend of $1.05 per common share. The dividend is payable March 1, 2024, to holders of record at the close of business on February 20, 2024. 62 Table of Contents Index to Financial Statements Share Repurchases On October 25, 2023, our Board of Directors approved a $5 billion increase to our share repurchase authorization. Since the inception of our share repurchase program in 2012, our Board of Directors has authorized an aggregate of $25 billion of repurchases of our outstanding common stock, and we have repurchased 213.8 million shares at an aggregate cost of $18 billion. In 2023, we repurchased 37.8 million shares at an aggregate cost of $4 billion. Our share repurchase authorizations do not expire. Any future share repurchases will be made at the discretion of management and will depend on various factors including our share price, results of operations, financial condition and cash required for future business plans. Shares of stock repurchased are held as treasury shares. Employee Benefit Plan Contributions During the year ended December 31, 2023, we contributed $391 million to our U.S. pension plans and $20 million to our international pension plans. Marketing and Specialties Acquisition On August 1, 2023, we acquired a marketing business on the U.S. West Coast for total consideration of $269 million. This acquisition supports the placement of renewable diesel that will be produced by the Rodeo renewable fuels facility. Contractual Obligations Our contractual obligations primarily consist of purchase obligations, outstanding debt principal and interest obligations, operating and finance lease obligations, and asset retirement and environmental obligations. Purchase Obligations Our purchase obligations represent agreements to purchase goods or services that are enforceable, legally binding and specify all significant terms. We expect these purchase obligations will be fulfilled with operating cash flows in the period when due. At December 31, 2023, our purchase obligations totaled $84.8 billion, with $40.7 billion due within one year. The majority of our purchase obligations are market-based contracts, including exchanges and futures, for the purchase of commodities such as crude oil and NGL. The commodities are used to supply our refineries and fractionators and optimize our supply chain. At December 31, 2023, commodity purchase commitments with third parties and related parties were $44.2 billion and $23.9 billion, respectively. The remaining purchase obligations mainly represent agreements to access and utilize the capacity of third-party equipment and facilities, including pipelines and product terminals, to transport, process, treat, and store products, and our net share of purchase commitments for materials and services for jointly owned facilities where we are the operator. Debt Principal and Interest Obligations As of December 31, 2023, our aggregate principal amount of outstanding debt was $19.5 billion, with $1.5 billion due within one year. Our obligations for interest on the debt totaled $9.6 billion, with $870 million due within one year. See Note 14—Debt, in the Notes to Consolidated Financial Statements, for additional information regarding our outstanding debt principal and interest obligations. Finance and Operating Lease Obligations See Note 20—Leases, in the Notes to Consolidated Financial Statements, for information regarding our lease obligations and timing of our expected lease payments. Asset Retirement and Environmental Obligations See Note 12—Asset Retirement Obligations and Accrued Environmental Costs, in the Notes to Consolidated Financial Statements, for information regarding asset retirement and environmental obligations. 63 Table of Contents Index to Financial Statements Capital Spending Our capital expenditures and investments represent consolidated capital spending. [[GREPCENT_TABLE]] [["","Millions of Dollars"],["","2024 Budget","","2023","","2022","","2021"],["Capital Expenditures and Investments"],["Midstream*","$","985","","","625","","","1,043","","","733"],["Chemicals","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Refining","1,066","","","1,339","","","928","","","784"],["Marketing and Specialties","112","","","364","","","89","","","202"],["Corporate and Other","68","","","90","","","134","","","141"],["Total Capital Expenditures and Investments","$","2,231","","","2,418","","","2,194","","","1,860"],["Selected Equity Affiliates**"],["CPChem","$","828","","","1,009","","","701","","","367"],["WRB","183","","","189","","","177","","","229"],["Total Selected Equity Affiliates","$","1,011","","","1,198","","","878","","","596"]] [[/GREPCENT_TABLE]] * Includes 100% of DCP Midstream Class A Segment, DCP Sand Hills and DCP Southern Hills capital expenditures and investments from August 18, 2022, forward, net of acquired cash. ** Our share of joint ventures’ capital spending. Midstream Capital spending in our Midstream segment was $2.4 billion for the three-year period ended December 31, 2023, including: •Expansion of gathering systems in the DJ Basin and Permian Basin for DCP LP. •Continued development and expansion of fractionation capacity at our Sweeny Hub. We completed and started operations of Sweeny Frac 4 in the third quarter of 2022. •Completion of construction on our C2G Pipeline, a new 16-inch ethane pipeline that connects our Clemens Caverns storage facility to petrochemical facilities in Gregory, Texas, near Corpus Christi. •Net cash payment in connection with the DCP Midstream Merger. •Investments in NOVONIX and a renewable feedstock processing plant. •Contributions to Dakota Access for a pipeline optimization project, including a contribution to fund our 25% share of Dakota Access’ debt repayment. •Spending associated with other return, reliability, and maintenance projects in our Transportation and NGL businesses. Chemicals During the three-year period ended December 31, 2023, CPChem had a self-funded capital program that totaled $4.2 billion on a 100% basis. Capital spending was primarily for the development of petrochemical projects on the U.S. Gulf Coast and in the Middle East, as well as sustaining, debottlenecking and optimization projects on existing assets. 64 Table of Contents Index to Financial Statements Refining Capital spending for the Refining segment during the three-year period ended December 31, 2023, was $3.1 billion, primarily for projects to enhance the yield of higher-value products, produce renewable fuels, and sustain the reliability and safety of our facilities. Key projects funded during the three-year period included: •Installation of facilities to produce renewable fuels at our San Francisco and Humber refineries. •Installation of facilities to improve clean product yield at the Ponca City and Sweeny refineries, as well as the jointly owned Wood River Refinery. •Installation of facilities to improve product value at the Lake Charles Refinery. •Installation of facilities to improve utilization and product value at the jointly owned Borger refinery. Marketing and Specialties Capital spending for the M&S segment during the three-year period ended December 31, 2023, was primarily for the acquisition of a marketing business and a commercial fleet fueling business on the U.S. West Coast, both of which will provide further placement opportunities for renewable diesel production to end-use customers; investment in a retail marketing joint venture in the U.S. Central region; and the continued acquisition, development and enhancement of retail sites in Europe. Corporate and Other Capital spending for Corporate and Other during the three-year period ended December 31, 2023, was primarily related to information technology and facilities. 2024 Budget Our 2024 capital budget is $2.2 billion, including $923 million for sustaining capital and $1.3 billion for growth capital. Our sustaining capital budget reflects $300 million of efficiencies as a result of our business transformation efforts. Our projected $2.2 billion capital budget excludes our portion of planned capital spending by our major joint ventures CPChem and WRB totaling $1 billion. The Midstream capital budget of $985 million comprises a growth capital budget of $593 million focused on enhancing our integrated NGL wellhead-to-market value chain, as well as $250 million related to the repayment of our 25% share of Dakota Access’ debt due in 2024. The Midstream capital budget also includes $392 million for sustaining projects, including DCP LP’s sustaining capital of $200 million. In Refining, the total capital budget of $1.1 billion consists of $412 million for sustaining capital and $654 million for growth capital. Refining’s growth capital includes completing the conversion of the San Francisco Refinery in Rodeo, California, into one of the world’s largest renewable fuels facilities. Startup of the converted facility is expected in the first quarter of 2024. Refining’s growth capital will also support high-return, low-capital projects to enhance market capture. The M&S capital budget of $112 million reflects continued enhancement of our retail network, including energy transition opportunities. The Corporate and Other capital budget of $68 million will primarily fund information technology projects. 65 Table of Contents Index to Financial Statements Contingencies A number of lawsuits involving a variety of claims that arose in the ordinary course of business have been filed against us or are subject to indemnifications provided by us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various active and inactive sites. We regularly assess the need for financial recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is uncertain. Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes. Legal and Tax Matters Our legal and tax matters are handled by our legal and tax organizations. These organizations apply their knowledge, experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. We employ a litigation management process to manage and monitor the legal proceedings. Our process facilitates the early evaluation and quantification of potential exposures in individual cases and enables the tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, our legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. In the case of income tax-related contingencies, we monitor tax legislation and court decisions, the status of tax audits and the statute of limitations within which a taxing authority can assert a liability. 66 Table of Contents Index to Financial Statements Environmental We are subject to numerous international, federal, state and local environmental laws and regulations. Among the most significant of these international and federal environmental laws and regulations are the: •U.S. Federal Clean Air Act, which governs air emissions. •U.S. Federal Clean Water Act, which governs discharges into bodies of water. •European Union Regulation for Registration, Evaluation, Authorization and Restriction of Chemicals (EU REACH), which governs production, marketing and use of chemicals and the United Kingdom’s legislation for the Registration, Evaluation, Authorization and Restriction of Chemicals (UK REACH), which replaced EU REACH in the United Kingdom in 2021 following the United Kingdom’s exit from the European Union (BREXIT). •U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), which imposes liability on generators, transporters and arrangers of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur. •U.S. Federal Resource Conservation and Recovery Act (RCRA), which governs the treatment, storage and disposal of solid waste. •U.S. Federal Emergency Planning and Community Right-to-Know Act (EPCRA), which requires facilities to report toxic chemical inventories to local emergency planning committees and response departments. •U.S. Federal Oil Pollution Act of 1990 (OPA90), under which owners and operators of onshore facilities and pipelines as well as owners and operators of vessels are liable for removal costs and damages that result from a discharge of crude oil into navigable waters of the United States. •European Union Trading Directive resulting in the European Union Emissions Trading Scheme (EU ETS), which uses a market-based mechanism to incentivize the reduction of greenhouse gas (GHG) emissions, as well as the United Kingdom Emissions Trading Scheme (UK ETS), which replaced the EU ETS in the United Kingdom in 2021, following BREXIT. These laws and their implementing regulations set limits on emissions and, in the case of discharges to water, establish water quality limits. They also, in most cases, require permits in association with new or modified operations. These permits can require an applicant to collect substantial information in connection with the application process, which can be expensive and time consuming. In addition, there can be delays associated with notice and comment periods and the agency’s processing of the application. Many of the delays associated with the permitting process are beyond the control of the applicant. Other countries and many states where we operate also have, or are developing, similar environmental laws and regulations governing these same types of activities. While similar, in some cases these regulations may impose additional, or more stringent, requirements that can add to the cost and difficulty of developing infrastructure and marketing and transporting products across state and international borders. For example, in California the South Coast Air Quality Management District (SCAQMD) approved amendments to the Regional Clean Air Incentives Market (RECLAIM) that became effective in 2016, which required a phased reduction of nitrogen oxide emissions through 2022, affecting refineries in the Los Angeles metropolitan area. In 2017, SCAQMD required additional nitrogen oxide emissions reductions through 2025 and, on November 5, 2021, promulgated new regulations to replace the RECLAIM program with a traditional command and control regulatory regime. The ultimate financial impact arising from environmental laws and regulations is neither clearly known nor easily determinable as new standards, such as air emissions standards, water quality standards and stricter fuel regulations, continue to evolve. However, environmental laws and regulations, including those that may arise to address concerns about global climate change, are expected to continue to have an increasing impact on our operations in the United States and in other countries in which we operate. Notable areas of potential impacts include air emissions compliance and remediation obligations in the United States. 67 Table of Contents Index to Financial Statements An example of this in the fuels area is the Energy Independence and Security Act of 2007 (EISA). The law requires fuel producers and importers to provide additional renewable fuels for transportation motor fuels and stipulates a mix of various types. Renewable Identification Numbers (RINs) form the mechanism used by the EPA to record compliance with the Renewable Fuel Standard (RFS). If an obligated party has more RINs than it needs to meet its obligation, it may sell or trade the extra RINs, or instead choose to “bank” them for use the following year. We have met the EPA’s renewable volume obligations (RVO) to date. These obligations have been met using a variety of operating and capital strategies. We are also implementing advanced and different technologies to address projected future RVOs. On June 21, 2023, the EPA finalized RVO for the 2023, 2024 and 2025 compliance years. These standards increase cellulosic volumes, which reflect the EPA’s forecast for increasing compressed natural gas (CNG) and liquified natural gas (LNG) volumes derived from biogas. In addition, the EPA increased total advanced biofuel volumes from the 5.63 billion gallons established for the 2022 compliance year to 7.33 billion gallons in 2025. We may experience a decrease in demand for refined petroleum products and increased program costs if not fully recovered in the market. This program continues to be the subject of possible Congressional review and re-promulgation in revised form, and the EPA’s final regulations establishing RVO requirements have been and continue to be subject to legal challenge, further creating uncertainty regarding RVO requirements. We are required to purchase RINs in the open market to satisfy the portion of our obligation under the RFS that is not fulfilled by blending renewable fuels into the motor fuels we produce. For the years ended December 31, 2023, 2022 and 2021, we incurred expenses of $323 million, $478 million and $441 million, respectively, associated with our obligation to purchase RINs in the open market to comply with the RFS for our wholly owned refineries. These expenses are included in the “Purchased crude oil and products” line item on our consolidated statement of income. Our jointly owned refineries also incurred expenses associated with the purchase of RINs in the open market, of which our share was $389 million, $437 million and $351 million for the years ended December 31, 2023, 2022 and 2021, respectively. These expenses are included in the “Equity in earnings of affiliates” line item on our consolidated statement of income. The amount of these expenses and fluctuations between periods is primarily driven by the market price of RINs, refinery production, blending activities, and RVO requirements. We also are subject to certain laws and regulations relating to environmental remediation obligations associated with current and past operations. Such laws and regulations include CERCLA and RCRA and their state equivalents. Remediation obligations include cleanup responsibility arising from petroleum releases from underground storage tanks located at numerous previously and currently owned and/or operated petroleum-marketing outlets throughout the United States. Federal and state laws require contamination caused by such underground storage tank releases be assessed and remediated to meet applicable standards. In addition to other cleanup standards, many states have adopted cleanup criteria for methyl tertiary-butyl ether (MTBE) for soil and groundwater and both the EPA and many states may adopt cleanup standards for per- and poly-fluoroalkyl substances (PFAS), which may have been a constituent in certain firefighting foams used or stored at or near some of our facilities. At RCRA-permitted facilities, we are required to assess environmental conditions. If conditions warrant, we may be required to remediate contamination caused by prior operations. In contrast to CERCLA, which is often referred to as “Superfund,” the cost of corrective action activities under RCRA corrective action programs is typically borne solely by us. We anticipate increased expenditures for RCRA remediation activities may be required, but such annual expenditures for the near term are not expected to vary significantly from the range of such expenditures we have experienced over the past few years. Longer-term expenditures are subject to considerable uncertainty and may fluctuate significantly. We occasionally receive requests for information or notices of potential liability from the EPA and state environmental agencies alleging that we are a potentially responsible party under CERCLA or an equivalent state statute. On occasion, we also have been made a party to cost recovery litigation by those agencies or by private parties. These requests, notices and lawsuits assert potential liability for remediation costs at various sites that typically are not owned by us, but allegedly contain wastes attributable to our past operations. At December 31, 2022, we reported that we had been notified of potential liability under CERCLA and comparable state laws at 22 sites within the United States. During the last quarter of 2023, our legal organization approved the removal of one site following Department of Justice dismissal of Phillips 66, thus, leaving 21 unresolved sites with potential liability at December 31, 2023. 68 Table of Contents Index to Financial Statements For the majority of Superfund sites, our potential liability will be less than the total site remediation costs because the percentage of waste attributable to us, versus that attributable to all other potentially responsible parties, is relatively low. Although liability of those potentially responsible is generally joint and several for federal sites and frequently so for state sites, other potentially responsible parties at sites where we are a party typically have had the financial strength to meet their obligations, and where they have not, or where potentially responsible parties could not be located, our share of liability has not increased materially. Many of the sites for which we are potentially responsible are still under investigation by the EPA or the state agencies concerned. Prior to actual cleanup, those potentially responsible normally assess site conditions, apportion responsibility and determine the appropriate remediation. In some instances, we may have no liability or attain a settlement of liability. Actual cleanup costs generally occur after the parties obtain the EPA or equivalent state agency approval of a remediation plan. There are relatively few sites where we are a major participant, and given the timing and amounts of anticipated expenditures, neither the cost of remediation at those sites nor such costs at all CERCLA sites, in the aggregate, is expected to have a material adverse effect on our competitive or financial condition. We incur costs related to the prevention, control, abatement or elimination of environmental pollution. Expensed environmental costs were $824 million in 2023 and are expected to be approximately $885 million and $863 million in 2024 and 2025, respectively. Capitalized environmental costs were $49 million in 2023 and are expected to be approximately $76 million and $216 million, in 2024 and 2025, respectively. These amounts do not include capital expenditures made for other purposes that have an indirect benefit on environmental compliance. Accrued liabilities for remediation activities are not reduced for potential recoveries from insurers or other third parties and are not discounted (except those assumed in a business combination, which we record on a discounted basis). Many of these liabilities result from CERCLA, RCRA and similar state laws that require us to undertake certain investigative and remedial activities at sites where we conduct, or once conducted, operations or at sites where our generated waste was disposed. We also have accrued for a number of sites we identified that may require environmental remediation, but which are not currently the subject of CERCLA, RCRA or state enforcement activities. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the future, we may incur significant costs under both CERCLA and RCRA. Remediation activities vary substantially in duration and cost from site to site, depending on the mix of unique site characteristics, evolving remediation technologies, diverse regulatory agencies and enforcement policies, and the presence or absence of potentially liable third parties. Therefore, it is difficult to develop reasonable estimates of future site remediation costs. Notwithstanding any of the foregoing, and as with other companies engaged in similar businesses, environmental costs and liabilities are inherent concerns in certain of our operations and products, and there can be no assurance that those costs and liabilities will not be material. However, we currently do not expect any material adverse effect on our results of operations or financial position as a result of compliance with current environmental laws and regulations. Climate Change There has been a broad range of proposed or promulgated state, national and international laws focusing on GHG emissions reduction, including various regulations proposed or issued by the EPA. These proposed or promulgated laws apply or could apply in states and/or countries where we have interests or may have interests in the future. Laws regulating GHG emissions continue to evolve, and while it is not possible to accurately estimate either a timetable for implementation or our future compliance costs relating to implementation, such laws potentially could have a material impact on our results of operations and financial condition as a result of increasing costs of compliance, lengthening project implementation and agency reviews, or reducing demand for certain hydrocarbon products. Examples of legislation or precursors for possible regulation that do or could affect our operations include: •EU ETS, which is part of the European Union’s policy to combat climate change and is a key tool for reducing industrial GHG emissions. EU ETS impacts factories, power stations and other installations across all EU member states. As a result of the United Kingdom’s exit from the EU (BREXIT), those types of entities in the United Kingdom are now subject to the UK ETS, rather than the EU ETS. •EU Renewable Energy Directive II, which increases the EU’s energy consumption from renewable sources in the electricity, heat, and transportation sectors to 32% by 2030. 69 Table of Contents Index to Financial Statements •United Kingdom’s Renewable Transport Fuel Obligation, which is intended to reduce the GHG emissions from fuel used in the United Kingdom transportation sector by encouraging the supply of renewable fuels. •California’s Senate Bill No. 32, which requires reduction of California's GHG emissions to 40% below the 1990 emission level by 2030, and Assembly Bill 398, which extends the California GHG emission cap and trade program through 2030. Other GHG emissions programs in states in the western U.S. have been enacted or are under consideration or development, including amendments to California's Low Carbon Fuel Standard, California’s Advanced Clean Cars and Trucks Programs, California’s Carbon Neutrality by 2045 Scoping Plan, Oregon's Low Carbon Fuel Standard and Climate Protection Plan, and Washington's carbon reduction programs. •United States’ Inflation Reduction Act, which contains tax inducements and other provisions that incentivize investment, development, and deployment of alternative energy sources and technologies, which is intended to accelerate the energy transition. •The U.S. Supreme Court decision in Massachusetts v. EPA, 549 U.S. 497, 127 S. Ct. 1438 (2007), confirming that the EPA has the authority to regulate carbon dioxide as an “air pollutant” under the Federal Clean Air Act. •The EPA’s announcement on March 29, 2010 (published as “Interpretation of Regulations that Determine Pollutants Covered by Clean Air Act Permitting Programs,” 75 Fed. Reg. 17004 (April 2, 2010)), and the EPA’s and U.S. Department of Transportation’s joint promulgation of a Final Rule on April 1, 2010, that triggers regulation of GHGs under the Clean Air Act. These collectively may lead to more climate-based claims for damages, and may result in longer agency review time for development projects to determine the extent of potential climate change. •The EPA's 2015 Final Rule regulating GHG emissions from existing fossil fuel-fired electrical generating units under the Federal Clean Air Act, commonly referred to as the Clean Power Plan. The EPA commenced rulemaking in 2017 to rescind the Clean Power Plan and, in August 2018, the EPA proposed the Affordable Clean Energy (ACE) rule as its replacement. On January 19, 2021, the U.S. Court of Appeals for the District of Columbia invalidated the ACE rule and remanded the matter to the EPA, essentially restarting this rulemaking process. •Carbon taxes in certain jurisdictions. •GHG emission cap and trade programs in certain jurisdictions. In the EU, the first phase of the EU ETS completed at the end of 2007. Phase II was undertaken from 2008 through 2012, and Phase III ran from 2013 through to 2020. Phase IV runs from January 1, 2021 through 2030 and sectors covered under the ETS must reduce their GHG emissions by 43% compared to 2005 levels and there is agreement between the EU Member States, the European Parliament, and the EU Commission (which is pending ratification by the EU Council and European Parliament) to increase the Phase IV GHG emissions reduction to 63% by 2030 compared to 2005 levels. The United Kingdom is no longer part of the EU ETS and, instead, has been under the UK ETS since 2021. Phillips 66 has assets that are subject to the EU ETS and assets that are subject to the UK ETS. From November 30 to December 12, 2015, more than 190 countries, including the United States, participated in the United Nations Climate Change Conference in Paris, France. The conference culminated in what is known as the “Paris Agreement,” which, upon certain conditions being met, entered into force on November 4, 2016. The Paris Agreement establishes a commitment by signatory parties to pursue domestic GHG emission reductions. In 2017, President Trump announced his intention to withdraw the United States from the Paris Agreement and that withdrawal became effective on November 4, 2020. On January 20, 2021, President Biden signed the “Acceptance on Behalf of the United States of America,” which allows the United States to rejoin the Paris Agreement. The United States officially rejoined the Paris Agreement in February 2021, which could lead to additional GHG emission reduction requirements for sources in the United States. In the United States, some additional form of regulation is likely to be forthcoming at the state or federal levels with respect to GHG emissions. Such regulation could take any of several forms that may result in additional financial burden in the form of taxes, the restriction of output, investments of capital to maintain compliance with laws and regulations, or required acquisition or trading of emission allowances. 70 Table of Contents Index to Financial Statements Compliance with changes in laws and regulations that create a GHG emission trading program, GHG reduction requirements or carbon taxes could significantly increase our costs, reduce demand for fossil energy derived products, impact the cost and availability of capital and increase our exposure to litigation. Such laws and regulations could also increase demand for less carbon intensive energy sources. An example of one such program is California’s cap and trade program, which was promulgated pursuant to the State’s Global Warming Solutions Act. The program had been limited to certain stationary sources, which include our refineries in California, but beginning in January 2015 was expanded to include emissions from transportation fuels distributed in California. Inclusion of transportation fuels in California’s cap and trade program as currently promulgated has increased our cap and trade program compliance costs. The ultimate impact on our financial performance, either positive or negative, from this and similar programs, will depend on a number of factors, including, but not limited to: •Whether and to what extent legislation or regulation is enacted. •The nature of the legislation or regulation, such as a cap and trade system or a tax on emissions. •The GHG reductions required. •The price and availability of offsets. •The demand for, and amount and allocation of allowances. •Technological and scientific developments leading to new products or services. •Any potential significant physical effects of climate change, such as increased severe weather events, changes in sea levels and changes in temperature. •Whether, and the extent to which, increased compliance costs are ultimately reflected in the prices of our products and services. We consider and take into account anticipated future GHG emissions in designing and developing major facilities and projects, and implement energy efficiency initiatives to reduce GHG emissions. Data on our GHG emissions, legal requirements regulating such emissions, and the possible physical effects of climate change on our coastal assets are incorporated into our planning, investment, and risk management decision-making. We are working to continuously improve operational and energy efficiency through resource and energy conservation efforts throughout our operations. In February 2022, we announced a target to reduce our Scope 1 and Scope 2 GHG emissions intensity related to our operations by 50% of 2019 levels by the year 2050. The 2050 target builds upon our 2030 GHG emissions intensity targets to reduce Scope 1 and Scope 2 emissions from our operations by 30% and Scope 3 emissions from our energy products by 15% compared to 2019 levels. In addition to the disclosures above, we have issued our 2023 Sustainability Report that is accessible on our website and provides more detailed information on our ESG initiatives, including information on environmental metrics and other topics of interest to our stakeholders, which may not be considered material for SEC reporting purposes. The information contained in the Sustainability Report is not incorporated by reference into, and does not constitute a part of, this Form 10-K. 71 Table of Contents Index to Financial Statements CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with GAAP requires management to select appropriate accounting policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. See Note 1—Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements, for descriptions of our major accounting policies. Some of these accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts would have been reported under different conditions, or if different assumptions had been used. The following discussion of critical accounting estimates addresses accounting areas where the nature of accounting estimates or assumptions could be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change. Business Combination In accounting for a business combination, assets acquired, liabilities assumed and noncontrolling interests are recorded based on estimated fair values as of the date of acquisition. The excess or shortfall of the purchase price when compared to the fair value of the net tangible and identifiable intangible assets acquired, if any, is recorded as goodwill or a bargain purchase gain, respectively. A significant amount of judgment is made in estimating the individual fair value of property, plant and equipment, intangible assets, noncontrolling interests and other assets and liabilities. We use available information to make these fair value determinations and engage third-party specialists in the valuation process as necessary. The fair values of assets acquired, liabilities assumed and noncontrolling interests as of the acquisition date are often estimated using a combination of approaches, including the income approach, which requires us to project future cash flows and apply an appropriate discount rate; the cost approach, which requires estimates of replacement costs and depreciation and obsolescence estimates; and the market approach which uses market data and adjusts for entity specific differences. The estimates used in determining fair values are based on assumptions believed to be reasonable, but which are inherently uncertain. Accordingly, actual results may differ materially from the estimated results used to determine fair value. See Note 4—Business Combinations, and Note 18—Fair Value Measurements, in the Notes to Consolidated Financial Statements, for additional information on our acquisitions in 2023 and 2022. Impairment of Long-Lived Assets and Equity Method Investments Long-lived assets used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in future expected cash flows. If the sum of the undiscounted expected future before-tax cash flows of an asset group is less than the carrying value, including applicable liabilities, the carrying value is written down to estimated fair value. Individual assets are grouped for impairment purposes based on a judgmental assessment of the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets. Because there usually is a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined using one or more of the following methods: the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants; a market multiple for similar assets; historical market transactions including similar assets, adjusted using principal market participant assumptions when necessary; or replacement cost adjusted for physical deterioration and economic obsolescence. The expected future cash flows used for impairment reviews and related fair value calculations are based on judgmental assessments, including future volumes, commodity prices, operating costs, margins, discount rates and capital project decisions, considering all available information at the date of review. 72 Table of Contents Index to Financial Statements Investments in nonconsolidated entities accounted for under the equity method are assessed for impairment when there are indicators of a loss in value, such as a lack of sustained earnings capacity or a current fair value less than the investment’s carrying amount. When it is determined that an indicated impairment is other than temporary, a charge is recognized for the difference between the investment’s carrying value and its estimated fair value. When determining whether a decline in value is other than temporary, management considers factors such as the duration and extent of the decline, the investee’s financial condition and near-term prospects, and our ability and intention to retain our investment for a period that allows for recovery. When quoted market prices are not available, the fair value is usually based on the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and observed market earnings multiples of comparable companies, if appropriate. Different assumptions could affect the timing and the amount of an impairment of an investment in any period. See Note 11—Impairments, in the Notes to Consolidated Financial Statements, for information about impairments recorded in 2023, 2022 and 2021. 73 Table of Contents Index to Financial Statements GUARANTOR FINANCIAL INFORMATION We have various cross guarantees between Phillips 66 and its wholly owned subsidiary Phillips 66 Company (together, the Obligor Group) with respect to publicly held debt securities. Phillips 66 conducts substantially all of its operations through subsidiaries, including Phillips 66 Company, and those subsidiaries generate substantially all of its operating income and cash flow. Phillips 66 has fully and unconditionally guaranteed the payment obligations of Phillips 66 Company with respect to its publicly held debt securities. In addition, Phillips 66 Company has fully and unconditionally guaranteed the payment obligations of Phillips 66 with respect to its publicly held debt securities. All guarantees are full and unconditional. At December 31, 2023, $13.3 billion of senior unsecured notes outstanding has been guaranteed by the Obligor Group. Summarized financial information of the Obligor Group is presented on a combined basis. Intercompany transactions among the members of the Obligor Group have been eliminated. The financial information of non-guarantor subsidiaries has been excluded from the summarized financial information. Significant intercompany transactions and receivable/payable balances between the Obligor Group and non-guarantor subsidiaries are presented separately in the summarized financial information. 74 Table of Contents Index to Financial Statements The summarized results of operations for the year ended December 31, 2023, and the summarized financial position at December 31, 2023, of the Obligor Group on a combined basis were: [[GREPCENT_TABLE]] [["Summarized Combined Statement of Income","Millions of Dollars"],["Sales and other operating revenues","$","112,050"],["Revenues and other income\u2014non-guarantor subsidiaries","6,360"],["Purchased crude oil and products\u2014third parties","64,991"],["Purchased crude oil and products\u2014related parties","17,110"],["Purchased crude oil and products\u2014non-guarantor subsidiaries","24,435"],["Income before income taxes","4,998"],["Net income","3,652"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Summarized Combined Balance Sheet","Millions of Dollars"],["Accounts and notes receivable\u2014third parties","$","6,716"],["Accounts and notes receivable\u2014related parties","1,152"],["Due from non-guarantor subsidiaries, current","1,827"],["Total current assets","14,260"],["Investments and long-term receivables","11,242"],["Net properties, plants and equipment","12,242"],["Goodwill","1,047"],["Due from non-guarantor subsidiaries, noncurrent","2,995"],["Other assets associated with non-guarantor subsidiaries","1,666"],["Total noncurrent assets","31,010"],["Total assets","45,270"],["Due to non-guarantor subsidiaries, current","$","3,153"],["Total current liabilities","13,162"],["Long-term debt","13,459"],["Due to non-guarantor subsidiaries, noncurrent","10,061"],["Total noncurrent liabilities","29,234"],["Total liabilities","42,396"],["Total equity","2,874"],["Total liabilities and equity","45,270"]] [[/GREPCENT_TABLE]] 75 Table of Contents Index to Financial Statements NON-GAAP RECONCILIATIONS Refining Our realized refining margins measure the difference between (a) sales and other operating revenues derived from the sale of petroleum products manufactured at our refineries and (b) costs of feedstocks, primarily crude oil, used to produce the petroleum products. The realized refining margins are adjusted to include our proportional share of our joint venture refineries’ realized margins, as well as to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized refining margins are converted to a per-barrel basis by dividing them by total refinery processed inputs (primarily crude oil) measured on a barrel basis, including our share of inputs processed by our joint venture refineries. Our realized refining margin per barrel is intended to be comparable with industry refining margins, which are known as “crack spreads.” As discussed in “Executive Overview and Business Environment—Business Environment,” industry crack spreads measure the difference between market prices for refined petroleum products and crude oil. We believe realized refining margin per barrel calculated on a similar basis as industry crack spreads provides a useful measure of how well we performed relative to benchmark industry refining margins. The GAAP performance measure most directly comparable to realized refining margin per barrel is the Refining segment’s “income (loss) before income taxes per barrel.” Realized refining margin per barrel excludes items that are typically included in a manufacturer’s gross margin, such as depreciation and operating expenses, and other items used to determine income (loss) before income taxes, such as general and administrative expenses. It also includes our proportional share of joint venture refineries’ realized refining margins and excludes special items. Because realized refining margin per barrel is calculated in this manner, and because realized refining margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of income (loss) before income taxes to realized refining margins: 76 Table of Contents Index to Financial Statements [[GREPCENT_TABLE]] [["","Millions of Dollars, Except as Indicated"],["Realized Refining Margins","Atlantic Basin/Europe","Gulf Coast","Central Corridor","West Coast","Worldwide"],["Year Ended December 31, 2023"],["Income before income taxes","$","910","","1,640","","2,210","","506","","5,266"],["Plus:"],["Taxes other than income taxes","69","","106","","94","","123","","392"],["Depreciation, amortization and impairments","209","","246","","163","","231","","849"],["Selling, general and administrative expenses","38","","19","","76","","36","","169"],["Operating expenses","1,097","","1,104","","738","","1,397","","4,336"],["Equity in (earnings) losses of affiliates","8","","(2)","","(445)","","\u2014","","(439)"],["Other segment (income) expense, net","19","","17","","(7)","","6","","35"],["Proportional share of refining gross margins contributed by equity affiliates","89","","\u2014","","1,257","","\u2014","","1,346"],["Special items:"],["Certain tax impacts","(15)","","\u2014","","\u2014","","\u2014","","(15)"],["Realized refining margins","$","2,424","","3,130","","4,086","","2,299","","11,939"],["Total processed inputs (thousands of barrels)","182,213","","206,356","","102,774","","120,581","","611,924"],["Adjusted total processed inputs (thousands of barrels)*","182,213","","206,356","","180,251","","120,581","","689,401"],["Income before income taxes per barrel (dollars per barrel)**","$","4.99","","7.95","","21.50","","4.20","","8.61"],["Realized refining margins (dollars per barrel)***","13.30","","15.17","","22.67","","19.07","","17.32"],["Year Ended December 31, 2022"],["Income before income taxes","$","2,402","","2,091","","2,415","","908","","7,816"],["Plus:"],["Taxes other than income taxes","53","","87","","57","","91","","288"],["Depreciation, amortization and impairments","203","","250","","147","","279","","879"],["Selling, general and administrative expenses","41","","19","","62","","31","","153"],["Operating expenses","1,242","","1,230","","809","","1,486","","4,767"],["Equity in (earnings) losses of affiliates","9","","7","","(763)","","\u2014","","(747)"],["Other segment (income) expense, net","(6)","","1","","2","","(1)","","(4)"],["Proportional share of refining gross margins contributed by equity affiliates","93","","\u2014","","1,668","","\u2014","","1,761"],["Special items:"],["Regulatory compliance costs","9","","26","","22","","13","","70"],["Realized refining margins","$","4,046","","3,711","","4,419","","2,807","","14,983"],["Total processed inputs (thousands of barrels)","199,319","","203,269","","97,997","","115,457","","616,042"],["Adjusted total processed inputs (thousands of barrels)*","199,319","","203,269","","177,112","","115,457","","695,157"],["Income before income taxes per barrel (dollars per barrel)**","$","12.05","","10.29","","24.64","","7.86","","12.69"],["Realized refining margins (dollars per barrel)***","20.30","","18.25","","24.96","","24.31","","21.55"],["* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate."],["** Income before income taxes divided by total processed inputs."],["*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts."]] [[/GREPCENT_TABLE]] 77 Table of Contents Index to Financial Statements [[GREPCENT_TABLE]] [["","Millions of Dollars, Except as Indicated"],["Realized Refining Margins","Atlantic Basin/Europe","Gulf Coast","Central Corridor","West Coast","Worldwide"],["Year Ended December 31, 2021"],["Income (loss) before income taxes","$","1","","(1,759)","","72","","(667)","","(2,353)"],["Plus:"],["Taxes other than income taxes","69","","74","","51","","49","","243"],["Depreciation, amortization and impairments","210","","1,683","","139","","240","","2,272"],["Selling, general and administrative expenses","32","","34","","30","","37","","133"],["Operating expenses","981","","1,352","","648","","1,220","","4,201"],["Equity in losses of affiliates","9","","11","","164","","\u2014","","184"],["Other segment (income) expense, net","9","","(7)","","(11)","","4","","(5)"],["Proportional share of refining gross margins contributed by equity affiliates","123","","\u2014","","609","","\u2014","","732"],["Special items:"],["Certain tax impacts","(4)","","\u2014","","\u2014","","\u2014","","(4)"],["Regulatory compliance costs","(20)","","(28)","","(27)","","(13)","","(88)"],["Realized refining margins","$","1,410","","1,360","","1,675","","870","","5,315"],["Total processed inputs (thousands of barrels)","188,697","","240,859","","95,595","","112,994","","638,145"],["Adjusted total processed inputs (thousands of barrels)*","188,697","","240,859","","173,230","","112,994","","715,780"],["Income (loss) before income taxes per barrel (dollars per barrel)**","$","0.01","","(7.30)","","0.75","","(5.90)","","(3.69)"],["Realized refining margins (dollars per barrel)***","7.48","","5.65","","9.65","","7.70","","7.42"],["* Adjusted total processed inputs include our proportional share of processed inputs of an equity affiliate."],["** Income (loss) before income taxes divided by total processed inputs."],["*** Realized refining margins per barrel, as presented, are calculated using the underlying realized refining margin amounts, in dollars, divided by adjusted total processed inputs, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts."]] [[/GREPCENT_TABLE]] 78 Table of Contents Index to Financial Statements Marketing Our realized marketing fuel margins measure the difference between (a) sales and other operating revenues derived from the sale of fuels in our M&S segment and (b) costs of those fuels. The realized marketing fuel margins are adjusted to exclude those items that are not representative of the underlying operating performance of a period, which we call “special items.” The realized marketing fuel margins are converted to a per-barrel basis by dividing them by sales volumes measured on a barrel basis. We believe realized marketing fuel margin per barrel demonstrates the value uplift our marketing operations provide by optimizing the placement and ultimate sale of our refineries’ fuel production. Within the M&S segment, the GAAP performance measure most directly comparable to realized marketing fuel margin per barrel is the marketing business’ “income before income taxes per barrel.” Realized marketing fuel margin per barrel excludes items that are typically included in gross margin, such as depreciation and operating expenses, and other items used to determine income before income taxes, such as general and administrative expenses. Because realized marketing fuel margin per barrel excludes these items, and because realized marketing fuel margin per barrel may be defined differently by other companies in our industry, it has limitations as an analytical tool. Following are reconciliations of income before income taxes to realized marketing fuel margins: [[GREPCENT_TABLE]] [["","Millions of Dollars, Except as Indicated"],["","U.S.","","International"],["","2023","2022","2021","","2023","2022","2021"],["Realized Marketing Fuel Margins"],["Income before income taxes","$","1,378","","1,329","","1,180","","","494","","765","","403"],["Plus:"],["Depreciation and amortization","23","","14","","14","","","75","","72","","76"],["Selling, general and administrative expenses","814","","808","","758","","","253","","251","","253"],["Equity in earnings of affiliates","(54)","","(71)","","(48)","","","(113)","","(115)","","(113)"],["Other operating (revenues) expenses*","(477)","","(508)","","(424)","","","(63)","","(62)","","8"],["Other (income) expense, net","28","","24","","9","","","15","","(7)","","7"],["Marketing margins","1,712","","1,596","","1,489","","","661","","904","","634"],["Less: margin for nonfuel related sales","\u2014","","\u2014","","\u2014","","","52","","51","","53"],["Realized marketing fuel margins","$","1,712","","1,596","","1,489","","","609","","853","","581"],["Total fuel sales volumes (thousands of barrels)","698,961","","680,930","","680,102","","","101,466","","102,862","","97,529"],["Income before income taxes per barrel (dollars per barrel)","$","1.97","1.95","1.74","","4.87","7.44","4.13"],["Realized marketing fuel margins (dollars per barrel)**","2.45","","2.34","","2.19","","","6.00","","8.29","","5.96"],["* Includes other nonfuel revenues and expenses."],["** Realized marketing fuel margins per barrel, as presented, are calculated using the underlying realized marketing fuel margin amounts, in dollars, divided by sales volumes, in barrels. As such, recalculated per barrel amounts using the rounded margins and barrels presented may differ from the presented per barrel amounts."]] [[/GREPCENT_TABLE]] 79 Table of Contents Index to Financial Statements